Do We Need a National Disaster Tax Relief Act?

October 8th, 2015

© Topvectors | - Natural Disaster Icons PhotoLooking at pictures of the floods in Charleston, SC, and elsewhere earlier this month made me think about my horrendous experience in Super Storm Sandy several years ago. Individuals and businesses in these and other disasters experience devastating losses that are not fully or even partially covered by insurance.

Tax rules can be helpful in creating savings which can then be used to rebuild. A measure introduced in Congress in the summer, called the National Disaster Tax Relief Act of 2015 (H.R. 3110), is now drawing some attention.

The bill would provide relief retroactively for disasters declared in 2012, 2013, 2014, and 2015. Some of the changes in the bill would apply to individuals while others are for businesses.

Here are some of the proposed rules

  • An election to expense qualified disaster expenses (i.e., for the abatement of hazardous substances, removal of debris, demolition, and repair of business-related property);
  • An increased deduction for charitable contributions for disaster relief for individual and corporate taxpayers;
  • Expansion of the rules for net operating losses attributable to disasters;
  • Extension through 2015 of bonus depreciation;
  • Allow penalty-free use of funds withdrawn from qualified retirement plans;
  • Creation of an additional tax exemption for individuals who are displaced as a result of a federally-declared disaster;
  • Allow an exclusion from gross income of imputed income from the cancellation of indebtedness resulting from federally-declared disasters;
  • Expansion of the earned income tax credit for affected individuals;
  • An increase in the rehabilitation tax credit for buildings affected by a federally-declared disaster;
  • Allow an additional allocation of the low-income housing tax credit in 2016 to states affected by a federally-declared disaster occurring in 2012, 2013, 2014, or 2015;
  • Allow an exclusion from gross income for disaster mitigation payments received from state and local governments;
  • Allow a five-year replacement period for property located in a disaster area for purposes of the exclusion of gain from an involuntary conversion;
  • Give employers a business-related tax credit for up to 40% of wages paid to employees in a disaster area; and
  • Allow an enhanced tax deduction for medical expenses related to an injury occurring in a disaster area.

The measure has been given only a 1% chance of enactment by GovTrack. However, the AICPA recently sent a letter to Congress in favor the bill. The bill’s sponsor, Tom Reed II (R-NY), is on the House Ways and Means Committee. He’s pushed for similar legislation in prior years and failed, but who knows now?

Here’s my take. If we accept the premise that tax rules should be used to encourage or reward certain behavior or help certain groups of taxpayers (e.g., mortgage interest deduction to spur home sales; bonus depreciation to encourage businesses to make capital investments; work opportunity credit for employers who hire workers from certain targeted groups), then a comprehensive and somewhat permanent solution to help taxpayers impacted by a serious disaster makes sense. It avoids the need for Congress and the IRS to focus attention each and every time something disastrous happens, although the rules would have to be extended beyond 2015.

In the past, we’ve seen major legislation following 9/11, Hurricane Katrina, and the 2008 Midwestern Disasters. Also, the IRS can provide relief in the form of certain extended tax deadlines; find a list of recent actions here.

Unless and until we have major tax reform, a more permanent solution to a recurring problem (national disasters) provides certainty to taxpayers and fewer distractions for Congress and the IRS. I like that!

Applicable Large Employers: Are You One and What You Must Do?

October 6th, 2015

© Rawpixelimages | - Group Of Diverse Business People With Question Marks PhotoAs we move into the health insurance renewal and enrollment season, make sure you know where you stand.

Under the Affordable Care Act, employers with 50 to 99 employees must offer affordable coverage in 2016 or face a penalty (larger companies had to do this starting this year). The rules for determining whether you are such an employer and the type of coverage that must be offered to avoid a penalty are complicated.

I’ll try to provide some clarity, although the following is only a limited treatment of the subject. I’ll also give you resources where you can learn more.

ALE determination

Your staffing in 2015 determines whether you are an applicable large employer (ALE) for 2016. You are considered an ALE for 2016 if, in 2015, you have at least 50 full-time employees and/or full-time equivalent (FTEs) employees. Thus, you may employ several part-timers whose hours are added together for the month and divided by 120 to arrive at the number of FTEs. If the number does not come out even, round down to the next whole number

Example: You have three part-timers who each work 75 hours a month. Their total hours (225) are divided by 120. Because 1.875 (225 ÷ 120) is not a whole number, round down so that these part-timers are considered to be one FTE.

If you own (and control) more than one business, take employees from all such businesses into account for ALE purposes. Seasonal workers can be excluded from the count to a certain extent, so if you take on help during the holiday season, this may not necessarily put you over the 50-employee limit.

Note: While part-timers are taken into account in figuring whether you are an ALE, if you are one, you don’t have to offer them health coverage. Of course, you can choose to do so.

Coverage to avoid penalties

If you are an ALE in 2016, you won’t be penalized if you offer affordable minimum essential health coverage to at least 95% of your full-time employees and their dependents (in 2015, no penalty applied if coverage was offered to at least 70% of employees and dependents), provided no employee enrolled individually in the government’s marketplace and received the premium tax credit. Again, while part-timers are counted for ALE purposes, an ALE doesn’t have to offer them health coverage.

Reporting requirements

If you are an ALE in 2015 (including those with 50-99 employees that have penalty relief until 2016), you must furnish employees with Form 1094-C, Employer-Provided Health Offer and Coverage. Like W-2s, these forms must be given to employees by the end of January, but because January 31, 2016, is on a Sunday, you have until February 1, 2016, to furnish the forms to employees.

IRS Resources

Other help

Still confused? Consider looking for a PPACA designation of an insurance agent, broker or consultant, which shows that the person you’re dealing with has been certified by the National Association of Health Underwriters (NAHU).

NOLs: Waive the Carryback?

October 1st, 2015

© Vetkit | - Financial Accounting PhotoIf your business sustains losses, you may be eligible for a net operating loss (NOL). In most cases, the NOL is carried back automatically for two years and, if not used up, forwards for up to 20 years. However, you can opt to waive the carryback and simply carry it forward through the 20-year period until you exhaust it.

Why waive?

The carryback is usually a great idea because it generates an immediate tax refund of taxes paid in the two prior years. This refund can be used by a troubled business to get back on track.

But the value of the NOL depends on the tax bracket you were in for those two prior years and what you expect your tax bracket to be in years to come. For example, say there’s a $10,000 NOL and the tax bracket in the prior years was 25%. In round numbers, the NOL would produce a tax refund of $2,500. But if you think business will be greatly improved in years to come and your tax bracket will rise to 35%, a carryforward would save you $3,500, or $1,000 more. In this scenario, if you don’t need the cash from the refund and can afford to wait, the carryforward produces greater tax savings.

How to waive?

If you decide to waive the carryback, you must follow IRS rules. The election must be made by the due date of the return for the year of the NOL (with extensions). Once made, the election is irrevocable for the year of the waiver (you can decide different treatment for NOLs arising in other years). The waiver for regular tax purposes also applies for alternative minimum tax purposes.

The election is made by attaching your own statement (there’s no IRS form or check-the-box for this, other than for C corporations) to your return. The statement must specifically say you’re waiving the carryback under Code Sec. 172(b)(3).

What if you fail to waive?

You’re usually out of luck, and this can cost you dearly. Take this recent case of a couple whose business generated a big NOL in 2005. They didn’t do the right paperwork to waive the carryback and instead applied the NOL in 2006, generating considerable tax savings. When the IRS informed them of their error, the NOL was applied to 2003, resulting in an overpayment of more than $200,000. However, it also caused them to have an underpayment for 2006, plus interest. They asked that the IRS abate the interest, but it refused, and an appellate court recently said the IRS was right. Their own actions contributed to the tax liability and the interest on it, so no abatement was allowed.

If you don’t file the waiver with an original return, there’s a limited grace period. You can still do so on an amended return filed within 6 months of the due date of the return (excluding extensions). Attach the waiver to your amended return, and write “Filed pursuant to section 301.9100-2” at the top of the statement used for your waiver.


If you have an NOL, work with your CPA to determine the best way to handle things. The NOL is too valuable a write-off to waste.

Smartphones and Your Employees

September 29th, 2015

© Dragonimages | - Working Process PhotoMost of us are now joined at the wrist to our iPhones and Androids, which is quite a phenomenon considering that the iPhone was only introduced in 2007.

We also tote tablets and can process payments for transactions on the fly with Square or other devices or apps on our electronic devices.

However, using smartphones and other devices in business raises a number of issues.

Here’s what business owners need to know and what regulations could be forthcoming.

Tax rules

The Small Business Jobs Act of 2010 removed cell phones from the definition of listed property, a move that opened the way for making write-offs for the cost of the phones easier to obtain. However, the law did not change the treatment of cell phones as a taxable fringe benefit unless an exclusion applies. What does this mean now?

  • Deductions for devices. If you provide smartphones for your staff, the company can deduct the associated costs (first-year expensing or regular depreciation for the cost of the phones; deductions for monthly charges).
  • Fringe benefit. Under IRS guidance, if the devices are provided for work-related purposes and not primarily as compensation, then there is no taxable fringe benefit (this is treated as a nontaxable working condition fringe benefit). Noncompensatory reasons for giving devices to employees include a company requirement that they speak with clients and customers when away from the office or to speak with clients and customers in other time zones outside of the employees’ normal work day. Personal use in this case is not taxed; it’s viewed as a nontaxable de minimis fringe benefit. However, providing a device to promote morale or good will of employees, to attract prospective employees, or as a means of additional compensation triggers taxation (i.e., taxable compensation to employees and employment tax obligations of the company).

Labor laws

When employees use their company-provided smartphones or other devices after business hours for a business activity, are they “on the clock?” That’s what the Department of Labor (DOL) is looking into now as part of their Semiannual Regulatory Agenda. We don’t have an answer yet, but can anticipate rules from DOL in the near future.

Nonetheless, company policy implemented now can help to prevent a requirement of overtime pay for using company-furnished devices after normal business hours:

  • Prohibit employees from using company-provided smartphones after the business workday.
  • Require employees to keep logs of after-hour business calls.


Technology is proceeding faster than government rules can address the onslaught of developments. Watch for new rules and regulations to be promulgated as technology evolves.

Best Cities in the U.S. for Small Businesses

September 24th, 2015

© Iqoncept | - Location Real Estate Sign Desirable Spot Place PhotoCNN came out with a list of the top 10 cities in the U.S. for businesses. It’s interesting to know which cities made the list, but it’s more important to know why.

Clearly, I’m not about to relocate to a city solely because it’s on the list, but I am curious about the factors that contribute to a city making the list.

Here are the top 10 cities for small businesses in the U.S.:

  1. Manchester, NH
  2. Dallas, TX
  3. Richmond, VA
  4. Austin, TX
  5. Knoxville, TN
  6. Nashville, TN
  7. Houston, TX
  8. Ft. Collins, CO
  9. Boulder, CO
  10. San Antonio, TX

Factors that make a city small-business friendly

Entrepreneurs who want to start a business should be looking to their localities to offer certain features. Here are some of them:

  • Assistance from government agencies in getting started. Do they make it easy, or hard, to get licensing and approvals (such as signage, certificates of occupancy)? Are there any training opportunities for business owners? Any business accelerators?
  • Encouragement from government and existing businesses to start new businesses. Do they encourage or discourage new entries into the local economy (e.g., support for shopping local)? Are there good networking opportunities? Are there funding opportunities?
  • Tax rules and other regulations. How easy, or hard, is it to comply with the rules (e.g., are zoning rules easily understandable)? What are the costs of compliance (e.g., tax rates, licensing fees)?
  • Costs. What is the cost of (business) living in the area (e.g., rents, wages, insurance)?


Those thinking about starting a business that are not bound by family connections or other ties to a specific locality should be willing to relocate as part of their strategic plan, says Marty Zwilling, founder of Startup Professionals, Inc. So, knowing what to look for, in terms of location, when starting a business is an important consideration.

Fed’s Decision on Rates: Impact on Small Businesses

September 22nd, 2015

© Designer491 | - Graphs And File Folder With Label Small Business. PhotoOn September 17, the Federal Reserve announced that it would not increase interest rates. There’s been no increase since the current rate was set on December 16, 2008. Rates could be hiked slightly in October or December.

For most small businesses, whether rates stay the same or are increased slightly is of little concern. However, some businesses could be impacted if and when rates increase. Here are some situations to think about:

Outstanding lines of credit. Businesses that have loans with rates that can be adjusted may have to pay more for the money they’ve already borrowed. This can impact cash flow, although only modestly. For example, a business that borrowed $100,000 would pay only about $12 a month more in interest if there were an increase of a quarter of one percentage point.

New borrowing. For businesses that anticipate the need for a new loan in the near future, acting sooner rather than later may enable them to lock into the current low rate. Again, there could be a little savings on interest, which would be helpful to cash flow. However, a slight rate hike, such as an eighth or a quarter of a percentage point, isn’t a make-or-break factor in deciding to get a loan. You can find a discussion of current SBA loan rates here.

It should be recognized that an increased interest rate environment may entice lenders to act because they’ll be earning more. Thus, it may become easier to obtain a loan when rates rise.

Customer spending. While a business’ direct costs may not be impacted by a slight rate increase, revenues could be affected. If customers feel poorer because they’re paying more on car loans, credit cards, and other borrowing, they may spend less. Of course, the flip side is that customers with CDs and other interest-sensitive investments may feel slightly better off and may be willing to spend more.


Focusing on interest rates may be a big distraction for small businesses. Any increase will be modest when it comes, and will indicate that the Federal Reserve thinks the economy is doing well. Let’s hope that this time will come soon.

What to Do about Unused Personal Days?

September 17th, 2015

© Cacaroot | - What To Do? PhotoThere’s been a lot of media attention of late to paid time off. By executive order, starting in 2017, federal contractors must give their workers one hour of paid sick leave for every 30 hours worked, up to 7 days annually. The E.O. also directs that workers can use their paid sick leave to care for themselves, a family member, such as a child, parent, spouse, or domestic partner, or another loved one, as well as for absences resulting from domestic violence, sexual assault, or stalking.

This change is expected to impact about 300,000 workers. It is the first salvo on the part of the government to eventually require private sector employers to offer paid sick leave.

Of course, many small businesses already provide sick leave, vacation days, and personal time off for their workers … all with pay. Many have more generous paid time-off policies than what the Administration is mandating for federal contractors. The reality is that many workers don’t use up their time off.

What can or should you do about the unused time off?

Policy for unused leave time

Companies generally are free to devise their own policy regarding unused vacation, sick, and personal days, subject to state law requirements. Some companies have a use-it-or-lose it policy where employees must use up their days or forfeit the benefit, assuming that state law does not mandate any paid days that employees do not forfeit. Some companies permit a carryover of unused time off, up to a maximum number of days.

Leave-sharing programs

Companies can set up leave-sharing banks under which employees can donate their unused leave time; other workers can make withdrawals of this time as needed (e.g., for an extended illness or longer maternity leave). Typically, these leave-sharing programs are found in large companies, but there is no reason why smaller firms can’t use them (other than the administrative cost involved). The employee donating the unused leave time is taxed on it; these taxable amounts are subject to employment taxes. However, if the plan is restricted to medical emergencies and certain conditions are met, employee donations of their unused leave time are not taxed.

Leave donation programs. Instead of sharing leave time with co-workers, companies may set up programs to donate the leave time to charity. The company makes a cash donation equal to the value of the donated leave time. Again, the employees are taxed on their donations and they are subject to employment taxes. However, the employees can take a charitable deduction for the donations they make. The company is allowed a deduction when employees make their donations; the company takes a deduction for compensation.

From time to time when there are certain disasters, the IRS may give special treatment to leave donation programs. For example, in the wake of Hurricane Katrina in 2005, Hurricane Sandy in 2012 and the Ebola outbreak in 2014, the IRS said that leave donations would not be taxable to employees; employers had a set time to make donations to charity aiding these disaster victims for which they could take a charitable contribution deduction.

Lump-sum payments

Some companies pay unused time off to workers when they leave the company (e.g., resign, retire); others do not (but again check state law requirements about this). A lump-sum payment for unused sick and vacation time is treated as taxable wages. In one recent case a police detective who retired on disability argued unsuccessfully that the lump sum should be treated as tax-free workers’ compensation.

As taxable wages, they are subject to employment taxes.

HRA for retirees

While a health reimbursement arrangement (HRA) generally is no longer viable in light of health coverage requirements under the Affordable Care Act (ACA) (a temporary waiver from the $100 per employee per day penalty for HRAs viewed as impermissible expired on June 30, 2015), the IRS indicated that an HRA can be treated as an exempted plan when providing reimbursements only to retirees. An IRS Letter Ruling allowed a company to fund a HRA with retirees’ unused sick leave, saying the plan qualified as an exempted benefit. What’s more, the benefits from the HRA for medical expenses were tax free; they were not taxable to the retirees nor subject to employment taxes.


As the end of the year draws near, now is a great time to review your leave program. Going forward, decide how many days to give your employees, the company’s policy on the treatment of unused days, and whether to adopt a leave-sharing or leave-donation program. Be sure to communicate to your employees any changes you make in your leave program.

Alternative Dispute Resolution

September 15th, 2015

© Pressmaster | - What To Do? PhotoTell it to the judge should be the last thing you do to resolve problems you’re having with suppliers, customers, employees, landlords, or your co-owners. Litigation is costly, lengthy, and acrimonious, and should be avoided if possible.

There are two main ways to handle controversy without litigation:

  • Arbitration. This is the process in which both sides opt to settle questions by using a neutral third party. The results are binding on both parties; typically the parties agree not to bring the results to court (unless there is fraud or misconduct).
  • Mediation. This is a process in which both parties agree to work out their differences using a skilled third party, called a mediator. The results are not binding on the parties, but usually they are adopted.

These types of alternative dispute resolution may not be well understood. Here are some aspects you may not be aware of:


Both parties must agree to the arbitrator. You can find a skilled arbitrator through the American Arbitration Association.

The Federal Arbitration Act (FAA) codifies federal law about enforcing arbitration and provides for a binding conclusion by the arbitrator. The conclusion is confirmed by a district court, giving it the force of law. The arbitrator‘s decision can only be overturned if its conclusions of law are erroneous. Or can a court make changes?

About a dozen years ago, Mattel sued its landlord over a lease dispute and the parties went to arbitration. After a decision by the arbitrator in Mattel’s favor, the landlord asked the district court to review the matter, and it decided against Mattel; an appellate court reinstated the arbitrator’s decision. In 2008, the U.S. Supreme Court decided that courts do not have powers to change the decision (except under circumstances spelled out in the FAA) or expand upon arbitration awards. Basically if the arbitrator doesn’t make any big legal mistakes and there is no fraud or misconduct, the court can’t change the arbitration decision. The parties are stuck with the arbitrator’s decision.

No more arbitration with the IRS. Years ago the IRS launched the Appeals arbitration program. The IRS announced it was killing the program as of September 21, 2015. The reason: lack of interest; over the past 14 years only two cases were settled through arbitration.


This process can be an inexpensive and quick way to resolve problems and reach a settlement. Mediation can be done in person or online. Typically mediation is handled over a number of sessions, but, depending on the issue, could be resolved in a single session.

Some resources for online mediation:

Before using any mediator or mediation service, check it out (e.g., consult the Better Business Bureau).

Mediation with the IRS. The IRS continues to offer mediation for tax matters for small businesses and self-employed individuals. The Fast Track Settlement Program can produce a settlement within 60 days. The mediator is a trained IRS professional. If you want to use an outsider, you’ll have to pay for it, and the IRS must agree to it.

Getting Ready for Chip Cards Revisited

September 10th, 2015

© Delstudio | - Collection Of Credit Cards Isolated On White PhotLast April, I wrote about getting ready for EMV cards. (EMV stands for Europay, Mastercard, Visa.) As a reminder, starting October 1, liability for fraud on customers’ cards shifts from the credit card companies to merchants who do not process in-person payments using chip technology.

Visa estimates that by the end of this year 63% of credit and debit cards will have EMV chips, and in three more years 98% of cards will have chips.

Are you ready to process the new cards?

Visa has prepared a Business Toolkit packed with valuable merchant information and resources to help you become chip ready. Did you know that there are many low and no cost ways for small merchants to upgrade to chip processors? For example, Square has offered free to the first 250,000 businesses. Square’s wireless reader enables any business with a tablet or smartphone to accept Apple Pay and contactless payments. If the giveaway has been met, then you can still pre-order a reader for $49; delivery is scheduled to start this fall.

Steps you should take now to get ready for chip processing, if you haven’t already done so, include:

  • Learning about the technology. There are numerous resources available for educating yourself about EMV (including Visa’s toolkit); understanding how chip technology will work in your business isn’t rocket science.
  • Implementing the technology. This includes getting the right equipment for in-person processing (you don’t need to do anything if all your sales are online).
  • Educating staff. Explaining how the new processing works may take a little time (not much). Also expect for you and your staff to need to educate customers on how to insert their cards in your new readers (rather than swiping them). In a few months, most consumers will know the drill.

The use of chip technology will cut down on fraud. Other than new processing equipment, the new technology won’t necessitate any change in your business practices.

Your Workspace Design and Your Health

September 8th, 2015

© Desiga | - 3D Illustration Laptopand Work Stuff On Table Near PhotoMany of us spend most of our waking hours in our workspace. Whether yours is an office, a workshop, a store, a restaurant or bar, or other facility, there are small tweaks you can make that will have a big impact on how you (and your staff) feel, and perform.

Three factors to consider are light, temperature, and noise.


It’s been reported that 68% of employees have complained about the lighting in their offices. Having the right light is essential for a good work environment, so check:

  • The amount of light. Dim work areas can cause headaches, drowsiness, and slow productivity. Make sure the amount of lighting is sufficient. Depending on the design of your workplace and the technology you use for lighting, you may be able to give employees control over the amount of their light.
  • The type of light. Natural or artificial? Natural lighting is preferable because it not only produces sufficient brightness but also creates a feeling of wellbeing. You can’t have too many windows! But if you must use artificial light, avoid harsh lighting. Technology is continually improving on lighting options; just give lighting a thought before you make choices.

There’s a whitepaper that you can download from GE Lighting on finding office lighting solutions.


Air temperature has a direct impact on productivity, according to Ergonomics. It’s a balancing act between comfort and cost when it comes to setting the thermostat at work. The Department of Energy’s optimal settings are 68º in the winter and 78º in the summer, but studies have shown that the optimal setting for productivity purposes is 70º to 73º. But what’s optimal for you?

Recognize that the answer may be different for each employee; some like it hot while others prefer cold. Allow employees to make their own accommodations if possible (e.g., a space heater under the desk for an employee who is always cold, as long as it is safe to do this). Also consider whether your business has particular temperature needs (e.g., medical offices generally are kept cooler than 78º in the summer).

In any event, you can save money by adjusting the thermostat when work areas are not in use (e.g., weekends, holidays), so you’ll save money then.


Noise can be distracting or, even worse, cause headaches and hurt productivity. Loud printers, air conditioners, and other equipment as well as street noise can be issues in your workplace. You have a problem if people have to raise their voice to speak with someone who is three feet away.

Take simple steps to minimize noise where possible by adding carpeting or rugs and acoustical ceiling tiles. Look into isolation products that block noises. Permit employees to wear their own noise canceling devices as long as it is appropriate in your workplace.

Depending on the nature of your business, background music may be appropriate as long as the sound is low. Background music is helpful for conducting confidential conversations and for providing ambience.

At construction sites and other places, high decibel levels can result in hearing loss, stress, and other physical maladies. OSHA has information about occupational noise exposure.

Find more about noise and open workspace from the Harvard Business Review.