In today’s tightening job market, to attract and retain the best employees, small businesses need to offer not only competitive pay, but also appealing fringe benefits. Benefits that are tax-free are especially attractive to employees. Let’s take a quick look at some popular options.

Insurance

Businesses can provide their employees with various types of insurance on a tax-free basis. Here are some of the most common:

Health insurance. If you maintain a health care plan for employees, coverage under the plan isn’t taxable to them. Employee contributions are excluded from income if pretax coverage is elected under a cafeteria plan. Otherwise, such amounts are included in their wages, but may be deductible on a limited basis as an itemized deduction.

Disability insurance. Your premium payments aren’t included in employees’ income, nor are your contributions to a trust providing disability benefits. Employees’ premium payments (or other contributions to the plan) generally aren’t deductible by them or excludable from their income. However, they can make pretax contributions to a cafeteria plan for disability benefits, which are excludable from their income.

Long-term care insurance. Your premium payments aren’t taxable to employees. However, long-term care insurance can’t be provided through a cafeteria plan.

Life insurance. Your employees generally can exclude from gross income premiums you pay on up to $50,000 of qualified group term life insurance coverage. Premiums you pay for qualified coverage exceeding $50,000 are taxable to the extent they exceed the employee’s coverage contributions.

Other types of tax-advantaged benefits

Insurance isn’t the only type of tax-free benefit you can provide ¬― but the tax treatment of certain benefits has changed under the Tax Cuts and Jobs Act:

Dependent care assistance. You can provide employees with tax-free dependent care assistance up to $5,000 for 2018 though a dependent care Flexible Spending Account (FSA), also known as a Dependent Care Assistance Program (DCAP).

Adoption assistance. For employees who’re adopting children, you can offer an employee adoption assistance program. Employees can exclude from their taxable income up to $13,810 of adoption benefits in 2018.

Educational assistance. You can help employees on a tax-free basis through educational assistance plans (up to $5,250 per year), job-related educational assistance and qualified scholarships.

Moving expense reimbursement. Before the TCJA, if you reimbursed employees for qualifying job-related moving expenses, the reimbursement could be excluded from the employee’s income. The TCJA suspends this break for 2018 through 2025. However, such reimbursements may still be deductible by your business.

Transportation benefits. Qualified employee transportation fringe benefits, such as parking allowances, mass transit passes and van pooling, are tax-free to recipient employees. However, the TCJA suspends through 2025 the business deduction for providing such benefits. It also suspends the tax-free benefit of up to $20 a month for bicycle commuting.

Varying tax treatment

As you can see, the tax treatment of fringe benefits varies. Contact us for more information.

© 2018

With all the emphasis on big data these days, employers shouldn’t lose sight of what could be called “big knowledge.” That is, within the brain of every good, experienced employee lies a wealth of know-how and insights that could vanish in an instant if that person walks out the door for good.

The formal process of identifying, recording and managing an organization’s mission-critical knowledge is known as knowledge management. Employers can use it in a variety of ways. One that’s worth exploring is preserving employees’ knowledge now to reduce the ill effects of turnover later.

Break it down

In following this concept, you’ll need to break down your organization’s knowledge into two categories:

1. Explicit knowledge, which exists in tangible sources such as books, procedural manuals and databases, and 2. Tacit knowledge, which exists only in your employees’ minds.
Obviously, gathering and organizing explicit knowledge is markedly easier than collecting and sorting out tacit knowledge. You can examine, update and arrange hard copy and digital files in whatever manner works best. But harnessing your employees’ knowledge will take some extra effort and creative thinking.

Act inclusively

You could simply mandate employees to document their tacit knowledge into more manageable resources — such as databases that hold work duties, procedures and contacts. But employees may respond negatively to having to write down every little detail of what they do. They may feel like they’re being investigated or given busywork.

A gentler, more inclusive approach may be to first get employees to buy in to your knowledge management efforts. Introduce the concept to them and explain its benefits. Then, you could have supervisors conduct collaborative interviews with key staff members to discuss current procedures and discuss improvements. These interviews could also identify discrepancies between written procedures and what actually occurs.

Also, if you aren’t already doing so, consider using (or expanding your use of) an intranet — a self-contained, Internet-like private computer network. An intranet can preserve threaded employee discussions and collaborative documents as they’re generated. You can then review these communications for best practices and improvement ideas.

After you’ve organized your company’s explicit and tacit information, categorize it by accessibility and frequency of use. Then, if employees leave, you can quickly and easily summarize and disseminate their knowledge.

Keep it in-house

Although you can’t always prevent turnover, you can guard against its downsides. Knowledge management can not only keep important information in-house, but also enable you to better train new hires. To discuss the concept further, please contact us.

© 2018

Strong internal controls can help prevent and detect fraud. That’s why Section 404(a) of the Sarbanes-Oxley Act (SOX) requires a public company’s management to annually assess the effectiveness of internal controls over financial reporting. And Sec. 404(b) requires the company’s independent auditors to provide an attestation report on management’s assessment of internal controls. Some smaller entities may be exempt from the latter requirement — but not the former one.

Burdensome for smaller entities

When the SEC published the regulations, smaller public companies told the SEC that the costs of complying with Sec. 404(b) would outweigh the benefits for investors. While the SEC explored ways to ease the compliance burden, the compliance deadline for Sec. 404(b) was repeatedly delayed for nonaccelerated filers — companies with a public float of less than $75 million on the last business day of their most recent second fiscal quarter.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act instructed the SEC to permanently exempt nonaccelerated filers from SOX Sec. 404(b). Absent this exemption, nonaccelerated filers would have been required to comply with Sec. 404(b) beginning with fiscal years ending on or after June 15, 2010.

New definition provides no new Sec. 404(b) relief

Earlier this year, the SEC expanded its definition of “smaller reporting companies” from companies with a public float of less than $75 million to those with a public float of less than $250 million. This change will allow nearly 1,000 more companies to qualify for a lighter set of disclosure rules available to smaller reporting companies. However, the SEC did not raise the public float thresholds for when a company qualifies as an accelerated filer. This means the $75 million threshold still applies in relation to the Sec. 404(b) exemption.

SEC Commissioners Michael Piwowar and Hester Peirce favored raising the accelerated filer threshold to $250 million to expand the number of companies that would be exempt from Sec. 404(b). But, based on feedback from auditors and investor advocate groups, SEC Chairman Jay Clayton decided to keep the current threshold at $75 million — at least for now.

It’s also important to note that not all companies with a public float of less than $75 million are considered nonaccelerated filers. If a company’s public float drops below $75 million, it continues to be an accelerated filer until it drops below $50 million, and thereby “exits” accelerated status.

Still on the hook

Even if your company is exempt from Sec.404(b), you’re still responsible for assessing the effectiveness of internal controls over financial reporting pursuant to Sec. 404(a). Contact us for any questions about complying with the SOX rules or for information regarding best practices in internal controls.

© 2018

Shakespeare’s words don’t apply just to Julius Caesar; they also apply to calendar-year partnerships, S corporations and limited liability companies (LLCs) treated as partnerships or S corporations for tax purposes. Why? The Ides of March, more commonly known as March 15, is the federal income tax filing deadline for these “pass-through” entities.

Not-so-ancient history

Until the 2016 tax year, the filing deadline for partnerships was the same as that for individual taxpayers: April 15 (or shortly thereafter if April 15 fell on a weekend or holiday). One of the primary reasons for moving up the partnership filing deadline was to make it easier for owners to file their personal returns by the April filing deadline. After all, partnership (and S corporation) income passes through to the owners. The earlier date allows owners to use the information contained in the pass-through entity forms to file their personal returns.

For partnerships with fiscal year ends, tax returns are now due the 15th day of the third month after the close of the tax year. The same deadline applies to fiscal-year S corporations. Under prior law, returns for fiscal-year partnerships were due the 15th day of the fourth month after the close of the fiscal tax year.

Avoiding a tragedy

If you haven’t filed your calendar-year partnership or S corporation return yet and are worried about having sufficient time to complete it, you can avoid the tragedy of a late return by filing for an extension. Under the current law, the maximum extension for calendar-year partnerships is six months (until September 16, 2019, for 2018 returns). This is up from five months under the old law. So the extension deadline is the same — only the length of the extension has changed. The extension deadline for calendar-year S corporations also is September 16, 2019, for 2018 returns.

Whether you’ll be filing a partnership or an S corporation return, you must file for the extension by March 15 if it’s a calendar-year entity.

Extending the drama

Filing for an extension can be tax-smart if you’re missing critical documents or you face unexpected life events that prevent you from devoting sufficient time to your return right now.

But to avoid potential interest and penalties, you still must (with a few exceptions) pay any tax due by the unextended deadline. There probably won’t be any tax liability from the partnership or S corporation return. But, if filing for an extension for the entity return causes you to also have to file an extension for your personal return, it could cause you to owe interest and penalties in relation to your personal return.

We can help you file your tax returns on a timely basis or determine whether filing for an extension is appropriate. Contact us today.

© 2019

You pay your company’s insurance premiums faithfully, secure in the knowledge you’re covered if something goes wrong. Most of the time, such thinking will be right. Not only is it good business practice for insurers to cover legitimate claims, but it’s illegal for them to deny them.

Unfortunately, not all insurers are good businesspeople, and some are even dishonest. Those few may be guilty of bad faith — wrongfully denying insurance claims — that can cost businesses significant aggravation, not to mention legal fees, to combat.

Disagreement vs. bad faith

An insurance policy is a contract. The insured agrees to pay premiums and take reasonable steps to prevent injury or damage, and the insurer agrees to settle legitimate claims according to the policy’s terms.

There may be times when you and your insurer disagree about what is covered or what constitutes a reasonable delay or amount in settlement. But errors in judgment and offers of compromise don’t necessarily equal bad faith. Bad faith arises when the insurer sacrifices its insured customers’ interests to enhance its own bottom line — and that can involve fraud.

Shady tactics

Outright denial of legitimate claims is only one bad-faith practice that indicates fraudulent insurance practices. Shady operators may also:

• Unreasonably delay investigating claims, • Attempt to settle claims for less than the amount specified by the policy, • Bog down the claim process by requiring multiple, duplicative proof of loss forms,• Fail to settle one portion of a claim to influence acceptance of lesser settlements under another section of the policy, or• Misrepresent policy provisions related to the claims.
In some cases, claims go to arbitration to resolve issues without legal action. A bad-faith insurer might threaten to appeal arbitration awards to pressure the insured to settle for less than the awarded arbitration amount.

Your best defense

Defending against such practices can be difficult. One problem is that there’s no federal — only state — regulation of the insurance industry. Penalties imposed by states typically aren’t stiff enough to deter fraudulent practices, and they generally do nothing to compensate claimants who were wrongfully denied.

It’s important, therefore, to deal with only reputable insurance companies. Before you buy, check with industry rating services such as A.M. Best or your state’s department of insurance. Ask advisors and colleagues for their recommendations as well. And if you have a claim, be sure to file it promptly and document all correspondence and communication relating to it.

© 2018