Monthly Archives: April 2018

Worldwide Income

Category : Blog , sccm

U.S. citizens working abroad are generally taxed on their worldwide income, but if they have a tax home in a foreign country and meet specific requirements, they may be able to exclude certain housing costs from their gross income. The excludable amount is the excess of the year’s allowable housing expense over a base amount ($16,656 in 2018). However, the limitation is adjusted for higher cost geographic areas, relative to housing costs in the U.S. Here’s a list of high-cost areas just provided in IRS Notice 2018-33:

Get ready for the new lease standard

Category : Blog , sccm

A new accounting rule for reporting leases goes into effect in 2019 for public companies. Although private companies have been granted a one-year reprieve, no business should wait until the last minute to start the implementation process. Some recently revised guidance is intended to ease implementation. Here’s an overview of what’s changing.

Old rules, new rules

Under the existing rules, companies must record lease obligations on their balance sheets only if the arrangements are considered financing transactions. Few arrangements get recorded, because accounting rules give companies leeway to arrange the agreements in a way that they can be treated as simple rentals for financial reporting purposes. If an obligation isn’t recorded on a balance sheet, it makes a business look like it is less leveraged than it really is.

In 2016, the Financial Accounting Standards Board (FASB) issued a new standard that calls for major changes to current accounting practices for leases. In a nutshell, Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), will require companies to recognize on their balance sheets the assets and liabilities associated with rentals.

Most existing arrangements that currently are reported as leases will continue to be reported as leases under the new standard. In addition, the new definition is expected to encompass many more types of arrangements that aren’t reported as leases under current practice.

Revised guidance

Recently, the FASB revised two provisions to make the lease guidance easier to apply:

1. Modified retrospective approach. Upon adoption of the new lease accounting standard, companies may elect to present results using the current lease guidance for prior periods. This will allow management to focus on accounting for current and future transactions under the new rules — rather than looking backward at old leases.

2. Maintenance charges. On March 28, the FASB agreed to give lessors and property managers the option not to separately account for the fees for “common area maintenance” charges, such as security, elevator repairs and snow removal.

In addition, the FASB has provided a practical expedient to utilities, oil-and-gas companies and energy providers that hold rights-of-way to accommodate gas pipelines or electric wires. Under the revised guidance, companies that hold such land easements won’t have to sort through years of old contracts to determine whether they meet the definition of a lease. This practical expedient applies only to existing land easements, however.

Need help?

The lease standard is expected to add more than $1.25 trillion of operating lease obligations to public company balance sheets starting in 2018. How will it affect your business? Contact us to help answer this question and evaluate which of your contracts must be reported as lease obligations under the new rules.

© 2018

Tax Records

Category : Blog , sccm

Don’t underestimate the importance of tax records. Amounts spent to conduct business are generally deductible on your tax return, but you may have to prove the expenses. One married couple was denied business deductions claimed by the husband. The U.S. Tax Court noted that some of his expenses were estimated rather than verified by records, implausibly large, and not tied to business activities. Travel costs, such as hotel bills, weren’t properly documented and were vague in nature. So his deductions were limited to amounts allowed by the IRS. (TC Memo 2018-44)

Tax Changes 2018

Category : Blog , sccm

The IRS reminds taxpayers of big changes that apply to most individual 2018 tax returns. Initial inflation adjustments, which were released by the IRS last year, were later revised to reflect inflation as well as the changes brought by the Tax Cuts and Jobs Act. Among the adjustments that affect most taxpayers are the elimination of the personal exemption (previously $4,050 in 2017), higher standard deductions and lowered tax rates, which now top out at 37% (down from 39.6% in 2017). Here are details of other key figures that have changed:

Public vs. private companies: When should different accounting rules apply?

Category : Blog , sccm

Small private companies often criticize the Financial Accounting Standards Board (FASB) for writing overly complex standards that focus on the needs of stakeholders in large public companies rather than “Main Street” businesses. Here’s how the FASB has addressed these criticisms in recent years.

A shifting mindset

In 2012, the FASB formed the Private Company Council (PCC). This panel of private company accountants, auditors and analysts of private company financial statements advises the FASB about the financial reporting needs of private companies.

Thanks to recommendations from the PCC, the FASB has reduced certain disclosure requirements for private companies and often gives them extra time to comply with new accounting standards.

Limited exceptions

The FASB has been less open to allowing differences in the recognition and measurement of a transaction, asset, liability or instrument. In general, the FASB prefers having one set of rules that all businesses can apply to help stakeholders compare financial statements from various organizations.

However, the FASB has made some concessions over the years, including these four alternative reporting options:

1. Accounting Standards Update (ASU) No. 2014-02, Intangibles — Goodwill and Other (Topic 350): Accounting for Goodwill. Private companies can elect to amortize goodwill over a period not to exceed 10 years, rather than test it annually for impairment.

2. ASU No. 2014-03, Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps — Simplified Hedge Accounting Approach. Nonfinancial institution private companies can elect an easier form of hedge accounting when they use simple interest rate swaps to secure fixed-rate loans.

3. ASU No. 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements. This option simplifies the consolidation reporting requirements of lessors in certain private company leasing transactions.

4. ASU No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination. Private companies are exempt from recognizing certain hard-to-value intangible assets — such as noncompetes and certain customer-related intangibles — when they buy or merge with another company.

In June 2017, the FASB issued Proposed ASU No. 2017-240, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This alternative would expand ASU 2014-07 by allowing private companies to avoid the consolidated reporting requirements for a wider range of transactions. The FASB is currently redeliberating this proposal, and no effective date has yet been announced.

Work in progress

The FASB plans to continue considering whether privately held businesses need simpler accounting standards compared to public companies. Contact us for the latest developments on the consolidation proposal and other financial reporting alternatives that could simplify financial reporting for your private business.

© 2018