In the face of these challenges, some healthcare organizations are turning to private equity (PE) for new sources of funding.

How can these healthcare organizations prepare to pursue PE investment? The first step is understanding the current healthcare PE market.

In March 2023, BDO conducted a survey of 405 U.S. private equity fund managers and operating partners, 200 U.S. portfolio company CFOs, and 50 U.S. board members. Of the 405 equity fund managers and operating partners surveyed, 87 said they invest in healthcare (among other industries). We analyzed the data from this subgroup to identify the top healthcare PE trends that healthcare leaders need to know.

7 Healthcare Private Equity Trends

1. PE is buying up distressed healthcare facilities. When asked where their firms would direct the most capital over the next six months, 17% of respondents investing in healthcare say investing in distressed businesses, making it the top-cited answer for this group. For PE firms, turning the tide for a distressed healthcare facility represents a significant value creation opportunity. As financial challenges continue to destabilize healthcare organizations, we can expect to see an uptick in PE investment.
2. Heightened risk exposure is slowing down deals. In line with the full respondent pool, respondents investing in healthcare cite risk exposure uncovered during due diligence as their top challenge to closing deals in the current investment environment. That’s no surprise, given PE’s interest in distressed healthcare assets — distressed M&A deals inherently come with more risk. At the same time, the general business environment is also riskier than usual due to heightened interest rates and inflation. PE firms looking to make a healthcare deal in this environment will likely be hyperaware of potential risks and cautious about agreeing to take them on.
3. Asset prices are expected to increase. Eighty-six percent of respondents who invest in healthcare expect asset prices to increase in the next six months, with 43% expecting assets to trade as much as 10-24% higher. As a result, we may see PE firms hesitating to take on deals as valuations trend higher. This outlook among fund managers and operating partners also drives home PE’s pre-pandemic thesis: that there’s a lot of opportunity for value creation in healthcare. Healthcare organizations and PE firms can work together to tackle challenges like the needs of the aging U.S. population and the healthcare industry’s hesitation to adopt new technologies, creating value for both patients and shareholders.
4. ESG assessments are integral to getting deals done. PE firms are evaluating ESG risk before making investment decisions. Eighty-four percent of respondents investing in healthcare say they have declined an investment opportunity because of ESG concerns. Surprisingly, respondents were more likely to report turning down an investment opportunity for environmental (33%) or governance (33%) reasons than for social reasons (26%). This may be due to the healthcare industry’s focus on the “S” in ESG via improving health equity, making them more advanced in social areas than governance and environmental. Overall, healthcare leaders need to recognize that private equity investors are looking for evidence of sound ESG practices as part of their criteria for evaluating investment opportunities.
5. PE is pushing top-line growth. Respondents investing in healthcare see top-line growth as more critical than bottom-line growth over the next 12 months. That’s not surprising, as top-line growth can be a better indicator of free cash flow and EBITDA. EBITDA is particularly important due to its role in determining PE multiples. As such, top-line growth is more aligned with generally used valuation methodology. The top line is also easier to grow aggressively and can be used to demonstrate the value a PE firm brings to a company, whereas the bottom line reflects costs outside of the PE firm’s control, such as labor expenses.
6. PE firms are prioritizing cost optimization in healthcare. Twenty percent of respondents investing in healthcare cite cash flow optimization as the value creation lever they deploy most frequently across their portfolios, making it their top response. At the same time, when asked where the private equity firm’s guidance is most valuable in the area of operations, 33% of respondents investing in healthcare cite overhead cost reduction. Cost optimization may be more important than ever as healthcare companies fight to stay afloat in challenging economic conditions — PE firms can help healthcare companies optimize their costs so they can continue to provide care to their communities. Cost optimization can also support the shift to value-based care, an approach to care that prioritizes achieving the best possible patient outcomes for the lowest cost, which is picking up steam as the COVID-19 pandemic subsides.
7. Inflation continues to concern PE firms. When asked which aspect of economic instability they are most concerned about, 44% of respondents investing in healthcare cite inflation, making it their greatest current concern. It’s unlikely we’ll see inflation slow until the labor market eases. High inflation may dampen PE’s appetite for deals, especially as the Fed plans interest rate increases later this year.

What Comes Next?

Healthcare leaders looking to pursue PE investment need to understand investors’ priorities and concerns in order to navigate the deal process effectively. Here are some steps to consider based on current PE trends:

1. Revisit ESG positioning. Strong ESG positioning is only going to grow in importance among investors. Healthcare leaders exploring PE opportunities should first evaluate their ESG strategies and make sure they can effectively communicate the organization’s current ESG positions, successes, risks, and future goals. They should also be prepared with detailed plans to comply with forthcoming health equity regulations.
2. Carefully consider deal timing. Healthcare assets may begin to trade higher in six months, which could secure a better deal price. At the same time, however, PE firms will likely proceed with even greater caution as valuations increase, leading to a longer negotiation and due diligence process. Healthcare organizations considering making a sale should review the risks and rewards associated with selling now versus six months from now.
3. Take a close look at costs. If the company’s financial positioning is significantly impacted by its cost structure, then a PE deal may be a good avenue to perform wholesale cost optimization. Healthcare leaders should look at their companies’ finances and consider how cost optimization could affect their bottom line.
4. Reassess risks. Healthcare leaders should be fully aware of their companies’ risks before speaking with PE investors. Transparency can result in a smoother due diligence process, especially if the company is already in distress and has a higher risk profile as a result.

These are just a few practical steps that any healthcare organization can take to position itself for success ahead of a potential PE transaction. The key is staying up to date on what’s happening in PE so leaders can ensure they’re making the best possible choices to capitalize on current trends.

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The past few years have significantly destabilized the healthcare industry’s financial footing. According to our 2023 Healthcare CFO Outlook Survey, 60% of healthcare CFOs could not meet the terms of their bond or loan covenants in 2022 — up from 41% in 2021.

As unfavorable economic conditions continue to pressure healthcare, providers must act to prevent further margin erosion and financial insecurity. Unfortunately, many providers are struggling with margin erosion dynamics that show no signs of resolving on their own. According to Fitch Ratings, it may take years for healthcare margins to recover to pre-pandemic levels.

To improve margins and achieve greater financial stability, healthcare providers must first understand what’s causing margin erosion. The following sections outline key drivers of margin erosion, their impact on the healthcare industry, and their expected duration.

What You Can Do About Margin Erosion

Many providers are tempted to solve margin erosion by cutting costs. Margin improvement, however, requires a long-term strategy and cost-cutting without a growth strategy is a shortsighted approach. While it may generate some immediate bottom-line improvement, it’s unlikely to strengthen your financial foundation. On the other hand, developing a margin improvement strategy allows providers to gradually make structural changes that yield long- term results — and greater stability.

Need to establish a margin improvement strategy but not sure where to start? Our checklist below outlines the information you need and recommended steps you should take to develop your strategy.

Phase 1

Identifying Cost and Revenue Opportunities

• • Benchmark your costs in the following areas against industry standards:
  • Provider and clinical support staffing
  • Pharmacy
  • Perioperative and procedural
  • Supply chain
  • Vendor management
  • Selling, general & administrative (SG&A)
  • IT
  • Assess your revenue cycle management to identify gaps and inefficiencies.
  • Review your patient access, demand, and capacity management to identify gaps and inefficiencies.
  • Assess the profitability of each of your service lines.

Phase 2

Reviewing Balance Sheets

• • Identify your priority strategic initiatives and determine the capital requirements to support them.
  • Conduct a property, plant, and equipment (PP&E) assessment to determine if any assets should be sold, leased, or disposed of.
  • Identify opportunities to deploy or reinvest working capital.
  • Reevaluate your debt structure to assess your organization’s current financial risk level.
  • Determine whether you have any unclaimed property and, if so, review your state’s regulations around reporting and refunds ahead of balance sheet transactions.
  • Assess your management of assets like technical systems and medical equipment to identify gaps and inefficiencies.
  • Identify opportunities to capitalize on R&D tax credits.

Phase 3

Accelerating Digital Enablement

• • Explore opportunities to leverage data and machine learning to reduce preventable readmissions.
  • Offer expanded consumer-centric self-service tools with a side benefit of shifting work into the hands of patients.
  • Assess your EHR platform to determine if it is properly integrated with your other systems and can support data-driven predictions.
  • Prior to introducing new technology systems, evaluate their potential impact on and disruption to clinicians and administrative staff.

Phase 4

Exploring Partnership Opportunities

• • Consider opportunities to partner and collaborate for functions such as IT, contact centers, and supply chain.
  • Explore outsourcing and managed service arrangements to achieve efficiencies in core business operations.
  • Critically evaluate mergers and integration opportunities to ensure they are patient-centric and focus on improving care at lower costs.

Phase 5

Developing Your Workforce

• • Consider how you can enable remote work opportunities to expand your talent pool.
  • Invest in continuous learning to promote employee retention and satisfaction.
  • Integrate advanced practice providers (APPs) across service lines.
  • Invest in recruiting and training licensed practical nurses (LPNs) and medical assistants (MAs).

Written by David Francis and Jim Clayton. Copyright © 2023 BDO USA, P.A. All rights reserved. www.bdo.com

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The end of the PHE, along with other impending changes to Medicare and Medicaid, will result in an increased compliance and financial burden for providers. To prepare for the coming regulatory shift, providers must understand what will change, what will stay the same and how new regulations will impact them specifically.

End of the Public Health Emergency

PHE made pandemic-era care delivery easier by temporarily relaxing certain regulations and providing more federal money for COVID-19 treatment. Medicare payments were increased by 20% for inpatient COVID-19 admissions, and the sunsetting of this funding will coincide with millions losing access to temporarily expanded Medicaid coverage. In short, treating COVID-19 will become more expensive for hospitals and patients. While some states will take steps to make Medicaid coverage more accessible and fill the reimbursement gap for COVID-19 treatment, many providers are still likely to see an increase in bad debt.

In addition, private insurance will no longer be required to cover COVID-19 testing without cost sharing, and many liability protections from the Public Readiness and Emergency Preparedness Act will sunset in 2024. These changes could make providers less resilient to new waves of COVID-19, especially should people decide to forgo testing due to cost.

Not all changes that stem from the end of the PHE have been set in stone yet. The FDA is still evaluating which industry guidance documents affecting clinical practice and supply chains will be extended or ended. Providers can also expect new rules to allow for some dispensing of controlled substances via telemedicine, a practice which is currently scheduled to end.

Fortunately, many Medicare and Medicaid telehealth flexibilities will not be impacted, and states have the option to allow Medicaid to continue covering all COVID-19 vaccinations and treatment through September 30, 2024. Perhaps most importantly, the FDA’s emergency use authorizations for COVID-19 test, treatments and vaccines will not be impacted, and the federal government will remain committed to providing access to COVID-19 healthcare.

Regulatory Changes on the Horizon

As the United States pivots from a COVID-19 emergency, providers need to be aware of big changes coming to Medicare and Medicaid.

While regulatory changes will increase compliance burdens and could decrease reimbursements, these updates will particularly impact hospitals who are already struggling financially.

MedPAC proposes transforming hospital payments

A new Medicare Safety-Net Index could replace the disproportionate share hospital (DHS) payment system and uncompensated care payments in 2024. Proposed by the Medicare Payment Advisory Commission (MedPAC), this new system was designed to improve Medicare profitability for hospitals with low-income, high Medicare patient populations.

According to the Healthcare Financial Management Association (HFMA), The Safety Net Index payment system includes a few key changes:

• Compensations for claims filed for Part D low-income subsidy beneficiaries will be based on the hospital’s share of inpatient and outpatient claims.
• Uncompensated care costs will now be counted as a share of revenue.
• Medicare will reduce its share of coverage of a hospital’s inpatient days by half.

While well-intentioned, this new index may negatively impact reimbursements for Safety-Net hospitals that treat large, low-income patient populations where most patients are not covered by Medicare.

CMS Transmittal 18 Brings Increased Cost Reporting Complexity

New requirements for Medicare bad debts and Uncompensated Care Cost reporting will require hospitals to submit more detailed demographic and payment data. The Centers for Medicare & Medicaid Services (CMS) have issued new templates, additional worksheets and new instructions which will impact how hospitals report charity discounts, bad debt and Medicaid eligible days.

These requirements came into force for cost reporting periods beginning on or after October 1, 2022, and the first reports that will actually encounter these news complications are those than end on September 30, 2023.

Providers should be aware that Transmittal 18’s new requirements will significantly increase hospital compliance burdens. While failure to comply will result in cost report rejections, increased risk of an audit and lower Medicare and Medicaid reimbursements, the risk of failure will be highest when the first reports are due. To avoid mistakes, hospitals should study Transmittal 18 now and design a plan to meet the new reporting requirements come September.

CMS Announces 340B Acquired Drugs Changes

Medicare will be required to pay 340B hospitals for Part B drugs and biologics at average sales price (ASP) plus an additional 6%. This reimbursement is being reinstated for Medicare, which in the past was ASP minus 22.5%. The result of this change is a nearly 30% increase in reimbursements for Part B medication.

This win for 340B hospitals comes at the cost of the Outpatient Prospective Payment System (OPPS) rate increase for FY 2023, which rose to 3.8%. 340B payments are supposed to be budget neutral, so the increase in 340B reimbursements will be offset by a CMS budget adjustment of 3.09%. As a result, CMS estimates that the OPPS payment rate will only see a real increase of 0.9%. This minor increase for OPPS has led some hospitals to believe that this CMS change won’t do much ease their growing cost of care burden.

Potential Regulations to Watch

The CMS Equity Framework

2024 in-patient rules from CMS will be released in mid-April 2023, which will include key metrics based on the 2022-2032 CMS Framework for Health Equity. The metrics will be designed to help hospitals reduce health inequity, and are expected to be more objective and quantitative than previous CMS metrics.

The latest CMS Framework for Health Equity outlines five priorities:

1. Expand the collection, reporting and analysis of standardized data.
2. Assess causes of disparities within CMS programs, and address inequities in policies and operations to close gaps.
3. Build capacity of healthcare organizations and the workforce to reduce health and healthcare disparities.
4. Advance language access, health literacy and the provision of culturally tailored services.
5. Increase all forms of accessibility to healthcare services and coverage.

Hospitals should prepare to meet CMS’ priorities, starting with developing strategies to collect data on patient outcomes. Signaling out health inequalities in a provider’s patient population, and providing tangible metrics on progress, will be critical to maintaining compliance with future regulations related to equity.

OIG Medicare Bad Debts Report

Tougher Medicare bad debts reporting requirements may be on the horizon after an audit from the HHS Office of Inspector General (OIG). The organization randomly selected 67 cost reports and 148 samples of bad debts that totaled $450,687. Of those samples, OIG determined that CMS incorrectly reimbursed 22 bad debts to a cost of $29,787.

OIG believes that these reimbursements resulted from Medicare administrative contractors (MACs) who did not concentrate on reviewing bad debts when performing audits of costs reports. Additional bad debt reporting requirements could tamp down on unallowable Medicare reimbursements. Currently, hospitals are reimbursed for 65% of their bad debt, but a reduction in payments and increased compliance requirements could increase provider financial stress.

While not set in stone, Environmental, Social and Governance (ESG) and Medicare Bad Debts reporting requirements could greatly impact hospitals in the near future. Like the regulations that are currently on the horizon, these potential changes are another strong reason for hospitals to make sure their compliance departments are ready to collect more data and meet increased government scrutiny.

Key Takeaways

With the end of the Public Health Emergency and the introduction of new Medicare and Medicaid regulations, providers may have a challenging road ahead. Greater compliance burdens and new regulations may lead to fewer reimbursements, and any increase in bad debt could coincide with lengthening payment cycles. Many hospitals don’t have the cash reserves to take a financial shock like this.

For example, many small or rural hospitals may have to close or affiliate with larger health systems. Struggling hospitals who can stay independent may have to shutter less lucrative departments or shift offerings to serve more profitable patient populations. Hospitals who primarily serve low-income, non-Medicare patient populations should be especially attune to how coming changes to reimbursement policies will impact their ability to remain solvent.

All providers should explore how these changes, proposed and finalized, may impact their financial standing and take action now. Preparing today will allow hospitals to strategize on how they can provide the best care possible in the face of growing financial stress.

Written  by Chad Krcil and Venson Wallin. Copyright © 2023 BDO USA, LLP. All rights reserved. www.bdo.com

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The IRS releases an annual ‘Dirty Dozen’ list featuring the top taxpayer scams for the coming year. The list is certainly not exhaustive of every potential pitfall out there, but it is an excellent place to start educating yourself (and your team if you’re a business owner). Here’s a summary of the 2023 IRS Dirty Dozen.

Employer Retention Credit Promoters: Businesses have been targeted by companies claiming to help them submit tax returns and adjustments to take maximum advantage of the Employee Retention Credit (ERC). These promoters collect a fee for preparation services, which is often tied to the value of the proposed credit. Usually, the targeted businesses don’t qualify for the credit, so when the adjustment claim is either rejected by the IRS or found to be incorrect during an audit, the business is out the funds paid to the promoter, as well as any monies received from the ERC they were not eligible for and potential IRS fees.

Phishing and Smishing Scams: Emails, texts, phone calls. These are all popular channels for scammers trying to obtain sensitive information from taxpayers by lying and saying they work for the IRS. Please remember that the IRS will always initiate contact with taxpayers by mail.

Online Account Assistance: The IRS Online Account tool provides helpful information to taxpayers. Scammers are using this as an opportunity to learn social security numbers and other sensitive information by calling and offering to help taxpayer set up their online accounts. This can lead to identity theft and a big headache for taxpayers trying to sort everything out.

Fuel Tax Credit Promoters: Like the Employee Retention Credit promotors, Fuel Tax Credit promoters claim that the taxpayer is qualified for the credit when they may not be. These scammers usually charge a big fee to assist the taxpayer in submitting these claims.

Fake Charity Scams: Major disasters like hurricanes, floods, and wildfires can lead to an increase in counterfeit charities to dupe taxpayers. When these disasters occur, people want to help those affected. Scammers take advantage of this generosity by using fake charities as a front for stealing money and private information. Be sure to take the time to thoroughly research any organization before donating.

Shady Tax Preparers: Common warning signs of a shady tax preparer include charging a fee based on the size of the refund or refusing to sign the form as a preparer as required by law. Make sure you’re using a trusted and knowledgeable tax preparer.

Social Media Trends: While this may seem unsurprising to most, it bears repeating – you can’t always trust what you hear on the internet. Social media can circulate misinformation quickly, including ‘hacks’ for getting a bigger tax refund. These trends usually involve lying on tax forms or creating false income. The IRS reminds taxpayers that falsifying tax documents is illegal and penalties are involved.

Spearphishing Email Scams: Bad players have been sending email requests to tax preparers, and payroll and human resources teams to try and gain sensitive client and employee data like W-2 information. These requests can look like they’re from a potential new client, and the scammers then use the data they collect to submit a series of false tax refund filings and collect on the tax returns. Businesses can protect themselves with these cybersecurity tips.

Offer in Compromise Mills: Promoters target taxpayers that owe the IRS money by offering to settle their debts with the IRS at a steep discount for a fee. Many times, the targeted taxpayers don’t meet the technical requirements to obtain an offer, meaning they still owe the IRS the same amount and are paying excessive fees to these companies. Taxpayers can check their eligibility for an Offer in Compromise using this free IRS tool.

Charitable Remainder Annuity Trust Schemes: Promoters can misuse Charitable Remainder Annuity Trusts and monetized installment sales by misapplying the rules, leaving filers vulnerable. These types of schemes are often targeted at wealthy taxpayers.

Tax Avoidance Schemes: The IRS warns taxpayers to be wary of anyone claiming to reduce their taxes owed drastically or even to nothing. This could include micro-captive insurance arrangements, international accounts, and syndicated conservation easements.

Be diligent with your information, teach your employees how to recognize scams, and be sure to discuss any changes in tax strategy with your trusted tax professional. If anyone contacts you with a claim that seems too good to be true, it probably is.

The post The Top 12 Tax Scams to Avoid According to the IRS appeared first on Walter Shuffain.

Businesses can use the standard mileage rate to calculate the deductible costs of operating qualified automobiles for business, charitable, medical, or moving purposes. Keep reading for the updated mileage rates and some reminders for mileage reimbursements and deductions.

Standard mileage rates for cars, vans, and pickups or panel trucks are as follows:

*Moving miles reimbursement for qualified active-duty members of the Armed Forces 

Important Reminders and Considerations 

When reimbursing employees for miles driven, keep the following in mind:

• • The Tax Cuts and Jobs Act (TCJA) prohibits employees from writing off unreimbursed business mileage. Companies that fail to make up for this reimbursement could face legal consequences.
  • Taxpayers using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or claiming a Section 179 deduction may not also use the business standard mileage rate for the same vehicle.
  • Taxpayers can calculate the actual costs of using their vehicle rather than accepting the standard mileage rates. Actual expense methods often provide different results than standard mileage. Talk with your CPA to determine the best method for you.
  • While the IRS standard mileage rate helps hold businesses accountable, it does not account for fluctuations in vehicle-related expenses in different regions of the country.
  • The Fixed and Variable Rate (FAVR) allowance is an alternate method for businesses whose employees use their vehicles for work. This method can help businesses avoid over-or underpaying employees for using their vehicles for business purposes.
  • Mileage reimbursement rates apply to gasoline, diesel-powered, electric, and hybrid-electric vehicles.

To review your organization’s mileage reimbursement policy and any alternate methods for calculating appropriate reimbursement amounts, reach out to our team of knowledgeable professionals today.

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Corporate tax rates

While corporate tax rates would stay the same under BBB, the proposal includes a 15% minimum tax on book income for corporations reporting more than $1 billion in profits. For corporations with foreign parents, the minimum tax would apply to profits of more than $100 million.

The legislation would also impose a 1% excise tax on the fair market value of any publicly traded U.S. corporation’s stock that the corporation repurchases during the year.

BBB would also change the Foreign-Derived Intangible Income (FDII) deduction and Global Intangible Low-Taxed Income (GILTI) regime, increasing the taxes paid by most, if not all, U.S. multinational corporations.

Applying the Net Investment Income Tax to Trade or Business Income

The net investment income tax (NIIT) levies a 3.8% surtax on net investment income derived from interest, dividends, capital gains, and income from passive activities. NIIT applies when a taxpayer’s modified adjusted gross income (AGI) exceeds a threshold of $200,000 for single filers or $250,000 for married couples filing jointly.

Currently, trade or business income earned by pass-through business owners who materially participate in the business is not subject to NIIT. BBB proposes eliminating that exception for taxpayers with modified AGI greater than $400,000 ($500,000 if married filing jointly).

Limitations on interest expense deductions

The Tax Cuts and Jobs Act of 2017 limited the amount of interest a business can deduct to interest income plus 30% of its adjusted taxable income for the year. The BBB would further limit interest deductions for U.S. members of multinational groups that issue consolidated financial statements. The draft legislation describes the limitation as an “allowable percentage” of 110% of the corporation’s net interest expense.

Paid Family, Medical Leave Requirements

The U.S. is the only industrialized country without federally mandated paid parental leave, but BBB seeks to change that. The legislation guarantees four weeks of paid leave to all workers who are:

• New parents,
• Dealing with a serious medical condition of their own, or
• Caring for a loved one with a serious medical issue.

Employers would not have to foot the bill for that paid leave. States with an existing paid family medical leave mandate equal to or better than the federal benefit would be reimbursed for what it would have cost to cover workers in the federal program.

Employers that voluntarily offer paid leave equal to or better than the federal benefit would be reimbursed for the lesser of:

• 90% of the national average cost of paid leave benefits, or
• 90% of their insurance premium

All other public and private-sector employees would be covered by a public program run by the Social Security Administration.

Investing in small business

Build Back Better also allocates about $3.385 billion to support small businesses by improving access to capital, including:

• Additional funding for SBA 7(a) loans
• Reduced or waived fees for new SBA 7(a) and 504 loan borrowers with loans of $2 million or less
• Additional investments into the Small Business Investment Company (SIBC) program
• Establishing a national network of “uplift incubators” to spur economic development in underrepresented communities
• Additional funding for cash grants to growth accelerators assisting small businesses focused on technology
• Providing funding for grants to help minority-owned businesses launch and expand operations

Although the House passed a version of the Build Back Better bill in November 2021, negotiations over the bill stalled in the Senate, so none of the above proposals have been turned into law as of this publication.

At this point, it’s impossible to say which proposals will survive and in what form, but it is worth keeping an eye on as key portions, like workforce support, are expected to eventually pass. If you have questions in the meantime, please reach out to your tax advisor.

The post Build Back Better May Be Stuck, but How Could It Impact Business Owners? appeared first on Walter Shuffain.

Businesses can use the standard mileage rate to calculate the deductible costs of operating qualified automobiles for business, charitable, medical, or moving purposes. Keep reading for the updated mileage rates, as well as some reminders for mileage reimbursements and deductions.

Standard mileage rates for cars, vans, pickups and panel trucks are as follows:

*Moving miles reimbursement for qualified active-duty members of the Armed Forces

Important reminders and considerations

When reimbursing employees for miles driven, keep in mind the following reminders and considerations:

• The Tax Cuts and Jobs Act (TCJA) does not allow employees to write off unreimbursed business mileage. Companies that fail to make up for this reimbursement could face legal consequences.
• Taxpayers using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or claiming a Section 179 deduction may not also use the business standard mileage rate for the same vehicle.
• Taxpayers have the option to calculate the actual costs of using their vehicle rather than accepting the standard mileage rates. Actual expense methods often provide different results than standard mileage. Talk with your CPA to determine the best method for you.
• While the IRS standard mileage rate helps hold businesses accountable, it does not account for fluctuations in vehicle-related expenses in different regions of the country.
• The Fixed and Variable Rate (FAVR) allowance is an alternate method for businesses whose employees use their vehicles for work. This method can help businesses avoid over-or underpaying an employee for the use of their vehicle for business purposes.

To review your organization’s mileage reimbursement policy and any alternate methods for calculating appropriate reimbursement amounts, reach out to our team of knowledgeable professionals today.

The post 2022 mileage rates for business reimbursements appeared first on Walter Shuffain.

The Employee Retention Credit (ERC) was introduced in 2020 to help businesses that have been affected by the COVID-19 pandemic. Since its release, it has been expanded and modified to help more businesses. Despite all of this, many businesses that are eligible for the credit haven’t filed for it. Did the pandemic impact your business? Don’t assume your business is ineligible. Keep reading to learn more.

What is the Employee Retention Credit?

The ERC allows businesses to claim a refundable credit for qualified employee wages and related expenses if there was a significant disruption to business because of the pandemic. That disruption is measured in a quarterly reduction of gross revenues – 50% reduction in 2020 vs. 2019; and only 20% reduction in 2021 vs. 2019. In addition, there is a “safe harbor” test that allows you to look back a quarter. For example, if your 4th quarter 2020 revenues were down 20% compared to the 4th quarter 2019, you are eligible for the first quarter of 2021, regardless of the first quarter test outcome.

The second disruption is a government shutdown – complete or temporary. For example, a restaurant limited to 75% seating capacity by the governor’s mandate has experienced a partial shutdown.

If you experienced EITHER one of these disruptions, you might be eligible for the employee retention credit.

Eligibility for 2020 includes businesses with 100 or fewer full-time equivalent employees in 2019, in which all wages qualify whether the business was open or (partially) closed because of governmental orders. For businesses with more than 100 employees, only wages paid to employees when they weren’t providing services because the pandemic are eligible.

For 2021 the full-time equivalent threshold increased to 500 employees in 2019.

For 2020 the credit is 50% of the first $10,000 of eligible employees’ earnings for the year – up to $5,000 per employee for the year.

For 2021 the credit is 70% of the first $10,000 of eligible employee earnings per QUARTER – up to $28,000 per employee for the year.

What new guidance was released?

The IRS released Notice 2021-49  on August 4, 2021, which provided additional ERC guidance.

• The ERC was expanded to include wages paid through December 31, 2021.
• “Recovery startup businesses” launched after February 15, 2020, have been added to the definition of eligible businesses.
• Clarifying the definition of a full-time employee, including whether wages paid to full-time equivalents are considered eligible.
• Determining if tips should be considered qualified wages.
• Outlining whether wages paid to majority owners and their spouses are considered qualified.

Keep in mind, the ERC is a complex tax credit with ever-changing guidelines and requires interpretation. Reach out to our professional tax team, who are familiar with the credit and most up-to-date guidelines.

What if I missed filing for the ERC?

While some of the newer guidelines are retroactive, others only apply to wages paid more recently. In most cases, employers can file a correction to their quarterly tax documents to receive appropriate credit for qualified wages paid. Keep in mind that wages included in Payroll Protection Plan (PPP) forgiveness are not qualified (no double-dipping).

We have noted a longer processing time for amended returns. This means you’ll see benefits of the credit faster by filing for it with your quarterly returns; however, it could take 90 to 120 days for amended returns.

How can my business receive help?

If you’re like many businesses and need help understanding the ERC and the recent changes, reach out to our team of qualified professionals for help! We look forward to helping you!

The post Don’t overlook the Employee Retention Credit appeared first on Walter Shuffain.

Set up your bookkeeping process

Establishing a bookkeeping process that properly accounts for income and expenses is an essential part of every business. Not only do you have to record expenses in the proper category, but you must have proof of those expenses saved in the event of an audit. Mistakes in the bookkeeping process can cost your business money in taxes and fines.

Smart tax elections

Certain expenses that require depreciation can also be claimed on an accelerated basis to decrease your tax liability for the year.

Defer income or accelerate deductions

Toward the end of the tax year, sending out invoices to clients a few days later can sometimes push back the date the business pays you. This lessens your income for the tax year by pushing it into the next year. In addition, looking into bills due in January and paying them in December is an easy way to increase your expenses. This lowers your taxable income for the current tax year.

Update the business structure

The classification you created your business under may not be the best as you continue to grow. Different types of business classifications offer different levels of protection, as well as tax benefits. If your business has grown and you’re still registered as an LLC or sole proprietorship, or S-Corp, talk to a trusted tax professional about any benefits of switching to a C-Corporation.

Increase employee benefit plans

Employee raises are a great way to say thank you for a job well done. Unfortunately, they also come with increased taxes for both the business and the employee. Consider revamping employee benefit plans and contributions when the business is doing well. This could include paying a higher portion of medical, dental, and vision plans, increasing retirement plan match contributions, or even providing a profit-sharing contribution to employee retirement accounts.

Stay aware of your AGI

The adjusted gross income for your business and modified adjusted growth income, in some cases, are used to determine your tax rate as well as eligibility for certain tax breaks. Being aware of this number can lessen the chance you make a costly mistake in filing your taxes. In addition, you’ll know if you’re on the border of a higher tax rate or missing a tax break when increasing deductions or delaying income could help you.

Keep current on tax law updates

Tax laws are constantly evolving. Congress passes new acts throughout the year that can update tax law. The IRS also releases clarifications on tax codes that can change how tax professionals and businesses interpret them. Sign up for updates on IRS.gov and check in regularly with your tax professional throughout the year to make sure nothing has changed.

Tax planning is an important step to take for every business that can help them maximize tax deductions and minimize the chance for error when filing your taxes. Reach out to our team of professionals to discuss your current tax strategy and potential adjustments today.

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