Results from the webinar poll show that despite facing economic headwinds, 55% of manufacturers report a cautiously optimistic outlook for the rest of the year. 

While manufacturers continue to face major challenges like stubborn inflation, high interest rates, and weakening demand, they are also seeing opportunities to grow their businesses and improve their stability. 

#1: Manufacturers Are Embracing Artificial Intelligence 

Manufacturers are keen to invest in artificial intelligence (AI) to increase production efficiency, keep employees safe, boost supply chain transparency, and bolster innovation. However, not all manufacturers are ready to use AI in their businesses: 

 #2: Labor Challenges Persist 

The growth of the manufacturing sector is hindered by a significant skills gap and labor shortages, prompting companies to explore various strategies to acquire the talent they need. 

To close the skills gap and fill critical roles, manufacturers should consider hiring professionals impacted by recent tech industry layoffs, upskilling their current workforce, evaluate involvement in Second Chance employer program, and leveraging outsourcing and co-sourcing. 

#3: Missed Tax Opportunities Hinder Growth 

Many manufacturers are not fully realizing tax opportunities that could support their growth, including tax credits created by the Inflation Reduction Act (IRA). 

By increasing collaboration between tax and business leaders, manufacturers can more easily uncover tax planning opportunities to help improve their total tax posture. 

What’s Next 

Manufacturers remain optimistic, even as high interest rates and consistent inflation dampen growth. In light of the uncertain economic climate, we expect that manufacturers will focus on stability and resilience rather than pursuing aggressive expansion this year. 

Written by Bill Pellino, Maurice Liddell and Dale Jordan. Copyright © 2024 BDO USA, P.C. 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.

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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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One of the best ways to protect your business is understanding the types of scams so you and your employees know what to look for – and how to avoid them.

Electronic signatures

Electronic signatures, or e-signatures, are a convenient and efficient substitute for “wet signatures,” but they can also expose your business to fraud and unauthorized signing. If you use electronic signatures in your business, ensure these two things:

1. Electronic signatures are valid. How do you ensure an electronic signature is valid without an in-person verification? The lengths you go to may depend on the size or nature of the contract. Still, there are several ways to authenticate a signer’s identity, including knowledge-based authentication (KBA), taking a video of the signing, and employing a notary.​
2. Electronic signatures are compliant. In the U.S., electronic signatures must comply with the Electronic Signatures in Global and National Commerce Act and the Uniform Electronic Transaction Act (UETA). These laws generally require an intent to sign, consent to do business electronically, associating the electronic signature with a record, and retaining those records.

Most modern e-signature solutions comply with these requirements, so make sure you use a solution provider that takes appropriate steps to verify a signer’s identity and comply with applicable regulations and best practices.

Client portal access

Client portals make it easy to send and receive documents and collaborate on projects with coworkers, clients, and other third parties, but they can also open the door to data leaks, breaches, and hacking incidents.

There are three elements to help keep data in a client portal secure:

• Authentication. This is how to identify a user. That typically involves entering a valid username and password before granting them access to the portal. Provide each user a unique username and password through a secure channel before logging in.
• Authorization. What authority does the user have to perform specific tasks after logging into a portal? Your employees may be authorized to access more areas or perform more activities than a client or another third party, such as a banker, attorney, or consultant.
• Audit. The final element is an audit trail, which tracks a user’s access and activities while in the portal.

Many pre-built solutions allow your business to quickly deploy a secure client portal and integrate with your existing systems. Again, using a solution provider that takes steps to maintain data integrity will protect your company, customers, and clients.

Tax scams

Tax scams take many forms as scammers try to steal money, identities, tax refunds, and more. Often, these scams start with a phone call, email, or in-person visit from someone claiming to represent the IRS. These scammers may demand payment of back taxes and penalties or ask an individual to confirm their Social Security or bank account number to receive a tax refund.

Knowing how the IRS will and won’t initiate contact is one of the best ways to avoid falling victim to tax scams.

In most cases, IRS contact starts with a letter or notice delivered via the U.S. Postal Service. Following that initial notice, the IRS may call or visit an individual’s home or office to collect an overdue income or employment tax payment, follow up on a delinquent return, or tour a business’ premises as part of an IRS audit or criminal investigation.

The IRS does not:

• Demand payment via a prepaid debit card, gift card, or wire transfer or insist an individual make a payment over the phone.
• Threaten to send local law enforcement or immigration officials to arrest an individual for not paying your tax bill.
• Demand payment without allowing an individual to review or appeal the amount they owe.
• Initiate contact or request personal or financial information via email, text message, or social media channels.

You can learn more about common tax-related scams at Tax Scams/Consumer Alerts. If you believe a scammer has targeted you, you can report IRS impersonation scams online or call the IRS at (800) 366-4484. If your company needs assistance setting up the safeguards addressed above or strengthening your cybersecurity efforts, contact our team of 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.

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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!

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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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