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The Washington Legislature approved the paid family leave program on June 30, 2017 – but now what? What does the Paid Family Leave Act mean for your small business?

First, you may be wondering when it will become effective. The bill states that premiums need to be remitted beginning on January 1, 2019, and the benefits are available to participants beginning in 2020.

The bill also offers eligible workers up to 12 weeks of paid time off for birth, adoption, or for a serious medical condition. “Serious medical condition” refers to a condition that is afflicting either the worker, or the worker’s family (both fathers and mothers qualify following birth or adoption).

The amount received by the worker is capped at $1,000 per week and workers who earn less than the state average would receive 90% of their income. Employees who have worked at least 820 hours in the past year will be eligible.

Who’s Paying?

In this instance, both the employee and the employer are responsible for premiums. The total premium is 0.4 percent of wages, with employers paying approximately 37% of the premium, while employees pay approximately 63%. Premiums will be calculated each pay period.

Just to run some numbers, if your entire company payroll is $1M per year, the total premium would be $4k (.4% of $1M). The employer would then be responsible for $1,480 and the employees would pay $2,520 for the year (based on actual payroll for each individual).

Self-employed individuals can opt-in to the coverage and pay only the employee’s share of the premiums.

Exceptions and Exemptions

There is some good news for employers who have fewer than 50 employees: they are exempt from the employer portion of the cost. However, they can still choose to pay the employer portion if they want to be eligible for small business assistance funds.

Further, employers who pay employer premiums and have fewer than 150 employees may apply for grants of anywhere from $1,000 to $3,000 to offset wage costs while an employee is on leave.

Companies that already offer similar programs can opt out of the bill, as long as the programs they are offering are at least equivalent to the state program.

Employees of businesses with fewer than 50 employees will still be eligible to receive the benefits and are required to pay their portion of the premiums. With that in mind, make sure you add your new benefits to the payroll deductions beginning January 1, 2019 and remit those premiums!

Have questions?

Please get in touch with Christie Streit at info@clarknuber.com if you have questions about the information in this post.

© Clark Nuber PS and Developing News, 2017. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Developing News with appropriate and specific direction to the original content.

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Articles and Publications

Federal Research Credit: Could Your Business Save on Taxes?

What is the Credit Based On?

The credit is a wage-based program, which you can calculate by identifying the wages paid to employees who perform qualified research activities. Amounts paid to outside consultants are also included in the credit at 65% of each qualifying dollar spent. In some cases, supplies that are consumed in the research process can also be included in the calculation. Multiple methods of calculating the credit may be available. But in short, the credit available to the qualifying business activity equates to 6%-20% percent of the incremental research expenses. The exact percentage is determined by the elected applicable method.

Who Qualifies for the Credit?

Any business performing qualifying research can qualify for the benefit. Since the incentive is in the form of a tax “credit,” the business must have a tax liability to get a current cash benefit. It is not a refundable credit, but the portion of a credit that is not used in the year it is generated can be carried forward. Since regular corporations are subject to federal tax, they can claim the credit. Businesses that are considered “pass-through” entities for federal income tax purposes, such as LLCs that have elected partnership status and corporations (or LLCs) that have elected S corporation status, pass the credit through to the owners of the entity.

What Qualifies as Research Activity?

Only business activity conducted in the U.S. qualifies. Further, the research activity must be “technological in nature.” This means that it must involve a hard science, such as computer software; engineering; medical, biological, or physical research; or other similar science disciplines. Additionally, “funded research” does not typically qualify. This means that if research activity is funded by an outside source, such as grants or customers, the arrangement must be carefully evaluated to determine if it qualifies. That said, the fact that the research is partially or wholly funded by third parties does not automatically disqualify the activity.

What Activities Do Not Qualify?

The rules specify which business activities are disqualified. These activities include:
  • Costs incurred once production of the component begins;
  • Adaptation of an existing component to a particular customer's requirement or need;
  • Efficiency surveys;
  • Activity related to management function/technique;
  • Marketing research;
  • Advertising or promotions;
  • Routine data collection/testing to evaluate quality control;
  • Activity related to style, taste, cosmetic or seasonal design factors.

New Opportunities that Apply to 2016 and Beyond  

Alternative Minimum Tax (“AMT”) Offset. Until 2016, the credit could only be used to reduce a regular tax liability. Beginning in 2016, however, it can also be used to offset AMT liabilities. The AMT offset is only available to businesses with under $50 million in gross receipts. However, credits from qualifying businesses can still apply to individual tax liabilities. Payroll Tax Election. Beginning in 2016, qualified startup businesses can generate research credits. Qualified startup businesses include those that have not had “gross receipts” for more than 5 years, and have had gross receipts of less than $5 million in the claim year. Research credits can then be used to offset the employer’s portion of the FICA tax in the following year. It’s worth noting, however, that startups should consider the related party rules when applying the gross receipts tests. Since many startup businesses don’t generate taxable income in the early years after formation, the credit program historically provided little, if any, immediate benefit. Now that the credit can be used to offset payroll taxes, the credit has real value for qualifying startups.

Questions?

If you would like help determining if your business activity qualifies for the research credit incentives, and/or determining an estimate of the benefit, please contact Rene Schaefer at 425-709-4837 or info@clarknuber.com. © 2017 Clark Nuber PS All Rights Reserved
  • Costs incurred once production of the component begins;
  • Adaptation of an existing component to a particular customer's requirement or need;
  • Efficiency surveys;
  • Activity related to management function/technique;
  • Marketing research;
  • Advertising or promotions;
  • Routine data collection/testing to evaluate quality control;
  • Activity related to style, taste, cosmetic or seasonal design factors.

Is Blockchain Technology in Your Company’s Future?

What is Blockchain Technology? Unless you are following, or using, a cryptocurrency like Bitcoin or Ethereum, you may not know that Blockchain is the underlying technology that drives those digital currencies. To grasp this concept more easily, you can think of Blockchain as the operating system, like a phone or tablet, and of Bitcoin as an app on that phone or tablet. Blockchain technology represents the coming together of several technologies and ideas that have the potential to solve many problems. Operating on the internet, a Blockchain is a network that allows transactions to occur in an environment that is (1) transparent, (2) without the need of a trusted intermediary, (3) immutable, and (4) secure. There are many great resources that explain these features of Blockchain technology in detail. I recommend starting by looking at this video by Don Tapscott. How Can Your Company Use Blockchain? As you might expect, Blockchain technology’s use is not limited to Bitcoin and Ethereum. To provide another parallel example, in the early days of the internet, email was the application that most people initially used. Over time, however, the power of the worldwide web quickly expanded and other applications soon overshadowed email in terms of everyday use. Blockchain technology is poised to do the same. If you are involved in commerce where digital currency is the norm, or becoming the norm, you will quickly become a participant in Blockchain technology. As you begin learning and implementing the technology, however, we recommend caution – transactions completed using Blockchain technology are secure, but irrevocable. In contrast to transmitting your credit card information over the internet, Blockchain technology eliminates the intermediary in the transaction (your bank). This means that you or your company are assuming the entirety of the risk in the case of incorrect or fraudulent transactions. Additional and Future Uses Beyond digital currency, Blockchain’s uses are still mostly on the drawing board. But just as mobile phone apps exist to allow exchanges of Bitcoin, apps will be developed to support broader uses of the technology. For example, Blockchain technology is being used today for certain private securities transactions, commercial real estate leasing transactions, and for tracking the provenance of diamonds. To complete these transactions, so-called “smart contracts,” which contain self-executing provisions, are being developed. These “permissioned Blockchains” are open to invited participants, unlike the “public” Blockchain of Bitcoin and Ethereum. When Should You Implement Blockchain? If lessons of the past are any indication, the earliest adopters of these applications may not reap the most benefits. But we can watch and learn their processes now to know when it is right for us to enter the fray. Just like any other system or participation, we must understand the rules and integrity of the process. There are no current conventions or standards for evaluating, or auditing, the integrity of a Blockchain. With that in mind, we recommend moving slowly and deliberately when adopting the technology. But if the speed of Blockchain’s development is any indication, you won’t have to wait long for standards to emerge. While you are waiting, keep watching and reading. Questions? Please contact Ron Rauch at info@clarknuber.com with any questions about Blockchain or other parts of this post. © 2017 Clark Nuber PS All Rights Reserved

What Real Estate Asset Managers Should Know: Risk, Disputes, and the State of the Industry

This article addresses the other issues that real estate asset managers should know about, including insurance risks, disputes, and the state of the industry.

Risk and Insurance

Regarding mitigating risk, Susan Stead of Parker Smith and Feek suggested that you pay attention to general maintenance on your property and understand your tolerance for risk. For example, business interruption insurance may not be necessary if you have tenants under a triple net lease. Making an educated decision on how much earthquake risk to take on can be made if you understand where the fault line is located in relation to your asset. Also, make sure you know what your insurance policy covers. For example, if something catastrophic happens, does your policy cover replacing the building, or replacing it with code upgrades that are required today? Make an informed choice by leveraging the analytics and knowledge that your insurance broker provides. Susan also had cautionary words about shared insurance programs. The $5K premium can sound enticing, but if you dive deeper, you could find that there are many owners who have access to that money. The question then becomes, how much of that pool do you actually have access to? Make sure you have the coverage that you think you have. Greg Duff of Garvey Schubert Barer noted that private ADA enforcement has increased. What typically happens is a private ADA enforcement lawyer will look at a building to note any ADA discrepancies. Afterward, you’ll receive a letter from the lawyer, noting the discrepancies and stating they’ll enter in an agreement with you for a set amount of money. Most are valid letters, and some of the issues are easy fixes. However, if it entails a construction fix, then it becomes tougher determining who is responsible – the tenant or the landlord – and even well-drafted leases don’t address this issue.

Insurance Disputes

When it comes to insurance disputes, there’s a fair amount of finger-pointing that goes on. Greg said that, from a landlord’s perspective, the lease provision is only as good as making sure the insurance coverage is there. You need to have your certificates of insurance. Susan added that tenants often resist sending certificates/renewal certificates, but when the claim happens, adjusters will want those certificates. The documentation needs to be easily accessible by the landlord, and it shouldn’t cost most tenants anything to request a certificate of insurance.

The State of the Industry

Bill Pollard, Managing Principal at Talon Private Capital, noted that the local area is not overbuilding, and absorption is continuing to hold. Supply won’t be an issue, though demand could certainly change. Bill said that demand is being driven by Silicon Valley enterprises. However, if those companies contract, where would the downsizing begin – at corporate headquarters or out-of-state offices? Overall, we need to be cautious about relying too much on outside investments. For example, 85% of properties over 100K feet is financed by outside capital (both foreign and domestic). It that precipitates a flight of local capital, and then outside capital flees, where will we be? As this and the previous article have shown, there are basic steps that asset managers can take to protect their properties, but the outlook shows there needs to be innovation and creativity as tenant requirements change and evolve. Those of us involved in the real estate industry find ourselves in interesting times, and we at Clark Nuber will keep you updated and informed. For more information on real estate topics, please contact Julie Eisenhauer. © 2017 Clark Nuber PS All Rights Reserved

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