By Julie Eisenhauer, CPA
There are many opportunities, changes and issues affecting the restaurant and lodging industry. Now is the time to become informed about the top 10 items that can directly affect your business.
1. Effective ways to combat fraud. It is far more costly and time consuming to deal with possible legal and financial consequences of ineffective controls over fraud, than to implement the controls up front.
Suggestion: Creating a perception to employees that they could get caught is a very effective tool in fraud prevention. Examples include mandatory vacations, job rotations/cross-training, physical inventory counts, internal audit functions, detail review of reconciliations and surprise audits by management.
2. Alternative fuel vehicle refueling property credit and the credit for hiring qualified veterans. The IRS offers an income tax credit of 30% of the cost of qualified alternative fuel vehicle (QAFV) refueling property placed into service during the tax year. The maximum credit is $30,000 per location.
Suggestion: Quick action is needed as this credit will expire on December 31, 2013. Credits available for hiring qualified veterans range from $1,500-$9.600 per hire. Additionally, IRS offers tax credits of up to $2,400 for each eligible new employee from certain targeted groups.
To claim the credit, the employer must obtain certain certifications within 28 days of the start of the qualified individual’s employment. While this credit is set to expire after December 31, 2013 it is widely anticipated that it will either be extended or made permanent.
3. Automatic gratuity and tip credit. If you pay payroll taxes on employee tips, you may be eligible for a tax credit. This is generally referred to as the “tip credit,” although technically it is the Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips.
Beginning January 1, 2014, IRS will treat automatic gratuities as service charges; classifying them as wages rather than tips. These service charges will be subject to payroll tax withholding and paid through the employee’s normal paycheck rather than at the end of their shift. In addition, employers will not be eligible for a tip credit on these payments.
Suggestion: Add “suggested tips” to your credit card receipts instead of automatic gratuities.
4. Proposed lease accounting standard. Under the proposed lease accounting standard, a lessee will recognize assets and liabilities related to a lease. Subsequently, interest expense recognized as payments are made against the liability and the asset is amortized on a systematic basis. The effective date is likely to be for annual reporting periods beginning after December 15, 2016.
The recording of assets and liabilities under the proposed standard will have a substantial impact on financial ratios. Ratios related to leverage and debt service will generally be negatively impacted while ratios related to EBITDA (earnings before interest, taxes, depreciation and amortization) may improve. As a result, Companies may find themselves out of compliance with financial covenants contained in debt agreements.
Suggestion: Given this uncertainty, Companies should begin assessing the impact of the proposed standard on their financial statements, ratios, and financial covenants and begin discussing potential issues with their financial statement users, including lenders. It may be possible to proactively address potential problems in existing agreements and structure future agreements to reduce the impacts of this proposed standard.
5. Unpaid Internships. The ability to provide unpaid internships is very limited. While not new law, it has only recently been enforced. To qualify, the following internship requirements must be met:
- Cannot be to the immediate advantage of the employer,
- Work must be similar to vocational training the intern would receive in an educational environment,
- Cannot be replacing a paid employee, and
- Cannot be a guaranteed or implied job offer at the end of the internship.
If these qualifications are not met, interns must be paid minimum wage and overtime.
6. Affordable Care Act Requirements. After being deferred in 2012, 2013 W-2s must report the cost of employee health insurance premiums. This is informational reporting only and does not affect total taxable wages.
Suggestion: Companies should check with their insurance provider to confirm the appropriate information will be available for W-2 filing.
7. Financial reporting framework for small and medium sized entities. The AICPA has a new financial reporting framework for small and medium sized entities designed for America’s small business community. The framework delivers financial statements that provide useful, relevant information to owners of private companies and other stakeholders in a simplified, consistent, cost-effective way. It is a robust and reliable reporting option when Generally Accepted Accounting Principles (GAAP) are not needed. Characteristics of typical entities where this framework may be useful:
- No requirement for GAAP basis statements
- Owner managed entity
- Financial statement users have direct access to management
- Entity does not engage in overly complicated transactions
- Entity does not have significant foreign operations
Suggestion: Check with your accountant to see if this cost-effective reporting framework is an option for your Company.
8. State tax credits for investment in Enterprise Zones. Eligible businesses located in certain rural enterprise zones may take advantage of Construction in Process Enterprise Zone Exemptions and Property Tax Exemptions for up to 15 years. Certain qualifications must be met regarding types of investment, job formation and timeliness of application.
9. 3.8% Net Investment Income Tax and .9% Medicaid Tax. The Affordable Care Act (ACA), which was signed into law in March 2010, created two new taxes for higher income taxpayers beginning January 1, 2013. Taxpayers with income exceeding certain levels may be subject to the new 3.8% surtax on net investment income (interest, dividends, annuities, royalties, rents, income from passive activities, net capital gains, triple net leases, etc.).
Wages and self-employment income over $250,000 (married filing joint) or $200,000 for other filing statuses will be subject to an additional .9% surtax.
Suggestion: Now is the time to work with your tax advisor to ensure that your business activities are properly classified to minimize the effect of this tax.
10. The future of tax reform. Tax reform is a hot issue; with the recent government shutdown and sequestration, government came to a standstill. The continued fight among the political parties has led to a deadlock in Washington that does not appear to be ending soon.
Currently we are waiting on guidance (and forms) related to the Net Investment Income Tax as well as other items. IRS has already announced a delay in the start of filing season for 2013 tax returns.
What does this mean for you? Your return will be delayed, refunds will be delayed, and tax planning will be much more difficult.
This summary of Top 10 items is a high-level view of what you should be looking at to help your business. We encourage you to discuss the details with your service provider on how these items relate to your specific business.
© Clark Nuber PS, 2013. All Rights Reserved