AZ CPA February 2020

AZ CPA February 2020

Innovation The Key to Success in 2020

Setting Professional Boundaries 2019 Year-End Tax Act

by Ed Zollars

The Arizona Society of Certified Public Accountants y www.ascpa.com

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The Arizona Society of Certified Public Accountants President & CEO

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Board of Directors Chair Jared Van Arsdale Chair-Elect Ginny DeSanto Secretary/Treasurer Tom Duensing Directors

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Kelly Damron

Paul Evans

Ross Grainger

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Andrea Levy

Anthony Lorenzo

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Greg Nelson Chapter Presidents Southern Chapter Cathy Kinzer Northern Chapter James Shankland Southwest Chapter Helen Greenwell North-Central Chapter Gidget Schutte AZ CPA is published by the Arizona Society

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Update your contact information on your ASCPA profile. Don’t miss out on important legislative information, upcoming events and member benefits.

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of Certified Public Accountants (ASCPA) to provide information, news and trends to the accounting profession. It is distributed 10 times a year as a regular service to ASCPA members. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein.

The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in articles or advertisements within this publication. Opinions expressed by contributors are not necessarily those of the ASCPA.

Arizona Society of CPAs 4801 E. Washington St., Suite 180 Phoenix, AZ 85034-2040 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 www.ascpa.com

Volume 36 Number 2

AZ CPA

February 2020

Features

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How to Set Professional and Personal Boundaries Setting boundaries makes for a happier and healthier environment.

by Cheryl Meyer

13 Columns & Departments

Innovation — The Key to Success in 2020 If you want to continue growing and thriving, you should make innovation a top priorty.

by Cindy Gordon

Chair’s Message by Jared Van Arsdale, CPA

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Member News

7

A Dash of SALT by James G. Busby, Jr., CPA

9

Quick Quiz

21

Classifieds 22

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Is That Management Retreat Tax Deductible?

A review of how the Tax Cuts and Jobs Act affects management retreat deductions.

by Daniel B. Hughes, CPA

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2019 Year-End Tax Act Congress gave us a year-end tax package that impacts past, present and future tax returns.

by Edward K. Zollars, CPA

4801 E. Washington St., Suite 180 Phoenix, Arizona 85034-2040 www.ascpa.com

FEBRUARY 2020 AZ CPA

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ASCPA Chair’s Message

A New Season Begins …

Legislatively As the years press on, we witness the informality of seasons unique to our industry, marking the beginning and end of an annual ritual. These seasons can be a place marker in time readying us in advance, while in search of the light at the end of the tunnel. The Tax or Earnings Season may be one of the first to come to mind for most of our fellow ASCPA members.

by Jared Van Arsdale, CPA

The 2020 Tax Season will undoubtedly be complicated by the continued release of TCJA Treasury regulations, the passage of the SECURE Act’s retirement and tax extenders provisions and the opportunity for even more ASCPA continuing education.

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Marking the end of another Holiday Season, I turned my attention to preparing for my favorite season each year; the Arizona Legislative Session*. Yes, I know, I may be an outlier in feeling all giddy for the start of another season of politics in Arizona. Thankfully, I haven’t been disappointed or needed rehabilitation postsession yet.

The state legislative season coincidences with the Tax Season for some of our fellow members, in which case I understand the giddiness may fade somewhat. For many of us, it is the beginning of a stress-filled calendar and email-heavy season leaving very little room for much else. However, it does provide for an annual high point where members can reinforce relationships with clients, assist them in planning for the future and further build a rapport amongst team members in the office and the community. The 2020 Tax Season will undoubtedly be complicated by the continued release of TCJA Treasury regulations, the passage of the SECURE Act’s retirement and tax extenders provisions and the opportunity for even more ASCPA continuing education.

As I have noted before, the ASCPA has invested further into maximizing the value of its advocacy efforts, making sure we not only have our members’ backs at the Legislature but, keeping us fully informed on issues impacting CPAs in Arizona. The ASCPA follows the activities of the Legislature as a whole, while maintaining a focus on the activities of the Senate Finance Committee (chaired by Senator J.D. Mesnard R-D17), the House Ways and Means Committee (chaired by Representative Ben Toma R-D22), the Governor’s office, the Department of Revenue and the State Board of Accountancy. Although this session will not introduce a new batch of freshmen representatives, the ASCPA will undoubtedly be called upon to educate and inform our representatives as we are uniquely positioned to provide a business, financial, tax and regulatory perspective.

As in prior years, the ASCPA has a list of legislative priorities, which it will pursue vigorously in representing the Arizona CPA profession, while knowing that each legislative session is not short of surprises from proposed bills, party conflicts, controversy and election cycles. Every year, I encourage you to remain informed legislatively during the season and reach out to your team at the ASCPA with any questions or insights as you see them. I am more than happy to discuss issues throughout the year with anyone, as you have been fair-warned of my selfproclaimed political junkie status above!

Although absent the required retainer of milk and cookies the night before, members may consider sending their list of legislative wishes and desires related to the profession to John Baumer, director of government relations at the ASCPA, as every day is the “Season of Giving.”

Regardless of the season that occupies your calendar, do your very best to maximize time with your loved ones. Good luck and Godspeed on your journeys. * Per A.R.S. 41-1101 the Legislature shall assemble at the seat of government at 12 noon on the second Monday of January each year. I know you may already know this but, we can all use a nice reminder that the Season has begun! l

Save the Date!

ASCPA 2020 Annual Meeting & Awards Luncheon May 12 Join us for the ASCPA 2020 Annual meeting &

Member News Kim D. Paskal, CPA, MBA, has been appointed as chief operating officer of tax for BeachFleischman effective January 1, 2020. Julia Allen Miessner, CPA, ABV, CFF, CGMA, has been promoted to shareholder.

Awards Luncheon on May 12 from 11:30 a.m. to 1:30 p.m. Bill Reeb, current chair of the AICPA, will be our keynote speaker. We will honor Julie Klewer with ASCPA Life Membership.

REDW LLC named Michael T. Allen, CPA, as continuing Office Principal-in-Charge in Phoenix — a role he formerly shared with REDW Principal Sandy Ann Abalos, CPA, who will now shift her focus on team development, client service and growth.

Heinfeld, Meech & Co., P.C. recently promoted Dylan Darr, Aaron Esqueda Serna, Cristina Oropeza, Mathilde Pioux and Emily Powell to Staff Associate II.

Bill Reeb

Julie Klewer

Learn more at www.ascpa.com FEBRUARY 2020 AZ CPA

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Panel Discussion: Arizona’s Burgeoning Cannabis and Hemp Industry Feb. 11, 2020 4:30 – 7 p.m.

The Yard 149 S. Farmer Ave, Tempe, AZ 85281 Members $40; Nonmembers $50 • 1.5 hours of CPE Credit As an Arizona CPA or other professional, are you currently servicing or considering engaging clients in the cannabis/hemp industry? Join your peers and hear a panel of industry experts discuss the tax/accounting, legal, ownership/management and regulation of the industry. Bring your questions and participate in a Q & A. Panelists include a CPA and attorney with years of experience serving cannabis clients, as well as a cannabis business owner and a former state regulator. Leave with a better understanding of the opportunities available to you in this growing industry.

Appetizers and one drink ticket are included with your registration. A cash bar will be available.

4:30 p.m. Registration and Networking • 5:30 – 7 p.m. Panel Discussion

Find out more at www.ascpa.com/chpn

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Thank You to Our Sponsors: Guidant Law Firm Kotzin Valuation Partners Price Kong Co. CPAs P.A. R.O.I. Properties & R.O.I. Asset Management Solutions AZ CPA FEBRUARY 2020

A Dash of SALT

Update on Arizona’s Electronic Filing and Payment Requirements In this month’s state and local tax (SALT) column, Busby provides an update on Arizona’s electronic filing and electronic payment requirements.

In 2017, at the Department of Revenue’s request, Arizona Gov. Doug Ducey (R) signed H.B. 2280, which phased in electronic filing and payment requirements for almost all Arizona taxpayers between that time and 2021.

The department pursued this legislation in order to improve efficiencies and increase fraud prevention capabilities. According to the department, in 2017, 80 percent of Arizona individual income tax returns were filed electronically, but only 31 percent of Arizona sales tax returns were filed electronically. As of 2019, 83 percent of Arizona individual income tax returns were filed electronically, and 77 percent of Arizona sales tax returns are filed electronically

The Bill’s Broad Reach and Phased Approach H.B. 2280 applies to taxpayers required to file tax returns and make payments regarding state and local sales and use taxes; jet fuel excise and use taxes; severance taxes; telecommunications service excise tax; the municipal water delivery system tax; the prepaid wireless telecommunications E911 excise tax; and government property lease excise tax.

The bill also applies to orders for the tax stamps required to lawfully sell tobacco products. But, contrary to the dates and dollar thresholds outlined below, all returns, reports, and payments of any amount related to tobacco stamps must have been submitted electronically since July 1, 2015, and, beginning on the effective date of this bill, August 9, 2017, all tobacco tax license applications and requests for refunds or rebates of taxes paid on tobacco products were required to be submitted electronically.

Taxpayers who conduct business in two or more locations or under two or more business names in the state have been required to file their returns electronically since January 1, 2017.

The following taxpayers will be required to file and pay electronically if they had an actual tax liability in the previous calendar year, or reasonably anticipate a tax liability in the current year, of at least the amounts set forth below — regardless of the number of locations they have in the state: • •

by James G. Busby, Jr., CPA James G. Busby, Jr., CPA, is a state and local tax attorney at The Cavanagh Law Firm. Busby previously worked in the SALT departments at Arthur Andersen and Deloitte & Touche. Before entering private practice, Busby was in charge of all transaction privilege (sales) tax audits at the Arizona Department of Revenue.

If you have any questions, please contact the author. He can be reached at (602) 322-4146 or JBusby@CavanaghLaw.com.

$5,000 beginning January 1, 2020; and $500 beginning January 1, 2021.

The Effect on Income Tax Returns The department is prohibited from requiring individual income taxpayers to pay electronically, but the law does affect corporate income tax, partnership and fiduciary returns. In fact, the department just announced that it finally is prepared to begin

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accepting corporate and partnership returns electronically for tax year 2019.

Electronic filing for corporations and partnerships is optional for tax year 2019 and will be mandatory for tax year 2020.

Caution to Tax Return Preparers H.B. 2280 required individual income tax preparers who prepare more than 10 original income tax returns that are timely filed for tax year 2018 or later to electronically file all individual income tax returns for that tax year and all subsequent years, unless taxpayers elect to file a paper return. The bill also prohibits individual income tax return preparers from charging the taxpayer a separate fee to file a return using the department’s electronic filing program.

Annual Waivers Available Taxpayers who do not have a computer or internet access, or who satisfy other circumstances that the department director deems worthy, may file an application on or before December 31 of each year to obtain an annual waiver of the electronic payment and filing requirements. In circumstances beyond the taxpayer’s control, including situations in which the taxpayer was instructed by the department or the IRS to file paper returns, waivers are not required.

Sticks and Carrots to Encourage Compliance All Arizona taxpayers who are required to make a payment electronically but fail to do so may be subject to a five percent penalty with a $25 minimum that applies even for filings where no tax is due.

On the other hand, as an incentive to encourage electronic filing by businesses subject to Arizona’s sales and severance taxes – regardless of whether they are required to file electronically yet – the state increased the credit available to those taxpayers for their accounting and reporting expenses. For taxpayers who file electronically, the credit increases from one percent of tax due not to exceed $10,000 in any calendar year to 1.2 percent of tax due not to exceed $12,000 in any calendar year. l

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How to Set Professional and Personal Boundaries Do you work too much? Eat at your desk? Find yourself grouchy? Time to step back.

by Cheryl Meyer The modern workplace can be brutal. Many managers and leaders work too many hours, take on tasks that aren’t their own, and don’t take care of themselves physically and emotionally. They get distracted by social media, text messages, or emails, losing focus and wasting time. They don’t spend enough time with friends and family.

And they lose sight of what success should be — hard work, but also a work/life balance so one can recharge. “If boundaries are clearly set, it can make for a happier and healthier environment and clear up or drastically reduce the likelihood for miscommunication in the workplace,” said Michael Diettrich-Chastain, the CEO of Arc Integrated, a training and coaching firm in Asheville, North Carolina.

“Often boundaries get blurred when we take on responsibilities that are not ours, whether professional or personal.”

If managers don’t set boundaries, the consequences run the gamut.

They may resent or mistrust colleagues for pawning off work, have difficulty making decisions, or become irritable, which can cause disruption for their teams, Diettrich-Chastain noted.

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Or they become unproductive and fatigued, experience burnout, and turn into ineffective leaders. “If you have a manager who cannot manage his time, he’s not very good at managing other people,” said workplace wellbeing mentor Sheila O’Malley, based in Dublin, Ireland. “If he’s a perfectionist, he’s probably a micromanager and poor delegator, and none of these things are what works.”

Two experts offer the following advice for setting personal and professional boundaries, to avoid self-destructing: Take ownership of your life and schedule. If you’re overwhelmed and overworked, speak up and say, “No,” when asked to do one more task.

Determine what you can and cannot do in any given day. Perhaps leave work early, and communicate your boundaries to others, including your own supervisor if necessary. “Happy people are productive people, and productivity always comes from people who can prioritize,” O’Malley said.

“You’ve got to take the time back.”

Stay focused. Ask yourself one simple question at the end of each day: “What is the most important thing I need to do tomorrow?” O’Malley advised.

Then tomorrow, focus on the most important thing for a designated period of time without distractions, no

“Happy people are productive people, and productivity always comes from people who can prioritize.”

longer than 90 minutes. That means no meetings, no digital interruptions and no distractions. “A boundary is, ‘I’m not always available,’” she said.

“And having boundaries around technologies means turning them off.”

Seek outside help. Certain online platforms can assess your work habits, leadership style, behaviors and decision-making. Tap into such tools offered by many organizations, such as ADVanced Insights Profile, Actualized Leadership Profile or SCARF, to get a better idea of what makes you tick and where you may institute changes, Diettrich-Chastain suggested. Also, consider hiring a professional coach who can help you understand your strengths and blind spots. A coach “can have a drastic impact on the

Member Benefit: ASCPA Referral Service As an ASCPA member, you may list your organization on the Find a CPA online referral directory for free. This service allows people in need of a CPA to locate you. To join, login to your member profile or contact ASCPA Membership at (602) 252-4144, ext. 200.

Join the Referral Service at

www.ascpa.com/referral

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AZ CPA FEBRUARY 2020

performance of an organization and identify how boundaries are off kilter,” he said.

Solicit feedback. Others may see you more clearly than you see yourself — so ask for feedback from your colleagues and employees. This advice can help you understand what you can do better, how you can streamline processes, and how you can clear up boundary or communication issues with others. “We often find that leaders aren’t having enough conversations with employees,” Diettrich-Chastain said.

Take care of yourself. Get plenty of sleep, and budget adequate time to eat and digest your food. Walk around the block to clear your head. Exercise.

Set a date night with your spouse or spend time with your kids, O’Malley said. Instigate self-care before anything else, since that is your most important task. “The best thing you can do for everybody else is to meet your own needs,” she advised. “It’s not selfish — it’s the most unselfish thing you can do.” l Cheryl Meyer is a freelance writer based in the U.S. This article was published in the AICPA’s Financial Management magazine.

Innovation — The Key to Success in 2020

by Cindy Gordon

We don’t tend to think of innovation as something relevant to a CPA firm. Most feel that technical competence must be their priority. Innovation is more in line with what clients should be focused on. Vicki Harris, managing shareholder of Hunter Hagan & Company Ltd, a Scottsdale-based public accounting firm, feels that “coming up with new ways to grow the business and engage staff is essential for the survival of any firm, yet it’s not something that CPAs are comfortable or necessarily good at.”

In the ever-changing business environment, if you want to continue growing and thriving, innovation should be a top priority.

CPAs - The Entrepreneurial Specialist Many CPAs don’t identify themselves as entrepreneurs, but instead more often identify as skilled specialists. The primary focus of a CPA is one of being an expert in their field providing quality service to their clients. Therefore, much of their investment in personal and professional development is focused on technical education.

In his book Entrepreneurial DNA, Joe Abraham outlines four types of entrepreneurs – Builders, Opportunists, Specialists and Innovators. He characterizes Specialists as the experts of the business world who tend to find one area in which they can excel and

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immerse themselves. Specialists are incredibly analytical and methodical and tend to develop their businesses in a very structured and safe manner.

From his research, Abraham found that the Specialist’s business growth plateaus at a certain point because they are quite risk adverse and aren’t likely to take the necessary actions needed for steady and continuous growth. This indicates that their greatest weakness is in sales and marketing.

Does this resonate with you? Abraham identified CPAs, lawyers, engineers and IT professionals to name a few, as entrepreneurs who fall into the category of the Specialist. In all these industries, professionals focus their marketing efforts on building relationships with other specialists for client referrals.

Even these fundamental networking and relationship building efforts can be daunting for some. Many justify their avoidance of marketing efforts with their contentment of their modest six-figure income, but deep inside, they would love to serve more clients because of the passion for their work.

So how does one continue to expand their business in a way that is authentic and anxiety-free?

An Entrepreneurial Mindset The first step to business growth for the Specialist may be as simple as starting to see oneself as an entrepreneur. This begins with a mental shift from service provider to business owner.

Embracing an entrepreneurial mindset may not be as tricky as one might think. At the core of an entrepreneurial mindset is the focus on solving problems. For CPAs, even those not in public practice, problem solving is at the forefront of their activities. From solving the problem of an individual who hasn’t a clue on how to complete or file a tax return, to helping a CEO finance a new venture, CPAs are expert problem solvers. So, what if we take this entrepreneurial mindset of being the problem solver further into business development, staffing advancement or even marketing.

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Having information about your entrepreneurial traits and skillsets enables you to see your natural abilities and blind spots and helps you to understand how to compensate for your shortfalls, in order to respond to situations more strategically to achieve your goals.

“The entrepreneurial mindset is about a certain way of thinking — it is about the way in which you approach challenges and mistakes. It is about an inherent need to improve your skill set and to try and try again.”

Arash Asli – co-founder of Yocale.com To embrace an entrepreneurial mindset, one must understand their core competencies in the area of entrepreneurship. Research done by a team of professors at Eckerd College in Florida found seven personality traits and seven skillsets that distinguish entrepreneurs from non-entrepreneurs.

These traits are measured in an assessment called the Entrepreneurial Mindset Profile (EMP).

Having information about your entrepreneurial traits and skillsets enables you to see your natural abilities and blind spots and helps you to understand how to compensate for your shortfalls, in order to respond to situations more strategically to achieve your goals.

Vicki Harris has focused on her personal development as a leader over the past few years. On taking the EMP profile, she felt that while the outcomes didn’t necessarily reveal new insights about herself, she gained invaluable information on how to apply her

entrepreneurial traits in a more effective way. “In reviewing my assessment results, I was able to see how I could be more effective in achieving my goals.

The EMP assessment was the first time I was able to look at who I am as an entrepreneur. It’s a new way of looking at my role as managing partner.”

Entrepreneurship isn’t just for the business owner. Increasingly, corporations are seeking, nurturing and rewarding entrepreneurially minded employees, referred to as “intrapreneurs.” With employee engagement and retention being critical in the financial industry, creating a culture of innovation within organizations and teams will be a game changer in 2020. Millennials and Gen Zs are seeking opportunities to bring their unique talents to their employers.

Using a tool like the EMP assessment can help leaders identify the inherent entrepreneurial strengths and skillsets of each person in order to empower them in exciting and new ways.

CPAs need to be entrepreneurial and forward thinking to stand out from the competition. The Entrepreneurial Mindset Profile is an affordable and effective tool that will provide new insights into key traits that are essential to business perseverance in 2020 and beyond. l Cindy Gordon is the owner of Business Rescue Coaching and certified practitioner of the Entrepreneurial Mindset Profile assessment. Gordon can be reached at Cindy@BusinessRescueCoaching.com.

Is That Management Retreat Tax Deductible?

by Daniel B. Hughes, CPA The tax reform law introduced as the Tax Cuts and Jobs Act (TCJA) made significant changes to deductions for meals and entertainment expenses.

Before TCJA, most meals and entertainment expenses were 50 percent deductible, but the new law curtailed their deductibility. The determination is particularly challenging for events that are both business-related and entertainment-related, such as management retreats.

What Changed Under the TCJA In a major change from previous practice, entertainment expenses will be completely nondeductible under the TCJA, and many meals expenses that were formerly deductible in full will be 50 percent deductible. There are specific exceptions to this rule described in Code Section 274(e), Disallowance of Certain Entertainment, Etc., Expenses that companies will need to evaluate for their 2020 tax planning. For example, business meals provided for the convenience of the employer, occasional employee meals, employee overtime meals, and office coffee and snacks are now only 50 perrcent deductible, whereas before the TCJA they were 100 percent deductible. Such meals will be nondeductible after 2025 unless Congress revisits the issue.

Entertainment expenses to benefit employees (such as holiday parties) are still 100 percent deductible. Although impractical in many cases, other employee entertainment expenses remain fully deductible if they are included in taxable compensation of an employee or if the employee reimburses the expenses.

So where does that leave management retreats? That all depends on the facts and circumstances, and whether the management retreat is primarily for business purposes or entertainment purposes.

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Management Retreats for a Business Purpose The TCJA repeals the deduction for business entertainment expenses and generally preserves deductibility for business meals. Remember that entertainment expenses typically associated with company holiday parties and summer picnics that are for the benefit of employees remain deductible, and these will be discussed later. Regarding management retreats that do not fit that description, companies that can demonstrate a business purpose will likely be able to deduct some of their costs associated with the retreat, but there are some nuances.

In order to deduct entertainment expenses under prior law, companies would have had to demonstrate that the expense was directly related to, or associated with the active conduct of a trade or business, or for the production or collection of income. According to the IRS, business meals with clients under the TCJA remain deductible so long as several conditions are met, such as being otherwise deductible under Code Section 162. Meals at a management retreat held primarily for business purposes could be considered “business travel” meals under Section 162, or they could also meet the “meals incurred while at a seminar or confer-

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2020-21 Dates May 16, 2020 June 20, 2020 Sept. 26, 2020 Oct. 24, 2020 Nov. 21, 2020 Jan. 16, 2021 Feb. 20, 2021 April 24, 2021

ence” exception defined in Section 274.

Travel toand from the primarily business retreat would also be deductible in this case.

A company’s assertion that its management retreat is primarily for business purposes is insufficient; the IRS will want to see evidence of that. There are some elements of an event that businesses can incorporate into their retreats to support their business case for deductible travel and deductible business meals.

Retreat Leaders Hiring external professionals to serve as the retreat leader and to assist with management strategies could be considered an indicator that the retreat is primarily for business. The cost of the retreat leader may also be partially deductible.

Retreat Agendas A written agenda that articulates the business activities to be conducted, and that distinguishes them from other personal activities, could help substantiate the business nature of the management retreat.

An example of an agenda used to substantiate business versus personal might look something like this: • Day 1: Developing strategic goals, succession plans, growth and JV strategies, and determining realistic timelines (Business) • Day 2: Hiking and social activities day (Personal) • Day 3: Brainstorming solutions, implementation strategies and documenting results. (Business) • Day 4: Golf outing and socializing (Personal) • D a y 5 : R e t u r n i n g h o m e (Business) The agenda shows that three out of five days (approximately 60 percent of the retreat) are for business-related activities, so the retreat could be considered a retreat primarily held for business purposes. Remember that this is the standard for domestic travel; there are different standards for foreign travel.

Evaluate All Activities Splitting a retreat into business activities and personal activities is necessary to claim other deductions as well. This documentation is used to quantify the partially deductible business costs, such as meals, from the nondeductible personal costs (personal costs may be 100 perecent deductible if they are included in an employee’s taxable compensation).

In order to substantiate a deduction for business meals, businesses will need documentation that indicates the amount of the business meal expenditure, the time, date, and place of the expenditure, the business purpose of the expenditure, and the identification of the people who participated.

A documented, reasonable allocation method may suffice in lieu of day-byday substantiation for business-related travel and meals expenditures. The company in the example could use the following reasonable allocation method: Three out of five days are business related or 60 percent. This business percentage is applied to substantiate the portion of lodging and meals costs as business related, with the balance of non-business costs separated into another general ledger account. The remaining 40 percent could also be treated as personal compensation.

Management Retreats Primarily for Entertainment Purposes As stated previously, entertainment costs incurred primarily for the benefit of employees (such as holiday parties, summer picnics, and similar events) remain 100 percent deductible. Hence, retreats that are primarily for entertainment purposes may still be deductible.

In order for the retreat to meet that classification, though, it would need to be open to all employees. A retreat purely for officers, highly compensated employees, or more than 10 percent owners would not qualify for the 100 percent deduction. l Daniel B. Hughes, CPA, is a member of the ASCPA and tax practice leader for CBIZ MHM, LLC. He can be reached at (602) 264-6835 or dhughes@cbiz.com.

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2019 Year-End Tax Act

by Edward K. Zollars, CPA Congress gave us a year-end tax package that impacts past, present and future tax returns. The package, officially titled the Further Consolidated Appropriations Act; 2020, includes the entire SECURE Act that passed the House earlier in the year, extensions of some, but not all, expiring and expired tax provisions, removal of two items that were in the Tax Cuts and Jobs Act and repeal of three taxes that were part of the Affordable Care Act. MAJOR EXTENDERS Some major provisions that had expired at the end of 2017, but which now are retroactively restored to the law, include: • Private Mortgage Insurance Deduction: Taxpayers who are paying private mortgage insurance on acquisition debt acquired in 2007 and later are again able to treat those qualified insurance payments as mortgage interest through the end of 2020.

• Nonbusiness Energy Credit: The nonbusiness energy credit also returns to the law retroactively, offering taxpayers who are eligible the right to claim the credit through the end of 2020.

• §108 Exclusion of Cancellation of Debt Income for Qualified Mortgage Indebtedness: One restored item that almost certainly will prove to be cost effective to claim for those who qualify to use the benefit is the restoration of the exclusion from income of cancellation of debt on qualified mortgage indebtedness through the end of 2020.

• Tuition and Fees Deduction: Also restored to the law temporarily and retroactively is the deduction for qualified tuition and fees in computing adjusted gross income.

These items are just a few of those that are restored to the law retroactively. CPAs will need to consider how to deal with the impact of these items on previously filed tax returns. Key issues will be: • Determining which clients have potential claims for refund. In many cases the CPA may not be aware the client undertook a transaction which, retroactively, is now eligible for a tax benefit. In other cases, the information may be in the CPA’s workpapers, but not necessarily in a form to make it easy to automati-

cally identify clients who may get the benefit.

• Dealing with the cost/benefit issue.

Unfair or not, for many taxpayers the CPA will need to deliver the message that while the client could get a refund, the CPA’s fee to prepare the claim will be greater than the refund the taxpayer can expect to receive. That creates a client-relations issue for the CPA, as the client will note that they did not create the problem—but, then again, neither did the CPA. Some extenders have no impact on prior returns. For instance, Congress has returned the percentage of adjusted gross income floor for claiming medical deductions on Schedule A to 7.5% for all taxpayers through the end of 2020.

There are far more extenders than those mentioned in this article. CPAs will need to look into the complete list of extenders in the bill to determine if some special break of interest to the taxpayer has been retroactively brought back.

SECURE ACT — RETIREMENT PROVISIONS The SECURE Act passed this summer by the House had sat awaiting action in the Senate until it was attached to the year-end bill. The provisions remain unchanged from those in the bill that passed the House and contain both good news and bad news for clients.

Note that most of these provisions take effect first for 2020 plan and tax years.

Some of the key provisions include: • Elimination of the stretch-IRA for most beneficiaries: The biggest “bad news” change for the clients of many CPAs is the inability for most heirs who are successor beneficiaries to retirement accounts (IRAs and qualified plans) to use their life expectancy to determine amounts to be paid out of the account. Rather, the entire balance of the account must be taken no later than the tenth year following the year of death for any account inherited from a person who died in 2020 and later years. There are some exceptions to this rule, but

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for the most part the stretch IRA is now a thing of the past.

• Delay of the required beginning date to age 72: On the good news side, the new law pushes the required beginning date for participants to begin taking minimum distributions to being tied to when the participant reaches age 72, up from the previous age 70 ½. This only applies to individuals who had not reached age 70 ½ by the end of 2019.

• Later plan adoption date: Beginning with 2020 plan years, a plan sponsor will be able to establish and adopt a retirement plan up to the extended due date of the sponsor’s income tax return, rather than face the requirement a plan be adopted by the end of the sponsor’s year. Note that the law did not change the minimum funding date, so proprietors and C corporations establishing a plan covered by the minimum funding rule (such as a defined benefit pension plan) will, from a practical standpoint, only have until the 15th day of the 9th month following year end to get the plan in place, since it will need to be funded by that date.

A number of other provisions impact the operation of qualified retirement plans, including a significant increase in penalties for late filing of required plan returns and the eventual requirement to expand, to a limited extent, participation in §401(k) plans to long-term part-time employees.

REMOVAL OF TCJA ITEMS Congress retroactively repealed two provisions added by the Tax Cuts and Jobs Act that had consequences Congress had not fully understood when the bill was passed. These two provisions are: • Return the Kiddie Tax to Being Tied to the Parents’, not Trust, Rates: Congress had attempted to simplify the kiddie tax in TCJA, by using the tax rates for trusts to apply to the child’s unearned income. However, Congress dis-

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covered there were a number of situations where children (such as those of deceased U.S. military members) had taxable annuity income when the parent’s rate was relatively low, resulting in significantly higher taxes on the child’s income in certain cases.

Congress has gone back to the old, pre-TCJA kiddie tax rules.

For 2018 returns, taxpayers can elect to either use trust rates or the rate of the parent(s). In 2019 and later years, the only option is the parent’s rate.

• Unrelated Business Income for Transportation Benefits: Congress also removed the rule that treated the cost of transportation fringe benefits offered to employees of a tax-exempt organization as unrelated business income. Note that the denial of a deduction for such benefits still applies to other business entities—Congress did not remove that provision.

AFFORDABLE CARE ACT TAXES Congress finally officially killed three taxes that were part of the Affordable Care Act, but which had not gone into effect. Those provisions were: Medical device excise tax: • Annual fee on health care providers; and • Excise tax on high cost employer-sponsored coverage.

• The last tax has generally been referred to as the “Cadillac tax” when discussing the ACA. This article merely summarizes a few significant provisions of the year-end bill. CPAs will need to study the law in detail to be sure to understand how it applies to their clients’ situations. l Edward K. Zollars, CPA, is a shareholder in Thomas, Zollars & Lynch, Ltd. He produces weekly audio tax updates available on the ASCPA’s website. Zollars is currently a member of the ASCPA Tax Section Steering and Tax Legislation Committees, as well as on the Board of Advisers of the Phoenix Tax Workshop. He is a Life Member of the ASCPA.

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February 2020 Issue of AZ CPA* 1. In this month’s Chair’s message, Van Arsdale suggests that the 2020 Tax Season will be complicated by what? m Increased Rancor Between Democrats and Republicans m TCJA Treasury Regulations m Conformity 2. Who will receive this year’s Life Member honor at the ASCPA Annual Meeting? m Jared Van Arsdale m Barry Melancon m Julie Klewer 3. Electronic filing for corporations and partnerships will be mandatory for tax year: m 2019 m 2020 m 2021 4. According to H.B. 2280, all Arizona taxpayers who are required to make a payment electronically but fail to do so may be subject to a five percent penalty with a $25 minimum that applies even for filings where no tax is due. m True m False

5. A c c o r d i n g t o t h e b o o k Entrepreneurial DNA, what type of entrepreneurs are typically CPAs? m Specialists m Builders m Opportunists 6. According to Cindy Gordon, CPAs need to do what to stand out from the crowd? m Wear Brighter Colors

m Be Entrepreneurial and Forward Thinking m Spend More Time on Social Media 7. Under the TCJA, what percentage of office coffee and snacks are now deductible? m 50 percent m 75 percent m 100 percent 8. What percentage of employee holiday parties remain deductible? m 50 percent m 75 percent m 100 percent 9. What Act passed this summer by the House sat awaiting action in the Senate until it was attached to the year-end bill. m The SECURE Act m The Tax Cuts and Work Act m The Tax Payers Act 10. Congress also eliminated three taxes that were part of : m The SECURE Act m The Inheritance Tax m The Affordable Care Act

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