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IN THIS ISSUE Berntson Porter & Company’s mission is to assist its clients in identifying, clarifying and achieving their goals. We accomplish this by caring about our clients’ families and companies as if they were our own.
Principal’s Corner .......1
Client Spotlight.............2
Withholding Tax Requirements on Payments to Nonresidents and Foreign Entities ............3
Defined Contribution Plan Restatement: What You Need to Know .......4
What’s new in QuickBooks 2015 ..........5
Understanding Tangible Property Regulations ...6
Client News ...................7
DC and State Highlights ......................7
BP News ........................8
Winter 2015
PRINCIPAL’S CORNER
Greetings from all of us at BP as we celebrate our 30th anniversary from our new 21st century office. We love all
of the positive changes. If you haven’t visited yet please let your primary BP connection know and stop by to take a look.
Although many things have changed at our office, one has not. Our timeless Mission, which is “to assist our clients in identifying, clarifying and achieving their goals. We accomplish this by caring about our clients’ families and companies as if they were our own.” We at BP truly take this to heart and just keep getting better at it as we grow beyond 80 professionals. We offer:
• US, state, local and international tax planning and compliance to minimize your taxes, risk, and help you keep more of your hard-earned money.
• Reviewed and audited financial statements to increase your credibility, salability and lower your borrowing costs.
• Estate planning, wealth management, forensic and litigation support, ownership transition, business valuation, insurance advisory, and continuous client education and planning in a variety of areas to help you to achieve your business goals.
Our mission statement is interlinked with my mission to help our business owner clients achieve greater success through ownership transition/succession, business value
enhancement, merger & acquisition advisory, and business valuations. This is my mission because I believe that business owners are the primary wealth creators in this country. You identify customer needs and fill them. You create jobs. You work hard and long and take on incredible risk. You contribute in so many ways to a stronger, more vibrant and stable society. Therefore, I believe that you should be well-rewarded for your successful efforts. We contribute to this success by working with you and your other professional advisors from many fields to increase the probability that you will achieve success as you envision it.
I take great joy in helping our clients maximize business value, minimize risk, achieve success as you define it, and have more fun during transitional times. We use a methodical, adaptable and customized process designed to help you transfer your businesses on your own terms and on your schedule.
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In memoriam
Berntson Porter extends its sincerest condolences to the family and friends of Ernest “Tony” Reinhard, Jr. Mr. Reinhard passed away in January at the age of 54. Tony was a gifted entrepreneur whose purchase of a small gas station in the 1980’s grew into Reinhard Petroleum, a thriving petroleum wholesale and transportation company. In addition to his businesses, Tony was actively involved in the lives of his two sons and coached both soccer and baseball. He is survived by his wife Lisa and their two boys, Thomas and Trey.
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JPC engaged Berntson Porter 15 years ago after interviewing several local accounting firms and felt they held the same core values and focus on what it takes to grow a successful business in the Northwest. They have been our trusted advisors ever since. Berntson Porter provides corporate accounting, ownership transition planning, financial planning, tax consulting, and prepares corporate and individual tax returns for all the Principals at JPC. Having one consultant to turn to that understands all aspects of your business and the individuals that own it allows us to sustain a lean administrative team allowing the Principals to focus on serving our clients.
The trusting relationship goes both ways with Berntson Porter. They recently signed a lease with the assistance of Kip Durrell with CBRE, a client, to relocate their office from a location they have grown in for several years, to a new space in the Plaza East Building in Bellevue. Berntson Porter asked JPC to design the space and Foushee & Associates, another Berntson Porter client, to build it. Together the team has maximized the opportunity the move offered with a forward-looking design that will position Berntson Porter to attract top talent in the area and continue to grow on the Eastside. The new home is a clear and bright expression of their core values and long term vision, expressed through a sophisticated geometric interplay of form, materials, and lighting. Strategic pathways organize the entire space, greeting the visiting client with an engaging arrival offering venues from small private consulting environments, group conferencing, and a training and seminar space with a relaxed dining and entertainment adjacent.
Congratulations to Bob and Greg for looking toward the future and investing in what makes their teams productive and focused on the mission.
JPC Architects is a 60-person architectural and interior design firm located in downtown Bellevue. The firm was founded
in 1986 to support a growing technology client in Redmond and has evolved into a leader in corporate office design in the region. JPC has consistently been a Top 100 Design Giant nationally, as published by Interior Design Magazine, and have won numerous local and national awards for their creative approach to interior architecture. The JPC client list reads as a who’s who list of corporations in the region, and most of that business comes from strong relationships with clients and referrals from a growing network of supporters. JPC feels strongly about building trustworthy relationships with clients as well as team members in the industry. Forming project teams that are focused on the success of all team members has been the key to a strong referral network and repeat customers. Looking to local companies for professional services has allowed us to expand our relationship network further by engaging in business circles outside our industry. The Principals at Berntson Porter have been very supportive through introductions to their wide circle of friends and associates in the Northwest.
This approach is important because 1) so many successful business owners are now over 50 years old and will one day exit their business and 2) industry statistics indicate most business owners do not transition their business on their own terms, and many businesses don’t even sell because of inadequate preparation and advice. The need for a comprehensive business and lifestyle transition action play is paramount because it can take 3-5 years or more to make the personal and business changes necessary to optimize value.
Unfortunately, the lack of planning by many owners is evident in the statistics. Rob Slee, a private equity and privately-held-company capital markets expert, and many others, have observed that 80% of private company owners are not
PRINCIPAL’S CORNER (CONTINUED) increasing the value of their business. This means they will not get top dollar from a transaction. Even those companies that do sell to an insider or outside buyer, since they are not functioning effectively, lose value in the buyer’s hands after closing. Only 25% actually achieve the buyer’s targeted return on investment. These are unsettling observations.
We want our clients to be in the successful minority of business owners who achieve their full measure of success.
Think about this. The transition of ownership may likely be the most significant financial event of your life. Do you want it to be successful? If yes, then take action now to make it so.
Allan VanderHamm, Principal and Director of Business Transition & Valuation services. Allan can be reached at 425.289.7613 or [email protected].
CLIENT SPOTLIGHT
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WITHHOLDING TAX REQUIREMENTS ON PAYMENTS TO NONRESIDENTS AND FOREIGN ENTITIES
Are you making payments to foreign persons? Are you maintaining the proper paperwork for U.S. withholding
purposes?
Generally, a foreign person is subject to U.S. withholding tax on its U.S. source income, unless a reduced rate or exemption applies in the tax treaty between the foreign person’s country of residence and the United States. A foreign person is generally defined as a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and foreign branch of a U.S. corporation or partnership. Types of income subject to this tax withholding include, but are not limited to, interest, dividends, rent, royalties and compensation.
Tax on Investment and Business Income of Foreign PersonsThe U.S. is one of the few countries that tax its citizens on their worldwide income. However, the IRS has limited ability to collect taxes from nonresidents. The IRS’ power over taxation of nonresident companies and individuals is limited to income derived in the U.S. To ensure that the nonresident payee pays their U.S. taxes on U.S. sourced income, the IRS implemented the withholding regime on payments made to foreigners.
Fixed, Determinable, Annual or Periodic IncomeThe withholding rate depends on the type of income that is being paid. A 30% withholding rate is imposed on U.S. sourced fixed, determinable, annual or periodic (FDAP) income. The following are some examples of income classified by the IRS as FDAP income:
• Compensation for personal services (such as commissions and gross proceeds from performances)
• Dividends• Interest• Pensions and annuities• Alimony• Real property income, such as rents, other than gains from
the sale of real property• Royalties• Sales commissions
The 30% withholding tax imposed on FDAP income may be reduced or possibly eliminated under the provisions of an income tax treaty. However, in order to claim the reduced or zero tax treat rate, appropriate documentation must be provided by the foreign vendor. In order to claim tax treaty benefit, a foreign payee must certify they qualify for treaty benefits by completing one of the following forms,
• Form W-8BEN-E, Certificate of Entities Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities),
• Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, or
• Form W-8ECI, Certificate of Foreign Person’s Claim That Income Is Effectively Connected with the Conduct of a Trade or Business in the United States.
If a W-8 form is not obtained from the payee, the payor should withhold at the 30% rate for FDAP income. If the payor has reason to believe the payee is a foreign person, and has provided a false W-8 form, the payor should also withhold tax at the 30% rate.
Effectively Connected IncomeGenerally, when a foreign person engages in a trade or business in the United States, all income from sources within the United States connected with the conduct of that trade or business is considered to be effectively connected income (ECI).
Generally, a payor does not need to withhold tax on U.S. ECI income if the payor receives a Form W-8ECI on which a foreign payee certifies that:
• The foreign payee is the beneficial owner of the income,
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Wealth Management
Contact Greg Porterfor this analysis.
Are your investments being managed properly? Are you meeting your financial goals? Let BP Wealth Management “audit” your portfolio and make specific recommendations on how to reduce risk while meeting your goals.
Greg Porter, CPA, MBA, MS (Tax), CVA, MAFFPresident of Berntson Porter Wealth Management, [email protected] or 425.289.7601
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• The income is effectively connected with the conduct of a trade or business in the United States, and
• The income is includable in the payee’s gross income.
However, the withholding exemption does not apply to payments for personal services performed by a foreign individual or effectively connected taxable income of a partnership that is allocable to its foreign partners. In these situations income is subject to the highest tax rate of 35% for corporations and 39.6% for individuals.
Payor’s Withholding ObligationTax on FDAP income is generally collected at source by the payor, who has primary liability for collecting these taxes on behalf of the IRS. The payor must withhold at the required withholding rate or risk substantial liability for taxes, penalties and interest. All U.S. taxpayers who make payments to foreign
entities or individuals should review their current procedures to make sure they are obtaining proper documents from their payee to ensure the right withholding amount is being computed.
Having great tax advisors domestically and internationally is crucial for businesses that are thinking about expanding their business internationally. Berntson Porter & Co. is pleased to introduce its internationally focused tax group, providing expertise in international tax advice, guidance, consultation, and U.S. tax compliance. Berntson Porter & Co. is an independent member firm of PrimeGlobal, an association of independent accounting firms from around the globe.
Liting Chuang, Principal and leader of BP’s International Consultancy Group. Liting can be reached at 425.289.7625 or [email protected].
• Automatic enrollment into the plan at a deferral percentage that increases in fixed increments
• Allowing for participant ROTH contributions to the plan• The mix of investment options available to plan
participants • Conversion to an employer safe harbor contribution• Changes to the employer matching contributions and/or
profit sharing contributions
DEFINED CONTRIBUTION PLAN RESTATEMENT: WHAT YOU NEED TO KNOW
Every six years, the Internal Revenue Service (IRS) requires pre-approved defined contribution plans (prototype and
volume submitter) to have their plan agreement restated. Plan restatement is necessary to incorporate any amendments and tax law changes from the last restatement period into the plan agreement and allows for easier administration of the plan for the plan administrator and trustees. Failure to restate a defined contribution plan may result in
the plan losing its tax exempt status and create unintended tax consequents for plan participants and the plan sponsor. If a plan loses its tax exempt status, participants’ contributions may become taxable and limit the type of distributions available for participants. As part of the restatement process, the plan must also obtain a new IRS determination letter. The determination letter states that the plan agreement is in accordance with applicable IRS regulations. Plan restatements must be completed and adopted by the plan trustees by April 30, 2016.
In most cases, the restatement of the plan agreement will be performed by the defined contribution plan’s third-party administrator. It is expected that the third-party administrators will start this process in early 2015. Before the plan is restated, the plan’s trustees should review the plan and consider if additional changes are necessary. A few items to consider before having the plan restated include:
• Automatic enrollment into the plan at a fixed deferral percentage
Deep Expertise
Responsive, Proactive Auditors
Dedicated Employee Benefits Practice
Attention to Compliance
Competitive Fees
Providing compliance services for employee benefit plans requires expertise not found in most accounting firms. The compliance needs of your plan should be trusted to professionals that understand this specialty. Whether you require a full-scope plan audit or a limited-scope financial statement audit, Berntson Porter performs all work in accordance with GAAP and DOL requirements.
Does Your Employee Benefit Plan Have More Than 100 Participants?
Yes? Engage Berntson Porter as Your Auditor
Contact Mary Actor, Director of Assurance Services at [email protected] or 425.289.7608
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WHAT’S NEW IN QUICKBOOKS 2015
Not sure if you should upgrade to QuickBooks 2015? Below are some of the changes and updates to the newest
release of QuickBooks. If you have additional questions please contact Karen Nierescher in our Accounting Support and Bookkeeping Services group at 425-454-7990.
General Changes for all versions of QuickBooks 2015:• Income Tracker has been improved to add Time &
Expenses transactions to the money bar.• Pinned Notes: Now you can “pin” a note for a customer or
vendor so that it always shows in the Center for that list. • Flags on Billable Time and Costs: When you are adding
billable time and costs to an invoice you can see how many records there are available in the various tabs.
• Send Portable Company File: This feature lets you send a portable company file to someone more easily than before.
• Multi User Admin: The Admin user now has the ability to end another user’s QuickBooks session even if they have unsaved data.
• Estimates are automatically closed when they are fully invoiced.
• Inventory Center lets you filter the item list by inventory only, assembly only or both.
• Customer PO # can be added to the Customer Center transaction tab.
Report Changes for all versions of QuickBooks 2015:• Report Appearance Revamp: Reports are now easier to
see on screen. You’ll see background shading to highlight some lines, more vertical and horizontal lines and a bit more spacing between lines.
• Comments on Reports: You can take a “snapshot” of any report and then add comments.
• Send Multiple Reports: Now you can click an email button and send a group of reports as attachments to one email as separate reports.
• Report filter names are sorted alphabetically and searchable.
• Filter Inactive/Active Names on Name-Based Reports: Reports where a customer or vendor name is the primary key, now have a
filter where you can select all active or inactive names.
• Manufacturer’s Part Number on Sales Transactions: The Manufacturer’s Part Number can be added as a column in invoices, sales receipts and sales orders.
QuickBooks Enterprise (Includes features listed above as well)
Advanced Reporting• Advanced Reporting tool now allows you to access ALL
your QuickBooks data to build any report you want.
Inventory• Disallow Negative Quantities: A preference setting that
prevents your inventory part or inventory assembly items from going negative.
• Negative Item Listing is a new report that lists all items with a negative quantity.
• Shortage Report for Manufacturing: The new shortage report will show you exactly what you have on hand, how many the build needs, and give you a list of the shortages. Pending Build Assemblies have a new button on the bottom to “Show Shortage.”
• Inventory Stock Status report upgrades: A new “full assemblies” checkbox makes the report look at sub-assemblies of a multiple-level assembly
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P General bookkeeping services P CFO services – One-time, monthly or quarterly servicesP Year-end reporting – W-2s, W-3s, 1099s, 1096s, payroll reportsP Trust accounting – State compliance, clean-upP QuickBooks Services – Setup, cleanup & maintenance
and exporting data to Excel for tax preparation
Manage Your Business Instead of Your BookkeepingBerntson Porter offers a variety of bookkeeping services through our paraprofessionals including:
For more information contact Karen Nierescher, Senior Manager and Director of Accounting Support & Bookkeeping Services (ASBS)
425.289.7673 or [email protected]
Reviewing the plan prior to its restatement will reduce the amount of plan amendments and paperwork associated with the operation of the plan, as well as reduce the amount of required participant notices and potential confusion by participants. If you are a defined contribution plan administrator or plan trustee, please contact your third-party administrator to ensure
your defined contribution plan will be properly restated before April 30, 2016.
David Rogiers, CPA, Manager, Assurance Services. David can be reached at 425.289.7639 or [email protected].
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Transactions and Form Customization• Total Columns on Forms: Using subtotal items, you can
now total any numeric column on a transaction, including the quantity, price, cost or custom field.
• Sorting Columns on Forms: In sales forms, purchase orders, weekly time sheets, build assemblies, checks, credit card charges, bills and item receipts, you can click on a column heading and the detail lines will sort by that column.
• Footer on Last Page on Forms: If you have a sales or purchasing form that flows over to more than one page, you now have the option to show only the footer fields on the last page.
• Search on Transactions: A new tab (Search) in transactions lets you search any characters within items or item descriptions.
• Showing Cost on Sales Transactions: You can now add a cost column on sales transactions.
• Row Shading on Forms: You can choose to print forms with alternating rows of shading.
Miscellaneous• Hide Opening Balances: You can opt to hide opening
balances in the display for names and items by changing the preference setting.
• Disallow sales to overdue customers: You can prevent sales to overdue customers by changing a preference setting.
• Time/Costs Window now indicates when there are billable items.
• Move subset of items from sales order to invoice.
Karen Nierescher, Senior Manager and Director of Accounting Support & Bookkeeping Services (ASBS). Karen can be reached at 425.289.7673 or [email protected].
UNDERSTANDING TANGIBLE PROPERTY REGULATIONS
As tax season approaches, so does compliance
with the new tangible property regulations. These regulations present new risks and opportunities for all taxpayers, namely real
estate owners, manufacturers, and other equipment-intensive businesses. The rules can seem overwhelming and challenging to comprehend, but understanding the basics is the best place to get started.
The first step in understanding the tangible property regulations is to pose the question: “Should costs incurred in acquiring or improving tangible property be capitalized?” From here, the costs will be put through a series of tests to determine whether they must be capitalized or expensed as repair and maintenance. The largest of these tests being the B.A.R. test. If the cost results in a Betterment, Adaptation, or Restoration of tangible property, the cost is considered an improvement and must be capitalized. If it fails, the cost may be written off as repair and maintenance. Although this is the cornerstone of the tangible property regulations, there are other advantageous aspects to them.
There are generally three other matters to consider in addition to the B.A.R. test that are advantageous for taxpayers. The first things to consider are safe harbors. The De Minimis Safe Harbor is an annual election that allows taxpayers to write off expenditures when acquiring or producing property. The maximum amount for this election is $5000 for taxpayers
with applicable financial statements, and $500 without. The Routine Maintenance Safe Harbor allows taxpayers to write off expenditures that the taxpayer reasonably expects to perform more than once during the class life of the asset. The Small Taxpayer Safe Harbor allows a taxpayer with gross receipts of $10 million or less during the three preceding tax years to expense costs of up to $10,000 on eligible buildings with an unadjusted basis of less than $1 million. Second, if a cost is considered to be materials and supplies, the cost need not be capitalized. Third, if a cost must be capitalized as an improvement to tangible property, a partial asset disposition may be allowed on the old asset. Of course, these are not the only matters to consider during compliance, but they provide a reputable foundation to build upon.
It is also worth noting there are risks of noncompliance with the tangible property regulations. The IRS provides automatic consent for these new regulations in 2014. But, if these changes are not made, the potential benefits will be lost permanently and filing fees of up to $7,000 may be imposed for advance consent in future years. Also, if taxpayers choose not to file for compliance, they are losing audit protection for years 2012 and 2013. The new regulations are complex, and compliance can be difficult, but understanding how they impact your business is critical to maximizing your potential tax benefit. Your Berntson Porter advisor has the resources to assist you in determining how these new regulations will affect your business, and applying them to your facts and circumstances.
Joseph Gates, Tax Staff. Joseph can be reached at 425.289.7621 or [email protected].
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DC AND STATE HIGHLIGHTS Changes and updates to tax laws, regulations and rulings
The Tax Increase Prevention Act of 2014 was signed into law on December 19, 2014. This act retroactively extends
many individual and business tax deductions and credits that expired at the end of 2013.
The highlights include the following items:
Business Extenders:• Sec. 41 R&D credit• Sec. 45D new markets tax credit• Sec. 51 work opportunity tax credit• Sec. 168 provision allowing 15-year depreciation on
qualified leasehold improvements, qualified restaurant property, and qualified retail property
• Sec. 168 deduction for 50% first year “bonus” depreciation• Sec. 179 deduction for up to $500,000 of qualified
property• Sec. 1202 gain exclusion of 100% on qualifying small
business stock
• Sec. 1374 reduction in S corporation recognition period to 5 years for built-in gains tax
Energy Credits:• Sec. 45 credits for renewable
resources energy production• Sec. 45L for new, energy-efficient homes• Sec. 179D for energy-efficient commercial property
Individuals Extenders:• Sec. 62 deduction for certain expenses of primary school
teachers• Sec. 108 exclusion from income of discharge of qualified
principal residence indebtedness• Sec. 163 deduction for mortgage insurance premiums • Sec. 164 deduction for state and local sales taxes• Sec. 408 provision that allows for tax-free distributions
from individual retirement plans for charitable donations
The new law also contains the ABLE Act of 2014 which allows disabled people to save money to pay for their disability expenses using tax-favored accounts. Several revenue-raisers are included in this law to pay for the ABLE accounts, most important of which is the indexing to inflation of many civil tax penalties after 2014.
CLIENT NEWS
We Bring You the WorldHarness the power of Berntson Porter’s International Consultancy Group, providing tax compliance and consulting services through its global network of partners.
We can help you with IC-DISC planning, understanding taxation in other countries, entity structure, estate planning and more.
For more information, contact Liting Chuang, Principal and leader of BP’s International Consultancy Group, at 425.289.7625 or [email protected].
Jeff and Dave Iverson from The RAM Restaurant and Brewery recently announced that qualified team members will share a 30 percent ownership stake in the restaurant groups newly formed employee stock ownership plan (ESOP). The Lakewood based RAM has 31 locations in 6 states and employs 2200. Their newest location in Colorado Springs, CO opened in January.
BP client Jabez Construction/ST Fabrication was named to the Puget Sound Business Journal’s (PSBJ) list of largest minority-owned businesses.
Rainier Industries was awarded an International Achievement Award at the Industrial Fabrics Association International (IFAI) Expo for their work at Liam’s Restaurant in Seattle.
Long Painting added a 44-foot blast booth and spray booth with an AMU Direct Fired Heater to its warehouse, providing them a wide range of blasting and finish coating capabilities in a climate controlled setting.
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11100 NE 8th St., Suite 400Bellevue, Washington 98004
This newsletter is distributed with the understanding that it is not providing legal, accounting, or other professional advice or opinions on specific acts or matters and, accordingly, no liability is assumed in connection with its use whatsoever.
ADDRESS SERVICE REQUESTED
BP NEWSWe’ve moved! BP has successfully relocated to a new office in Bellevue. We are now in the Plaza East building at the corner of NE 8th St and 112th Ave NE on the 4th floor. Come visit us!
President Bob Berntson has been appointed to the AICPA’s Practice Advisory Group committee for 2014-2015.
BP Principal Chris Laine served as Committee Chair for the 35th PrimeGlobal Tax Conference in Newport Beach, CA. Berntson Porter is a member firm of PrimeGlobal, an association of independent accounting firms.
Congratulations to Jenn Lilly, BP Principal and leader of the firm’s Distribution & Manufacturing practice. She was awarded the 2014 Volunteer of the Year by CAMPS (Center for Advanced Manufacturing Puget Sound).
Doug McDaniel, Principal and Director of Forensic, Economic & Valuation Services at Berntson Porter, was a featured speaker at the East King County Bar Association on the topic of Fraud Detection, Prevention, and Investigation Services. He also spoke recently at the Carney Badley Spellman law firm.
Bob and Greg showing off the sign at our new building.
BP Principal Eric Curtiss and Senior Manager Rhett Ennis presented a GAAP and Tax Update for 2015 at the Puget Sound Construction Financial Management Association’s (CFMA) January meeting.
Berntson Porter congratulates Liting Chuang on her recent promotion to Principal! Liting serves as the leader of BP’s International Consultancy Group.
