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

2019 Washington Tax Legislation ....................3

New Lease Accounting Standard........................4

BP News.........................4

Inheriting an IRA: I Require Assistance .....5

Client News ...................5

Income Tax Obligations of Non-Residents of Canada ..........................6

DC and State Highlights ......................7

Summer 2019

PRINCIPAL’S CORNER Bob Berntson Receives Prestigious Leadership Award Through Vistage WorldwideEarlier this year, Berntson Porter CEO, Bob Berntson, was recognized by Vistage Worldwide with its 2019 Leadership Award.

Vistage described Bob’s success as “executing on a simple idea: treat[ing] his employees and clients well. In practice, this mean[s] working with his Vistage peers to innovate around workplace culture, customer relations and services, all of which have earned the CPA firm local and national recognition as a top place to work.”

I sat down with Bob to learn more about this award and how his leadership has evolved Berntson Porter into an award-winning, multi-faceted accounting and consultancy firm.

Amy Ellisor, Berntson Porter Marketing Director

Q: You’ve recently been recognized by Vistage Worldwide with a special award, congrats! What is Vistage and how did you get involved with the organization?

Bob: “Vistage is a peer network of leaders that get together monthly to hear speakers and work with each other on education, best practices and developing business opportunities and issues. It’s about one business owner helping another so each can have greater understanding and success. I knew the chair of my group, Tom Zahniser, who is an excellent facilitator. He recruited me and asked me to join, which I was reluctant to do at first due to time commitments, but very thankful I did. And that was 14 years ago!”

“There are so many benefits to Vistage. Having experienced CEOs in other industries to help address some of the issues / opportunities for our business and people – it’s invaluable and has impacted the direction of our company during pivotal times. Vistage was instrumental in helping during the great recession and also in being a sounding board for our leadership transition plans, for example when Mary Actor became BP’s President.”

Q: Tell me about the award; how were you selected and what is it for?

Bob: “Vistage’s Leadership Award is a regional award that honors a member for their recent or ongoing achievement in leadership that benefits their companies, families and communities. Vistage members are organized into smaller ‘peer advisory groups.’ Each peer advisory group decides as a team who from their group they would like to nominate and they chose me for this award. They also nominated Greg Lambert (whose company, Terra Staffing, is highlighted in this newsletter – see Page 2) for the Impact Award. I was both surprised and happy that I won. This award is really a reflection of having an exceptional team of principals and employees, as well as fantastic clients and a great business community. I feel that it is really an award for the whole firm. Also, I feel fortunate to have started the

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Once again, Berntson Porter & Company was named a Top 10 MidSize Company to Work For in Washington by Seattle Business Magazine!

Congrats to each of our outstanding team members!

We’re on a roll!

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PRINCIPAL’S CORNER (Continued)

firm with Greg Porter back in 1985; he’s been a tremendous partner and friend over the years. I think we both are happy and a little surprised on how far we have come together.”

Q: What is your philosophy about leadership? What makes a great leader and how did you learn to become one?

Bob: “My philosophy is that leadership is both an exciting challenge and a gift. You are being entrusted to lead important relationships with clients, your team and your community and so it is incumbent on you to do your best. Most people I know, including me, did not go to school to become leaders and found themselves learning on the job with help from mentors, associations, other business people and groups like Vistage.

My advice to them is to be a constant learner, try to learn from every interaction and see the world from a win / win standpoint whenever possible. Also, remember to take care of your people; a true leader can put their own needs aside in order to serve their employees and clients. If you look behind you and no one is following you, then you’re not leading.

Some other thoughts: Be open to constructive criticism so you can innovate and improve over time. And remember that none of us does it alone: create relationships and networks where you can reach out for help.”

Q: How has your leadership changed over time?

Bob: [laughs] “I’ve gotten calmer over time. But at the heart of it, I’ve always been a coach for people; my philosophy has been to choose great people, point them in the right direction, and they’ll win the game. I build the teams that are necessary to do the work we do; we win when I help them perform their best. If you treat your people well, whether it’s your customers, employees or the greater community, things seem to work out.”

Q: What is an example of how you empowered others in your firm to become leaders and take on key roles in the firm?

Bob: “You know, the great recession taught us many lessons about efficiency and the need for systems. It was an opportunity for companies to take stock of their operations and learn how to improve processes and resource management, etc. I realized that as the leader of the firm, I needed to do something.

We created GASCAP, which stands for Goals / Accountability /

Support / Communication / Appreciation / Performance. It’s a reporting framework that allows people to make smart goals and communicate their progress to executive leadership via a green / yellow / red status. It’s changed our business because I can now spend 45 minutes in a meeting with all of our firm’s leaders and know exactly where they are at and how I can help them. GASCAP allows emerging leaders to be transparent about their progress – whether things are great or they need help – and provides them better visibility among our executive committee. Initially, the hardest part was that I had to be transparent too with my own goals, but when people saw me do it, it transformed us. It’s still transforming our business.”

Q: In three words, what are the key characteristics that each leader must have?

Bob: “You have to be a ‘decision maker,’ you have to ‘care’ and you have to be able to assess ‘risk.’ And an important fourth quality: you must ‘communicate’ with your people.”

Q: What other advice / wisdom do you have for business owners on leadership and developing your people?

Bob: “My advice is to make it a top priority to reach out to your networks and be open to being part of groups like Vistage. Realize that no one has all the answers. Leadership’s a journey.”

For any business to be successful, you need the right talent onboard. Whether that’s key leadership staff, highly

specialized skill sets, adequate staffing to handle core business functions, or flexible staffing for peaks seasons and projects—the team with the most talent wins. Smart firms turn to experts like TERRA Staffing Group to help them manage this critical piece of their business.

TERRA Staffing Group has been delivering a broad range of staffing solutions to clients ranging from small, privately held companies to Fortune 500 firms across diverse industries since 1983. In that time, the company has established themselves as a leader in the industry earning eight years in a row the coveted “Best

CLIENT SPOTLIGHTof Staffing,” an award given to less than 2% of the industry for customer satisfaction scores that rank among the very best in the North America.

“Highly accountable service with a focus on delivering great outcomes for our clients is core to who we are at TERRA. Our success is built on that foundation and that’s the same thing I look for in choosing key vendors and professional services partners. That’s exactly what we’ve found with Berntson Porter,” said Greg Lambert, CEO. “We’re committed to being the best we can be as a service provider, as an employer and as a force for good in our community. Berntson Porter shares those values and that’s important to me.”

TERRA Staffing Group is headquartered in Everett, WA and has been growing rapidly beyond their Puget Sound home base. The company currently has 11 offices serving three

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2019 WASHINGTON TAX LEGISLATION click through nexus provisions are eliminated. Use tax notice and reporting requirements are eliminated beginning July 1, 2019. For additional information on the Wayfair case and sales tax nexus changes, please see the Winter 2019 BP Newsletter, available on our website.

• The due date for businesses filing returns on an annual basis is changed to April 15th, starting with the 2019 tax return. This is to better accommodate independent contractors who may not receive 1099s until after the current January 31st due date.

• To incentivize development of commercial office space outside King County, cities are authorized to adopt a local sales tax refund incentive for development of qualified commercial office space as well as programs to use related property tax revenues to fund public improvements. The law is currently in effect, but cities must pass authorizing legislation. Contact the relevant city to determine if they are participating and for program details.

• The nonresident sales tax exemption program has been changed to a refund program. Businesses should charge sales tax to all buyers in WA (including previously exempt OR residents) beginning July 1, 2019.

• An additional B&O surcharge of 1.2% on specified financial institutions (consolidated revenues $1 billion or more) effective January 1, 2020.

The one silver lining of this year’s session is that a capital gains tax, which has been introduced in the last several sessions, failed to pass. However it’s too soon to declare this issue dead, especially if there are legal challenges to any of recent tax changes.

Rachel Roberson, CPA, Tax Senior Manager and Leader of State and Local Taxes. Rachel can be reached at 425.289.7664 or rroberson@bpcpa.com.

major geographic markets—Seattle-Puget Sound, Portland-Metro and the Greater Phoenix area with plans to expand into additional markets in the next 12-18 months.

Greg turned to Berntson Porter at a key time in TERRA’s growth when he felt that he needed the capabilities of a larger CPA firm. The company has been growing at a rate of 15-20% year over year and has nearly doubled in revenue since they began working with Berntson Porter.

Greg credits the team at Berntson Porter with helping TERRA successfully navigate the challenges that come with managing a high-growth, cash intensive business with complex taxation issues. Some of the key ways Berntson Porter has helped TERRA include business planning, estate planning and business valuation.

“At TERRA we like to say that we’re big enough to be really smart but still small enough to care and that’s what I appreciate about Berntson Porter,” Greg explained. “They go far beyond just processing data. Our team at Berntson Porter provides advice and expert guidance that helps us get the most value from the business.”

If your company could use assistance with staffing whether that’s hiring for a key role, competing for high-demand talent or putting together a cost-effective strategy for using temporary/contract staffing, you can learn more by visiting www.terrastaffinggroup.com or contact Corporate Sales Manager, Lindsay Schaible at Lindsay.Schaible@terrastaffinggroup.com.

This year, the Washington legislature passed some significant tax changes that will impact many businesses.

While some of these were expected, several changes including a significant Business and Occupation (B&O) surcharge were introduced and passed at the last minute. Here is a summary of the main tax changes passed this legislative session. A full summary of all tax legislation can be found on the Department of Revenue’s website.

• 20%+ B&O surcharge on select industries. We covered this bill in a previous blast (see bpcpa.com/bp-blasts for details). Most businesses who report revenues under the Service and other Activities classification will need to pay a 20% surcharge (for a combined effective rate of 1.8%) if they are in an industry that benefits from an educated workforce. Large businesses (annual combined revenues of $25 billion or more) will pay a higher tiered surcharge on their revenues. The funds are dedicated for workforce development and higher education programs and assistance. The tax increase is effective January 1, 2020 and we are awaiting interpretive guidance from the Department of Revenue.

• Graduated Real Estate Excise Tax (REET). This bill was also covered in a previous blast, and adjusts the state portion of the REET tax paid on real estate transactions to a tiered rate between 1.1% - 3% based on value. The current rate is 1.28% and this would remain the same for transactions valued between $500,001 - $1,500,000. Changes in controlling interests of real property are also impacted with longer three year review window. This change is effective for transactions beginning January 1, 2020.

• Codification of Wayfair policy changes. Any business with Washington sourced sales of $100,000 or more annually is required to register and pay all taxes administered by the DOR (B&O, sales/use taxes, etc.) including most foreign businesses selling into Washington (effective January 1, 2020). This is a reduction from the previous $285,000 threshold which applied to each B&O classification ($100,000 for sales tax collection). The previous 200 transaction threshold and

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NEW LEASE ACCOUNTING STANDARD

In February 2016, the Finan-cial Accounting Standards

Board (FASB) issued new rules on accounting for lease transactions. This new standard aims to reduce off-balance sheet accounting of leases and move towards more principle-based accounting practices for leases. The concepts of operating and capital leases that exist under

current standards will be replaced and almost all leases will be required to be capitalized on the balance sheet with a right of use asset and a corresponding lease liability. The right of use asset will be a long-term asset, while the lease liability will have a current and non-current portion.

Under the standard leases will be classified as either operating or finance, and both will be capitalized on the balance sheet, which is a significant change from current guidance. While both types of leases are capitalized, the accounting rules for the two types of leases are unique.

The standard also provides technical guidance to assist in determining if a lease arrangement exists, proper classification of the identified lease, initial and subsequent measurement of each lease, and the required financial statement disclosures. Due to the complexity and significance of the changes, companies may require new internal control procedures to review contracts for proper lease recording. Additionally companies may require new software to aid with the lease tracking and calculations.

Now is the best time to start planning for these changes. Below are a few things you can do to begin preparing:

• Build a team – Determine which individuals in the organization should be involved in analyzing the impacts as well as developing policies and procedures to implement the new guidance. Consider including key members of

management, accounting, IT, and other departments that may be involved in current leasing activities.

• Learn the standard – The designated lease team should educate themselves on the standard and implementation guidance. BP is available to provide additional information and resources to assist in the adoption of the new standard.

• Review current contracts – Determine appropriate accounting treatment of existing leases and consider impacts future leasing arrangements. Ensuring that relevant leases are adequately disclosed in current financial reporting can reduce questions from users in the future. Proactive analysis of the impact to the financial statements will aid in planning for future lease transactions and provide insights for discussions with financial statement users.

• Consider software solutions – Determine if it will be necessary to implement a new software solution or modify the company’s existing programs to ensure appropriate tracking and financial reporting.

• Review debt and reporting compliance and covenants – In general, companies will see an increase in noncurrent assets, noncurrent liabilities, and current liabilities upon implementation. Key financial ratios such as liquidity and leverage ratios will likely be negatively impacted and it is important to understand how the changes will affect your financial ratios and consider how these changes will impact your current and potential lending agreements.

• Communicate with lenders, insurance, and other third parties – Begin conversations with third party users of your financial statements. You may need to negotiate changes to compliance ratios based on your projected financial reporting impacts.

Does your firm need anInternal Controls Review?Internal control is a process for assuring your organization is operating efficiently and compliant with laws and regulations.

Having solid internal controls is your best protection against various types

of fraud.

Want to learn more? Contact Steve Peterson, Principal and Director of Assurance Services at speterson@bpcpa.com

or 425.289.7669.

BP NEWSAnother award! Berntson Porter is proud to be named one of Construction Executive’s Top 50 Construction Accounting Firms in the nation. Wow!

BP’s Real Estate practice partnered with the Washington State Chapter of NAIOP (National Association for Industrial and Office Parks) to conduct the first annual Commercial Real Estate Development (CRED) survey. The survey will provide quality regional data and analysis on the real estate development industry in the Puget Sound area. Watch for the release of this informative report in September!

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CLIENT NEWSBamboo Learning, an educational software company, launched for new skills for Alexa: Highlights Storybooks from Bamboo, Bamboo® Books, Bamboo® Math, & and Bamboo® Music. Their services are designed to help kids learn via engaging content and experiences.

Congrats JPC Architects, Fuel Talent, OAC Services, Inc., Outreach, Plaster Group, and Thrive Communities – all were named 2019 Best Workplaces by the Puget Sound Business Journal (PSBJ). Way to go!

The following companies were included in the PSBJ list of Washington’s Largest Women-Owned Companies: Auburn Mechanical, JPC Architects, and Fuel Talent.

Among the 2019 AGC Build Washington Awards Winners were Foushee & Associates and Abbott Construction. Special congrats to Greg Boyd of Absher Construction who was named Safety Professional of the Year.

General Contractors Magazine named Fairweather Masonry #19 in the Top 25 Best Mason Contractors in the United States. Wow!

The new standard impacts all entities (public, nonpublic, not-for-profit, etc.) with lease agreements which exceed 12 months, but the nature and terms of each lease will result in varying impacts to a company’s financial statements. Currently, nonpublic entities are required to implement the standard for annual reporting periods beginning after December 15, 2019. However, the Financial Accounting Standards Board (FASB)

INHERITING AN IRA: I REQUIRE ASSISTANCE

For those who have inherited an Individual Retirement Account from a loved one that has passed away, they know

the rules can be confusing and there can be multiple options on how to handle the inheritance. Below are some of the options on what can be done with the account and when action needs to be taken. Luckily there are many people who can help you walk through this process, and your options, but it is always good to have done your homework. All of the below rules apply to traditional IRAs, as beneficiaries of Roth IRAs can withdraw the funds tax and penalty free in most cases.

IRA Inherited from Someone Other than a SpouseIRAs are good vehicles for passing on wealth to next generations due to their tax benefits and options for beneficiaries receiving the account or assets within. For someone who is named as a beneficiary on an IRA, there are multiple ways to treat the account and funds.

Turn the IRA into a “Stretch IRA” – Beneficiaries of IRAs may able to “stretch” the distributions from the IRA by following the required minimum distribution (RMD) tables based on the beneficiary’s own life expectancy. Someone in their 20’s will only be required to take a small distribution from the IRA every year to include in taxable income and, thus, save on taxes. The IRA will also grow tax deferred as they take their RMDs. Unfortunately, it isn’t clear how much longer this approach will be available as both the U.S. Senate and the House have bills which attempt to speed up distributions from these “Stretch IRAs.” The House bill has a maximum of 10 years before it must be distributed out and in the Senate version only the first $400,000 of the inherited IRA can be “stretched” with the excess balance of the IRA being distributed within 5 years.

Completely Cash out the IRA within Five years. – Beneficiaries can cash out their inherited IRA by Dec. 31st of the fifth year following the date of death of the person the IRA was inherited from. As long as the entire account is distributed out by December 31st of the fifth year, any amount and timing of the amount can be done. Some tax saving strategies for taking out the funds can still be done if this option is made. The distributions are included as income on your personal tax return so taking the funds during a year with a low tax rate or spreading it evenly throughout the five years may have the best tax advantage.

IRA Inherited from a SpouseThe rules for inheriting an IRA from a spouse are much simpler.

Someone who has inherited an IRA from a spouse has two options: remain a beneficiary of the IRA or add the assets to their own retirement savings. If you choose the first option, you will follow the rules already talked about for an IRA inherited from someone other than a spouse above. If you choose the second option, you can either transfer the funds from your spouse’s IRA straight to your own or you can retitle the existing IRA into your own name. Both of these options are tax free as long as the funds are transferred to your own IRA within 60 days of being distributed out of the account.

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has recently announced that they plan to postpone the effective date of the standard by one year to annual reporting periods beginning after December 15, 2020.

Josh Fairbanks, CPA, Assurance Services Manager. Josh can be reached at 425.289.7680 or jfairbanks@bpcpa.com.

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INCOME TAX OBLIGATIONS OF NON-RESIDENTS OF CANADA

Under the Income Tax Act Canada (“Act”), a non-resident of Canada is liable for tax in Canada if the non-resident

was employed in Canada, carried on a business in Canada, or disposed of a taxable Canadian property, at any time in the year or a previous year. The definition of business under the Act is very broad, and it is a question of fact whether a business is being carried on in Canada.

A review of the relevant tax treaty may provide an exception for the non-resident’s Canadian income tax liability but will not waive the non-resident’s requirement to file a Canadian income tax return.

Services Provided in Canada by Non-Residents Any time a payment is made to a non-resident in respect of services provided in Canada the payor (regardless of residency) is required to withhold 15% of the amount paid and remit this amount to the Canada Revenue Agency (“CRA”) under Regulation 105.

The payor is required to report the amount paid and the amount withheld on Form T4A-NR. The tax slip(s) must be filed with the CRA and provided to the non-resident by the end of February following the calendar year in which the payment for the services was made.

The non-resident will be required to file a Canadian tax return to report the income earned and can apply the amount withheld against the Canadian tax liability, if any.

Relief – If the non-resident will not be liable for taxes in Canada due to an exemption in the relevant tax treaty, a wavier may be obtained to eliminate the payor’s withholding requirement. The payor will be required to withhold on payments made to the non-resident during the application time.

Even if a waiver is obtained, the non-resident is still required to file an income tax return in Canada.

Payroll Tax Employer Obligations – There is a requirement under Regulation 102 for employers (regardless of residency) to withhold amounts from remuneration paid for office or

employment services provided in Canada by Canadian resident and non-resident employees or officers.

The employer is required to report the employment income and amounts withheld on an information return and Form T-4. These must be filed with the CRA and the slips provided to the employee by the end of February following the calendar year in which the employment income relates.

Relief – If the non-resident employee will not be liable for taxes in Canada due to an exemption in the relevant tax treaty there is an ability to waive this withholding.

There are two methods available to apply for relief:

1. Certification under the Qualifying Non-Resident Employer (“QNEr”), Qualifying Non-Resident Employee (“QNEe”)

When and who to go to for Assistance?December 31st of the year after the year of death of the IRA account owner is the date a decision must be made on whether to stretch the IRA or cash it out. If no decision is made within that time frame, the default is cash-out of the IRA within five years.

The death of a loved one can be hard and not an easy time to make financial decisions.

Call us when you know you have inherited an IRA from a loved one. We can help walk you through the process, consult on the most tax advantageous option and fit it into your investment portfolio.

Elizabeth Stephan, JD, Senior Manager and Director of Estate and Transition Services. Elizabeth can be reached at 425.289.7665 or estephan@bpcpa.com.

BUSINESS VALUATIONS YOU CAN COUNT ON

Berntson Porter is your trusted source for multi-purpose business valuations. Our experts provide:

• Dissenting shareholder, partnership dispute and divorce engagements

• Effective and supportable IRS gift and estate tax valuations

• Business acquisition financing and bank loan recapitalizations

• Built-in-gains for C to S Corporation conversions

Doug McDaniel, Principal and Director of the Forensic, Economic and Valuations Department. Doug can be reached at 425.289.7617 or dmcdaniel@bpcpa.com.

Berntson Porter & Company is pleased to feature Sheryne Mecklai of Manning Elliott LLP Vancouver Chartered Professional Accountants as a contributing writer in this issue of BP Report. Sheryne has extensive experience working on engagements such as complex estate plans, cross border assignments and Canadian corporate, trust and personal tax compliance. For more information, refer to the contact information provided below.

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In either case the employer will be required to withhold and remit the payroll tax withholdings to the CRA prior to the receipt of the certification or waiver.

Regardless of whether certification or a waiver is obtained, the employer is still required to report the employment income on the information return and slips as noted above.

Employee Obligations – Persons employed in Canada (regardless of residency) must file a Canadian personal income tax return to report their employment income whether or not they are subject to Canadian income tax. This return is due by April 30th of the following calendar year.

To learn more about Manning Elliott or to contact Sheryne Mecklai, visit https://manningelliott.com or call 604-714-3600.

If you have any questions on your international operations, please contact Liting Chuang, CPA, MPAcc (Tax), Principal and Director of Berntson Porter’s International Consultancy Group. Liting can be reached at 425.289.7625 or lchuang@bpcpa.com.

Program – A QNEr (an employer resident in a treaty country certified by the Minister of National Revenue) while certified is not required to withhold and remit source deductions on salaries paid to a QNEe for employment service provided in Canada.

A QNEe must meet all of the conditions below:a. Resident in a treaty country at the time of the payment;b. Not liable for tax in Canada on this income because of

the tax treaty; andc. For the period that includes the time of the payment

either: i. Works in Canada for less than 45 days in the

calendar year; orii. Present in Canada for less than 90 days in any

12-month period.

2. Applying for a Regulation 102 Waiver – If the employee is not a QNEe, the employee can apply for a Regulation 102 waiver from tax withholdings if the employee’s remuneration is exempt from tax in Canada under the relevant tax treaty.

Buying or selling a company is a complex process.For business owners considering this and other critical decisions, Berntson Porter is proud to offer investment banking, strategic advisory, and corporate finance services through our subsidiary: Berntson Porter Corporate Advisory, LLC.

Contact Gregory Noone or Pitt Means, Managing Directors, for more information.

Gregory: gnoone@bp-cas.com Pitt: pmeans@bp-cas.com

M&A Advisory Services – Part of our Winning Team

CALL: 425.615.7088

DC AND STATE HIGHLIGHTS Changes and updates to tax laws, regulations and rulings

Oregon Corporate Activity TaxOregon will have an additional corporate activity tax beginning in 2020. Taxable commercial activity in the state over $1 million will be taxed at 0.57%. Taxpayers are allowed to subtract 35% of the greater of cost of goods sold or labor costs from the commercial activity sourced to the state. Every taxpayer with commercial activity in the state over $750,000 must register with the Oregon Department of Revenue and taxpayers with activity over $1 million must file a return. The

tax is accompanied by a reduction in Oregon personal income taxes by 0.25% on income under $125,000.

Clarification on Tax Extenders ComingThe Senate Finance Committee has launched a bipartisan taskforce to address tax extenders and other temporary tax policy that has or will expire between December 31, 2017 and December 31, 2018. Many of the 42 provisions they are evaluating are related to green building incentives. To fund the extenders, the taskforce is considering undoing the increased estate and gift tax exemptions two years early, reducing them in 2023 instead of 2025. The bill is being stymied by proposals to expand the earned income credit and child tax credit and a reluctance to reduce the estate tax exemption. Official announcements regarding which provisions have been renewed are expected by the end of the summer.

Kiddie Tax to Return to pre-TCJA VersionThe “kiddie” tax that taxes dependent children’s unearned income at a higher rate to prevent high income individuals from transferring their income earning assets to their children in order to benefit from differing tax rates will be returning to its prior form. The Tax Cuts and Jobs Act had simplified the kiddie tax and made it more aggressive. Unintended consequences for children receiving survivor benefits or scholarships has led Congress to begin rolling the tax back to its original form and are considering removing it entirely.

IRS Finalizes SALT Cap RuleThe Tax Cuts and Jobs Act limits the deduction taken on

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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

11100 NE 8th St., Suite 400Bellevue, Washington 98004

DC AND STATE HIGHLIGHTS (Continued)

federal returns for state and local taxes paid at $10,000. This cap has greatly limited deductions for high income taxpayers who often pay $10,000 in real estate taxes alone. In response, high-tax states like New York and California have offered state tax credits for charitable contributions to certain state-sponsored organizations. This has led the IRS to reduce the charitable contribution deduction by the value of state tax credits received. The IRS is now instituting a safe harbor for taxpayers under the $10,000 cap that will allow taxpayers to elect to treat the disallowed charitable contribution as a state tax payment.

Employer Furnished Meals are Usually CompensationThe IRS has provided additional guidance on the treatment of employer-provided meals to employees. Historically, meals provided for the benefit of the employer have been deductible by the employer and were not considered compensation to the employee. Now under the new guidance, unless the employer operates an eating facility that prepares the food and covers its own costs, or the employees are not able to leave the premises at mealtimes, the meals are either considered compensation for the employee or are non-deductible for the employer. Thankfully, snacks and non-alcoholic beverages that are provided periodically throughout the day are still considered deductible and excluded from wages.

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