Lease Accounting Standard and Private Companies

Anthony LaNasa, CPA, CFE

Managing Principal - Columbus

lanasa@hwco.com

 

The U.S. Chamber of Commerce and other trade groups are trying to get the new lease standard expected to be published this month exempted from Private Companies.  In a January 29, 2016 letter to the Financial Accounting Standards Board (FASB), the trade groups state they do not feel the FASB adequately considered the differences between private and public companies.  This new standard will require all leases (those more than 12 months in duration) to be recorded as assets (right to use asset) and debt on all company’s balance sheets.  This is a significant change from prior guidance related to operating leases that were expensed as paid by companies.

 

The letter states:   “We are concerned that the decision to apply the soon-to-be finalized lease accounting standard to private businesses will exacerbate complexity, not meet the needs of private company investors and harm capital formation for those businesses. Such a decision would presume that users of private company financial statements would prefer capitalizing leases on balance sheets. However, since users of private companies are different than public company financial statement users in both composition and motivation this may not be the case”.  The link to the letter is http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175832675827&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=534659&blobheadervalue1=filename%3DLEASES-16.UNS.0021.U.S._CHAMBER_OF_COMMERCE_SEE_LISTED.pdf&blobcol=urldata&blobtable=MungoBlobs

 

The new standard will apply to all companies (private, public, and nonprofit) and is expected to be released this month.  However, stay tuned to potential last minute changes based on negative reaction such as this.

 

Good news for charitable donors!

Cathy Robinson, CPA

Principal

robinson@hwco.com

 

The IRS has withdrawn proposed regulations regarding the reporting of donor information.  The proposed regulations would have allowed charities to file information returns about donors instead of providing written acknowledgements to the donors.   The problem with filing of information returns would have required obtaining the social security number of donors.  Some charities felt that asking for a social security number would discourage potential donors.  In addition, other charities were worried about identity theft.

 

Therefore, you must obtain written acknowledgement from the charity for a donation over $250 and save it for your tax preparer.

The Research credit has been permanently extended.

Cathy Robinson, CPA

Principal

robinson@hwco.com

 

 

Research and development credits were originally implemented to create jobs and bolster the U.S. position as a leader in technological development. It is also important to note that the name can be misleading as the credit not only covers research and product development, but it also includes new processes, formulas, and software, etc. This effectively extends the industries commonly thought to benefit from the credit to also include industries such as software development and construction (i.e., designing electrical systems, mechanical systems, and testing new building materials, etc.). 

 

The PATH act retroactively and permanently extended this credit, which otherwise would have expired prior to 2015. The qualified research expenses encompass both in-house and contract expenses.  The credit is for 20% of current year qualified spending that exceeds a base amount related to gross receipts in earlier years and cannot exceed 10% of the total spending in the current year on qualified research.

The big impact of the research credit is its ability to be used by eligible small businesses for years beginning after December 31, 2015.  In addition, an eligible small business ($50 million or less in gross receipts) can claim the credit against its alternative minimum tax liability.

 

A second benefit added by the PATH Act allows a qualified small business ($5 million or less in gross receipts) the option to claim a portion of its research credit as a payroll tax credit against its employer FICA tax liability versus  its income tax liability.  If elected, the payroll credit can be claimed beginning with the first calendar quarter after the date on which the small business files its income tax or informational returns for the tax year.

With the start of the new year, it is a good time to have a conversation with your tax adviser to determine if you can qualify for this credit, as well as which option may be most beneficial.

IRS Issues Reminder for Tax-Exempts About May Deadline

Accounting Today announced on May 7^th that the IRS had sent out a reminder on May 6^th to tax exempt organizations. This reminder informs tax-exempt organizations that filing 990-series information returns must be done by May 15^th.  By sending out the reminder they also had hoped to also caution organizations about unneeded personal information and against using Social Security numbers. Instead they’re asking organizations to e-file.

 

The IRS is urging organizations to e-file to help with the reduction of inadvertently including Social Security Numbers and other unneeded personal information.

 

If tax-exempt organizations fail to file annual reports for three consecutive years their federal exemptions are then revoked on the due date of the third filing.

 

Have questions? Contact Nonprofit Director Brandon Miller at (216) 831-1200.

This update is published periodically by HW&Co;. as an information service to our clients, business associates and friends. It is general information and professional advice should be obtained before acting on any comments contained in this document.

The perks of busy season

Every year our firm provides an array of busy season perks for our staff.

From catered dinners to jeans days on Fridays. Keeping our team happy and motivated is our biggest priority.

Our Principals sincerely thank all of our staff for all of their hard work and dedication this season!

(Indian's Home Opener)

(Sundae Monday_that's our CEO scooping ice cream!)

(National Cereal Day!)

(Raising Awareness for Epilepsy)

FASB Issues Update-April 7th, 2015

Anthony S. LaNasa, CPA, CFE

Principal

lanasa@hwco.com

 

 

 

On April 7^th, 2015 the FASB (Board) issued Accounting Standards Update (ASU) No. 2015-03, Interest: Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.  It was part of the accounting board initiative to simplify U.S. GAAP.

 

So what will this new accounting update mean?

 

It means that the costs for issuing debt should appear on a balance sheet as a direct deduction from the debt’s value. The Board stated that these amendments won’t affect the recognition and measurement of the costs for issuing debt.

 

This update is effective for all companies for reporting periods beginning after December 15, 2015.  Adopting these amendments early is also being allowed by the Board, including any financial statements that have not been previously issued.

 

As companies adopt the amendments, they should revise balance sheets for periods being presented prior to the effective date. Once a company adopts the changes, it is required to disclose the applicable information for a change in an accounting principle.

 

The FASB Board is really focusing on simplifying and making U.S. GAAP more readable and understandable.  Lastly, does this change make sense because are debt issuance costs really assets that provide a future economic benefit?  My opinion to that answer is no.

This update is published periodically by HW&Co. as an information service to our clients, business associates and friends. It is general information and professional advice should be obtained before acting on any comments contained in this document.

The HW Group Goes Purple!

Around the world people are wearing purple to show their support of epilepsy awareness. Annually, March 26th represents a global show of support of epilepsy awareness.

Did you know that 50 million people world wide live with epilepsy and that 50% of those affected don't know the cause? Did you also know that that 2.2 million Americans are living with epilepsy? The facts are scary, but true.

We are proud to raise awareness of such an important cause and invite each and every person to join us in wearing purple next year.

Want to learn more about epilepsy? Or want to know how you can help make a difference? Click on any of the links below for more information.

http://epilepsyinfo.org/

http://www.purpleday.org/aboutepilepsy