Month: June 2018

R&D Tax Credits for Food & Beverage Companies

Certain research expenses can help your food or beverage company save on taxes.

Companies operating in the food and beverage industry are constantly facing increased costs in raw materials, fuel, and regulatory changes while trying to keep pricing competitive and gain market share. Rising costs can be related to research and development (R&D), which include developing new products related to food safety, reducing costs, natural ingredients, dietary guidelines, and sustainable resources.
R&D Tax Credits for Food & Beverage Companies
Luckily, federal and state governments offer R&D tax credits to reduce some of these expenses. The credit allows companies to receive tax breaks on costs associated with technological research performed in the United States. These costs do not have to be the direct cause of a new product or process, but rather activities they already perform.

Activities eligible for R&D credits

Activities that may qualify could fall into numerous categories including food, processes, packaging, and sustainability. A few examples are:

  • Improving taste, texture, or nutritional content of food product formulations
  • Developing techniques that will reduce costs and/or improve product consistency
  • Improving machinery and equipment to ensure safe handling of food
  • Create new packaging to improve shelf life, durability, and/or product integrity
  • Switching to a more environmental friendly packaging
  • Costs associated with being more energy efficient
  • Creating new methods for minimizing contamination, scrap, waste, and spoilage

The credits can be as much as 20 percent of qualified research expenses, which include, but are not limited to, wages, supplies, and contract expenses. Remember, the R&D credit is not a deduction against income, but rather a dollar-for-dollar credit against taxes owed or taxes paid.

There are changes to the tax credits under the new tax law. Prior to the Tax Cuts and Jobs Act (TCJA), the corporate AMT tax rate was 20 percent, regardless of credits or certain deductions. Post-TCJA, AMT tax is eliminated and C Corporations will now be taxed at 21 percent, allowing corporations to take greater advantage of these tax credits. However, one limitation still applies. If a corporation has over $25,000 in regular tax liability, they cannot use R&D tax credits to offset more than 75 percent of their regular tax liability.

Under the TCJA, companies will no longer be able to expense costs that are related to research after 2021. These costs will be capitalized and amortized over a five-year period. Expenses for research activities performed outside the United States would be amortized over a fifteen-year period.

We’ve Got Your Back

As a tax advisor in the food and beverage industry, we ensure that our clients take full advantage of these tax credits. If you would like to learn if your company is eligible for these credits, please contact Sean Faust, CPA of KRS CPAs’ Food and Beverage Practice at 201-655-7411 or [email protected].

The New Tax Law’s Impact on Law Firms

New tax rules that apply to law firms are complicated

Lakeland Bank Breakfast presentation
Breakfast with Lakeland Bank: The Impact of the Tax Cuts and Jobs Act on Law Firms. Neil Gordon and Ottilia Stura from Lakeland Bank, with Maria Rollins and Jerry Shanker

KRS partner Jerry Shanker and I discussed the impact of the Tax Cuts and Jobs Act on law firms at a Breakfast with Lakeland Bank on June 12.

From working with our law firm clients and associates, we realized that many firms are still scrambling to come to grips with the tax code changes and develop tax planning strategies around them. The attendees at our Lakeland Bank talk had similar concerns.

While many businesses stand to benefit from the tax code overhaul, when it comes to the Act’s impact on law firms and their partners and associates – it can get complicated.

These key provisions of the Act affect law firms and their members:

  • Reduction in individual and corporate income tax rates
  • $10,000 annual limit on deduction of state and local income taxes (SALT). This includes deduction for real estate taxes
  • No deduction for miscellaneous itemized deductions Increased standard deductions
  • Introduction of new Code Section 199A, which provides for a tax deduction of 20% of qualified business income, subject to limitations and exclusions

Free Guide for Law Firms

We’ve summarized several other key changes in the tax code that impact law firms in a downloadable guide, “The Tax Cuts and Jobs Act of 2017 – Considerations for Law Firms.”

TCJA Considerations for Attorneys
Law firms need to develop new tax planning strategies so they don’t pay more tax than necessary under the new tax laws.

If you are a managing partner or executive at your law firm, understanding the factors covered in the Guide will help you and your firm determine the best strategy for optimizing your firm’s and your partners’ tax positions. By downloading this guide, you will learn:

  • How the choice of business entity – C-Corp, S-Corp, or pass-throughs – is impacted by the updated code
  • New rules for specified service businesses
  • Changes that impact entertainment and fringe benefit expenses
  • Code Section 179 changes that impact expense deductions
  • New limitations on business interest and excess business loss
  • Key changes to Section 199A deductions that impact individual W-2 wage earners.

Download the Guide

We’ve got your back

At KRS, we’re working to help our clients understand and navigate the new tax law changes – and those affecting law firms are particularly complicated. Because each law firm’s and individuals’ taxable income and deductions are unique, each individual set of facts and circumstances must be reviewed.  We’re happy to help you with yours. Contact me at [email protected] or 201.655.7411 for an initial consultation.

Estate Tax Implications for Foreign Investors in US Real Estate

Estate taxes for US persons

An estate of a US citizen or resident alien is subject to an estate tax based upon the value of the worldwide property, owned or subject to certain rights or powers by the decedent on the date of death. The estate tax rate for 2018 is 40% for taxable estates in excess of an $11.18 million exemption, which is adjusted annually for inflation.Estate Tax Implications for Foreign Investors in US Real Estate

A US estate may also deduct from the taxable estate a marital deduction equal to the value of property left to a surviving spouse. The amount of lifetime taxable gifts during the decedent’s life is also included in calculating the gross estate.

Non-resident aliens and their estate taxes

While US citizens and residents are subject to worldwide estate and gift taxation on their gratuitous transfers, non-residents (persons who are neither US citizens nor US domiciliaries) are only subject to the US estate tax on property that is situated, or deemed situated, in the United States.

The gross estate of a Non-Resident Alien (“NRA”) includes all tangible and intangible property situated in the US, in which the decedent has an interest at the time of his death or over which he has certain rights or powers.

The taxable estate of an NRA is taxed at rates up to 40% of the value of estate in excess of a $60,000 exemption. Additionally, the estate of an NRA is generally not allowed a marital deduction unless the surviving spouse is a US citizen.

US property included in an NRA’s estate includes US real property owned or under his control and interests in US partnerships (including those holding positions in real property).

It is important to note the US does have estate tax treaties with multiple countries including Canada, France, Germany, Greece, Italy, Japan, and the UK, amongst others. These treaties may provide estate tax relief to residents of treaty jurisdictions.

Non-citizen spouse

When your spouse is not a US citizen, the unlimited marital deduction is unavailable. This is true regardless of whether or not the decedent is an American citizen. The result is the $11.18 million exemption is unavailable and the entire estate transferred to a non-citizen spouse would be subject to estate tax. With advance planning, the non-citizen spouse estate tax implication can be reduced or eliminated.

Planning to reduce estate taxes

There are several structures that will avoid or minimize the US estate tax of a Non-Resident Alien:

  1. The property can be held in the name of a foreign corporation.
  2. The property can be held in an irrevocable trust or a trust whose assets would not be included in the settlor’s gross estate for US estate tax purposes.
  3. The title can be held in a two-tier structure with the property in the name of an American company (US real property Holding Corporation) whose shares are held by an offshore company.

Although these structures are intended to avoid the US estate tax, the structures may result in the unintended consequence of higher taxes on sale, rental income, and, in some jurisdictions, franchise taxes.

We’ve got your back

If you are a Non-Resident Alien, we can help you plan so that your estate pays no more tax than necessary, while avoiding those unintended consequences. Contact Simon Filip, the Real Estate Tax Guy, at [email protected] or 201.655.7411 today.