Kitchen & Bath Design News

FEB 2019

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"Ordinary income less ordinary expenses less owner W-2 wages," Eto explains. "In addition, gross receipts thresholds were raised considerably from $1 million or $5 million to $25 million. For example, a company can now be on the cash method of accounting if the three-year average of gross receipts is less than $25 million," he explains. "Individual rates were also lowered," he adds, for the benefit of everyone else. On the flip side, Eto notes, it may take more pain for business owners to get those benefits: Expect your tax preparation fees to increase, he warns. "More work will need to be done, espe- cially when applying the test for the qualified business income deduction. Or if a change in accounting method is done, a form must be filed, which takes time to prepare." Bottom line, though, the CPA notes: "The benefits of the new law should outweigh the costs. "The TCJA is fairly business friendly with the lower rates, relaxed gross receipts tests, enhanced depreciation, etc.," Eto shares. "However, there are some disadvantages. For example, there are new limitations on deduc- tions for state and local taxes and mortgage interest, which may play a role in someone's decision to buy or rent a home." The deduction limits will impact residents – especially home- owners – of higher tax states more heavily. One last caution he offers: "There are new accounting standards that will affect the indus- try. The main one is the new revenue recogni- tion standard. It is effective for private com- panies for annual periods beginning calendar year 2019." (Ask your CPA about this.) If you're leasing equipment, its accounting will change in the 2020 calendar year. (Ask about this, too.) BUSINESS OWNER'S TAKE If you're still reading this article, you might be a business owner like Beth Dotolo. The princi- pal designer and co-founder of Pulp Design Studios has one business partner, seven em- ployees and three locations: Seattle, where she's based, Los Angeles and Dallas. Does she do her company's taxes? "No way – we hire people who are good at what they do! We're designers – we're good at that." Her firm uses a bookkeeper and an accountant and tracks income and expenses meticulously. "We keep up with it all year – it's important to document everything, and to know where you stand." 2018 brought a change to the company, she says. "We've already taken steps to prepare for the new tax laws by be- coming an S-Corp." Unless you have locations spread around the country, your taxes are probably simpler than Dotolo's. "Keeping up with the laws in each state is a challenge – and that's why we hire professionals," she declares. Is one tougher than another? "No state is more difficult or easier – Washington has higher state taxes and more regulations. But each state has its own challenges to keep up with." If there were one thing she could change about the tax process if she could, her response was direct: "Simplify it. It's just too difficult right now." Sadly, that's one tax trend that is unlikely to change for business owners in this industry, according to experts like Eto. TAX STRESS Whether you're a business owner, employee or freelancer, tax time can be stress time. That, too, has not changed. Dr. Victor Wong, M.D., a San Diego-based primary care physician with healthcare provider Kaiser Permanente, says he doesn't see any gender-based stress trends, but age plays a role. "Baby boomers tend to share and vocalize concern as a way to deal with stress. Seniors, currently in their mid-70s and above, tend to internalize stress. Many of my millennial patients have already researched their stress concerns online and have a plan in mind before meeting with me." Dr. Wong compares the stress trend lines of annual tax filing with those of an unexpected audit: "I would categorize the upcoming dead- line as an anticipated stressor. As the deadline nears, your mind and body are readying them- selves to tackle this yearly task. In contrast, an unanticipated audit can result in an acute stress response known more commonly as 'flight- or-fight' type reaction. There are immediate physical changes such as increased heart rate and respiration, slowed digestion, shaking and dry mouth." For those concerned about an audit, the fact that the number of Americans actually audited by the IRS has been trending downward for most of this decade should come as a comfort. TAX AVOIDANCE This might be the year you want to make some big changes. Maybe you decide to start your own business, expand a business you own, or maybe you decide to retire. All of those financial choices can impact your tax position for next year. Certified Financial Planner and NAPFA Registered Financial Advisor Jim Shagawat, owner of Windfall Wealth Advisors in Paramus, NJ, points to some tax trends you can tap into: "The new tax plan creates incentives for employees to become indepen- dent contractors. For the first time ever, most self-employed individuals (either as sole pro- prietors, or as owners of partnerships, LLCs, or S-Corporations) will have a lower tax rate than employees doing similar work, due to the 20 percent QBI deduction. Because of this, many workers will want to change their working relationship from employee to independent contractor." If you're one of the many baby boomer kitchen and bath professionals ready to hand your business to a successor and enjoy the fruits of your labors, you can take advantage of steadily increasing tax-free retirement contri- bution trends. "It's time to start or adjust your business retirement plan," the financial advisor suggests. "The choices basically boil down to a Solo 401(k) Plan, SEP IRA, SIMPLE IRA, or Profit-Sharing Plan. The goal is to choose the retirement plan that will maximize your tax-deferred savings." The 2019 IRA limits and contributions are both increasing, a trend everyone can embrace. LAST WORDS One trend that hasn't changed is the value of sound advice and planning. "Focus on having an investment strategy that meets the require- ment of your risk number [personal toler- ance], your age, cash flow needs and longev- ity," Shagawat suggests. And, as Beth Dotolo notes, call on tax professionals as you'd call on plumbers, electricians, technology integrators and other experts in their field to tap into the tax trends that best fit your business and life needs. ▪ Jamie Gold, CKD, CAPS, MCTWC is an independent designer in San Diego, the author of New Kitchen Ideas That Work and the New Bathroom Idea Book (Taunton Press), and a design journalist, NKBA Chapter Presenter and industry consultant. Her website is jgkitchens.com. She was named one of Kitchen & Bath Design News' 50 top innovators for 2017. Time-crunched small business owners can man- age stress with more movement at work. A steam shower with chromatherapy can help manage the stress of tax season. Photo: Courtesy of Humanscale Photo: Courtesy of ThermaSol and New Bathroom Idea Book, Gold, © 2017 48 Kitchen & Bath Design News • February 2019 TREND SPOTTING

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