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ACCOUNTING SERVICES RAMPS UP IN JANUARY
Inside: Accounting Services Ramps Up in January Page 1-2 Helping Staff Deal with Burnout
Page 2-3
Wrapping Up Charitable Giving this Holiday Season
Page 4
Tips for the New Tax Year
Page 5
Commercial COVID Grant Funding
Page 6-7
Cheryl Stout, Associate, Accounting Services Department Social Security Administration by January 31, 2022. Copies B, C, and 2 of Form W-2 are due to your employees by January 31, 2022. You will meet this requirement if the form is properly addressed and mailed on or before the due date.
Real Estate Sales – Ordinary Income or Capital Gain? Page 7-8 Is my employee Long-Term or Part-Time for our 401k Plan? How does this affect me? Page 9 KT News
Winter 2022 Volume 28 Issue 1
Page 10-11
Bookmark the KTLLP Blog page for updates at ktllp.com/category/blog
Rapid City, SD 810 Quincy Street 605-342-5630
Spearfish, SD
741 Main Street, Ste 230 605-642-7676
Custer, SD
609 Mt. Rushmore Rd. 605-673-3220
Gillette, WY
305 S. Garner Lake Rd., Ste. A 307-685-4433
Cheryl Stout, Associate, Accounting Services Department
For employers, January is not just the beginning of a New Year, it is also the end of the previous year. While we are wrapping up 2021, let’s not forget to start 2022 strong. The best place to start is by asking your employees to update their Form W-4 for 2022 including any address changes, so employers can get them updated before mailing out W-2s in January. It is also a good time to go through your vendor list and request Form W-9 from the vendors to which you will be issuing Form 1099. The penalties for late filing 1099s are no longer a slap on the wrist. With penalties of up to $540 per form, even a small business could face tens of thousands of dollars in fines. Forms W-3 and W-2 for 2021 are due to be mailed or electronically filed with the
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Something new for 2021 is that the employee’s Social Security number may now be truncated on the employee copies of the W-2. Truncation of the Social Security numbers on these copies is voluntary. Do NOT truncate their Social Security number on copy A (Social Security Administration) of the W-2 form. An employer’s Employer Identification Number may not be truncated on any form. The Social Security Administration encourages all employers to electronically file their W-2 forms. However, you must electronically file your forms if you are required to file 250 or more forms for 2021. Pending IRS final regulations, this requirement may be reduced to 100 forms for 2022, and 10 forms for 2023. Visit ssa.gov/employer/returnfilers. html for more information. Employers who claimed credits under the FFCRA or ARPA are required to separately report the qualified leave wages to their employees. This should be reported on the W-2 in Box 14, and you must separately report the total amount of qualified sick
(Accounting Services Ramps Up in January continued on page 2)
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leave wages paid for reasons 1-3 (Self Care), qualified sick leave wages paid for reasons 4-6 (Dependent Care), and qualified expanded family leave wages. The Employee Retention Credit (ERC) ended for most employers as of September 30, 2021. There are provisions in the law for recovery startup businesses that pay qualifying wages between July 1 and December 31, 2021. Recovery startup businesses are those that started after February 15, 2020, and have annual receipts of less than $1 million.
Form 941 for the 4th quarter has no changes from the 3rd quarter form. This is a huge relief because the form has changed often due to COVID Credits. The 4th quarter Form 941 is due January 31, 2022. Form 940, 941, 943, 944, and 945 forms can now be electronically filed as well. Please see your bookkeeper for more information if you would like to participate.
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to Miscellaneous Information and are due by February 28, 2022, if they are paper filed, and by March 31, 2022, if they are electronically filed.
Form 1099-NEC must be filed on or before January 31, 2022. Form 1099-MISC has had a title change from Miscellaneous Income
Ketel Thorstenson, LLP understands that the 2021 payroll tax forms have been more complicated than prior years. We have stayed on top of all the changes, and are here to help with any questions or concerns that you may have.
HELPING STAFF DEAL WITH BURNOUT
Amanda Dokter, SHRM-CP, PHR, Manager, Human Resources Department What is employee burnout? It’s defined as a response to prolonged exposure to emotional, physical, and interpersonal stressors (like a pandemic or staffing shortages) that cause staff to feel constantly tired, fed up, annoyed, and as if nothing they do makes a difference. Sound familiar?
Amanda Dokter, SHRM-CP, PHR, Manager, Human Resources Department
Have you seen a change in your staff’s behavior lately? Do they seem less engaged? Are your top performers no longer meeting your expectations? Have you seen an uptick in sick days or requests for time off? If so, your staff may be feeling the effects of burnout.
Burnout can negatively impact your entire team or one staff member. No matter if it’s one person or many people, it can negatively impact your business. The first step to combat burnout is for supervisors and managers to understand the signs of burnout. Here are just a few. Physical symptoms of burnout • Feelings of energy depletion or exhaustion • Loss of productivity
• Headaches • Fatigue • Shortness of breath • Loss of appetite or change in eating habits • Lack of sleep Mental symptoms of burnout • Constant worry and anxiety • Inability to focus clearly • Increased mental distance or apathy Emotional symptoms of burnout • Feelings of negativity or cynicism • Irritability • Emotional fragility or heightened sensitivity • An increased tendency to start arguments or make harsh comments
(Helping Staff Deal with Burnout continued on page 3)
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(Helping Staff Deal with Burnout continued from page 2)
Once you understand the signs, the next step is to help staff deal with burnout. There are a few things supervisors and managers can do to help their staff through these tough times. Get to know your staff oneon-one. Even though your entire staff maybe experiencing burnout, it is important to have individual conversations and try to get to know your staff individually. Schedule a one-on-one with every staff member, ask them questions about their life, ask them how things are going at work, what is causing them frustration, and how you can help them. Be an advocate for your staff. One of the most important roles a supervisor or manager has is to serve as an advocate for their team. This means your focus is to ensure your team is taken care of and supported. So, if you can, offer flexibility with their schedules, grant their time off, manage their workloads, and be open to new ideas.
Provide access to resources. One easy way to help staff is to provide access to resources. This can be as complicated as providing your own wellness programs and guides or as simple as pointing them in the direction of those who can help. Keep in mind you are not expected to be a mental health professional; instead identify creditable resources. A great resource is the South Dakota division of National Alliance on Mental Illness (namisouthdakota.org).
outcome of a situation. In these situations, remind yourself to view the situation through the lens of compassion and empathy. Asking yourself, what is truly the root cause of the situation and how best can I approach my team? What’s best for the team? Remember, the answer may vary by individual.
Demonstrate compassion and empathy. It’s not only staff who deal with burnout, supervisors and managers do as well. There are bound to be times you feel frustrated with your team or the
Take care of yourself! As I mentioned above, staff aren’t the only ones experiencing burnout. You do too. So, prioritize taking care of yourself; set boundaries, take time off, and ask for help. Dealing with staff member burnout is challenging. However, supervisors and managers can do things to identify the signs early and be proactive about addressing them. By taking action you’ll hopefully be able to minimize the negative impact burnout can have on your team and business.
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WRAPPING UP CHARITABLE GIVING THIS HOLIDAY SEASON
Jesse Jangula, CPA, Senior Associate, Tax Department Although that may not make a deductibility up to 100% of AGI huge difference in your tax bill, for itemizers). However, charitable those who give for the sheer joy of donations to these organizations giving year after year without a tax will follow prior deductibility benefit will reap something more. regulations and AGI limits. “If I itemize, is the deductibility of my charitable cash contributions still limited to adjusted gross income (AGI)?”
Jesse Jangula, CPA, Senior Associate, Tax Department
As the saying goes, “Tis the season of giving.” Take note that the expanded tax benefits through charitable gifting put in motion by the CARES Act are set to expire at the end of 2021. These benefits were designed to help individuals and businesses give to charity due to the hardships brought on by the COVID pandemic. Questions you might ask: “Don’t I have to itemize to deduct charitable contributions?” No. Thanks to the CARES Act beginning in 2020, those who are unable to itemize are allowed an above-the-line deduction up to $300 for cash donations. The good news -- the amount has doubled to $600 for married individuals filing joint returns in 2021. The deduction remains at $300 for singles. For taxpayers in the 12% tax bracket, this $600 deduction equates to a $72 tax savings.
“Are there any benefits for charitable giving at the corporate level?” Yes, C Corporation’s charitable gift deductibility has increased to 25% of taxable income (up from 10%).
Yes. However, prior to the CARES Act the same cash contributions would have been limited to 60% of AGI. Now through 2021, cash contributions to qualifying charitable organizations are deductible up to 100% of AGI. What exactly does this mean? For those who are able and inclined to do so, cash donations could fully offset their AGI to zero! “What kind of cash contributions are non-qualifying for the 100% rule?”
What does that look like on paper? Assuming a C Corporation has $100,000 taxable income (21% tax rate) before qualified contributions, the 10% maximum prior to the CARES Act would have yielded a $2,100 tax savings. However, at 25% the tax savings would be an additional $3,150 for a total savings of $5,250 ($25,000 times 21%). Speak with your tax professional at Ketel Thorstenson to see how charitable gifting could benefit you.
Those made to supporting organizations (i.e., a charity that carries out its exempt purposes by supporting other exempt organizations), private foundations, charitable remainder trusts, to establish and maintain donor advised funds, and cash contributions carried forward from prior years.
Impactful Local Donating
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Please note that cash donations to these organizations are “nonqualifying” in the sense that you do not qualify to take advantage of the expanded benefits expiring at the end of 2021 (i.e., the above-the-line deduction for non-itemizers and the
Charitable giving not only helps us to understand and address community needs, it is deeply rewarding for the donor. Knowing that your contribution is helping others is powerful and fulfilling. Liz Hamburg, CEO, Black Hills Area Community Foundation
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TIPS FOR THE NEW TAX YEAR Joei Tieman, CPA, Manager, Tax Department It’s important to know that even though change happens, our firm strives to provide the best customer service to our clients.
Joei Tieman, CPA, Manager, Tax Department
Change can be good, but change can be hard. Taking a step back and re-evaluating processes and efficiencies is important from time to time. Our firm has experienced this over the last year due to the lingering effects from the pandemic, staff changes, constant tax law changes, and ongoing technology challenges.
Still worried about the pandemic and going out in public? Not sure if you want to meet in person or have the time to meet? That’s okay. Email or drop off your tax information and someone will follow up with questions or requests once things are sorted through. Or try our secure portal at ktllp.com. We are encouraging clients to only meet with your tax professional during the busy tax season if you feel specific topics need to be addressed. Otherwise taking alternative steps to get the information to us is just as acceptable. Are there any life changing events your tax professional should know about? Change in marital status, dependents, address, or job? Did you receive advanced
child tax credits or stimulus payments? If so, watch for a letter from the IRS in January to give your tax professional in order to reconcile those payments. Do you have a business and wonder if 1099s need to be issued? Did your business receive COVID-19 related credits and funding? Are you in the agriculture industry and were affected by the drought? These are just a few of the several things your tax professional will need to know when preparing the 2021 tax return. This past year has created ongoing challenges, but it’s also provided great opportunities for some taxpayers. When faced with a challenge, it can force individuals and businesses to look for new ways to move forward. Ketel Thorstenson LLP continues to be a useful resource and support when facing those obstacles.
TAX SEASON PLANNING & APPOINTMENTS In-person, virtual, and phone conference appointments are available this tax season. If you wish to not meet with your accountant in-person, you can provide your tax information one of the following ways. • Electronic File Transfers - allows you to send documents securely. Get started by visiting our Client Portal at ktllp.com. Please do not use normal email to send documents with sensitive information. • Office Drop Box - documents can be dropped off during business hours or feel free to use the provided drop boxes at any time. • U.S. Mail - is another option in lieu of coming to our physical office. If you have any questions, please reach out to your accountant.
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COMMERCIAL COVID GRANT FUNDING Shelley Goodrich, CPA, Director, Audit Department
Shelley Goodrich, CPA, Director, Audit Department
Over the past 18 months, many commercial entities have received federal grant funding for the first time due to COVID-19. The information regarding how and when to use such grant funds has been limited, vague, or not provided until months after funding is received. To further complicate things, guidance is continually changing. Entities expending more than $750,000 of federal grant funding in a year are required to have a financial statement and compliance audit referred to as a Single Audit. Organizations without prior audit requirements may now have an audit requirement due to federal funding received/spent during 2020/2021. As these federal funds are new and have limited or changing guidance, receiving organizations should work with their accounting firms and granting agencies to ensure compliance.
Proper documentation is also key in that was reported as having been the future when granting agencies spent with payroll, those same or auditors have questions. payroll funds cannot be spent again on PRF. Most expenses are Single Audits are conducted allowed to be charged to PRF if under Subpart F of the Office they are used in preparing for and/ of Management and Budget’s or responding to the pandemic. (OMB) Uniform Administrative Additional examples include costs Requirements, Cost Principles, and incurred to purchase personal Audit Requirements for Federal protective equipment, barriers Awards. OMB annually issues a for social distancing, expanded Compliance Supplement, which hardware or software to allow for identifies compliance requirements remote work by employees, or and suggests audit procedures enhancing telemedicine, just to for numerous federal grant name a few. If payroll is being programs. The 2021 Compliance considered as a PRF expense, Supplement (July 2021), and an remember it must have a COVID addendum for specific programs tie. A nurse working a shift to treat unrelated to commercial entities non-COVID patients in the normal (December 2021) were issued course of business is not allowable. to address COVID funding. In addition to COVID-related One common grant received expenses, organizations can by healthcare service businesses also use PRF monies for lost was Provider Relief Funds (PRF). revenue. For these instances, Entities that received monies businesses will enter quarterly include, but are not limited to, information for two years into the medical and dental practices, Health Resources and Services nursing homes, assisted living Administration (HRSA) portal facilities, vision practices, and and lost revenue will be calculated behavioral health practices. This based on quarterly figures. An money has been disbursed through entity might have more revenue several different phases. The in calendar 2020 than in 2019, but first payments were deposited in may have losses by quarter for the bank accounts on April 10, 2020, PRF lost revenue calculation. and payments are continuing. Normally, federal funding The PRF expenses must have is reported on a Schedule of a direct COVID affiliation and Expenditures of Federal Awards cannot be reported as having been (SEFA) when funds are spent. spent on PRF if already reimbursed However, PRF funding is reported from another grant. For example, on the SEFA depending on when if a business received a Paycheck organizations are required to Protection Program (PPP) loan report in the HRSA portal. See (Commercial COVID Grant Funding continued on page 7)
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(Commercial COVID Grant Funding continued from page 6)
table below for reference on when portal and corresponding
SEFA reporting are required.
Reporting in the HRSA portal is not allowed prior to the portal reporting period dates noted above. Additionally, if a business is unable to show the PRF funds as having been spent, the PRF funds must be returned within 30 days after the reporting time period.
The OMB has indicated commercial entities will have different options to comply with the Uniform Guidance audit requirement for PRF monies than non-profit and governmental entities have. However, as of the date of this article, those options have not yet been released.
The compliance professionals at Ketel Thorstenson, LLP can help you navigate the Uniform Guidance requirements. Please contact us to answer questions and for additional guidance.
REAL ESTATE SALES – ORDINARY INCOME OR CAPITAL GAIN? Carrie Christensen, CPA, Manager, Tax Department on your tax return? Is the net income (or loss) taxed as ordinary income or capital gain? The answer is that it “depends.” The determination is based on the facts and circumstances of the situation and the intention of the taxpayer. There is no bright-line test.
Carrie Christensen, CPA, Manager, Tax Department
How are sales of real estate such as land and buildings reported
Which is preferable – ordinary income or capital gain? You might automatically assume the answer is capital gain, especially if the real estate has been held for more than one year prior to the sale and qualifies for lower long-term capital gains rates. Yes, ordinary income tax rates are higher than long-term capital gain rates, but there are various nuances that
must be considered when reporting the sale of real estate as ordinary income versus capital gain. Sale taxed as ordinary income Pros • Allowed to deduct ordinary and necessary business expenses to reduce net income • Eligible for the 20% qualified business income deduction • If a loss, can deduct entire loss Cons • Subject to self employment tax • Taxed at higher rate
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Sale taxed as capital gain Pros • Taxed at lower rate (if long-term) • Not subject to self employment tax Cons • Can only deduct costs that increase basis in property, or property taxes • If a loss, the current year deduction may be limited • Not eligible for the 20% qualified business income deduction The root of the determination is whether or not you are in the business of buying and selling real estate. If the answer is yes, the sale is classified as ordinary income. If the answer is no, the sale is classified as capital gain. How is this determination made? Who gets to decide? You? Your CPA? While you and your CPA will likely discuss the details of your situation and come to a decision as to how to report the sale on your tax return, the ultimate decision rests with the IRS. The following nine criteria from a 2012 tax court case can be used as a guide for factors that the IRS may consider when
determining if income is classified as ordinary or capital gain. It is unclear how many of the tests must be passed for the sale to be considered as qualifying for capital gain treatment. 1. The taxpayer’s purpose in acquiring the property 2. The purpose for which the property was subsequently held 3. The taxpayer’s everyday business and the relationship of the income from the property to the taxpayer’s total income 4. The frequency, continuity, and substantiality sales of property 5. The extent of developing and improving the property to increase sales revenue 6. The extent to which the taxpayer used advertising, promotion, or other activities to increase sales 7. The use of a business office for the sale of property 8. The character and degree of supervision or control the taxpayer exercised over any representative selling the property 9. The time and effort the taxpayer habitually devoted to sales of property
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It is important to note that property held as inventory for sale to customers is not considered a capital asset, and as such, does not qualify for capital gain treatment. The sale of unimproved real estate has caused many disputes between taxpayers and the IRS. The IRS has attempted to limit this area of controversy by providing that a single tract of land with no substantial improvements that is owned for more than five years will not, under certain circumstances, be considered held primarily for sale to customers. Therefore, it will be capital gain property---even if it had been subdivided. However, if a taxpayer subdivides the land or engages in activities incident to the subdivision or sale, it is likely to be inventory and subject to ordinary rates if sold within five years. If you are considering selling real property, such as land or a building, consult your KTLLP advisor to discuss the tax implications relevant to your specific situation.
Our KTLLP Core Values are the foundation of our client-centric focus.
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IS MY EMPLOYEE LONG-TERM OR PART-TIME FOR OUR 401K PLAN? HOW DOES THIS AFFECT ME? Austin Eichacker, CPA, Senior Manager, Audit Department and Kyle Kopren, CPA, Senior Manager, Audit Department
Austin Eichacker, CPA, Senior Manager, Audit Department
Kyle Kopren, CPA, Senior Manager, Audit Department
The Setting Every Community Up for Retirement Enhancement (SECURE) Act resulted in a significant change to the definition of a part-time employee. In the past, employees working less than 1,000 hours in a plan year could be excluded from the plan, if elected by the Plan’s eligibility requirements. The SECURE Act establishes the new concept
“long-term, part-time employee” (LTPT) for plan years beginning after December 31, 2020.
1,000 hours to be eligible for the company match and profit share.
LTPT is an employee that has worked more than 500 hours, but less than 1,000 hours for three consecutive years and meets the Plan’s age eligibility requirements. Plans have time to prepare for this change – only plan years beginning after December 31, 2020 are counted for the threeyear eligibility requirement. Although LTPTs do not become eligible until plan years beginning after December 31, 2023, plans must start tracking LTPT hours now to ensure proper compliance in 2024. Furthermore, the SECURE Act allows plans to let LTPTs into the plan before the end of the three-year period.
Plan sponsors should consider the following: • Should the Plan allow LTPT employees to receive a match/profit share? • Should the Plan be amended to revise the Plan’s vesting requirements? • Should the Plan allow LTPT employees into the plan sooner than the eligibility period noted above?
In addition, the Internal Revenue Service (IRS) also issued Notice 2020-68 about the SECURE Act, noting that for vesting purposes, all years in which the LTPT worked over 500 hours but less than 1,000 hours must be counted, even prior to December 31, 2020. However, the employer can still require
It is important that plan sponsors start tracking hours for part-time employees. Plan sponsors should also work with their third-party administrators and counsel to ensure that plan amendments are made. Taking necessary actions now, and possibly making changes to the Plan, could prevent future mistakes.
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A Publication of Ketel Thorstenson, LLP
We can’t do what we do without the help of a GREAT TEAM.
–– NEW HIRES ––
Mitzi Slayton, Austin Speckman, Administrative Assistant, Associate, Tax Department Accounting Services Department
Erin Jarvis, Administrative Assistant, Tax Department
Angie McDonnell, Associate, Tax Department
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Gina Carpenter, Associate, Accounting Services Department
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KT News
We can’t do what we do without the help of a GREAT TEAM. –– NEW HIRES CONTINUED ––
Kristy DeGering, Recruiter, Human Resources Department
Erin Kremers, Associate, Audit Department
Kelsey Cropsey, Associate, Audit Department
Blake Bendt, Associate, Tax Department
Ruben Andazola, Mark Finstrom, Systems Administrator, Manager, Information Technology Information Technology Department Department
Miranda McGuire, Administrative Assistant, Tax Department
–– NEW CERTIFICATIONS ––
Brittaney Ellibee, Senior Associate, Tax Department
–– INTERNS ––
Colin Highland, Audit Department Blake Brown, Audit Department Ryan Ptak, Tax Department Collin Holsapple, Tax Department Cassandra Ryckman, Tax Department Jonathan Barnum, Tax Department Sam Morrison, Tax Department
Hannah Sheffield, CPA, Associate, Tax Department
Chris Jansen, CPA, Associate, Audit Department
Makenzie Guelff, Accounting Services Department
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Thank you… for your business. Ketel Thorstenson, LLP is honored to be your chosen accounting firm and we value the opportunity to work with you. The confidence you have placed in our services is truly appreciated. Partners of Ketel Thorstenson, LLP enjoy Spearfish Canyon June 2021
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The KT Addition is a publication of Ketel Thorstenson, LLP. It is published for clients, advisors and friends of the firm. The technical information included is necessarily brief. No final conclusions on these topics should be drawn without further review and consultation with a professional. Direct any inquiries, address changes or problems with your newsletter to the editor in Rapid City. Editor: tanya@ktllp.com