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Friday, December 27, is the last day of our winter hours, with offices closing at noon MST.
Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Our offices will be closed on December 24, December 25, and January 1.
Friday, December 27, is the last day of our winter hours, with offices closing at noon MST.
The novel coronavirus (COVID-19) has disrupted business continuity across all industries, and retail is already feeling the impact. While retailers’ primary concern is the safety and wellbeing of their professionals and customers, this crisis requires specialized urgency and sensitivity given the widespread impact and uncertainty of the pandemic’s duration.
Unlike other industries, retail is an anomaly in that there is a stark difference between how companies in different sectors are absorbing the COVID-19 shock. For grocers and general merchandisers, supply and demand curves have skewed way off the charts and retailers are struggling to keep up with historic demands for soap, disinfectants, paper towels and shelf-stable food. For example, during the week of February 23-29, hand sanitizer revenue sales increased 420% and both Clorox/Lysol wipes and canned food revenue sales experienced a 183% increase from the week prior, according to Bloomreach.
On the contrary, specialty and luxury retailers are experiencing a dip in demand due the fact that their goods are considered “non-essential”. As a result of social distancing mandates and shifting consumer priorities, COVID-19 is brick-and-mortars’ latest impediment, validated by a recent GlobalData study which states that 12.1% of people admitted to visiting malls less in response to the outbreak. In addition, some retailers including Macy’s, Nordstrom, H&M and Ikea have shut their doors across the U.S. until further notice in an attempt to help contain the outbreak. These developments only compound the trend of declining foot traffic due to e-commerce growth that retailers have been grappling with in recent years.
While it may seem natural for transactions to be diverted to online, e-tailers are not necessarily experiencing smooth sailing either. For example, Amazon is seeing huge surges in demand, and yet, the same GlobalData study shows that Amazon is the least cited destination for stocking up (6.0%) compared with Walmart (21.9%), Costco (8.5%) and pharmaceutical convenience stores such as CVS (7.1%). This could perhaps be explained by e-commerce price gouging, and sheds light on the fact that even during dire circumstances, consumers will still look for that perfect balance between high convenience and low cost. In fact, just over one-third (34%) of consumers list price as their top priority for essential retail purchases today, compared with 20% who rate convenience first, according to a recent BDO survey conducted online by The Harris Poll among over 1,000 U.S. adults ages 18+.
Pre-COVID-19, almost three-quarters (73%) of retail CFOs said their business was thriving and just 22% said a potential economic downturn was their business’s greatest threat, according to BDO’s 2020 Retail Rationalized Survey. Now with the reality of COVID-19 and subsequent stock market decline, continued momentum is threatened, and retailers should prepare to pivot under new constraints. With a market that recently entered into bear territory and the economy’s cyclical nature, the looming recession could be upon us sooner than once anticipated.
Here’s what retailers can do in the interim:
Looking ahead, monitoring announcements from the CDC and WHO can help guide the trajectory in which remedial steps should be taken. The retail industry has time and again experienced hardship and proved its resilience above the turbulence.
To learn more about how your organization can navigate immediate disruptions due to the novel coronavirus and prepare for the future, don’t hesitate to reach out.
Survey Methodology for the Harris Poll: This survey was conducted online within the United States by The Harris Poll on behalf of BDO USA from March 25-26, 2020 among 1,045 U.S. adults ages 18 and older. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact your trusted advisor.
| UPDATED 3/19/20, 10:30 a.m. IRS Updates on Tax Payments **Please note: we are planning a client webinar for early next week to explain how the tax deferrals will work. Event details will be posted on our website.** The U.S. Treasury Department and Internal Revenue Service (IRS) issued guidance allowing all individual and other non-corporate tax filers to defer up to $1 million of federal income tax (including self-employment tax) payments due on April 15, 2020, until July 15, 2020, without penalties or interest. To clarify, the federal tax payment deferrals include 2019 tax payments as well as 2020 first quarter estimated federal tax payments. This applies to federal taxes, states taxes vary. Colorado officials said they would mirror IRS guidance as it is updated amid the pandemic. See the American Institute of CPAs (AICPA)’s state-by-state guide for more information. The guidance also allows corporate taxpayers a similar deferment of up to $10 million of federal income tax payments that would be due on April 15, 2020, until July 15, 2020, without penalties or interest. The current guidance does not change the April 15 filing deadline, or the requirement to file for an extension if you do not file by April 15. We anticipate this also may change; however, we are working diligently toward these deadlines. Read the full IRS guidance here. We are monitoring the Treasury Website and the IRS Website for updates and will continue to post the latest information to our Coronavirus Updates page. SKR+CO Document Exchange – New Secure In Person Dropbox: SKR+CO installed a secure dropbox on the 3rd floor of our building. Clients may drop documents off securely, should you prefer to do so in person. Please use an envelope, clips or rubber bands to keep your documents organized. Access to the 4th floor will only be available to SKR+CO essential personnel, effective immediately. USPS mail services, secure email and the client portal are also available to exchange and securely share documents with your CPA. As always, please call your CPA with questions — our receptionist is happy to connect you as we work remotely. |
SKR+CO Client Information:
In an abundance of caution, please avoid unnecessary trips to the SKR+CO office. Instead, we highly encourage:
Sharing documents digitally via the SKR+CO client portal and/or secure email, both located on our client center page.
If possible, please share and/or sign documents electronically via our portal or secure email.
SKR+CO Operations:
Business Recovery Information:
Webinar: We are preparing a webinar for clients regarding business recovery.
Social Media: We will share information placed on our update page through our social media platforms, should you prefer accessing information via those channels.
Business Recovery: Please review the Business Recovery Guide
Additional information from the IRS regarding coronavirus can be found here: https://www.irs.gov/coronavirus
We will list closure status or other updates on our website and our social media channels.
“After the natural disasters in the fall of 2013, the Colorado SBDC disaster relief team worked with federal, state and local resources to produce a comprehensive guide to assist Colorado businesses in preparing for, responding to, and recovering from natural disasters and emergencies.” Click here for the guide . More information can be found on the SBDC Website
Stay up to date with the latest SKR+CO information. Sign up for our newsletter where we will update you with new information as it becomes available to us. You can join our newsletter by signing up at the bottom of our Client Center page.
By: Kim Flett and Beth Garner
Being selected for a Department of Labor (DOL) audit is not exactly a prize most plan sponsors want or intend to win. Often, plan sponsors think service providers will take the blame when compliance issues arise. But plan sponsors are ultimately responsible for plan administration and operation. Plan sponsors that don’t realize this can suffer devastating consequences and become a statistic on the agency’s annual enforcement report.
In fiscal year 2018, the DOL’s Employee Benefits Security Administration (EBSA) recovered more than $1.6 billion in direct payments to plans, participants and beneficiaries. This is about $500 million more than the $1.1 billion it recovered in 2017—even though the agency conducted about 400 fewer investigations in 2018 than it did in 2017.
This means that the agency, which carries extensive authority to investigate employee benefit plans, is getting better at its craft. More than half of the plans that were investigated by the EBSA in 2018 were assessed penalties or were subject to other corrective actions.
Plan sponsors need to realize they are absolutely responsible for those plans governed by the 1974 Employee Retirement Income Security Act (ERISA). They need to stay on top of service provider activity and make sure those vendors are performing tasks as expected—or face serious penalties. We examine how the EBSA enforces the law, identify some of the top investigation triggers and discuss what plan sponsors can do to avoid the agency’s attention.
ERISA’s fiduciary rule requires plan sponsors to act in the best interests of the plan beneficiaries. These plans include 401(k) and other defined contribution plans, defined benefit as well as health and welfare plans. In addition, since the passage of the Affordable Care Act (ACA) in 2010, the EBSA has been charged with enforcement and conducting audits on these health plans.
EBSA audits primarily focus on fiduciary issues as well as reporting and disclosure requirements. The issues can mostly be found in the Form 5500 that plans are required to file annually. Plan participants or others tied to the plan can file complaints against plans, employers or service providers. Last year, EBSA opened 524 new investigations because of participants’ complaints, resulting in $443.2 million restored to workers.
Form 5500 is a treasure trove for EBSA investigators. Filing late or incomplete forms is likely to get investigators’ attention. But the EBSA doesn’t stop there. Other red flags include:
The EBSA runs a Voluntary Fiduciary Correction Program, where plan sponsors can find 19 specific violations. The agency encourages plan sponsors to actively self-correct these violations. In some cases, plan sponsors who comply don’t pay the excise tax. Plan sponsors need to be careful because those that submit incomplete or inaccurate applications might wind up being audited by the EBSA. Last year, the Voluntary Fiduciary Correct Program received 1,414 applications and recovered $10.8 million.
It is worth noting that the EBSA is finding significant success in its Terminated Vested Participant Project (TVPP), which makes sure plan sponsors are actively looking for missing participants and notifying deferred vested participants of their benefit. Last year, total recoveries for this project rose to $808 million from $327 million in 2017.
The DOL fines for lack of compliance are heavy. Failure to file a Form 5500 will cost a plan sponsor $2,194 for each day it is late this year. ACA plans that don’t provide the summary of benefits and coverage can be fined between $1,128 to $1,156 for each failure.
Defined contribution 401(k) plan sponsors will be responsible for recordkeeping and reporting glitches, too. Those fees can be significant at $30 per participant.
It can’t be stressed enough: plan sponsors are the fiduciary to benefit plans. Service providers may say they are also fiduciaries, but the ultimate responsibility belongs to plan sponsors. It is imperative that they act in the best interests of plan participants; if they don’t, EBSA investigators will step in and make sure plan participants are protected and made whole.
First, make sure the “team” of other fiduciaries and service providers are aware of the design laid out in the plan document. Fiduciaries need to make sure everyone is doing what is prescribed in the plan document. Not every service provider is proficient in qualified plans, so it is important to ask about experience, internal controls and other qualities that will raise your comfort level when deciding which service provider to hire. Lastly, documenting the decision-making process will also help auditors understand whether certain actions were in the best interests of the participants.
There is no doubt that plan sponsors have many responsibilities to manage. But compliance issues should be a top priority. In certain cases, fines and other penalties can destroy not just the plan, but the company itself. Creating accountability standards and hiring a qualified team are some of the critical steps plan sponsors can take to avoid enforcement actions. Your BDO representative is here to help and answer your questions.
This article originally appeared in BDO USA, LLP’s “Insights” newsletter (July 2019). Copyright © 2019 BDO USA, LLP. All rights reserved. www.bdo.com
Are you missing an opportunity to reduce your property tax liability? Nearly all local taxing jurisdictions, including municipalities, counties, and boards of education, generate tax revenue through the imposition of property tax, which is one of the most substantial sources of local government revenue. For many businesses, property tax is the largest state and local tax obligation, and one of the largest regular operating expenses incurred.
Unlike other taxes, property tax assessments are based on the estimated value of the property, and thus, are subject to varying opinions. Businesses that fail to take a proactive approach in managing their property tax obligations may be missing an opportunity to reduce their tax liability.
Below are 10 common property tax myths, and the truths that counter them.
MYTH #1: If a property’s value does not increase year to year, the property tax liability should remain the same.
TRUTH: The annual tax rate is determined by the tax levy necessary to fund the applicable governmental budget for services such as schools, libraries, park districts, fire departments and police. Essentially, the governmental budget is divided by the total assessment within a jurisdiction to calculate the tax rate. The tax rate is applied to a property’s individual assessment to calculate tax. Rates can fluctuate annually and can result in higher or lower taxes even if your property value stays consistent.
MYTH #2: Fair market value is equivalent to assessed value.
TRUTH: Fair market value is an estimate of the price at which property would change hands in an arm’s length transaction. Assessed value is a valuation placed on a property by the assessor, which forms the basis of a property owner’s annual property tax. Assessed value is typically a percentage of the fair market value and takes into account factors such as quality of the property and market conditions. Taxpayers should reconcile jurisdictional ratios in order to understand what is considered the fair market value of their property.
MYTH #3: Property tax bills can be appealed.
TRUTH: Unfortunately, you cannot challenge your property’s value once you receive the tax bill. An appeal must be filed within a set window of time after receiving your assessment notice, which in some cases could be a year prior to receiving the tax bill. If an appeal is not filed during the determined period, a taxpayer would have to wait to appeal until the next year’s assessment.
MYTH #4: Obsolescence adjustments do not apply to newer properties.
TRUTH: Property is typically taxed on a value that takes into account the ordinary diminishment of value occurring because of factors such as physical wear, age, and technological advancements. Obsolescence is an additional form of impairment resulting from internal or external factors affecting value, such as functionality of equipment, processes that inhibit business, or external forces that have impacted financial performance. Regardless of the age of the property, obsolescence factors should be annually reviewed to determine the fair market value of property.
MYTH #5: Assessors establish annual property tax rates.
TRUTH: Property tax rates are set by local governments based on the budget necessary to fund governmental services. Property taxes typically fund city, municipality, county and school district services provided to the community. Assessors determine the value of your property so that the tax burden can be distributed. Assessors do not determine the property tax. The amount of tax payable is calculated by the tax rate applied to your property’s assessed value.
MYTH #6: During a property tax audit, the taxpayer’s role is complete once information is provided to the auditor.
TRUTH: Left alone, auditors can make inaccurate or aggressive decisions. They heavily rely on asset listings and balance sheets to determine if items have been appropriately reported. Taxpayers have a lot to gain by staying in contact with auditors throughout the process. Auditors should know the story that goes with the data. Are all assets on the list physically located on property? Are construction in progress (CIP) assets held on site or at a vendor? Is the supplies balance an annual or year-end balance? In the absence of taxpayer direction, auditors will make assumptions based on limited data. Once audit results are finalized, taxpayers can appeal, but now the burden of proof may have shifted.
MYTH #7: Reducing my property taxes makes me appear to be a bad corporate citizen.
TRUTH: For many businesses, property taxes are their greatest state and local tax burden and, on average, account for approximately 38 percent of the total state and local tax liability. Property owners should ultimately be paying their fair share of property taxes and not more. As property taxes are a cost of doing businesses, certain businesses that overpay may need to make decisions that result in reduced work force or reduced business output. The reductions necessitated by higher tax liabilities may have more negative impact on the community than ensuring that the property taxes remain fair.
MYTH #8: Assessor’s record cards are accurate.
TRUTH: A property record card is a document retained by the assessing jurisdiction that includes assessment information about your property used to determine the value. A property record card includes information such as building dimensions, total land acreage, zoning or use of property, construction detail and other elements to describe the property. Any discrepancies or outdated information may affect the value of your property. Property owners should obtain their property record cards to determine if errors exist that need to be corrected and could result in a lower assessment.
MYTH #9: I pay more property tax in jurisdictions that tax both real and personal property.
TRUTH: Property subject to taxation for property tax purposes can vary by jurisdictions. The tax can be imposed on real estate or personal property. All states tax real property and approximately 38 states tax personal property. Regardless of types of property taxed, the governmental budget will determine amount of tax needed to fund services and the property tax burden will be distributed among taxable values. Therefore, a property owner’s tax liability may be as significant in a jurisdiction that only taxes real property.
MYTH #10: A tenant cannot appeal property taxes. TRUTH: Tenants may have the ability to directly appeal property values in situations where the owner provides written consent or the lease terms allow the tenant to appeal. Property taxes are typically passed through to the tenants, therefore it benefits the tenant to review the annual assessment to determine if an appeal opportunity exists to reduce the property’s assessment
Do you drive a heavy vehicle for work? It could lighten your tax load. If you’re a business owner, your SUV, pickup truck or van may be eligible for 100% first-year bonus depreciation. But it must:
See below for some business vehicles that can do the heavy lifting.
Other rules apply. Contact your trusted advisor for details.
The U.S. Department of Labor (DOL) has released the finalized rule on overtime exemptions for white-collar workers under the Fair Labor Standards Act. It is expected to expand the pool of nonexempt workers by more than 1 million.
The new rule is scheduled to take effect on January 1, 2020. Affected employers should consider prompt action to reduce the impact to their bottom lines
The new rule
Under the finalized overtime exemptions regulations, an employer generally cannot classify an employee as exempt from overtime obligations unless the employee satisfies three tests:
The DOL’s final rule specifically increased the salary level test (previously $455 per week or $23,00 annually). Therefore, if an employee’s salary exceeds the new level, the employee will be ineligible for overtime if he or she primarily performs executive, administrative or professional duties. If their salary falls below it, the employee is nonexempt, regardless of duties.
Employers can use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10% of the standard salary level test. If an employee does not earn enough in such bonuses or payments in a given year to remain exempt, the employer can also make a catch-up payment within one pay period of the end of the year. However, the payment will count only toward the prior year’s salary amount.
Highly compensated employees
Neither the salary basis nor the salary level test applies to certain employees (for example, doctors, teachers and lawyers). The new rule provides a more relaxed duties test for certain highly compensated employees (HCEs) who are paid total annual compensation of at least $107,432 (including commissions, nondiscretionary bonuses and other nondiscretionary compensation) and at least $684 salary per week.
The final rule sets the total annual compensation threshold at the 80th percentile of weekly earnings of full-time salaried employees nationally.
The DOL opted against automatic adjustments to salary thresholds every three or four years. Instead, the final rule simply indicates the department’s intent to update the earnings thresholds “more regularly in the future,” following the notice-and-comment rulemaking process.
Preparation tips
Employers should begin taking measures to achieve compliance — and minimize the hit to their finances — when the final rule takes effect. Your business may already be well-prepared if you have previously gone through this process. Take care, though, to not rely on past findings as circumstances may have shifted.
A good first step is to check employees’ salary levels against the new thresholds. It may be advisable to give raises to employees who fall just under a threshold and routinely work more than 40 hours per week. Or consider redistributing workloads or scheduled hours to prevent newly nonexempt employees from working overtime.
This also is a good time to review employees’ job duties against the tests for the various exemptions. Check duties on a regular basis, as this is a ripe area of litigation for employees who contend that they deserve overtime despite their job titles. Courts and the DOL agree that actual duties, not job title or even job description, are what matters.
If, according to the final rule, you reclassify currently exempt workers as nonexempt, you must establish procedures for accurately tracking their time to ensure proper overtime compensation. Reclassified employees may require some training on timekeeping procedures.
Plan accordingly
Some employers may find that the new overtime rule substantially increases their compensation costs, including their payroll tax liability.
Contact your trusted advisor to ensure your company is in compliance with the new rule, as well as all payroll tax obligations.
Year-end tax planning will be just as complicated as it was last year due to the complexity of new tax regulations for businesses and individuals. This is of the essence as tax planning strategies to reduce your 2019 tax bill must be taken before year end.
Take advantage of planning strategies for individuals
Individuals often can reduce their tax bills by deferring income to the next year and accelerating deductible expenses into the current year. To defer income, for example, you might ask your employer to pay your year-end bonus in early 2020 rather than in 2019.
To accelerate deductions, consider increasing your IRA or qualified retirement plan contributions to the extent that they’ll be deductible. Such contributions also provide some planning flexibility because you can make 2019 contributions to IRAs, and certain other retirement plans, after the end of the year.
Other year-end tax planning strategies to consider include:
Offsetting capital gains. If you sold stocks or other investments at a gain this year — or plan to do so — consider offsetting those gains by selling some poorly performing investments at a loss.
Reducing capital gains is particularly important if you are subject to the net investment income tax (NIIT), which applies to taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for married couples filing jointly). The NIIT is an additional 3.8% tax on the lesser of 1) your net income from capital gains, dividends, taxable interest and certain other sources, or 2) the amount by which your MAGI exceeds the threshold.
In addition to reducing your net investment income by generating capital losses, you may have opportunities to bring your MAGI below the applicable NIIT threshold by deferring income or accelerating certain deductions.
Charitable giving. If you plan to make charitable donations, consider donating highly appreciated stock or other assets rather than cash. This strategy is particularly effective if you own appreciated stock you would like to sell but you don’t have any losses to offset the gains.
Donating stock to charity allows you to dispose of the stock without triggering capital gains taxes, while still claiming a charitable deduction. Then you can take the cash you’d planned to donate and reinvest it in other securities.
Contact your trusted advisor to discuss end of year planning for you and your business.
SKR+CO is transitioning service providers from CCH Access to NetClient CS. The new SKR+CO Portal provides swift access and service that you expect with the following benefits:
This process will occur behind the scenes and take little no action on your end. However, you will potentially receive emails to that end. Additionally, you will be prompted to set up a new user account. The portal will remain in the same location.
Please contact our office for any questions/ concerns.
With the holiday season right around the corner, it is a good time for business owners to focus on strategic planning for next year. Here are some ways to get started.
A good place to find inspiration for strategic objectives is your financial statements. They will tell you whether you are excelling or struggling so you may decide how strategically ambitious or cautious to be in the coming year.
Use the numbers to look at key performance indicators such as gross profit, which tells you how much money you made after your production and selling costs were paid. It’s calculated by subtracting the cost of goods sold from your total revenue. Also calculate current ratio, which is calculated by dividing current assets by current liabilities. It helps you gauge the strength of your cash flow.
A CFO or CPA-prepared budget can serve as more than just a management tool – it also can be presented to lenders and investors who want to know more about your start-up’s operations and its expected financial results. Review your findings with your CPA or a CFO consultant if you do not already have a CFO on staff.
Human resources is another critical area of strategic planning. Consider last year’s employee turnover rate. High turnover could be a sign of poor training, substandard management or low morale. Any of these problems could undercut the strategic objectives you set.
Examine sales and marketing. Did you meet your goals for new sales last year, as measured in both sales volume and number of new customers? Did you generate an adequate return on investment for your marketing dollars?
Finally, take a close look at your production and operations. Many companies track a metric called customer reject rate that measures the number of complete units rejected or returned by external customers. Sometimes a business must improve this rate before it moves forward with growth objectives. If yours is a service business, you should similarly track and assess customer satisfaction.
Set new objectives
With a review of your financials and key business areas complete, you can more reasonably set goals for next year under the banner of your strategic plan. On the financial side, for instance, your objective might be to boost gross profit from 20% to 30%. But how will you lower your costs or increase efficiency to make this goal a reality?
Or maybe you want to lower your employee turnover rate from 20% to 10%. Strategize what will you do differently from a training and management standpoint to keep your employees from jumping ship this year.
Act now
Don’t let year end creep any closer without reviewing your business’s recent performance. Then, use this data to set realistic goals for the coming year.
Contact your trusted advisor to choose the best metrics numbers and put together a solid strategic plan.
Owners of certain rental real estate interests have final guidance on what qualifies for the qualified business income (QBI) deduction.
QBI in a nutshell
QBI equals the net amount of income, gains, deductions and losses — excluding reasonable compensation, certain investment items and payments to partners for services rendered. The deduction is subject to several significant limitations; however, QBI generally allows partnerships, limited liability companies (LLCs), S corporations and sole proprietorships to deduct as much as 20% of QBI received.
Many taxpayers involved in rental real estate activities were uncertain whether they would qualify for the deduction. The final guidance leaves no doubt that individuals and entities that own rental real estate directly or through disregarded entities (entities that are not considered separate from their owners for income tax purposes, such as single-member LLCs) may be eligible.
Covered interests
The safe harbor applies to qualified “rental real estate enterprises.” For purposes of the safe harbor only, the term refers to a directly held interest in real property held to produce rents. It may consist of an interest in a single property or multiple properties.
You can treat each interest in a similar property type as a separate rental real estate enterprise or treat interests in all similar properties as a single enterprise. Properties are “similar” if they are part of the same rental real estate category (that is, residential or commercial). In other words, you can only hold commercial real estate in the same enterprise with other commercial real estate. The same applies for residential properties.
Bear in mind, if you opt to treat interests in similar properties as a single enterprise, you must continue to treat interests in all properties of that category — including newly acquired properties — as a single enterprise. If, however, you choose to treat your interests in each property as a separate enterprise, you can later decide to treat your interests in all similar commercial or all similar residential properties as a single enterprise.
Notably, the guidance provides that an interest in mixed-use property may be treated as a single rental real estate enterprise or bifurcated into separate residential and commercial interests.
Safe harbor requirements
The final guidance clarifies the requirements you must fulfill during the tax year in which you wish to claim the safe harbor. Requirements include:
Keeping separate books and records. You must maintain separate books and records reflecting income and expenses for each rental real estate enterprise. If the enterprise includes multiple properties, you can meet this requirement by keeping separate income and expense information statements for each property and consolidating them.
Performing rental services. For enterprises in existence less than four years, at least 250 hours of rental services must be performed each year. For those in existence at least four years, the safe harbor requires at least 250 hours of rental services per year in any three of the five consecutive tax years that end with the tax year of the safe harbor.
The rental services may be performed by owners or by employees, agents or contractors of the owners. Rental services include:
Financial or investment management activities, studying or reviewing financial statements or reports, improving property, and traveling to and from the property do not qualify as rental services.
Maintaining contemporaneous records. For all rental services performed, you must keep contemporaneous records that describe the service, associated hours, dates and the individuals who performed the service. If services are performed by employees or contractors, you can provide a description of them, the amount of time employees or contractors generally spent performing those services, and time, wage or payment records for the individuals.
This requirement does not apply to tax years beginning before January 1, 2020. The IRS cautions, though, that taxpayers still must establish their right to any claimed deductions in all tax years, so be prepared to document your QBI deduction.
Providing a tax return statement. You must attach a statement to your original tax return (or, for the 2018 tax year only, on an amended return) for each year you rely on the safe harbor. If you have multiple rental real estate enterprises, you can submit a single statement listing the requisite information separately for each.
Excluded real estate arrangements
The safe harbor is not available for all rental real estate arrangements. The guidance excludes:
The guidance states that taxpayers that do not qualify for the safe harbor may still be able to establish that an interest in rental real estate is a business for purposes of the deduction.
Next steps
The final safe harbor rules apply to tax years ending after December 31, 2017, and you have the option of instead relying on the earlier proposed safe harbor for the 2018 tax year. Plus, you must determine annually whether to use the safe harbor.
Contact your trusted advisor to determine whether you are eligible for this and other valuable tax breaks.