IN THIS ISSUE Berntson Porter & Company’s mission is to assist its clients in identifying, clarifying and achieving their goals. We accomplish this by caring about our clients’ families and companies as if they were our own.

Principals’ Corner .............1

Client Spotlight .................2

Leadership Development: There’s The Easy Way and Then There’s The Right Way ..........................3

Year-End Planning Considerations for Distributors and Manufacturers: A Checklist of Best Practices .............................4

Tax Reference Sheet

Selected 1099Reporting for 2016 ............5

W-2 Benefit Reporting for 2016.............................. 6

Business Owner’s Manual – State Tax Edition ...............7

Benchmarking – Continuous Improvement of Your Company ..............8

Year End Planning Strategies for Contractors ........................9

DC and State Highlights .........................11

BP News............................11

Client News ......................12

Fall 2015

PRINCIPALS’ CORNERA Truly Global VisionDid you know Washington is a major exporter? Currently our state ranks third in the nation for export volume – behind only Texas and California and ahead of New York. For those of us at Berntson Porter this factoid comes as no surprise. We regularly hear from clients that they are selling in new markets overseas or setting up additional office locations abroad. Companies are looking to grow, so it’s only natural they pursue markets outside the U.S.

Berntson Porter’s International Consultancy Group’s genesis is the needs of our clients. It was formed to provide guidance to clients looking to expand their business overseas, whether inbound or outbound. Through our membership in PrimeGlobal, we can connect clients with accounting firms located throughout the world that can assist with the added regulatory and tax compliance needs as a result of business expansion. We work closely

with PrimeGlobal to help you navigate the complexities of business expansion and stay tax compliant both domestically and internationally.

Our affiliation in PrimeGlobal also allows our clients to utilize the extensive reach and experience required for their international expansion, while still enjoying the close-knit relationship that we provide as a medium size accounting firm. We bring the world and all its

possibilities to our clients through our global network of partners - providing international reach with a personal service experience. At Berntson Porter, this is what we refer to as our “truly global vision.” It means that as our clients seek growth internationally, we can help them assess the opportunity holistically.

Not operating internationally yet? Don’t worry! Even before you are ready to venture abroad, we can prepare you and explain the foreign tax and legal exposure, so you are well informed before making this critical investment. In July, we invited our PrimeGlobal affiliate firm from Vancouver, Manning Elliott, to hold a seminar for clients expanding into Canada. During the seminar, Manning Elliott discussed the legal and tax implications of operating in Canada. Our annual international seminar is another way you can look to us as your trusted business advisor – every step of the way.

To learn more about the exciting work our International Consultancy Group is doing, look no further than this issue’s Client Spotlight on Page 2, which outlines the tax and planning results we’ve achieved for Buildingi, an international tech services company headquartered here in Bellevue, WA.

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Currently our state ranks third in the nation for export volume...

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Buildingi helps organizations improve how they share, leverage, and store knowledge. They’re a technical

services consulting firm with deep and innovative expertise in two focused areas:

• Enterprise Information Sites and Smart Data Maintenance – that increase employee collaboration and reduce risk.

Buildingi has delivered, customized or helped maintain more than 150 separate SharePoint sites in the public, private and government sectors. They excel at using out-of-the-box SharePoint features whenever possible and then creating, designing and implementing custom workflows and unique advanced features to fill any gaps an organization desires. Their strong expertise has enabled Buildingi to become a Microsoft Gold Certified Partner.

• Strategic Real Estate Utilization – that helps their clients use resources more wisely, often spending less money on offices and facilities.

Utilizing and managing real estate assets profitably and efficiently requires unique technological expertise and understanding, which Buildingi has gained through years of experience. Buildingi’s team includes space planning and CAD (computer-aided design) specialists, bringing process management and technological services to a wide range of organizations based on their needs and objectives. The company currently helps its clients manage over 45 million square feet of space using state-of-the-art processes and innovative tools.

Buildingi’s team members are experts at moving people from outdated-and-inefficient to updated-and-streamlined. Their solutions are used by companies of all sizes - from startups to Fortune 500 - to reduce costs, increase productivity, and improve service delivery.

“We are consistently impressed with their remarkable ability to provide high quality talent that addresses the current and future needs of our operations.”

– Eric Jensen, Director, Corporate Real Estate and Facilities, Starbucks

PRINCIPALS’ CORNER (CONTINUED)

“I have worked with many vendors in my 14 years at Microsoft and Buildingi ranks at the top of my list for teams that I can depend on to help me reach my strategic and tactical technical goals.”

– Gina Dyer, Executive Communications Director, Microsoft Corp

“I hear people use the phrase strategic partner when describing the vendor / client relationship all too often - from my perspective of the dozens of vendors I was involved with at Microsoft, Buildingi was the only true strategic partner. The whole team consistently presented creative solutions (sometimes to problems that weren’t even on my radar screen), delivered on-time and on budget, and ultimately saved Microsoft hundreds of thousands of dollars over the tenure I was involved with them.”

– Steve Pignotti, Principal, CASE Forensics Corporation

One third of Buildingi’s operations are located in Costa Rica, so we rely heavily on Berntson Porter’s expertise in international tax as well as US tax. Since partnering with Berntson Porter in December 2013, BP’s International tax practice team headed by Liting Chuang has helped us improve our cash flow via tax treatment recommendations, allowing us to continue our company’s growth without any major outside source of equity. It is reassuring to us to have the tax expertise that BP provides and we have come to rely heavily on our partnership with BP.

CLIENT SPOTLIGHT

If you are considering expanding your business to any part of the world, please give us a call. The personal connections we have within PrimeGlobal, along with our deep bench, enable Berntson Porter to meet whatever obstacle you face on your path to expansion. We look forward to being part of your growth and helping you achieve your goals.

Liting Chuang, CPA, Principal and Leader of the International Consultancy Group. Liting can be reached at 425.289.7625 or lchuang@bpcpa.com.

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LEADERSHIP DEVELOPMENT: THERE’S THE EASY WAY AND THEN THERE’S THE RIGHT WAY

When working with business owners on ownership transition we at BP believe that the optimal approach

is comprehensive and collaborative. We address the business owner’s personal financial, family and lifestyle goals; current business and personal financial situation; maximizing the value of the business; developing a plan for transitioning ownership to the chosen buyer whether third party, management team, employees and/or family; ensuring business continuity; and completing an estate plan.

In this newsletter Jim Hessler, founder of Path Forward Leadership Development (www.PathForwardLeadership.com) generously agreed to share his thoughts on optimal leadership development as part of maximizing the value of the business.

American businesses, based on multiple surveys, are significantly short of competent, respected, effective managers. One can only imagine the cost of this shortfall in leadership capacity, not only on the bottom line, but on employee engagement and tenure, productivity, legal exposure, and loss of reputation in the marketplace.

Sending your talent to motivational speeches, or short term seminars or leadership “training” events, just doesn’t work to create sustainable behavior change. Employers are often

unaware of the ineffectiveness of these programs because employees often come back from these types of “one-off” events feeling a short term rush of energy. They’ll tell you they had a great experience and that the speaker or facilitator was wonderful and full of useful information.

Unfortunately, there’s the Monday morning effect, when the newly energized employee returns to the environment, quickly forgets what they learned, and returns to comfortable patterns of behavior. Daniel Goleman, the author of Emotional Intelligence In The Workplace, points out that 90 days after the typical one-off leadership training event, the participants retain less than 5% of what they learned.

In order to change human behavior sustainably, a great deal more needs to happen than a short-term exposure to new ideas or an inspiring message of change.

Here’s what we’ve learned in our 15 years of leadership development services:

• Learning how to lead, a talent which is largely based on a set of broad emotional and character attributes in addition to management competence, is learned well only with repeated exposure to leadership ideas and practices.

• The learning, in order to stick, has to happen over years of development. Our flagship leadership development methodology, the Path Forward Leadership Workshop, takes place over an 18 month period and gives participants a chance to practice, get feedback, be held accountable, and repeat the process many times over. Even after working with our clients for 18 months, we know we’ve just launched a process that will need to continue for years to come.

• The culture of your business trains people how to act more than any formal training experience. Therefore, you have to see the quality of your managers and leaders as, in part, a product of that culture. In addition to committing yourself to getting your leaders the development they need, you also have to be very aware of what the culture is teaching them, good or bad.

• Giving people evaluations of their performance doesn’t, in itself, change anything. Management tends to over-depend on performance evaluations to move their managers forward. In fact, each deficiency identified in an evaluation must create, in a sense, a project to create performance

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BUSINESS VALUATIONS YOU CAN COUNT ON

Berntson Porter is your trusted source for multi-purpose business valuations. Our experts provide:

• Dissenting shareholder, partnership dispute and divorce engagements

• Effective and supportable IRS gift and estate tax valuations

• Business acquisition financing and bank loan recapitalizations

• Built-in-gains for C to S Corporation conversions

Doug McDaniel, Principal and Director of the Forensic, Economic and Valuations Department. Doug can be reached at 425.289.7617 or dmcdaniel@bpcpa.com.

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YEAR-END PLANNING CONSIDERATIONS FOR DISTRIBUTORS AND MANUFACTURERS: A CHECKLIST OF BEST PRACTICES

The end of 2016 is fast approaching. Your schedule

is probably filling up with holiday events, family gatherings, and hopefully year-end planning meetings. Year-end tax and financial planning is fundamental for business success. This is the time of year to re-examine specific business

practices and make adjustments that will propel your company toward continued success.

Below is a checklist of best practices to consider that could improve your company’s financial and tax position at year-end and beyond. Implementing these items can be tricky as you weigh the tax benefits, potential impact on financial statements, and banking relationships. Be sure to engage your CPA to assist you with year-end planning. We can help relieve some of the stress so that you can spend more time enjoying family, eggnog and other holiday celebrations.

Inventory and Financial Statement Best Practices:Inventory Counts – In order to properly manage inventory, as well as provide good customer service, accuracy in cost and quantity are important. Part of maintaining accurate records is by counting inventory – either on a cycle count schedule or planning a year-end physical count.

Inventory Costing and Cut-Off – Two important financial statement concepts for inventory are costing and cut-off. It is important to accurately account for these items in order to have proper inventory valuation at year-end. Inventory should be carried at the lower of cost or market. At a minimum,

inventory should be evaluated on an annual basis to make sure it is not overstated – i.e. the cost is greater than what it can be sold for on the open market. Cut-off means that inventory purchases and sales are recorded in the correct period. Review the shipping terms to determine when title transfers to the buyer or seller in order to ensure the transaction is recorded in the proper accounting period.

Write-Downs and/or Contributions of Inventory – For book purposes, you may be carrying an inventory valuation allowance to allow for any potential excess, slow-moving, obsolete or dead stock items. When recording an allowance, the expense is recorded and inventory balances are reduced for book purposes. However, for tax purposes, the company cannot take a deduction until the items actually become obsolete and are disposed of. One way to receive the deduction for tax purposes may be to donate the inventory to a qualified 501(c)(3) organization. Special tax rules allow for a deduction up to twice the basis of the donated property.

Understand Financial Statement Requirements and Covenants – Take time to review debt agreements, which may contain requirements for financial statements and/or covenants. The level of financial statement service required under these agreements – audit, review, or compilation – all contain different requirements as well as differences in timing and costs. Covenants are often included in these agreements which require the company to maintain certain financial ratios. Reviewing preliminary covenant compliance before year-end is important, as being able to address any potential problems in advance with your lender is the best approach.

improvement that holds the manager and their boss accountable for creating new modes of behavior. In order to take a weakness and turn it into a strength, we need to specifically identify opportunities to change, then follow up to support and hold the individual accountable for making those changes in an observable manner.

Effective leaders change organizations and the lives of the people who work in them. To become effective they must be “farmed” more than they are “manufactured” or “trans-formed.” Don’t look for the expedient leadership development program as a solution. It isn’t. Invest the time and make the commitment to build your leaders wisely and well, over time and with great care.

Path Forward has served its clientele in the Seattle area and around the world since 2001, focusing on longitudinal, experiential, high-accountability approaches that create sustainable change. Jim can be reached at JimH@PathForwardLeadership.com. Jim is the co-host of The Boss Show on KOMO Radio, also available as a podcast at www.thebossshow.com.

For more information on our ownership transition process or to receive our bi-monthly Exit Planning Newsletter please contact Allan VanderHamm at avanderhamm@bpcpa.com or 425-289-7613.

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SELECTED 1099 REPORTING FOR 2016*

FORM TITLE SOME COMMONLY-USED REPORTABLE ITEMS

AMOUNTS TO REPORT

DUE DATE TO IRS

DUE DATE TO

RECIPIENT (UNLESS

INDICATED OTHERWISE)

1099-DIV Dividends and Distributions

Distributions, such as qualified dividends, including exempt interest dividends, capital gain distributions, or nontaxable distributions, which were paid on stock and liquidation distributions.

$10 or more ($600 or more in

some cases)

February 28thMarch 31st

- if filed electronically

January 31st

1099-INT Interest Income Interest income not including interest on an IRA or an HSA

$10 or more ($600 or more in

some cases)

February 28thMarch 31st

- if filed electronically

January 31st

1099-MISC Miscellaneous income

(Also, use this form to report the occurrence of direct sales of $5,000 or more of consumer goods

for resale)

A reporting exception exists here for payments

made to incorporated businesses, unless the payment is for legal

services.

Payments for services performed (including parts and materials) for a trade or business by people not treated as employees (i.e. independent contractors). Box 7 Rent or royalty payments; prizes and awards that are not for services, such as winnings on TV or radio shows. Box 1

Substitute dividend and tax-exempt interest payments reportable by brokers. Box 8

Gross proceeds paid to attorneys. Box 14

$600 or more

$600 or more, except $10 or more for

royalties

$10 or more

$600 or more

January 31st

February 28thMarch 31st

- if filed electronically

January 31st

February 15th

February 15th

1099-R Distributions from Pension Annuities,

Retirement or Profit-Sharing Plans, IRAs,

Insurance Contracts, etc.

Distributions from retirement or Profit-Sharing plans, IRAs, SEPs, or insurance contracts and IRA re-characterizations.

$10 or more February 28thMarch 31st

- if filed electronically

January 31st

1094-C Transmittal of Employer-Provided Health

Insurance Offer & Coverage Information

Returns

Provided by health insurance issuers, including self-insured employer-sponsored plans

N/A February 28thMarch 31st

- if filed electronically

January 31st

1095-C Employer-Provided Health Insurance Offer &

Coverage

Applicable large employer provides to employees info about the health insurance coverage offered to your employees.

N/A February 28thMarch 31st

- if filed electronically

January 31st

* Reporting is for the 2016 tax year, all due dates refer to 2017.

TAX REFERENCE SHEET - TEAR OUT

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W-2 BENEFIT REPORTING FOR 2016

FRINGE BENEFITADDED

TO W-2 AS WAGES

SUBJECT TO FICA/MEDICARE

HOW TO VALUE BENEFIT

2% Owner-Shareholder of S-Corp Health Insurance

Health insurance is part of a group insurance plan (i.e. covers other employees in addition to the shareholder(s)) Yes No Actual Cost

Health insurance is not part of a group insurance plan (i.e. covers only the shareholder(s) and shareholders cannot be rationally segmented as an employee class)

YesYes

Also subject to FUTA/SUTA

Actual cost grossed up for FICA and Medicare

Shareholder(s) is/are the only employee(s) Yes No Actual Cost

Disability Insurance

Disability Insurance is part of a group plan (i.e. premiums paid by employer) No No N/A

Disability insurance is not part of a group plan (i.e. covers only the key employees) or salary continuation plan Yes

Yes Also subject to FUTA/SUTA

Actual cost grossed up for FICA and Medicare

2% owner/shareholder of S-Corp is only employee and/or is part of a group plan Yes No Actual Cost

Group Term Life Insurance

Death benefits exceed $50,000 YesYes

Also subject to FUTA/SUTA

Based on IRS tableReport in Box 12, Code C

Death benefits up to $50,000 No No N/A

Health Savings Accounts

Up to $3,350 for self-only or $6,750 for family ($1,000 increase for individuals 55 or older) No No N/A

2% owner/shareholder of S-Corp Yes No Actual Cost

Personal Use of Auto YesYes

Also subject to FUTA/SUTA

Based on IRS table

Personal Use of Company Aircraft YesYes

Also subject to FUTA/SUTA

Based on IRS table

Taxable Sick Pay from Third Parties YesYes

Also subject to FUTA/SUTA

Written statement provided by third party payer

Expense Allowance

Not supported by employee expense reporting YesYes

Also subject to FUTA/SUTA

Payments in excess of amounts substantiated on employee

expense reportFully supported by employee expense reporting or per diem amounts within federal guidelines No No N/A

Moving Expenses

Qualified reimbursed moving expenses (as defined by the IRS) No No Need to be reported in Box 12 of W-2 (Code P)

Non-qualified reimbursed moving expenses YesYes

Also subject to FUTA/SUTA

Actual cost of reimbursement grossed up for FICA and Medicare

Other Miscellaneous Fringes (not de minimus) (i.e. country club dues, sporting events tickets, etc.) Yes

Yes Also subject to FUTA/SUTA

Fair market value of the fringe benefit

Cost of employer sponsored health coverage (employer and employee paid) is reported in Box 12 using code DD. This amount is not taxable and reporting is optional in 2016 for employers with fewer than 250 W-2s.

FUTA: Federal Unemployment Tax Act, SUTA: State Unemployment Tax Act, FICA: Federal Insurance Contributions Act.

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Tax Rules and Best Practices:Accounts Receivable – At year-end, take a close look at the company’s aged receivables report, and evaluate collectability. For tax purposes, in order to claim the deduction for uncollectible accounts, the account must be written off under the direct-write off method.

Section 263A – Under Section 263A, the IRS requires certain overhead costs to be capitalized into inventory for tax purposes. This applies to all manufacturers and resellers with average annual gross receipts greater than $10 million over the prior three years. If your company is nearing the threshold to be subject to 263A, consider if there are ways to defer recognition until the next year. If your company is already subject to 263A, reducing inventory levels at year-end can help lessen the impact.

Section 179 and Bonus Depreciation – The Section 179 deduction, which allows businesses to expense purchases of qualifying equipment has been permanently extended with a starting value of $500,000, for acquisitions up to $2,000,000. Phase-outs occur on a dollar-for-dollar basis up to $2,500,000. Both the deduction and the phase-out amounts will be indexed for inflation starting in 2016. Bonus depreciation has been extended through 2019, which allows all businesses to depreciate 50% of the cost of qualified tangible personal property that is new (i.e. not “used”) acquired and placed in service in 2016. Bonus depreciation is set to reduce slowly through 2019 before it disappears in 2020.

Multi-State Operations – For companies with operations in multiple states, considering the location of inventory could result in tax savings. When filing nonresident tax returns in most states, income is apportioned based on sales, payroll and property. Property does not include only fixed assets, but rents and inventory as well. If year-end inventory can be transferred to states with low or no income tax, less income will be apportioned to the states with higher income rates, resulting

in lower tax liability. In addition, correct sourcing of sales can impact a company’s state tax liability.

Research and Development Tax Credit – The R&D tax credit has been permanently extended, and certain AMT restrictions have been lifted, making it worthwhile to consider this credit. Any company that designs, develops or improves products, processes, techniques, formulas, inventions or software may be eligible. Credits can be calculated based on actual materials and research costs incurred, as well as employee payroll amounts. By the nature of their business, many manufacturers are eligible for this credit.

As skilled professionals, Berntson Porter & Company, PLLC has the knowledge and expertise to help with year-end planning needs for 2016 and beyond. For more information, please contact Nicole Wright, CPA (nwright@bpcpa.com) or your BP professional at 425-454-7990.

BUSINESS OWNER’S MANUAL – STATE TAX EDITION

While there is much that could be written on this topic, we will focus on the important state tax and compliance

responsibilities that may be overlooked by new business owners. These important concepts also apply when a new entity is created or when expanding operations into new markets. It is important to know which entity has payroll, sales or other activity in each state to avoid additional costs and tax issues. This discussion covers some general considerations only; additional requirements may apply to specific industries.

Year-End Preparedness for Bookkeepers:

1099s, QuickBooks and More

Tuesday, December 6th at the Berntson Porter office

from 8:30 – 9:45 AM

To register or get more information, contact Amy Ellisor, Marketing Manager

425.289.7630 or aellisor@bpcpa.com

Formation and Authority to Do BusinessCorporations and LLCs are created by filing formation documents with the relevant state’s Secretary of State or equivalent office. Once formed, most states require an annual report be filed, which usually includes paying an annual fee. It’s important to keep this registration active to maintain the entity structure in good standing with the state. If your entity is incorporated in Delaware, a tiered franchise tax is required annually to maintain the corporate registration. This fee increases as the gross assets

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increase, so can be surprisingly high for startups that have no profits but high capital or asset values.

Similarly, as a company expands into new states, registration is required with that state’s Secretary of State when the company begins doing business there. States differ on the specifics, but generally having a resident employee, office location or facility is sufficient to be deemed doing business. Each entity would apply for a license to do business in the applicable state, which typically involves an application, fee and annual reporting requirements to maintain the license. In some states, failure to maintain an active registration will result in legal prohibitions if the company is sued or wishes to file suit in that state’s court system.

PayrollStates often have several agencies that need to be contacted once employees are hired. Most states have a personal income tax, so the business must register to file withholding tax returns. Additionally, there is often a separate agency for state unemployment insurance and a few even have a state-run worker’s compensation insurance agency that may need to be contacted. Also, consider whether there are any local or city taxes applicable to where you have employees, particularly when dealing with the larger cities.

While payroll service providers can assist with processing the withholding and reporting requirements, it is the company’s responsibility to register with the state or local agencies and to be knowledgeable regarding which taxes apply to their particular business.

Sales/Use taxes and State Income TaxesOnce a business establishes a minimum taxable presence or nexus with a state, they are responsible for filing tax returns with that state. Nexus is a complex topic which will be covered in a later article, but it typically takes less than you think to create it.

If a business sells taxable products or services, they should register to collect sales taxes in that state before itemizing the

tax on invoices. Collecting tax without the ability to remit it is a serious problem; see the trust fund discussion below. Also note that, regardless of registration, most states will hold a business liable for sales tax remittance on taxable sales (even if the business never collected these taxes). If wholesale sales are made, obtaining resale certificates from customers is important to mitigate any sales tax assessments.

Similarly, state income/franchise taxes can be imposed by states retroactively to when nexus was first created. To avoid future surprises, discuss your state activities and future expansion plans with your tax or audit accountant so they can assist in identifying and reducing this risk.

Trust funds and other considerationsStates consider certain taxes withheld from employees (such as income tax withholdings) or collected from customers (such as sales taxes) to be the property of the state held in trust by the business until remitted. As such, there are serious penalties that can be applied if a business owner fails to remit those trust funds to the state, including personal liability for payment. Care should be taken by owners to ensure these responsibilities are being met by the business.

Finally, separate bank accounts and accounting records should be kept for each business entity which are separate from the owner’s personal accounts. Intermingling of personal funds with business funds (or between entities) invites ambiguity and can lead to legal issues in addition to increased compliance risk and tax liabilities.

If you are starting a new company or expanding your business into new markets, be sure to investigate your state registration requirements and possible state tax implications. Please feel free to contact us if you have any questions or if we can be of assistance.

Rachel Roberson, CPA, Tax Manager. Rachel can be reached at 425.289.7664 or rroberson@bpcpa.com.

perform compared to your competitors and is a valuable part of managing your business in an ever changing world. Enter: Benchmarking.

Benchmarking is the measurement of the quality of an organization’s policies, products, programs, and strategies and their comparison against the standard (or similar) measurements of its peers. The objectives of benchmarking are (1) to determine what and where improvements are called for, (2) to analyze how other organizations achieve their high

BENCHMARKING – CONTINUOUS IMPROVEMENT OF YOUR COMPANY

Many companies do a good job measuring their business performance, including

the efficiency of their processes, time and cost management and overall product quality. But just looking at your own performance creates a narrow view of your company, which can

easily lead to losing track of industry innovations, competitive advantages, and customer demands. Evaluating your business against an external comparison allows you to see how you

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to analyze your sales data via key ratio analysis and identify where your company may be underperforming by industry standards. The tool even provides a diagnostic component, where we provide ideas for how to enhance specific areas of your business.

For contractors, homebuilders, or other real estate businesses, we also have access to a variety of industry data and metrics to help you assess your firm’s health vis-à-vis the competition.

These are just a few examples of the many different resources we have available to help your company. Whether you decide to perform your own benchmarking analysis or have BP help, the process will provide you and your company with invaluable information to improve your business and grow.

If you are interested in having BP provide a benchmarking analysis of your company, please contact Cale Middleton at cmiddleton@bpcpa.com or 425.289.7645 or contact your BP professional. We’re here to help!

YEAR-END PLANNING STRATEGIES FOR CONTRACTORS

Now is the time to consider tax strategies and financial statement performance for the fiscal year-end. When

developing a strategy, analyze how the strategy will impact your company in terms of your tax liabilities, flow-through income to your owners, and financial statement strength for year-end reporting. Always check a potential tax position against your financial covenants and key performance ratios your financial statement users consider with the year-end financial statements.

Here are several considerations when developing your year-end tax and financial statement strategy:

Cash Any strategy should focus on maximizing the company’s cash reserves at the end of the year. When circumstances allow for it, consider requesting early payment from customers with large A/R balances and delaying cash disbursements for payables until after year-end. Collect retention balances whenever possible. Delay large purchases or capital investment if necessary, or use debt financing to maintain liquidity ratios.

Accounts Receivable Review the accounts receivable listing prior to year-end, paying particular attention to balances outstanding over 90 days. Focus efforts on collecting these amounts prior to year-end. Balances over 90 days are generally discounted heavily by financial statement users and can even be excluded in covenant calculations.

Retention Receivable Review the retention listing for retention due on completed contracts. Determine the action items that need to be completed before you can collect the retention and focus on getting those done. Submit all necessary paperwork including the execution of a conditional final lien release.

Job Schedules Thoroughly analyze WIP schedules to ensure that the estimated costs to complete and estimated gross profit are accurate, given all known information. If negative variances become a trend, it could indicate poor estimating and job cost forecasting, so be skeptical and revisit prior year-end adjustments. Negatively trending WIP can result in users of the financial statements losing confidence in the company’s ability to estimate jobs accurately.

Backlog Focus on turning awarded work into contracted work. A signed contract is typically required under GAAP to include a project in the company’s backlog disclosure at year-end.

Fixed Assets The Section 179 fixed asset deduction continues to be an attractive tax strategy for contractors. As it currently stands, companies can expense up to $500,000 under Section 179 on qualifying fixed asset purchases, subject to income

performance levels, and (3) to use this information to enhance performance.

Benchmarking can be performed at any level of your organization and as narrowly or broadly as you feel is necessary. For example, you can perform benchmarking on your entire company by comparing your financial results with other firms in your industry or you can analyze a specific project or a company policy that you feel may need improvement.

As we get closer to the year-end, those of us at BP are taking the time to meet personally with clients to have these critical conversations and discuss ideas for improving their businesses.

We have several benchmarking tools at our disposal that cover many different industries and allow us to analyze your business and help you plan for improvements. For our clients that are wholesalers, distributors and manufacturers, we have developed our own proprietary Financial Toolkit – designed

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limitations and phase-out beginning at $2 million of fixed asset acquisitions. Additionally, the bonus depreciation deduction allows companies to take 50% bonus depreciation on qualifying “new” fixed assets purchased during 2016.

We also recommend a thorough review of your fixed asset listing to ensure you are not paying personal property taxes on equipment no longer owned by the company.

Research and Development Opportunities The research and development tax credit is a government-endorsed tax incentive that rewards companies for using research and development to improve their processes. Construction, design and architecture firms are generally eligible for this credit if specific requirements are satisfied. The credit was made permanent as part of the Protecting Americans from Tax Hikes Act of 2015. Also in 2016 and in future years the R&D credit can be used to offset AMT tax liabilities for businesses with average revenue under $50 million.

Energy Incentives Another popular deduction is the Section 179D energy efficient building deduction. This deduction can be as high as $1.80 per square foot for energy efficient commercial buildings placed in service or remodeled from 2006 to 2016. If a qualifying building is constructed on property owned by a federal, state or local government, a contractor who is the designer on the project may be entitled to the deduction. Also, check with your

state and utility districts as they may offer additional credits for energy savings. Currently, Berntson Porter is monitoring efforts to extend the 179D energy efficient building deduction beyond 2016.

GAAP Accounting Changes There are two major accounting updates on the horizon: Lease Accounting and Revenue Recognition. Familiarize yourself with the standards and consider how the changes will affect the company and how you can tackle any challenges head-on.

Other items to consider in your year-end tax and financial statement planning include state income tax planning, maximizing retirement plan contributions for the company’s owner group, and reviewing insurance coverage, including life insurance considerations, and succession planning.

The implementation of these strategies will benefit your company’s year-end financial position and tax liabilities. Remember to always discuss your strategy and expected outcomes with the users of the financial statements prior to implementation. Berntson Porter & Company, PLLC is ready to assist you if you would like more information on these year-end strategies, as well as help identify strategies for 2016 and beyond.

Rhett Ennis, CPA, Assurance Services Senior Manager. Rhett can be reached at 425.289.767628 or rennis@bpcpa.com.

The Westin Bellevue600 Bellevue Way NE

Bellevue, WA 98004

RSVP to aellisor@bpcpa.comAmy Ellisor at 425.289.7630

1:00-5:30 p.m., reception following

SAVE THE DATEThursday, November 17th, 2016

PRESENTED BY: BERNTSON PORTER & COMPANY, PLLC

UBS PRIVATE WEALTH MANAGEMENT

Nationally Acclaimed Speakers! The Puget Sound region’s premier Wealth Planning event

WEALTHMANAGEMENT

SUMMIT

THE

• Personalized Human Longevity• Strategies of the Ultra-Wealthy• M&A Trends• Behavioral Science of Investing• The Market and Best of Class Portfolio

Management• American Hero Keynote Speaker

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BP NEWSBP’s Mission of Caring is enjoying a busy fall with participation in the Seattle Human Society’s Walk for the Animals 2016.

Berntson Porter’s Norm Haugen, Principal, was on hand for the first ever UW Bothell School of Business Dinner Auction in September. Norm serves on the School of Business Advisory Board for UWB.

Daniel Roe, Manager in the Forensic, Economic Damages and Valuations Department, presented recently at the King County Bar Association seminar on the topic of “Separate Property Tracing.”

DC AND STATE HIGHLIGHTS Changes and updates to tax laws, regulations and rulings

EU Considers United States a Tax Haven RiskThe EU conducted a tax haven centered analysis of 81 countries in preparation for the blacklisting of tax havens. The list will serve as a fundamental decision-making tool and aid in minimizing tax avoidance. Countries were evaluated on three criteria: transparency, preferential tax regimes, and zero corporate tax rate. Nearly every country on the list received a risk warning in at least one area. The United States received poor marks in transparency and preferential tax regimes. There is no word yet on which countries will receive blacklistings as the deliberation among EU countries looms large.

Court Case Decides Deposits on Failed Deal Taxable as Ordinary IncomeDeposits received for a sale that eventually falls through are income to the recipient and a recent tax court ruling dictated the character of this income. The court ruled in favor of the IRS stating that deposits should be treated as ordinary income, therefore subject to higher tax rates. The court held to a strict interpretation of the tax code, which has caused a stir in the industry. Some professionals believe that the intent behind the laws is not being followed and that this ruling should not be applied to other taxpayers. This case will likely be appealed by the taxpayer as professionals wait for additional guidance.

Partner Held Liable on Partnership’s Unpaid Employment TaxesThe Ninth Circuit held that a partner was liable for the unpaid employment taxes of the partnership and that the IRS can use administrative enforcement procedures to collect the debt. The partnership and partner received repeated notices of the past due tax payments and the partner attempted to discharge indebtedness through filing for bankruptcy. The court ruled that

her obligations to the IRS were encased in the tax lien issued against the partnership, therefore denying her appeal.

Gift TaxesThe Treasury Department recently released proposed regulations that would limit the valuation discounts often used when gifting minority ownership interests in family-controlled companies to heirs or relations. If the regulations are finalized, when an individual gifts minority interests to their heirs a larger portion of his or her lifetime gift and estate exclusion ($5.45 million in 2016) must be used. A public hearing is scheduled for Dec. 1, 2016 for discussion.

Timing of Like-kind Exchanges Challenged in CourtA taxpayer opted to treat an unorthodox transaction as a like-kind exchange even though they received property from the exchange before giving up the property designated for exchange (“Reverse Like-Kind Exchange”). In this situation, the taxpayer used an intermediary to hold title to the exchanged properties while the taxpayers received the benefits and burdens of ownership. Under audit, the IRS denied like-kind treatment and the court disagreed, allowing the like-kind treatment. This ruling will have broader application as it allows taxpayers more leniency in the timing of their like-kind exchanges.

Mortgage Interest Deduction Limit IncreasedBased on a tax court decision, the IRS recently changed the application of the home mortgage interest limitation relating to unmarried individuals living together. The maximum interest deduction allowable jumped to $2.2 million for these individuals The language of the law passed by Congress allowed for the interpretation taken by the court. For married couples, the limit remains at $1.1 million.

BP’s Greg Porter was honored by the Washington Policy Center with the 2016 Champion of Freedom Award. This prestigious award recognizes community leaders who are committed to free-market principles, education and public accountability, and for establishing the ideals and independent research that continue to provide the people of our state with effective policy ideas. Congrats to Greg!

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This newsletter is distributed with the understanding that it is not providing legal, accounting, or other professional advice or opinions on specific acts or matters and, accordingly, no liability is assumed in connection with its use whatsoever.

ADDRESS SERVICE REQUESTED

11100 NE 8th St., Suite 400Bellevue, Washington 98004

Attention: Wholesale Distributors and Manufacturers!

Your input is needed! Please participate in our first-annual BP Pulse: A Distribution and Manufacturing Survey developed in association with the Center for Advanced Manufacturing Puget Sound (CAMPS).

We are working with CAMPS to get a pulse on the challenges and opportunities facing local distributors and manufacturers.

To participate, go to www.surveymonkey.com/r/MfgDistSurvey

Survey will close on or around November 9th. An advance copy of the results will be provided to all participants.

For more information, contact Amy Ellisor at aellisor@bpcpa.com or 425.289.7630.

CLIENT NEWSThe following firms were recognized by the Puget Sound Business Journal (PSBJ) as some of Washington’s Best Workplaces in 2016 – GLY Construction, JPC Architects and Blueprint Consulting. Congrats!

Blueprint Consulting was also named to the PSBJ’s Fastest Growing Eastside Companies!

Copiers Northwest recently celebrated their 30th anniversary – and even threw out the first pitch at a Mariner’s game. As their partner over the last three decades, BP’s Bob and Greg were on hand to help them celebrate. Congrats to the Copiers Northwest team on this great accomplishment!