In boating, an anchor is a mechanism used to hold a ship steady. In television, an anchor is a person who presents and coordinates. In sports, an anchor is the person on the team with the best ability. In Rhode Island, an anchor is a business that orchestrates the creation of new jobs.
In 2015, the Rhode Island Commerce Corporation and the Rhode Island Division of Taxation issued the Anchor Institution Tax Credit. This credit is one of several incentive programs offered by the State to local businesses committed to our economy. These credits were established to promote the retention and expansion of jobs and to stimulate growth in key development areas. The Anchor Institution Tax Credit rewards businesses that play a key role in bringing new jobs from suppliers and/or customers to the State. By taking advantage of the Anchor Institution Tax Credit, a business can reduce costs, increase efficiency, and spur supply chain collaboration.
The Anchor Institution Tax Credit requires the creation of at least 10 jobs on or before December 31, 2018, or 25 jobs on or before December 31, 2020. The applicant must play a key role in the decision of suppliers or customers to move to Rhode Island and create these jobs. The amount of the credit depends on the following criteria:
- Number of new full time jobs created
- Compensation and benefits of new full time jobs created
- Length of time that new full time jobs are committed to remaining in Rhode Island
- New full time jobs created in target industries
- New full time jobs created in target communities
- Other factors that display a benefit to the Rhode Island economy
Consider if you may be in a position to be an anchor for the state of Rhode Island. Do you have a steady business that helps the State economy? Do you have connections with your suppliers and customers that may allow you to present and coordinate a move for them to come to Rhode Island? Do you have the ability to play a key role in the growth of the Rhode Island economy? If so, the State is looking to partner with and reward you through the Anchor Institution Tax Credit.
For More Information
Below is a link to the Rhode Island Commerce Corporation website further discussing the Anchor Institution Tax Credit. From this website, you can obtain additional information, contact a representative, and begin the application process. This website will also provide information about the other incentive programs currently offered by the State. Also, contact us if you have any questions regarding the impacts that this credit may have on your tax returns.
http://commerceri.com/finance-business/taxes-incentives/anchor-institution-tax-credit/
Bonus depreciation’s job is to spur economic growth through investment, or reinvestment, in business property within the United States. Whether you’re a manufacturer looking to expand your operations or simply looking to update your equipment, bonus depreciation can help you accelerate tax savings. In addition to accelerating deductions to the current year, taking a bonus depreciation deduction in 2017 instead of 2018 may also save you actual tax dollars.
What is bonus depreciation? It’s a special, one-time deduction available in the year you place in service new qualifying property. The dollar amount of the deduction will be dependent on the percentage allowed under the law in effect for the year you put the asset in service. Currently, the general rule is 50% bonus depreciation will be available for eligible property placed in service in 2017, 40% for property placed in service in 2018 and 30% for property placed in service in 2019.
To illustrate the benefits of bonus depreciation let’s look at an example. In 2017, you buy and place in service an asset with a five-year depreciable life which cost $2,000. Under the bonus depreciation rules, you are allowed to immediately expense $1,000 (50% of the cost of the asset). You would also be allowed to depreciate the remaining $1,000 and take a $200 regular depreciation deduction, for a total 2017 of $1,200. Without the bonus depreciation rules, you would only receive a current deduction of $400. Note that we are not creating deductions by utilizing bonus depreciation, but simply accelerating them.
If we recalculate the above example assuming a placed in service date of 2018 (40% bonus depreciation), you would be able to get a first year deduction of $1,040 ($2,000 x .40 = $800 bonus depreciation; $1,200 x .20 = 240 regular depreciation). You may not think a difference of $160 between the two years is a big deal. However, if we change the cost of the new asset to $500,000, the difference between the two years sky rockets to $40,000!
It’s no secret that the Trump administration and the Republican Congress wish to lower tax rates. What no one knows is when these changes will happen, what they will entail and when they will be effective if tax rates drop in 2018, depending on your tax situation it may make more sense to invest in your operations today and get a bigger tax benefit out of your deduction. More simply put, by accelerating deductions to 2017 you can reduce taxable income in a year with potentially higher tax rates than the next. This could translate into real cash savings year over year.
Like every tax law, the bonus depreciation rules can be tricky. For example, not all capital assets will qualify for bonus depreciation and you need to pay close attention to when an asset is placed in service. If you’re planning any large capital expenditures in the near future please give us a call to ensure the proper planning is taken to maximize your investment.
Interactions with technology are advancing at an exponential rate, and so are the risks of a cyber-attack. It seems like every other day there is another story in the news of a malicious virus sweeping the global marketplace and negatively impacting local economies.
Perhaps your manufacturing business just implemented real-time financial reporting in the cloud, invoices customers via the internet, or conducts a multitude of online banking transactions. Imagine just a few of the possible impacts of a cyber-attack in this new e-commerce environment:
- Your company data becomes inaccessible as an unknown individual holds your information for ransom. How can you continue to operate without this information? Will you pay this ransom?
- Your operations floor comes to a sudden halt. Machines abruptly shut down as the related technology suffers a cyber-attack. How long will it take to recover and reboot? How much will this cost? How will you fulfill your customers’ demands?
- Vital software programs become inoperative. Your employees are not able to perform their day to day tasks. A security professional informs you that an attack to your servers has come through an employee’s personal tablet. What other access points are prone to attack?
According to a recent article published by Automation World, utilizing a recent study performed by Cisco, many manufacturers are devoting more resources to cybersecurity. The key is to not only commit these resources, but to do so in an efficient manner. Here are a few points to consider when addressing cybersecurity:
- Gradual and Continuous Process: Building up your cybersecurity can become very expensive. Some of the major costs can include programs, equipment, and experienced employees or consultants. You should consider these costs against the risks of potential threats. Create a plan that will help spread the cash flow, but also prevent extensive damage. Threats will continue to adapt, so this plan should be periodically monitored and updated.
- Information Technology and Operational Technology: Manufacturing floors are increasingly being built upon and supported by technology. The connection between information technology and the operational technology on the manufacturing floors needs to be established and maintained in a careful manner, so that the operational technology is protected from the potential threats to the information technology. The benefits of connection between these two technologies should be considered against these threats.
- Internet of Things: Internet access can be established through many technological devices: computers, phones, operating machinery, watches, vehicles, buildings, etc. For each device that is provided access to business information, a new avenue is created that can be exploited by attackers. Proper security should be established prior to enabling the use of new devices.
All in all, technology is providing extreme operational efficiencies. You would be mistaken not to consider the use of these technologies. However, you would be further mistaken not to consider the cybersecurity measures that should be established and maintained with each and every change in your business use of technology. Keep your business effective. Keep your business secure.
For More Information
Please follow the link below for the full discussion of the Cisco study presented by Automation World. Let us know if you have accounting or taxation questions as you build your cybersecurity.
Though it has been publicized that certain “contract-based” industries – telecommunications, technology, engineering, media, and pharmaceuticals, to name a few – will be impacted by the new revenue recognition rules the effects are in fact more far-reaching and will apply to all companies, public or private. A 15-year effort made by FASB and the International Accounting Standards Board has resulted in significant revenue recognition changes which will take effect in January 2018. The changes outlined in Accounting Standards Update 2014-09 will have sweeping effects as to how and when businesses recognize revenue for financial statement reporting purposes.
The objective of the new rules is to create a single global revenue recognition model applicable across all industries. This principles-based model has five steps: (1) identifying applicable contracts with customers; (2) identifying performance obligations within those contracts; (3) determining the total transaction value; (4) allocating the transaction value to those performance obligations; and, (5) recognizing revenue as your company satisfies those performance obligations.
Manufacturing, distribution, and retail companies may initially consider their sales model too simplistic but likely haven’t contemplated the potential implications to their industries. The following are examples of scenarios that will change revenue reporting in January 2018:
- Multi-year manufacturing arrangements – Manufacturers that fulfill multi-year orders, produced to customer specifications, could be required to recognize revenue on work in progress. Under present GAAP, manufacturers recognize revenue only when goods are shipped or delivered. Under the new rule, contracts entitling manufacturers to a right of payment for work to date will now require revenue recognition over time, as products are completed, rather than shipped.
- Manufacturing incentive payments – Manufacturers entitled to an incentive payment at the end of a multi-year contract may now need to consider the incentive payment as part of a transaction value. Under the new rule, to the extent it is probable that the manufacturer will collect the incentive payment; portions of it will be recognized rateably over the life of the contract, not at the date the manufacturer is entitled to the payment.
- Customer loyalty programs, reward points – Under the new revenue rule, customer incentives, commonly offered by retailers and distributors, may give rise to separate performance obligations that affect the timing of revenue recognition. Incentives entitling customers to additional goods or services for free, or at a discount, that would not have been received without entering into the contract are deemed separate performance obligations, thereby requiring an allocation of a portion of the transaction price to the incentives.
- Volume discounts, price concessions, rebates – Under the new rule, sales incentives that create variability in the price of the goods or services offered to the customer will now require companies to employ certain predictive methods to determine the amount of consideration they are entitled to. Judgments made in determining the true transaction price could prove challenging due to issues such as subsequent changes to estimate inputs that could result in a reversal of revenue, susceptibility to factors outside the entity’s control, and business practices that offer a multitude of possible transaction prices.
Ultimately, the new revenue recognition standard starts with the contract and the obligation(s) it creates. In some cases defining those factors will be black and white; in others, they will be gray. At a minimum, the change requires management to re-examine and assess their earnings process and how ASU 2014-09 could impact their financial statements.
Technology in the energy industry is evolving at a rapid pace. Solar panels are becoming leaner and more efficient – providing more capacity at a lesser cost, mimicking the path of more traditional computer hardware. Below are 5 reasons why we believe solar is worth considering today to boost your bottom line.
- Your energy bill is one of your biggest – when was the last time you reviewed it with an expert? Solar isn’t always the answer for reducing costs but if you’re not at least considering it as part of an overall effort to reduce your company’s energy costs you may be leaving a lot of dollars on the table.
- With the current Federal Tax Credit available the cost of your install may not be as high as you think. The clock is ticking though. The current credit rate is 30% of the cost but this incentive is NOT permanent. The legislation is on a schedule to decline and eventually drop off completely (without further action from Congress). Between the current Federal credits, state incentives, depreciation benefits and available USDA grants, going solar may not cost as much as you think.
- The states have various ways to connect you to the grid and all kinds of different incentive programs. Navigating your state’s system may be challenging but, while it is important that you have a general understanding of what system will work best for your needs, the qualified expert you hire should handle the bulk of the heavy lifting.
- Financing is available. Banks are catching on to the benefits of providing financing for these projects – particularly for large manufacturers. More and more we hear about banks working out the collateral issues that may have caused issues in the past and seeking to educate themselves on what these projects entail. Bottom line here – the cost savings related to solar can provide a benefit above and beyond the cost of financing which is becoming more readily available.
- To remain competitive in today’s rapidly evolving marketplace, businesses must appeal to the needs of end users. People are becoming more and more conscious of their impact on the environment. Whether you believe in climate change or not the fact is that consumers care about where their products are coming from now more than ever. Solar panels are a clean energy technology. As consumer attitudes trickle up the supply chain you may find that your environmentally friendly decision to incorporate solar is a key differentiator for you in your marketplace.
What’s the next great challenge for the solar industry?
How about storage? While the technology for generating energy has grown by leaps and bounds we still see much waste as storage technology is limited and very expensive. The ability to efficiently and cost-effectively store, instead of losing, the energy produced will be a game changer.
For More Information
Through our volunteer work within the energy industry and our experience assisting clients to navigate through these types of projects, we’ve made a lot of contacts. We’d be happy to connect you with an experienced solar professional that can not only provide you with the information needed to make an informed decision as to whether or not solar is a good fit for you but who will also fully guide you through this process from the planning stage through completion and provide continuous monitoring and system alerts. And of course, as your trusted advisor, your CPA can make sure the numbers make sense for your business and that you’re maximizing the tax incentives available to you.
Are you currently operating a business in Rhode Island and looking to expand? Perhaps you have a business outside of RI that you’re looking to relocate. Rhode Island, in an effort to attract and retain new and existing businesses, enacted the New Qualified Jobs Incentive Act in 2015 and has already awarded several job creators significant annual, redeemable tax credits that have allowed them to make expanding or relocating to RI more financially feasible. Here are some quick Q&A’s to learn more about the Qualified Jobs Incentive Act to see if it could potentially benefit your business!
Is the Credit Available for My Industry?
While there aren’t any limits on industries that can apply for the credit, RI Commerce provides a list of “Target Industries”, at the top of which is IT/Software, Cyber-Physical Systems, and Data Analytics. They are particularly interested in supporting the efficiency, presence, and output of these businesses in the state. The job creation requirements can vary by industry and company size, and target industries benefit from reduced requirements.
How Much of a Tax Credit Could We Expect to Receive?
The amount of tax credit received by an applicant will always be on a per new full-time job basis. Until the credit has been awarded to a cumulative 500 jobs, the tax credit could be up to $7,500 (the maximum credit) per new full-time job. Once this cumulative job threshold has been exceeded, the tax credit granted will be limited by factors including the number of new jobs created, wages paid, industry, and location.
What is Involved in the Initial Application and Reapplication Processes?
For businesses interested in this credit, a good first step would be to visit the RI Commerce’s website page for the Qualified Jobs Incentive Tax Credit (see link below). This is where you can find the actual initial application required. Generally, it requires basic business and job creation information, a project summary, details on operations, and other criteria related to eligibility. After a company has been approved for the first year, there are annual requirements to maintain this credit. This includes a “Statutory Report”, “Annual Report”, and “Base Number Employment Report”. These communicate to the state whether or not the requirements of new jobs have been met, and determine how much of a credit your company is eligible for in the following year. These reports do require verification from a CPA licensed in Rhode Island.
How Will this Credit Affect my Tax Return?
The credit received by applicants is a state credit that will reduce your tax liability dollar for dollar on your Rhode Island state tax return for both businesses and individuals through pass-through entities. Credits that exceed an applicant’s tax liability may be carried forward for up to four years. As an added bonus to this incentive, the State of Rhode Island included in the regulations that these credits may be redeemed directly with the State in whole or in part for 90% of the value of the tax credit. This means you don’t even need a tax liability to obtain value from this incentive.
What is a “Hope Community”?
In Rhode Island, certain municipalities are deemed a Hope community when the percentage of families below the poverty level is greater than that of the state as a whole. Currently, the Hope communities in Rhode Island include Central Falls, Pawtucket, Providence, West Warwick, and Woonsocket. Jobs created in a Hope community increase the amount of tax credit per job by $1,000 (not to exceed the maximum credit of $7,500). The base credit for employers begins at $2,500 and this is one of a few factors that can help employers qualify for an increased credit.
For More Information
If you’re looking for some more detailed information, RI Commerce provides links to The Qualified Jobs Incentive Act, its regulations, and application review and evaluation principles for your reference.
http://commerceri.com/finance-business/taxes-incentives/qualified-jobs-incentive/