Acuity Blog

Key Aspects of a Successful Wellness Program

Wellness programs have found a place in many companies’ health care benefits packages, but it hasn’t been easy. Because these programs take many different shapes and sizes, they can be challenging to design, implement and maintain.

There’s also the not-so-small matter of compliance: The federal government regulates wellness programs in various ways, including through the Health Insurance Portability and Accountability Act and the Americans with Disabilities Act.

Whether your business is just embarking on the process of creating one or simply looking for improvement tips, here are some key aspects of the most successful wellness programs.

Simplicity and Clarity

“Welcome to our new wellness program,” began the company’s memo. “Attached is a 200-page guide, featuring a complex point system that will determine whether you qualify for incentives, and a lengthy glossary of medical terminology.”

See the problem here? The surest way to get a program off to a bad start is by frontloading it with all sorts of complexities and time-consuming instructions. Granted, there will be an inevitable learning curve to any type of wellness program. But the simpler the design, the easier it will be to explain and implement. Remember that you can update and increase a program’s complexity as it becomes more ingrained in your company’s culture.

Clarity of communication is also paramount. Materials should be well-organized and written clearly and concisely. Ideally, they should also have an element of creativity to them — to draw in participants. However, the content needs to be sensitive to the fact that these are inherently personal health issues.

If you don’t have anyone in-house who can handle these criteria, consider engaging a consultant. In addition, have your attorney review all materials related to the program for compliance purposes.

Carefully Chosen Providers

At most companies, outside vendors provide the bulk of wellness program services and activities. These may include:

• Seminars on healthy life and work habits,
• Smoking cessation workshops,
• Fitness coaching,
• Healthful food options in the break room and cafeteria, and
• Runs, walks or other friendly competitive or charitable events.

It’s critical to thoroughly vet providers and engage only those that are skilled and qualified. Neglecting to do so could mean that, even if you create and communicate a solid program, the initiative will likely fail once employees show up to participate and are disappointed in the experience.

Return on Investment

Of course, there will be upfront and ongoing costs related to a wellness program. Contact us for help assessing these costs while designing or revising a program and tracking them over time. The ultimate sought-after return on investment of every wellness program is a healthier, more productive workforce and more affordable health care benefits.
© 2022

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How to Treat Business Website Costs for Tax Purposes

These days, most businesses have websites. But surprisingly, the IRS hasn’t issued formal guidance on when website costs can be deducted.

Fortunately, established rules that generally apply to the deductibility of business costs provide business taxpayers launching a website with some guidance as to the proper treatment of the costs. Plus, businesses can turn to IRS guidance that applies to software costs.

Hardware Versus Software

Let’s start with the hardware you may need to operate a website. The costs fall under the standard rules for depreciable equipment. Specifically, once these assets are operating, you can deduct 100% of the cost in the first year they’re placed in service (before 2023). This favorable treatment is allowed under the 100% first-year bonus depreciation break. Note: The bonus depreciation rate will begin to be phased down for property placed in service after calendar year 2022.

In later years, you can probably deduct 100% of these costs in the year the assets are placed in service under the Section 179 first-year depreciation deduction privilege. However, Sec. 179 deductions are subject to several limitations.

For tax years beginning in 2022, the maximum Sec. 179 deduction is $1.08 million, subject to a phaseout rule. Under the rule, the deduction is phased out if more than a specified amount ($2.7 million for 2022) of qualified property is placed in service during the year.

There’s also a taxable income limit. Under it, your Sec. 179 deduction can’t exceed your business taxable income. In other words, Sec. 179 deductions can’t create or increase an overall tax loss. However, any Sec. 179 deduction amount that you can’t immediately deduct is carried forward and can be deducted in later years (to the extent permitted by the applicable limits).

Similar rules apply to purchased off-the-shelf software. However, software license fees are treated differently from purchased software costs for tax purposes. Payments for leased or licensed software used for your website are currently deductible as ordinary and necessary business expenses.

Software Developed Internally

If, instead of being purchased, the website is designed in-house by the taxpayer launching the website (or designed by a contractor who isn’t at risk if the software doesn’t perform), for tax years beginning before calendar year 2022, bonus depreciation applies to the extent described above. If bonus depreciation doesn’t apply, the taxpayer can either:

1. Deduct the development costs in the year paid or incurred, or
2. Choose one of several alternative amortization periods over which to deduct the costs.

For tax years beginning after calendar year 2021, generally the only allowable treatment will be to amortize the costs over the five-year period beginning with the midpoint of the tax year in which the expenditures are paid or incurred.

If your website is primarily for advertising, you can currently deduct internal website software development costs as ordinary and necessary business expenses.

Paying a Third Party

Some companies hire third parties to set up and run their websites. In general, payments to third parties are currently deductible as ordinary and necessary business expenses.

Before Business Begins

Start-up expenses can include website development costs. Up to $5,000 of otherwise deductible expenses that are incurred before your business commences can generally be deducted in the year business commences. However, if your start-up expenses exceed $50,000, the $5,000 current deduction limit starts to be chipped away. Above this amount, you must capitalize some, or all, of your start-up expenses and amortize them over 60 months, starting with the month that business commences.

We Can Help

We can determine the appropriate treatment of website costs. Contact us if you want more information.
© 2022

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Three Tax Breaks for Small Businesses

Sometimes, bigger isn’t better: Your small- or medium-sized business may be eligible for some tax breaks that aren’t available to larger businesses. Here are some examples.

1. QBI Deduction

For 2018 through 2025, the qualified business income (QBI) deduction is available to eligible individuals, trusts and estates. But it’s not available to C corporations or their shareholders.

The QBI deduction can be up to 20% of:

• QBI earned from a sole proprietorship or single-member limited liability company (LLC) that’s treated as a sole proprietorship for federal income tax purposes, plus
• QBI passed through from a pass-through business entity, meaning a partnership, LLC classified as a partnership for federal income tax purposes or S corporation.

Pass-through business entities report tax items to their owners, who then take them into account on their owner-level returns. The QBI deduction rules are complicated, and the deduction can be phased out at higher income levels.

2. Eligibility for Cash-Method Accounting

Businesses that are eligible to use the cash method of accounting for tax purposes have the ability to fine-tune annual taxable income. This is accomplished by timing the year in which you recognize taxable income and claim deductions.

Under the cash method, you generally don’t have to recognize taxable income until you’re paid in cash. And you can generally write off deductible expenses when you pay them in cash or with a credit card.

Only “small” businesses are potentially eligible for the cash method. For this purpose under current law, a small business includes one that has no more than $25 million of average annual gross receipts, based on the preceding three tax years. This limit is adjusted annually for inflation. For tax years beginning in 2022, the limit is $27 million.

3. Section 179 Deduction

The Sec. 179 first-year depreciation deduction potentially allows you to write off some (or all) of your qualified asset additions in the first year they’re placed in service. It’s available for both new and used property.

For qualified property placed in service in tax years 2018 and beyond, the deduction rules are much more favorable than under prior law. Enhancements include:

Higher deduction. The Sec. 179 deduction has been permanently increased to $1 million with annual inflation adjustments. For qualified assets placed in service in 2022, the maximum is $1.08 million.

Liberalized phase-out. The threshold above which the maximum Sec. 179 deduction begins to be phased out is $2.5 million with annual inflation adjustments. For qualified assets placed in service in 2022, the phase-out begins at $2.7 million.

The phase-out rule kicks in only if your additions of assets that are eligible for the deduction for the year exceed the threshold for that year. If they exceed the threshold, your maximum deduction is reduced dollar-for-dollar by the excess. Sec. 179 deductions are also subject to other limitations.

Bonus Depreciation

While Sec. 179 deductions may be limited, those limitations don’t apply to first-year bonus depreciation deductions. For qualified assets placed in service in 2022, 100% first-year bonus depreciation is available. After this year, the first-year bonus depreciation percentages are scheduled to start going down to 80% for qualified assets placed in service in 2023. They will continue to be reduced until they reach 0% for 2028 and later years.

Contact us to determine if you’re taking advantage of all available tax breaks, including those that are available to small and large businesses alike.
© 2022

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10 Tax Tips for Volunteers

Donating time to a charity can be a rewarding experience — both for you and people (or animals) who benefit from the organization’s mission. But your efforts may also provide you with some well-deserved tax breaks if you itemize deductions on your tax return. Although you can’t deduct the “value” of your services, here are 10 other tax-saving opportunities that you may be able to take advantage of.

1. Unreimbursed Vehicle Expenses

If you take short-distance trips for the charity in your personal vehicle — say, to attend meetings, make deliveries or pick-ups or run other errands for the organization — you can deduct the portion of your vehicle expenses attributable to your charitable travel. These expenses include gas, oil, repairs, insurance and depreciation.

Tracking all of these expenses requires in-depth recordkeeping under the strict substantiation rules administered by the IRS. In lieu of this inconvenience, you can simply claim a flat rate deduction of 14 cents per mile (plus charity-related tolls and parking fees).

Important: Due to today’s inflated gas prices, you may fare far better from a tax standpoint with the actual expense method than you do with the standard mileage rate.

2. Unreimbursed Travel Expenses

Beyond traveling in your personal auto, you can deduct other transportation costs incurred on behalf of charity, including round-trip airfare and rail or bus fare to attend meetings and events. This also extends to local transportation, such as taxicab fare or Uber or Lyft fees, while you’re at the distant location.

Furthermore, you can deduct the cost of qualified meals while you’re away from home. The usual 50% limit on business meal expenses doesn’t apply this year. You can deduct 100% for food and beverages provided by restaurants in 2022.

3. Event Tickets Priced Above Market Value

Usually, you donate cash to charity without receiving anything of value in exchange. In those cases, you can deduct the full amount. But sometimes you might pay more to the charity than the benefit you receive in return. For example, you may attend a fundraising event, such as dinner or a gala for a specific cause. In this case, your deduction is limited to the difference between the cost and the fair market value of the benefit received.

Let’s say you and your spouse buy two tickets for a dinner that benefits a local animal rescue organization at $250 apiece. The actual market value of the meal is $100 a plate. Therefore, you can deduct the $300 difference ($500 cost for two tickets minus $200 market value). Be sure to obtain written documentation from the charity for amounts above $75.

4. Clothing or Uniforms Purchased for Charitable Functions

If you’re required to wear special clothing while performing charitable duties — for example, a Girl Scouts uniform or an event-specific sweatshirt with the charity’s name — you can deduct the cost of the clothing. But you can’t write off the costs of clothing items that are suitable for regular wear. For instance, no deduction is allowed for a tuxedo or dress purchased for attending a charitable gala.

Previously, you could also deduct cleaning and maintenance costs of special clothing as a miscellaneous expense, subject to an overall limit of 2% of adjusted gross income (AGI). But the deduction for miscellaneous expenses is suspended for 2018 through 2025.

5. Event-Hosting Costs

If you hold a fundraiser for the charity at your home — such as a picnic or a silent auction — all of your expenses are deductible. As with charitable meals, there’s no 50% limit in 2022 on write-offs for meals (provided by restaurants) during charitable functions.

Note that a business can no longer deduct any of its entertainment expenses. This write-off was permanently eliminated in 2018. But the crackdown doesn’t extend to entertainment at your home fundraiser. 

6. Use of Communication Devices

While you can’t deduct your basic telephone or cellphone expenses, you’re allowed to write off the cost of long-distance calls made for a charity. You also may be able to deduct a second landline, scanner or fax installed in your home solely for charitable purposes. Similarly, you may deduct charity-related costs attributable to use of an iPad or other electronic device.

Also, if you use U.S. mail or other delivery services like FedEx or UPS, you can deduct those costs relating to charitable endeavors.

7. Supply Costs

If a charity runs short on supplies — such as paper towels, paperclips and even dog treats — you may use some of your own money to pick up the slack. For instance, you might incur costs for making signs or providing other displays.

There’s no limit on deductions for this category, but it generally encompasses items of a relatively small cost. Other special rules apply to larger donations of property.

8. Expenses Related to Attending a Charitable Convention

Normally, you can’t deduct costs incurred for charitable travel if there’s a significant element of personal pleasure or recreation. However, the tax law allows you to write off expenses associated with attending a convention on behalf of charitable organization when you’re an official delegate. This includes meals and lodging at the convention site.

Of course, any personal expenses incurred while you’re at the convention — such as golfing or snorkeling fees, the cost of a massage or admission to tourist attractions — are completely nondeductible.

9. Foreign Exchange Student Hosting Expenses

If you agree to have a foreign exchange student stay at your home during the school year, you can deduct up to $50 per month of your expenses for each month that the child attends school. The student must in the 12th grade or lower and be living in your home under a written agreement with a qualified charity. The $50-per-month limit is relatively low — especially given the high cost of groceries today — but it’s better than nothing.

Important: You won’t qualify for this tax break if the student is a relative. For example, you get no deduction if your cousin from Italy or niece from China stays with you.

10. Donations to Treat Underprivileged Youth

Do you work with a charity aiming to reduce juvenile delinquency? You can deduct amounts paid to enable underprivileged youths to attend events that they normally couldn’t afford, such as sporting contests, concerts, movies or dinners. This can turn into a sizeable deduction.

Important: The youths must be selected by the charity. You don’t get to choose who comes with you.

For More Information

Sometimes it pays to do the right thing. These are just ten examples of deductible expenses that volunteers may incur while helping out a charity. Your tax advisor can examine your records to find other deductions that may be appropriate for your situation. 

©  2022

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Weathering the Storm of Rising Inflation

Like a slowly gathering storm, inflation has gone from dark clouds on the horizon to a noticeable downpour on both the U.S. and global economies. Is it time for business owners to panic?

Not at all. As of this writing, a full-blown recession is possible but not an absolute certainty. And the impact of inflation itself will vary depending on your industry and the financial strength of your company. Here are some important points to keep in mind during this difficult time.

Government Response

For starters, don’t expect any dramatic moves by the federal government. Some smaller steps, however, have been taken.

For instance, the Federal Reserve has raised interest rates to “pump the brakes” on the U.S. economy. And the IRS recently announced an increase in the optional standard mileage rate tax deduction for the last six months of 2022 (July 1 through December 31). The rate for business travel is now 62.5 cents per mile — up from 58.5 cents per mile for the first half of 2022.

This is notable because the IRS usually adjusts mileage rates only once annually at year-end. The tax agency explained: “in recognition of recent gasoline price increases, [we’ve] made this special adjustment for the final months of 2022.”

Otherwise, major tax relief this year is highly unlikely. Some tax breaks are inflation-adjusted — for example, the Section 179 depreciation deduction. However, these amounts were calculated at the end of 2021, so they probably won’t keep up with 2022 inflation. What’s more, many other parts of the tax code aren’t indexed for inflation.

Strategic Moves

So, what can you do? First, approach price increases thoughtfully. When inflation strikes, raising your prices might seem unavoidable. After all, if suppliers are charging you more, your profit margin narrows — and the risk of a cash flow crisis goes way up. Just be sure to adjust prices carefully with a close eye on the competition.

Second, take a hard look at your budget and see whether you can reduce or eliminate nonessential expenses. Inflationary times lead many business owners to try to run their companies as leanly as possible. In fact, if you can cut enough costs, you might not need to raise prices much, if at all — a competitive advantage in today’s environment.

Last, consider the bold strategy of taking a growth-oriented approach in response to inflation. That’s right; if you’re in a strong enough cash position, your business could increase its investments in marketing and production to generate more revenue and outpace price escalations. This is a “high risk, high reward” move, however.

Optimal Moves

Again, the optimal moves for your company will depend on a multitude of factors related to your industry, size, mission and market. One thing’s for sure: Inflation to some degree is inevitable. Let’s hope it doesn’t get out of control. We can help you generate, organize and analyze the financial information you need to make sound business decisions.
© 2022

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