Author: Ketel Thorstenson, LLP

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Ketel Thorstenson, LLP Conducts Penny Drive During Tax Season for ALS

Ketel Thorstenson, LLP (KTLLP) has recently joined the ALS Association’s Community of Hope by creating a personal tribute fund to honor Merle Karen, a recently retired partner at KTLLP, who was recently diagnosed with ALS. To kick-off the fundraising KTLLP has pledged $5,000.

ALS, commonly called Lou Gehrig’s disease, is a devastating neurodegenerative disease. There is currently no known cause or cure. To learn more visit the ALS Association website at alsa.org.

Merle, and wife Gena, have been Rapid City residents for 45 years. The list of their community involvement and contributions is long, and was done out of love with no expectation of recognition or fanfare. Merle’s work history is much the same. Going the extra mile to help clients has always been a standard for Merle.

Given Merle’s contribution to KTLLP and the Black Hills community, his co-workers, and friends wanted a meaningful and impactful way to show support. During tax season (January through April) KTLLP will hold a Penny Drive. All KTLLP offices (see list with addresses below) will have collection containers for donations.

Another option for giving is by visiting the KTLLP Community of Hope tribute fund webpage, named Merle’s Mustache Mob. Secure, online donations can be made there. Gifts to this worthy cause are tax-deductible.

https://web.alsa.org/site/TR/Personal/General?px=8388956&pg=personal&fr_id=10053#.Xh4cu3dFyUk

Contributions will:

  • Fund global, cutting-edge ALS research initiatives directed at the cure.
  • Support compassionate, high-quality care and resources for people and families affected by ALS.
  • Raise awareness for this horrific disease through national public policy initiatives.

Ketel Thorstenson, LLP is a full-service firm with 17 partners, over 55 Certified Public Accountants (CPA) and Enrolled Agents (EA), and offices in Rapid City, Custer, Spearfish, SD, and Gillette, WY. KTLLP has a rich history, serving clients since 1936 and a depth of knowledge and experience that clients rely on and trust. The firm offers a variety of services including tax planning and return preparation, audit services, QuickBooks support, bookkeeping, payroll, business valuation, business consulting and estate planning.

KTLLP office locations:

Rapid City – 810 Quincy St., Rapid City, SD 57701

Spearfish – 123 E. Jackson Blvd. Suite 2, Spearfish, SD 57783

Custer – 609 Mt. Rushmore Rd., Custer, SD 57730

Gillette – 305 S. Garner Lake Rd. Suite A, Gillette, WY 82718

January 27, 2020
| Ketel Thorstenson, LLP
KT Insights
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What is a Step-Up in Basis and Why Does Value Matter?

With the drastic increase to the estate tax exemption in 2018, far fewer estates have been required to file Form 706, the Internal Revenue Service’s estate tax return.  As such, one would think there is no need for an appraisal of the decedent’s business. However, a business valuation can still benefit the transferee. Let me tell you why!

Under IRC 1014(a), the general rule is that the beneficiary’s basis in an assets equals its fair market value at the date the benefactor dies. What does this mean? Let’s say your grandfather bequeathed to you his interest of 10,000 shares in a closely-held business.  IRC 1014(a) allows you to “step-up” the basis in such interest. If Grandpa bought the interest for $100 per share decades ago but as of the date of his death is worth $500 per share, you get the new basis of the value of the shares at the time of his death.  Let’s assume you decide to retain ownership of such shares of stock for ten years before liquidating.  Why does a step-up value matter?  Let’s look at the math to understand why that matters to you:

  At Time of Grandpa’s Purchase At Time of Grandpa’s Death At Time of Liquidation
Value per Share $100 $500 $750
Multiplied by: Shares Owned 10,000 10,000 10,000
Value of Investment $1,000,000 $5,000,000 $7,500,000

With no step-up in basis, you would pay the tax on the gain between the time of Grandpa’s purchase and the time of liquidation.  Here’s the math:

Value at Time of Liquidation $7,500,000
Less: Value at Time of Grandpa’s Purchase $1,000,000
Gain on Investment $6,500,000
Multiplied by: Tax Rate (illustrative only) 25%
Tax on the Gain $1,625,000

Thank goodness we have IRC 1014(a) to allow you to use your step-up in basis at the date of death!  I think you will like the tax on the gain number much better in the illustration below:

Value at Time of Liquidation $7,500,000
Less: Step-Up Value / Value at Time of Grandpa’s Death $5,000,000
Gain on Investment $2,500,000
Multiplied by: Tax Rate (illustrative only) 25%
Tax on the Gain $625,000

Stepping up the basis in this investment saved you $1 million in tax at the time of liquidation given this simple example.    Even more important, for example, had you inherited a building, or a pass through entity, the basis of the underlying assets is also stepped-up, and this allows you to re-depreciate those assets saving you potentially hundreds of thousands of dollars in income tax.  But beware, that while this Code Section has been in the law for nearly a century, many on Capitol Hill recently want to eliminate this tax benefit.

So how does Business Valuation play a role in this?  We know the value of the investment at the time of Grandpa’s purchase because we have the document that shows what he paid for it.  That’s an easy number to obtain.  And, we know what the value is at the time of liquidation because you have a purchase agreement for the sale of such interest.  But, what about the value of the stock at the time of Grandpa’s death?  There is no transaction, no buying or selling of such interest.  And, without documentation of value, it is your word against the IRS’s word.  Engage your certified valuation analyst to calculate the value at the time of Grandpa’s death.

January 13, 2020
| Ketel Thorstenson, LLP
KT Insights
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Choosing Accounting as a Career

I was about to complete my last year of college as an English/Teaching major when I decided to change to Accounting. After a semester of student-teaching, I realized teaching wasn’t the right career for me. In 2017, I researched different career fields and found accounting, which had beat out engineering and nursing as one of the fastest growing career fields. The more I researched and considered accounting, the more it seemed that an accounting job was the right fit for me.

Accounting is a challenging subject. As my college advisor told me: “It is going to be really hard, but it will be worth it.” Although I have yet to graduate, I can tell this is true. The experience I have had so far with those involved in accounting—classmates, teachers, and the employees of Ketel Thorstenson, LLP—have proven to be hard-working, passionate, and friendly people.

Christopher Wardell, CPA and accounting instructor at Black Hills State University, sees two changes emerging in the accounting industry: accelerating globalization and continued technological breakthrough. According to Wardell, “With those trends in mind, the most significant way that the accounting industry is changing is the increased expectations that are being placed on us to help businesses manage the challenges they are facing in a quickly changing world.”  Luckily, colleges are taking these changes into account for the accounting curriculum. “As faculty members, we understand that our accounting graduates need to possess more than just knowledge of the accounting and tax rules in order to succeed in today’s changing accounting industry. We approach this on one hand by incorporating activities into our classes that focus on the value-added assignments that our students will likely take on in practice, focusing on areas such as research and writing skills.”

In addition to the typical careers people associate with accounting — bookkeeping, tax accounting, etc. — there are many other careers out there that are directly related to an accounting degree. You can be an auditor, a consultant, or an advisor. You can also be a forensic accountant, a financial analyst, or an actuary. After researching accounting jobs for a class project, I discovered that the number one degree the FBI considers when hiring is accounting. This degree is also a great way to enter the business world; we learn all the financial information necessary to keep a business happy, healthy, and thriving.

Accounting, although not seen as glamorous, still has much to offer as a career. If you like to work hard and play hard, build close relationships both professionally and personally, and feel successful in your career, an accounting job may just be for you.

January 13, 2020
| Ketel Thorstenson, LLP
KT Insights
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New Form W-4

On December 5, 2019, the IRS released the final version of the 2020 Form W-4.  The form has been retitled to Employee’s Withholding Certification and has undergone some major revisions.

The new form is on a single, full page, followed by instructions, worksheets and tables. Instead of withholding allowances, the new form includes a process for declaring additional income, so employees can adjust their withholding with varying levels of accuracy, privacy, and ease.

The new process will have employees entering their personal information, indicating if they have multiple jobs and/or a spouse, claiming dependents, making necessary adjustments, and then signing the form.

All employers must start using the form on January 1, 2020 for all new employees.  Here are two things to keep in mind about your current employees.

  1. Current staff are not required to complete a new form but can choose to do so.
  2. Any adjustments made on or after January 1, 2020 by current staff must be made on the new form.

To obtain the form and for other helpful information the IRS has set up a page for the new form, https://www.irs.gov/forms-pubs/about-form-w-4.

Follow KTLLP on social media for further updates.

December 10, 2019
| Ketel Thorstenson, LLP
KT Insights
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Tax Increment Financing Districts

Tax increment financing districts, often referred to as TIDs or TIFs, are used to increase economic development to an area, provide an opportunity for developers, as well as increase property tax revenue to counties, cities, and schools, which in turn, can benefit citizens.  This article will not address the legal requirements of TIDs, but rather focus on the accounting for such.

A common example of a TID is a housing development.  In this scenario, a City will pay for the infrastructure, such as water/sewer lines and roads, and the developer will bid the project and hire a contractor to complete the work.  In turn, the City is indebted to the developer for its portion of the infrastructure costs unrelated to the actual homes being built within the development.  This is referred to as a developer-financed TID.

Under the same housing development example, it is also possible for the City to obtain traditional bank financing and pay for their portion of the infrastructure costs or even borrow from other funds within the City.  In this scenario the City is indebted to a bank or other funds within the City. This is referred to an entity-financed TID.

The accounting for TIDs can oftentimes lead to confusion.  Each TID different from another.  Regardless of the type of financing within the TID, the terms should be explained within the project plan, which will cover whether payment amounts will fluctuate as property taxes are collected, or whether a specific, set amount is required, as well as the frequency of payments, interest, etc.

The confusion with a developer-financed TID stems from the difference between what a developer might owe the bank for his/her costs relating to the development vs. what the City owes the developer for just its portion of the infrastructure.  For example, a housing development will cost a developer $2 million to construct, but $1 million of such relates to water lines, sewer lines, and roads.  In this example, the City is indebted to the developer for $1 million.  The developer is responsible for determining how to fund the $2 million project, whether from external bank loans or cash reserves.  The City collects the portion of increased property taxes applicable to the TID area and remits them to the developer, generally upon collection from the County throughout the year.  Thus, payments cannot be made to the developer until homes are constructed within the development and property taxes are collected on such homes.  If the development has homes built right away, the City will make payments to the developer sooner.  In a development with slow growth, developers will not receive payments from a City, but most likely will be required to make payments on its external debt.

With entity-financed TIDs, whether from bank or internal financing between funds, these agreements tend to require regular payments, regardless of whether related TID property tax revenues are received.  Again, keep in mind that the terms vary amongst each TID and no one TID looks like another.

Per South Dakota Codified Law, TIDs expire after 20 years.  Thus, a City is no longer required to make payments to a developer after the 20-year mark and any remaining debt is written off the City’s general ledger. Once a TID has been paid off or reached 20 years, the property tax revenue related to the TID should be included in the general property tax revenue allocation to the City, County, and School Districts.

Please contact Shelley Goodrich or Traci Hanson on any further questions relating to this topic and governmental accounting.

December 4, 2019
| Ketel Thorstenson, LLP
Uncategorized
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YFS: Building for the Future

Youth & Family Services (YFS) is a nonprofit organization that has been serving children and their families since 1965. YFS has grown to become one of the largest, most comprehensive youth development programs in western South Dakota, serving more than 14,000 children and families each year. These services encompass nine cohesive programs that offer education, meals and snacks, health advocacy and support, counseling services, fatherhood and parent enrichment education, and prevention programs. Of all the youth served by YFS programs, approximately:

  • 85% live in poverty and qualify for some form of assistance
  • 75% live in single-parent or foster homes
  • 25% have parents who did not complete high school
  • 32% are of a racial minority (primarily American Indian). This number jumps to 50% in the Rapid City area.

YFS is currently in the middle of their East Adams Building Expansion Project, which will add 67,525 sq. ft. of indoor program space and 32,794 sq. ft. of playground/outdoor learning space. This expansion will allow YFS to increase the depth of their current services and add new programming to meet unmet needs within our community. A few key issues YFS is focusing on include:

  • Increasing opportunities for infant/toddler care
  • Creating high quality programming for middle school-aged children
  • Providing safe and flourishing outdoor learning spaces
  • Expanding father-focused programming
  • Increasing prevention education for adolescents, specifically about methamphetamine and alcohol use
  • Improving economic stability and mobility
  • Supporting the development of healthy relationships

YFS programs rely heavily on the generous contributions from individuals and organizations throughout the community. They are also searching for volunteers to assist with special events and projects. If you would like to donate or volunteer, please visit their website at www.youthandfamilyservices.org or call (605) 342-4195.

November 14, 2019
| Ketel Thorstenson, LLP
KT Insights
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Employee Holiday Gifts

It’s that time of the year when employers are determining what gifts to give their employees for the Holidays.  There are a few important things to consider when making the decision.  The following summarizes the basic rules for cash and non-cash gifts. 

Cash

Cash gifts or bonuses, regardless of amount, are considered wages subject to payroll taxes.  This includes gift certificates or other items that can be converted to cash. 

Accounting for cash gifts can be complicated.  Cash, bonuses, and gift certificates are supplemental wages and are subject to federal income tax withholding of 22% in addition to social security, medicare and unemployment.  For gifts or bonuses given as checks, many employers will “gross up” the wages so that the employee receives an even amount as a net check.  When a gift certificate or actual cash is given, the amount must be “grossed up” so that the net after tax gift equals the gift certificate or cash amount.  The gross up may need to include retirement plan contributions, if applicable.

Non-Cash

Non-cash de minimis fringe benefits such as hams, turkeys or other gifts of nominal value are excluded from employees’ income and therefore are not subject to payroll taxes.  Per the Internal Revenue Service, in order to be considered a de minimis fringe benefit all of the following requirements must be met:

  • Nominal value
  • Accounting for the item is impractical
  • Provided infrequently
  • Purpose of gift is to promote health, good will, contentment, or efficiency of employees.

If the requirements are not met, such as a gift with a large value, it would be considered income to the employee and would be subject to payroll taxes.

If you any questions or need assistance with the accounting for your employee gifts, please give us a call.

Happy Holidays. 

November 11, 2019
| Ketel Thorstenson, LLP
News
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Ketel Thorstenson, LLP and Campbell, Burkart & Sage Merge to Expand Service Offerings

Campbell, Burkart & Sage, CPA’s, PC and Ketel Thorstenson, LLP (KTLLP) both in Rapid City, SD are pleased to announce a merger, which will take effect on November 1, 2019. The combined firm will operate as Ketel Thorstenson, LLP. 

This merger will provide clients with a wider array of services through more depth of expertise. The firm’s services include: audit and review services, tax planning and return preparation, bookkeeping, QuickBooks, payroll, business valuation and projections, litigation support services, fraud support services, business consulting, gift and estate planning, and more.

Campbell, Burkart & Sage, CPA’s, PC has been serving hundreds of individuals and businesses in the Rapid City area since 1983. Ken Campbell, John Burkart, and Naomi Sage will join the KTLLP team, and will continue serving clients. Ketel Thorstenson, LLP began its professional practice in Rapid City in 1936. The firm has grown by merger or acquisition with over 12 smaller practices in the Black Hills region since that time, and currently has over 100 employees and 19 partners.

“This merger gives our clients a wider array of services, we look forward to continuing to serve them in this expanded capacity” said  Ken Campbell, former owner of Campbell, Burkart & Sage, CPA’s, PC and now director with KTLLP.

“Campbell, Burkart & Sage, CPA’s, PC shares the same values we do. We both have a proud tradition of excellent service and a friendly client environment,” said Denise Webster, Managing Partner with KTLLP.

Campbell, Burkart & Sage, CPA’s, PC will move to the KTLLP Rapid City office at 810 Quincy St., 605-342-5630. KTLLP also has offices in Custer and Spearfish, South Dakota, and Gillette, Wyoming.

October 15, 2019
| Ketel Thorstenson, LLP
KT Insights
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Changes To Keep An Eye Out For

Over the next few months there are potential changes coming that may affect how you treat your staff.  Here are a few of them.

  • A new Form W-4 is expected to go into effect in 2020.  The draft form has some major revisions to not only the layout, but the information collected.  The object of the new form is to increase the accuracy of income-tax withholdings for employees.
  • Proposed FLSA changes are expected to be announced at any time and to take affect prior to the end of 2019.  Under the current law, employees with weekly pay of less than $455 ($23,660 annually) must be classified as non-exempt and are subject to overtime pay for all hours worked over 40 per work week.  The proposed new rule will increase that weekly pay to $679 ($35,308 annually).
  • The Form I-9 expired on August 31, 2019, however, the Department of Homeland Security (DHS) has directed employers to continue using the current form until a new version is published.  DHS may release a new form and/or revisions to the current form and instruction.  For more details on the Form I-9 see Amanda Dennis’ article.

Follow Ketel Thorstenson on social media for future updates.

September 30, 2019
| Ketel Thorstenson, LLP
KT Insights
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Paycheck Checkup: Review Your Withholding for 2019

An unexpected bill around tax time is something that every taxpayer wants to avoid. That is why we encourage our clients to routinely perform a paycheck update and reevaluate their federal income tax withholding each year. This is especially important for the 2019 tax year as it is the first time that the new withholding tables will be used for the full twelve months of the year.

Thankfully, performing this paycheck update will be easier to do than in previous years due to the new IRS Tax Withholding Estimator. The new estimator is a huge improvement over the old Withholding Calculator which was confusing and simply didn’t work for many taxpayers. The new estimator presents taxpayers with more options when entering different sources of income. Previous iterations of the IRS Withholding Estimator lacked this feature and caused those who were not the standard W-2 filer to have issues when trying to properly estimate their withholdings. The user interface of the new estimator is also greatly improved, making it easier to use and understand for the average taxpayer.

You will need your most recent pay stub in order to use the estimator. Make sure this also shows the total amount of federal income taxes that has been withheld for the year. You may need other documents depending on your other sources of income. Remember that the results are entirely dependent on the accuracy of the information that you enter into the estimator. Ensure that your information is accurate to achieve the best withholding estimate.

Once you complete the 5 steps that are required in the estimator, you will be given results that show whether you will owe tax at the end of the year or be owed a refund at the end of the year. The estimator also provides instructions on how to adjust your results in order to get your balance owed close to zero or to increase your expected refund amount. This will require you to complete a new Form W-4, but the estimator provides helpful instructions that will allow you to reach your desired estimated balance.

While the new estimator is much easier to use, you may still have questions regarding your withholding estimates for the 2019 tax year. If this is the case, don’t hesitate to contact us at KTLLP so we can assist with the process.

September 30, 2019
| Ketel Thorstenson, LLP