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Can't finish your federal income tax return by the April 18 deadline? There's still time to get an automatic six-month extension.

There are four ways to obtain an extension:

  1. File a paper copy of Form 4868 with the IRS and enclose your payment of estimated tax due.
  2. File for an extension electronically using the IRS e-file system on your computer.
  3. Using IRS Direct Pay, you can pay all or part of your estimated income tax due and indicate the payment is for an extension.
  4. Have your tax preparer e-file for an extension on your behalf.

Remember that even if you file for an extension, you are still required to pay any taxes you owe by the April 18 filing deadline. An extension gives you more time to file your tax return, but not more time to pay the taxes you owe. You will be charged interest on any taxes you owe and do not pay by the filing deadline. If you are unable to pay on time, contact the IRS to set up a payment agreement.

Special extension rules apply to members of the military serving in combat zones and to certain others who live outside the U.S. Give us a call so we can discuss whether or not an extension is right for your situation.

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Reimbursing employees for education expenses can both strengthen the capabilities of your staff and help you retain them. In addition, you and your employees may be able to save valuable tax dollars. But you have to follow IRS rules. Here are a couple of options for maximizing tax savings.

A fringe benefit

Qualifying reimbursements and direct payments of job-related education costs are excludable from employees’ wages as working condition fringe benefits. This means employees don’t have to pay tax on them. Plus, you can deduct these costs as employee education expenses (as opposed to wages), and you don’t have to withhold income tax or withhold or pay payroll taxes on them.

To qualify as a working condition fringe benefit, the education expenses must be ones that employees would be allowed to deduct as a business expense if they’d paid them directly and weren’t reimbursed. Basically, this means the education must relate to the employees’ current occupations and not qualify them for new jobs. There’s no ceiling on the amount employees can receive tax-free as a working condition fringe benefit.

An educational assistance program

Another approach is to establish a formal educational assistance program. The program can cover both job-related and non-job-related education. Reimbursements can include costs such as:

  • Undergraduate or graduate-level tuition,
  • Fees,
  • Books, and
  • Equipment and supplies.

Reimbursement of materials employees can keep after the courses end (except for textbooks) aren’t eligible.

You can annually exclude from the employee’s income and deduct up to $5,250 (or an unlimited amount if the education is job related) of eligible education reimbursements as an employee benefit expense. And you don’t have to withhold income tax or withhold or pay payroll taxes on these reimbursements.

To pass muster with the IRS, such a program must avoid discrimination in favor of highly compensated employees, their spouses and their dependents, and it can’t provide more than 5% of its total annual benefits to shareholders, owners and their dependents. In addition, you must provide reasonable notice about the program to all eligible employees that outlines the type and amount of assistance available.

Train and retain

If your company has employees who want to take their professional skill sets to the next level, don’t let them go to a competitor to get there. By reimbursing education costs as a fringe benefit or setting up an educational assistance program, you can keep your staff well trained and evolving toward the future and save taxes, too. Please contact us for more details.

To err is human, but your not-for-profit’s supporters, not to mention the IRS, may be less than forgiving if errors affect your financial books. Fortunately, if you attend to accounting details, you can avoid these common pitfalls:

1. Failing to follow accounting procedures. Even the smallest nonprofit should set formal, documented and detailed procedures for managing financial and bookkeeping chores. Your process should include all aspects of managing your organization’s money — how to accept, document and deposit donations, pay bills, and handle every step in between. Put these procedures in writing and make sure you follow each step, every time.

2. Making data entry errors. It’s easy to wreak havoc on your accounts by entering a $500 payment as $50 or transposing numbers. So check and double-check every entry every time. Reconcile accounts against bank statements immediately, and don’t overlook even the smallest discrepancy.

3. Working without a budget. You can’t control overspending or invest a surplus if you don’t know they exist. Budgets don’t have to be intricate to be useful; just look at a few months’ worth of bills and deposits to create a starting point. Then refine your plan as you go along. Include a “miscellaneous” category, but don’t allow it to account for the majority of your expenses.

4. Playing loose with petty cash. Small expenditures like picking up a few office supplies or buying a pizza for volunteers is much easier to do with a petty cash fund. Handle the cash with care, though. Lock it up, authorize only a few people to make disbursements and require receipts for all expenditures.

5. Neglecting to properly categorize. All money coming in and going out of your organization must be assigned to the appropriate category. This is particularly important if you accept donations that may be earmarked for certain programs. To be successful at this, you need to properly set up the initial chart of accounts and define how items should be assigned.

Contact us with any nonprofit financial question or if you need help devising organizationwide policies.
 

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Today’s businesses operate in an era of hyper-connectedness and, unfortunately, a burgeoning global cybercrime industry. You can’t afford to hope you’ll luck out and avoid a cyberattack. It’s essential to establish policies and procedures to minimize risk. One specific area on which to focus is your employees.

Know the threats

There are a variety of cybercrimes you need to guard against. For instance, thieves may steal proprietary or sensitive business data with the intention of selling that information to competitors or other hackers. Or they may be more interested in your employees’ or customers’ personal information for the same reason.

Some cybercriminals may not be necessarily looking to steal anything but rather disable or damage your business systems. For example, they may install “ransomware” that locks you out of your own data until you pay their demands. Or they might launch a “denial-of-service attack,” under which hackers overwhelm your site with millions of data requests until it can no longer function.

Be mindful

Naturally, crimes may be committed by shadowy outsiders. But, all too often, it’s a company employee who either leaves the door open for a cybercriminal or perpetrates the crime him- or herself.

For this reason, it’s essential for your hiring managers to be mindful of cybersecurity when reviewing employment applications — particularly those for positions that involve open access to sensitive company data. If an applicant has an unusual or spotty job history, be sure to find out why before hiring. Check references and conduct background checks as well.

For both new and existing employees, make sure your cybersecurity policies are crystal clear. Include a statement in your employment handbook informing employees that their communications are stored in a backup system, and that you reserve the right to monitor and examine company computers and emails (sent and received) on your system. When such monitoring systems are in place, prudence or suspicious activity will dictate when they should be ramped up.

Don’t compromise

These are just a few points to bear in mind in relation to your employees and cybercrime. Although most workers are honest and not looking to do harm, all it takes is one mistake or one bad apple to compromise your company’s cybersecurity. We can provide you with more ideas for protecting your data and your business systems.

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Because of a weekend and a Washington, D.C., holiday, the 2016 tax return filing deadline for individual taxpayers is Tuesday, April 18. The IRS considers a paper return that’s due April 18 to be timely filed if it’s postmarked by midnight. But dropping your return in a mailbox on the 18th may not be sufficient.

An example

Let’s say you mail your return with a payment on April 18, but the envelope gets lost. You don’t figure this out until a couple of months later when you notice that the check still hasn’t cleared.

You then refile and send a new check. Despite your efforts to timely file and pay, you’re hit with failure-to-file and failure-to-pay penalties totaling $1,500.

Avoiding penalty risk

To avoid this risk, use certified or registered mail or one of the private delivery services designated by the IRS to comply with the timely filing rule, such as:
   • DHL Express 9:00, Express 10:30, Express 12:00 or Express Envelope,
   • FedEx First Overnight, Priority Overnight, Standard Overnight or 2Day, or
   • UPS Next Day Air Early A.M., Next Day Air, Next Day Air Saver, 2nd Day Air A.M. or 2nd Day Air.

Beware: If you use an unauthorized delivery service, your return isn’t “filed” until the IRS receives it. See IRS.gov for a complete list of authorized services.

Another option

If you’re concerned about meeting the April 18 deadline, another option is to file for an extension. If you owe tax, you’ll still need to pay that by April 18 to avoid risk of late-payment penalties as well as interest.

If you’re owed a refund and file late, you won’t be charged a failure-to-file penalty. However, filing for an extension may still be a good idea.

We can help you determine if filing for an extension makes sense for you — and help estimate whether you owe tax and how much you should pay by April 18.

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A Roth IRA can be a valuable estate planning tool, offering the opportunity for tax-free growth as long as it exists and requiring no distributions during your life, thus allowing you to pass on a greater amount of wealth to your family. While traditional IRAs are more common, there’s no time like the present to consider how a Roth IRA might better help you achieve your estate planning goals.

Roth vs. traditional IRA

With a Roth IRA, you give up the deductibility of contributions for the opportunity to make tax-free withdrawals. This differs from a traditional IRA, where contributions may be deductible and earnings grow on a tax-deferred basis, but withdrawals (less any prorated nondeductible contributions) are subject to ordinary income taxes — plus a 10% penalty if you’re under age 59½ at the time of the distribution.

With a Roth IRA, you can make tax-free withdrawals up to the amount of your contributions at any time. And withdrawals of account earnings are tax-free if you make them after you’ve had the Roth IRA for five years and you’re age 59½ or older.

Also on the plus side, especially from an estate planning perspective, you can leave funds in your Roth IRA as long as you want. This differs from the required minimum distributions starting after age 70½ that generally apply to traditional IRAs.

So, with a Roth IRA, you can let the entire account grow tax-free over your lifetime for the benefit of one or more heirs. While the beneficiary will be required to take distributions, they’ll be tax-free and can be spread out over his or her lifetime, allowing the remaining assets in the account to continue to grow tax-free.

Limited contributions

For 2017, the annual Roth IRA contribution limit is $5,500 ($6,500 for taxpayers age 50 or older), reduced by any contributions made to traditional IRAs. Your modified adjusted gross income (MAGI) may also affect your ability to contribute, however.

In 2017, the contribution limit phases out for married couples filing jointly with MAGIs between $186,000–$196,000. The 2017 phaseout range for single and head-of-household filers is $118,000–$133,000.

Conversion question

If your income is too high to contribute to a Roth IRA, consider converting your traditional IRA into a Roth, effectively turning future tax-deferred potential growth into tax-free potential growth. When you do a Roth conversion, you have to pay taxes on the amount you convert. But this also has an estate planning benefit because you’re paying taxes that your heirs might otherwise have to pay later.

If you have questions on how a Roth IRA may fit into your estate plan, please get in touch with us.

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Two female auditors at a laptopAccounts receivable represents a major asset for many companies. But how do your company’s receivables compare to others? Here’s the skinny on receivables ratios, including how they’re computed and sources of potential benchmarking data.

Starting point

A logical starting point for evaluating the quality of receivables is the days sales outstanding (DSO) ratio. This represents the average number of days you take to collect money after booking sales. It can be computed by dividing the average accounts receivable balance by annual revenues and then multiplying the result by 365 days.

Companies that are diligent about managing receivables may be rewarded with lower DSO ratios. Those with relatively high DSO ratios may have “stale” receivables on the books. In some cases, these accounts may be overdue by 31 to 90 days — or longer. If more than 20% of receivables are stale, it may indicate lax collection habits, a poor-quality customer base or other serious issues.

The percentage of delinquent accounts is another critical number. You may decide to outsource these accounts to third-party collectors to eliminate the hassles of making collections calls and threatening legal actions to collect what you’re owed.

Potential risks

Accounts receivable also may be a convenient place to hide fraud because of the high volume of transactions involved. When receivables are targeted in a fraud scheme, it’s common for there to be an increase in stale receivables, a higher percentage of write-offs compared to previous periods, or an increase in receivables as a percentage of sales or total assets.

In addition to creating phony invoices or customers, a dishonest worker may engage in lapping scams. This happens when a receivables clerk assigns payments to incorrect accounts to conceal systematic embezzlement. For example, a fraudster might steal Company A’s payment and cover it up by subsequently applying Company B’s payment to Company A’s outstanding balance. Then Company C’s payment is later applied to Company B’s outstanding balance, and so on.

Alternatively, a fraudster may send the customer an inflated invoice and then “skim” the difference after applying the legitimate amount to the customer’s account. Using separate employees for invoicing and recording payments helps reduce the likelihood that skimming will occur, unless two or more employees work together to steal from their employer.

Call for help

Like any valuable asset, accounts receivable needs to be managed and safeguarded. Auditors evaluate receivables as part of their standard auditing procedures, including performing ratio analysis, sending confirmation letters and reconciling bank deposits with customer receipts.

Contact us if you have any concerns regarding receivables midyear or your financial statements aren’t audited. In addition to surprise audits, we can customize an agreed-upon-procedures engagement that zeroes in on receivables.

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American Debt

 

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Affordable Care Act - written across a computer screenNow that the bill to repeal and replace the Affordable Care Act (ACA) has been withdrawn and it’s uncertain whether there will be any other health care reform legislation this year, it’s a good time to review some of the tax-related ACA provisions affecting businesses:

Small employer tax credit. Qualifying small employers can claim a credit to cover a portion of the cost of premiums paid to provide health insurance to employees. The maximum credit is 50% of premiums paid by the employer, provided it contributes at least 50% of the total premium or of a benchmark premium.

Penalties for not offering complying coverage. Applicable large employers (ALEs) — those with at least 50 full-time employees (or the equivalent) — are required to offer full-time employees affordable health coverage that meets certain minimum standards. If they don’t, they’re charged a penalty if just one full-time employee receives a tax credit for purchasing his or her own coverage through a health care marketplace. This is sometimes called the “employer mandate.”

Reporting of health care costs to employees. The ACA generally requires employers who filed 250 or more W-2 forms in the preceding year to annually report to employees the value of health insurance coverage they provide. The reporting requirement is informational only; it doesn’t cause health care benefits to become taxable. 

Additional 0.9% Medicare tax. This applies to:
 

  • Wages and/or self-employment (SE) income above $200,000 for single and head of household filers, or
  • Combined wages and/or SE income above $250,000 for married couples filing jointly ($125,000 for married couples filing separately).

While there is no employer portion of this tax, employers are responsible for withholding the tax once an employee’s compensation for the calendar year exceeds $200,000, regardless of the employee’s filing status or income from other sources. 

Cap on health care FSA contributions. The Flexible Spending Account (FSA) cap is indexed for inflation. For 2017, the maximum annual FSA contribution by an employee is $2,600.

There’s also one significant change that hasn’t kicked in yet: Beginning in 2020, the ACA calls for health insurance companies that service the group market and administrators of employer-sponsored health plans to pay a 40% excise tax on premiums that exceed the applicable threshold, generally $10,200 for self-only coverage and $27,500 for family coverage. This is commonly referred to as the “Cadillac tax.”

The ACA remains the law, at least for now. Contact us if you have questions about how it affects your business’s tax situation.

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Young professionals around a computer, working togetherWhat would happen if one of your not-for-profit’s key people suddenly quit or had to go on long-term disability? Would you be able to conduct business as usual? To prevent a critical function from possibly coming to a standstill, consider cross-training staff. 

Organization benefits

Cross-training personnel means that you teach them how to do one another’s jobs. That way, if one staffer is unavailable, another can jump in and do the job. Cross-training also can increase your organization’s productivity. If the workload temporarily becomes heavy in one area, you’ll be able to shift employees where they’re needed.

There’s also value in a fresh pair of eyes. An employee who’s filling in for someone else can bring new perspective to day-to-day operations and may be able to come up with process improvements.

What’s more, cross-training staff is central to strong internal controls. Making sure that one accounting employee’s job is periodically performed by another employee can prevent fraud. Potential thieves are put on notice that their activities could come under review at any time.

Employees also gain

Employees can benefit, too. If the task a cross-trained staffer learns is vertical — it requires more responsibility or skill than that employee’s normal duties do — the employee may feel (and be) more valuable to the organization. If the task is lateral — with the same level of responsibility as the employee’s routine duties — the staffer still gains a greater understanding of the department or organization. Plus, the shared experience fosters mutual support.

Note, however, that not every employee is a candidate for cross-training. Choose people who show an interest in particular areas of your operation and are open to change. For example, your program coordinator might want to learn more about fundraising and could be an appropriate person to back up your development team.

Be sure to build the idea of cross-training into your hiring process. Select job candidates who show flexibility and curiosity, and let them know that, if hired, they may need to learn how to perform the duties of other employees.

Getting started

Begin the process by determining which positions should be cross-trained and creating an implementation plan. Contact us for tips on cross-training accounting and other employees.
 

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Experience is the Difference®