June 28, 2017 | BY Joseph Hoffman
Many business owners buy accounting software and, even if the installation goes well, eventually grow frustrated when they don’t get the return on investment they’d expected. There’s a simple reason for this: Stuff changes.
Technological improvements are occurring at a breakneck speed. So yesterday’s cutting-edge system can quickly become today’s sluggishly performing albatross. And this isn’t the only reason to regularly upgrade your accounting software. Here are two more to consider.
1. Cleaning up
You’ve probably heard that old tech adage, “garbage in, garbage out.” The “garbage” referred to is bad data. If inaccurate or garbled information goes into your system, the reports coming out of it will be flawed. And this is a particular danger as software ages.
For example, you may be working off of inaccurate inventory counts or struggling with duplicate vendor entries. On a more serious level, your database may store information that reflects improperly closed quarters or unbalanced accounts because of data entry errors.
A regular implementation of upgraded software should uncover some or, one hopes, all of such problems. You can then clean up the bad data and adjust entries to tighten the accuracy of your accounting records and, thereby, improve your financial reporting.
2. Getting better
Neglecting to regularly upgrade or even replace your accounting software can also put you at risk of missing a major business-improvement opportunity. When implementing a new system, you’ll have the chance to enhance your accounting procedures. You may be able to, for instance, add new code groups that allow you to manage expenses much more efficiently and closely.
Other opportunities for improvement include optimizing your chart of accounts and strengthening your internal controls. Again, to obtain these benefits, you’ll need to take a slow, patient approach to the software implementation and do it often enough to prevent outdated ways of doing things from getting the better of your company.
Choosing the best
These days, every business bigger than a lemonade stand needs the best accounting software it can afford to buy. We can help you set a budget and choose the product that best fits your current needs.
June 26, 2017 | BY Joseph Hoffman
New York’s Paid Family Leave Benefits law (PFL), is set to take effect on January 1, 2018 and impacts all employers with employees working in New York.
What does the law provide?
The law provides eligible employees up to 12 weeks of paid, job protected leave starting on January 1, 2018 to (1) care for a family member with a serious health condition, (2) bond with a child during the first twelve months after the child’s birth, adoption, or placement in foster care, or (3) attend to a “qualifying exigency.”
How is the leave funded?
The PFL will be funded through deductions taken from the pay of full-time and part-time employees. On June 1, 2017, the Department of Financial Services announced the weekly contribution rate and the maximum employee contribution. The premium rate for Family Leave Benefits and the maximum employee contribution for coverage beginning January 1, 2018 is set at 0.126% of an employee’s weekly wage up to and not to exceed the statewide average weekly wage. New York State’s current average weekly wage is $1,305.92.
Starting July 1, 2017, employers may, but are not required to, begin deducting the contribution amount from employee wages to pay for the 2018 coverage period. This amount can be used to offset the cost of acquiring the mandated insurance policies. Employers who choose not to begin taking deductions on July 1, 2017, cannot retroactively make deductions in excess of the maximum weekly contribution to cover the cost of providing the required leave benefit.
No action is required by you at this time. The New York Workers’ Compensation Board has not yet issued the final regulations implementing the PFL law. We continue to assess the impact of the law on the services we provide in order to determine how best to serve you and will keep you informed.
As always please, reach out if you have any questions.
June 23, 2017 | BY Joseph Hoffman
What do charitable donors want? The classic answer is: Go ask each one individually. However, research provides some insight into donor motivation that can help your not-for-profit grow its financial support.
The biennial U.S. Trust® Study of High Net Worth Philanthropy, conducted in partnership with the Indiana University Lilly Family School of Philanthropy, regularly finds that wealthy donors are primarily motivated by philanthropy. The tax benefits of giving were cited by only 18% of respondents in the 2016 survey.
On its own, your organization has little control over tax rates or deductions. But by teaming up with other nonprofits, you can exercise influence over tax policy. For example, groups such as the Charitable Giving Coalition have been credited with helping to defeat congressional challenges to the charitable deduction. Some nonprofits also partner up to influence state legislation on charitable giving incentive caps. Just keep in mind that, to preserve your nonprofit’s tax-exempt status, political lobbying should be kept to a minimum.
Other research has found that donors are just as motivated by matching gifts as they are by tax benefits. A joint Australian and American study gave supporters a choice between a tax rebate and a matching donation to charity. Donors were evenly split between the two — but those opting for the match gave more generously than those who took the rebate.
If your nonprofit hasn’t already tried offering matching gifts, it’s worth testing. You’ll need to identify donors willing to use their large gift to incentivize others — reliable supporters such as board members or trustees. Consider using their gifts during short-lived fundraisers, where a “ticking clock” lends the offer greater urgency.
Other strategies can enable donors to stretch their giving dollars. For example, encourage your supporters to give appreciated stock or real estate. As long as the donors meet applicable rules, they can avoid the capital gains tax liability they’d incur if they sold the assets.
Don’t make assumptions
Donors can be motivated by many social, emotional and financial factors. So it’s important not to assume you know how your target audience will respond to certain types of fundraising appeals. Perform some basic research, asking major donors and their advisors about their philanthropic priorities. Contact us for more revenue-boosting ideas.
nonprofit - charity
June 20, 2017 | BY Joseph Hoffman
Mortgage interest rates are still at low levels, but they likely will increase as the Fed continues to raise rates. So if you’ve been thinking about helping your child — or grandchild — buy a home, consider acting soon. There also are some favorable tax factors that will help:
0% capital gains rate. If the child is in the 10% or 15% income tax bracket, instead of giving cash to help fund a down payment, consider giving long-term appreciated assets such as stock or mutual fund shares. The child can sell the assets without incurring any federal income taxes on the gain, and you can save the taxes you’d owe if you sold the assets yourself.
As long as the assets are worth $14,000 or less (when combined with any other 2017 gifts to the child), there will be no federal gift tax consequences — thanks to the annual gift tax exclusion. Married couples can give twice that amount tax-free if they split the gift. And if you don’t mind using up some of your lifetime exemption ($5.49 million for 2017), you can give even more. Plus, there’s the possibility that the gift and estate taxes could be repealed. If that were to happen, there’d be no limit on how much you could give tax-free (for federal purposes).
Low federal interest rates. Another tax-friendly option is lending funds to the child. Now is a good time for taking this step, too. Currently, Applicable Federal Rates — the rates that can be charged on intrafamily loans without causing unwanted tax consequences — are still quite low by historical standards. But these rates have begun to rise and are also expected to continue to increase this year. So lending money to a loved one for a home purchase sooner rather than later might be a good idea.
If you choose the loan option, it’s important to put a loan agreement in writing and actually collect payment (including interest) on the loan. Otherwise the IRS could deem the loan to actually be a taxable gift. Keep in mind that you’ll have to report the interest as income. But if the interest rate is low, the tax impact should be minimal.
If you have questions about these or other tax-efficient ways to help your child or grandchild buy a home, please contact us.
tax - taxes
June 19, 2017 | BY Joseph Hoffman
Some business owners make major decisions by relying on gut instinct. But investments made on a “hunch” often fall short of management’s expectations.
In the broadest sense, you’re really trying to answer a simple question: If my company buys a given asset, will the asset’s benefits be greater than its cost? The good news is that there are ways — using financial metrics — to obtain an answer.
Perhaps the most common and basic way to evaluate investment decisions is with a calculation called “accounting payback.” For example, a piece of equipment that costs $100,000 and generates an additional gross margin of $25,000 per year has an accounting payback period of four years ($100,000 divided by $25,000).
But this oversimplified metric ignores a key ingredient in the decision-making process: the time value of money. And accounting payback can be harder to calculate when cash flows vary over time.
Discounted cash flow metrics solve these shortcomings. These are often applied by business appraisers. But they can help you evaluate investment decisions as well. Examples include:
Net present value (NPV). This measures how much value a capital investment adds to the business. To estimate NPV, a financial expert forecasts how much cash inflow and outflow an asset will generate over time. Then he or she discounts each period’s expected net cash flows to its current market value, using the company’s cost of capital or a rate commensurate with the asset’s risk. In general, assets that generate an NPV greater than zero are worth pursuing.
Internal rate of return (IRR). Here an expert estimates a single rate of return that summarizes the investment opportunity. Most companies have a predetermined “hurdle rate” that an investment must exceed to justify pursuing it. Often the hurdle rate equals the company’s overall cost of capital — but not always.
A mathematical approach
Like most companies, yours probably has limited funds and can’t pursue every investment opportunity that comes along. Using metrics improves the chances that you’ll not only make the right decisions, but that other stakeholders will buy into the move. Please contact our firm for help crunching the numbers and managing the decision-making process.