July 23, 2017
You’ve probably heard it before: People don’t give to causes — they give to those asking on behalf of a cause. That’s why a personal appeal continues to be such a powerful not-for-profit fundraising tool. In fact, requests from friends or family members typically drive most charitable donations. By appealing to their networks, board members can be particularly effective fundraisers.
July 20, 2017
What could stop your company from operating for a day, a month or a year? A flood or fire? Perhaps a key supplier shuts down temporarily or permanently. Or maybe a hacker or technical problem crashes your website or you suddenly lose power. Whatever the potential cause might be, every business needs a disaster recovery plan.
July 11, 2017
Just about every business intends to provide world-class customer service. And though many claim their customer service is exceptional, very few can back up that assertion. After all, once a company has established a baseline level of success in interacting with customers, it’s not easy to get to that next level of truly great service. But, fear not, there are ways to elevate your game and, ultimately, strengthen your bottom line in the process.
Start at the top
As is the case for many things in business, success starts at the top. Encourage your fellow owners (if any) and management team to regularly serve customers. Doing so cements customer relationships and communicates to employees that serving others is important and rewarding. Your involvement shows that customer service is the source of your company’s ultimate triumph.
Moving down the organizational chart, cultivate customer-service heroes. Publish articles about your customer service achievements in your company’s newsletter or post them on your website. Champion these heroes in meetings. Public praise turns ordinary employees into stars and encourages future service excellence.
Just make sure to empower all employees to make customer-service decisions. Don’t talk of catering to customers unless your staff can really take the initiative to meet your customers’ needs.
Create a system
Like everyone in today’s data-driven world, customers want information. So strive to provide immediate feedback to customers with a highly visible response system. This will let customers know that their input matters and you’ll reward them for speaking up.
The size and shape of this system will depend on the size, shape and specialty of the company itself. But it should likely encompass the right combination of instant, electronic responses to customer inquires along with phone calls and, where appropriate, face-to-face interactions that reinforce how much you value their business.
Give them a thrill
Consistently great customer service can be an elusive goal. You may succeed for months at a time only to suffer setbacks. Don’t get discouraged. Our firm can help you build a profitable company that excels at thrilling your customers.
July 03, 2017
Summer is a popular time to move, whether it’s so the kids don’t have to change schools mid-school-year, to avoid having to move in bad weather or simply because it can be an easier time to sell a home. Unfortunately, moving can be expensive. The good news is that you might be eligible for a federal tax deduction for your moving costs.
Pass the tests
The first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction.
The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would increase your commute significantly.
Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.)
What’s deductible
So which expenses can be written off? Generally, you can deduct transportation and lodging expenses for yourself and household members while moving.
In addition, you can likely deduct the cost of packing and transporting your household goods and other personal property. And you may be able to deduct the expense of storing and insuring these items while in transit. Costs related to connecting or disconnecting utilities are usually deductible, too.
But don’t expect to write off everything. Meal costs during move-related travel aren’t deductible. Nor is any part of the purchase price of a new home or expenses incurred selling your old one. And, if your employer later reimburses you for any of the moving costs you’ve deducted, you may have to include the reimbursement as income on your tax return.
Questions about whether your moving expenses are deductible? Or what you can deduct? Contact us.
June 26, 2017
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.
Next Steps
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
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.
Taxing matters
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.
Matching opportunity
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.
June 20, 2017
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.
© 2017
June 19, 2017
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.
Accounting payback
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.
Better metrics
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.
May 23, 2017
Just days after President Trump signed a much-anticipated executive order on cybersecurity, a massive cyberattack—potentially the largest the world has ever seen, with more than 75,000 ransomware attacks in 153 countries—stole headlines.
The “WannaCry” ransomware program hit organizations around the world on Friday, May 12, encrypting computer files and demanding roughly the equivalent of $300 in Bitcoin (increasing over time) to restore user access.
Russia, Ukraine, India and Taiwan were reportedly the most affected countries, but organizations across Europe, Asia and North America—with an estimated 3,300 infections in the U.S. alone—were also attacked. Notable targets included, among others, the Russian Interior Ministry, logistics carrier FedEx, automakers Renault and Nissan, a number of Chinese universities and secondary schools, as well as Britain’s National Health System (NHS). Forty-seven of the 248 NHS trusts were attacked by the ransomware program, and as of May 15, seven trusts had yet to regain control of their computer systems.
The rapid spread of WannaCry is slowing, for two primary reasons: 1) Microsoft took the rare step of issuing patches for outdated versions of Windows operating systems it no longer supports, going back as far as 14 years; and 2) the accidental discovery of a “kill switch” by a security researcher in Britain, which spared much of the U.S. However, neither “fix” helps systems that are already infected, and hackers could easily create a new strain of WannaCry that bypasses or negates the kill switch.
In response to the threat, the FBI issued a FLASH (FBI Liaison Alert System) report with confirmed threat indicators and recommended steps for prevention, remediation, and defending against ransomware generally.
What is ransomware?
Ransomware is a type of malware that targets critical data and information systems for purposes of extortion, preventing users from accessing their data files until a ransom is paid. The software frequently infects computers through spear-phishing—a targeted attack via a malicious link or email attachment. Ransom demands are most often made in the difficult-to-trace virtual currency Bitcoin.
What’s different about WannaCry?
In April, an elusive cyber group called the “Shadow Brokers” leaked a cache of powerful NSA hacking tools, including highly sophisticated (and expensive) software exploits. WannaCry is purportedly based on one or more of these exploits, taking advantage of a zero-day vulnerability in Microsoft Windows that enables it to spread itself laterally. Microsoft issued a security update to address this bug in March, but users that didn’t make the update remain vulnerable.
WannaCry is the first cyber program to make use of the leaked NSA tools—but likely not the last.
Why were healthcare organizations the hardest hit?
The healthcare sector remains uniquely at risk to cyber incidents due to a variety of factors, including a lack of resources devoted to cybersecurity, the complexity of networks, and the vast array of internet-connected devices. Because many hospitals still maintain and rely on end-of-life technologies, and may prioritize immediate access to data over data security, cybercriminals have found their systems relatively easy to penetrate.
The healthcare sector is also one of the most targeted sectors by cybercriminals and nation states because it is the only sector which combines highly valuable and sought-after bulk data sets of personal health information, personally identifiable information, payment information, medical research and intellectual property.
Hospitals also don’t have the luxury of time: A ransomware infection that blocks access to critical medical data endangers patients’ health. Ahead of a scenario where patients’ lives are at risk, organizations should ensure they have preventive measures in place.
Is your organization safe?
The FBI recommends the following preventative measures:
We offer these additional recommendations:
What should you do when preventative measures fall short?
https://alliance.bdo.com/document/cybersecurity-alert-wannacry-ransomware-program
April 27, 2017 — BY Paul Bonner
The White House on Wednesday issued President Donald Trump’s goals and key features for tax reform, including slashed corporate tax rates, flattened individual marginal income tax brackets, and repeal of the estate and alternative minimum taxes.
Trump outlined his proposals in a one-page sheet of bullet points headed “2017 Tax Reform for Economic Growth and American Jobs” and “The Biggest Individual and Business Tax Cut in American History.”
Speaking to reporters at the White House, Treasury Secretary Steven Mnuchin and Trump economic adviser Gary Cohn described the president’s priorities, but repeatedly rebuffed requests for details, saying those would be hammered out in negotiations with congressional leaders in the months ahead. Most of the policies hewed to those Trump put forth last fall on the campaign trail, most prominently, cutting the corporate income tax rate from its current 35% to 15% and extending it to passthrough entities, i.e., S corporations, partnerships, and entities taxed as partnerships.
Individuals
For individuals, Trump would replace the current seven graduated tiers of marginal rates (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with three: 10%, 25%, and 35%—slightly broader than the 12%, 25%, and 33% he proposed last fall. Mnuchin and Cohn declined to say at what income levels those rates would apply. Trump also reiterated his call for repeal of the net investment income tax of 3.8% imposed on unearned income and gains of high-income taxpayers by the 2010 Patient Protection and Affordable Care Act, P.L. 111-148.
The proposal would double the standard deduction; however, it would limit itemized deductions to mortgage interest and charitable contributions. It would provide “tax relief for families with child and dependent care expenses,” but neither the document nor the officials said how that might differ from the current tax credit for child and dependent care expenses available under Sec. 21.
Trump had also previously proposed repealing the alternative minimum and estate taxes. The latter currently applies only to estates larger than $5.49 million per individual. As he has previously, Trump called for ending “tax breaks that mainly benefit the wealthiest taxpayers,” but did not provide details or examples. The proposal did not specifically address the tax treatment of carried interests, which are currently taxed at capital gain tax rates. Trump, along with many Democrats, has said in the past he favors curtailing this treatment.
Businesses
For businesses, besides lowering the top tax rate to 15%, the proposal calls for a territorial system of taxation, which generally would exclude from taxation foreign earned income. It also would impose a “one-time tax” on corporate earnings realized and held overseas and on which tax is deferred, possibly the same as, or consistent with, a deemed repatriation tax that Trump has previously proposed at a 10% rate.
Absent from the proposal was any mention of a border-adjustment, or destination-based cash flow, tax, which has been a key feature of the congressional Republican “blueprint” for tax reform and that Trump has discussed as a possibility previously. The proposal, however, has been widely criticized as problematic for U.S. importers and others and likely to be challenged internationally under World Trade Organization rules.
The plan does not specifically mention passthrough entities, but when he was a candidate, Trump’s tax plan included a provision that would allow owners of passthrough entities to be taxed at the proposed 15% business rate. When asked if this would provide an incentive for individuals to form passthrough entities to avoid the higher individual tax rates, Mnuchin answered that “we will make sure that there are rules in place to make sure wealthy people can’t create passthroughs” to lower their taxes.
Mnuchin said the administration would like to “move as fast as we can and get this done this year.” Congressional leaders have expressed reservations about aspects of the proposal, notably, the depth of the cuts without specifically identified revenue offsets and prospects for their passage at the intersection of budget and procedural rules. Trump claimed during the presidential campaign that his plan was revenue-neutral; it would have to be, or the cuts would have to be temporary (typically ending within a 10-year budget window), for it to advance under the reconciliation process, by which the Senate can bypass a filibuster and pass the legislation with a bare majority instead of 60 votes. Mnuchin said the proposal would “pay for itself, with economic growth and with reduction of different deductions and closing loopholes.”
For more analysis, the following are two articles analyzing the president’s tax plan.
Likely Winners & Losers Under The Trump Tax Plan
by Kelly Phillips Erb
https://www.forbes.com/sites/kellyphillipserb/2017/04/27/likely-winners-losers-under-the-trump-tax-plan/#1bfdc945ed58
Devoid Of Details, Trump’s Latest Tax Plan Nothing But Empty Promises
by Tony Nitti
https://www.forbes.com/sites/anthonynitti/2017/04/27/devoid-of-details-trumps-latest-tax-plan-nothing-but-empty-promises/#3b71749938da
http://www.journalofaccountancy.com/news/2017/apr/trump-tax-priorities-tax-reform-201716547.html
April 19, 2017 — BY Zacharia Waxler, Co-Managing Partner
Part I of II – The Importance of Employee Engagement
A CEO was asked how many people work in his company: “About half of them,” he responded.” It may be a joke, but in reality it can be a serious problem that a significant number of people had mentally “checked out.”
Quite clearly, CEOs and managers should be very concerned about a waste of time, effort and resources in their organizations. The reason is simple: If people are not engaged, how can these same leaders attain those business objectives that are critical to improving organizational performance?
What do we mean by employee engagement? How much does a lack of employee engagement cost an organization? What steps can leaders take to make employees want to give it their best? These and other questions are the focus of this article.
Do you, as a business owner or CEO, wake up in the morning excited to get out of bed and go to work? Are you excited to implement some new great ideas? Are you excited to meet your team and continue the project you’ve been working on the day before?
The real question is:
Are your employees just as excited as you are? Are they engaged in what they do?
What is employee engagement?
Employee engagement is about understanding one’s role in an organization, and being sighted and energized on where it fits in the organization’s purpose and objectives. Employee engagement is about having a clear understanding of how an organization is fulfilling its purpose and objectives, how it is changing to fulfil those better, and being given a voice in its journey to offer ideas and express views that are taken account of as decisions are made. Employee engagement is about being included fully as a member of the team, focused on clear goals, trusted and empowered, receiving regular and constructive feedback, supported in developing new skills, thanked and recognized for achievement. Employee engagement is about positive attitudes and behaviors leading to improved business outcomes, in a way that they trigger and reinforce one another. Employee engagement is about your employees feeling pride and loyalty working for our organization, being a great advocate of the organization to our clients, users and customers, going the extra mile to finish a piece of work. Employee engagement is about drawing on our employees’ knowledge and ideas to improve our products and services, and be innovative about how we work. Employee engagement is about drawing out a deeper commitment from our employees so fewer leave, sick absence reduces, accident rates decline, conflicts and grievances go down, productivity increases. And finally, Employee engagement is about organization actions that are consistent with the organization’s values. It is about kept promises, or an explanation as to why they cannot be kept.
In order to have an engaged employee we must have an engaged organization. Engaged organizations have strong and authentic values, with clear evidence of trust and fairness based on mutual respect, where two-way promises and commitments – between employers and employees – are understood and fulfilled.
Here are some facts that the Gallup Management Journal has published in a semi annual employment engagement index.
• Only 29% of employees are actively engaged in their jobs. These employees work with passion and feel a profound connection to their company. People that are actively engaged help move the organization forward.
• 54% of employees are not engaged. These employees have essentially “checked out,” sleepwalking through their workday and putting time – but not passion – into their work. These people embody what Jack Welch said several years ago. To paraphrase him: “Never mistake activity for accomplishment.”
• 17% of employees are actively disengaged. These employees are busy acting out their unhappiness, undermining what their engaged co-workers are trying to accomplish. Needless to say how detrimental this behavior is to the morale of the entire workforce.
Should business owners be concerned about these findings? It seems obvious that engaged employees are more productive than their disengaged counterparts. For example, a recent meta-analysis published in the Journal of Applied Psychology concluded that, “… employee satisfaction and engagement are related to meaningful business outcomes at a magnitude that is important to many organizations.”
A compelling question is this: How much more productive is an engaged workforce compared to a non-engaged workforce?
Several case studies shine some light on the practical significance of an engaged workforce. For example, New Century Financial Corporation, a U.S. specialty mortgage banking company, found that account executives in the wholesale division who were actively disengaged produced 28% less revenue than their colleagues who were engaged. Furthermore, those not engaged generated 23% less revenue than their engaged counterparts. Engaged employees also outperformed the not engaged and actively disengaged employees in other divisions. New Century Financial Corporation statistics also showed that employee engagement does not merely correlate with bottom line results – it drives results.
But what should leaders do, or consider doing, to increase the level of engagement among employees? I will let you think about it and we will discuss it in a future article.
April 18, 2017 — BY Yehuda Bunker, CPA
Small businesses (fewer than 100 employees) lose relatively more to employee fraud than larger business do. About 87% of embezzlers are first time offenders. Nearly every one is a trusted employee. That is (in 31 words) why you need to improve the internal controls at your business.
Segregation of duties is one of the most effective means of reducing employee fraud. You should separate the following responsibilities in each business process:
• Custody of assets
• Record keeping
• Authorization
• Reconciliation
In this article we discuss controls over the Cash Receipts business cycle.
The person who receives customer payments should record the payments either in a cash register, on a deposit slip, or in a receipts log. This person should not be able to record or authorize transactions in the accounts receivable ledger or customer accounts. In addition, this person should not be allowed to record cash transactions or prepare the bank reconciliation.
Adjustments and write-offs to customer accounts should be reviewed and approved by an employee who is not able to record these transactions. In addition, this person should not be allowed to reconcile the accounts receivable subsidiary ledger to the general ledger.
Employees responsible for recording adjustments to customer accounts should not process customer payments or prepare the bank deposit.
The bank accounts should be reconciled by someone who is not able to record cash receipts or disbursements. Bank reconciliations should be reviewed and approved by someone other than the preparer.
When duties cannot be segregated, compensating controls should be used. For example, two employees, working together, could receive and open customer payments and prepare the bank deposit.
Roth&Co is ready and willing to help you design and implement a better internal control system. For further discussion or a specific proposal, please reach out.
April 17, 2017 — BY Abraham Roth
Abraham Roth, Roth&Co’s Co-Managing Partner, discusses the benefits of business partnerships, and the importance of formal, legal agreements.
April 06, 2017 — BY Heshy Katz, CPA
Heshy Katz, Roth&Co partner, discusses the use of innovation in the workplace, how you can apply these lessons to your business.
“Innovation is not a technology, but rather a method of evolving and changing to help keep businesses unique and relevant”
March 13, 2017 — BY Admin
House Republicans have unveiled a repeal and replacement plan for the Affordable Care Act (ACA). The GOP’s American Health Care Act (AHCA) would eliminate most of the ACA’s taxes, including the penalties connected with the individual and employer mandates, the net investment income (NII) tax and the Additional Medicare tax. Left in place, although delayed, would be the excise tax on high-dollar health plans. Also left in place, would be a number of non-tax provisions related to scope of coverage, benefits and children – including allowing dependents to continue staying on their parents’ plan until age 26, prohibiting health insurers from denying coverage or raising rates to patients based on pre-existing conditions, and forbidding lifetime limits on insurance coverage.
The House GOP plan has been rejected by Democrats. Some Republicans have said the plan does not go far enough in repealing all of the ACA. As March moves forward, a vote on the House floor is eventually expected.
March 01, 2017 — BY Chris Gaetano
The New York State Department of Taxation and Finance (NYSDTF) clarified its position Friday on whether practitioners can check the “no applicable ID” box on a return if their client, despite having a valid driver’s license number, refuses to disclose it.
“In this transition year, the first where New York is requiring taxpayers’ driver’s license information, we will permit preparers to check the ‘No Applicable ID’ box if the taxpayer refuses to provide the information,” NYSDTF acting Commissioner Nonie Manion wrote in a statement. “IF this is necessary, contemporaneous information should be kept to document the preparer used due diligence to obtain the information and the taxpayer refused.”
Manion’s statement addressed ambiguities that have emerged in the wake of the state tax department’s new requirement that all taxpayers provide their driver’s license (or other DMV-issued ID) information on their e-filed returns as an extra layer of verification. Shortly after announcing the new requirement, which practitioners had complained came with little advance notice before tax season, the department said through various spokespersons that if a client does not want to share this information, preparers may check the “No Applicable ID” even if the taxpayer does, in fact, have an applicable ID—and the return would be accepted.
However, a Feb. 17 update to the state’s Business Taxpayer Answer Center, said otherwise. In response to the question, “If my client is known to have a valid driver license or state-issued ID, but chooses not to disclose it, can I check the No applicable ID box without repercussion? Am I required to disclose this?” the state tax department site stated that “if a tax professional knows his client has a driver’s license or non-driver’s license ID, but he client refuses to comply with the requirement to provide that information, the preparer cannot certify truthfully and submit the return with the No ID box checked.”
This caused confusion among tax professionals who suddenly were unsure about what was or was not allowed. After a conference call between Manion and NYSSCPA leadership on Friday, NYSDTF drafted the statement saying that, this year, preparers can check the box in the event that their client refuses to supply the information, so long as they retain the required documentation stating that they used due diligence to obtain the ID information. Manion said NYSDTF would update its website with the updated information shortly.
February 21, 2017 — BY Admin
Recent Executive Actions by Trump Administration Cast Doubt on Tax Regulations Impacting Asset Management Industry
Summary
On January 20, 2017, the White House chief of staff communicated President Trump’s plan for managing the federal process at the outset of his administration. As part of this plan, the president’s appointees or designees are to be provided with sufficient time to review pending regulations. In order to provide sufficient time to complete their review, the Administration requested that pending federal regulations be postponed. Tax regulations covered by the request are effectively frozen and subject to change or withdrawal.
On January 30, 2017, President Trump issued an executive order intended to reduce overall government regulation. Pursuant to this executive order, executive departments and agencies are required to identify at least two existing regulations to be repealed prior to the issuance of a new regulation. The executive order also imposes annual limitations on the incremental costs of new regulations.
The breadth of the regulatory request and executive order is not yet clear. It is therefore unknown if guidelines are limited to Treasury Regulations published in the Federal Register or other regulatory guidance such as Revenue Rulings, Revenue Procedures, and Notices.
A number of tax regulation projects may be impacted by these developments. Particularly relevant to the asset management industry are proposed regulations under the new uniform partnership audit rules and dividend equivalent withholding regulations under Section 871(m) of the Internal Revenue Code. These regulation projects are described below.
Details
Partnership Audit Rules
The Bipartisan Budget Act of 2015 included provisions that fundamentally alter the manner in which partnerships, such as hedge funds and private equity funds, are audited by the IRS. The so-called “TEFRA” rules were replaced with a regime that allows the IRS to make assessments at the partnership level, subject to certain elections to either opt out of the law or push out the assessments to partners. The law is scheduled to be effective for tax years beginning in 2018. There are many complexities and unresolved issues with the law, some of which the asset management industry was hoping would be clarified through technical corrections and regulations. These issues include:
The IRS had published regulations on January 24, 2017, but subsequently withdrew them pursuant to the January 20, 2017, freeze order.
Dividend Equivalent Withholding
Over the past decade, Congress and the Treasury Department repeatedly expressed concern over perceived abuses by foreign investors’ use of swap contracts and other derivatives to avoid U.S. withholding on dividend income from investments in U.S. stocks. In 2010, Congress enacted Section 871(m) to require U.S. withholding, in certain circumstances, on “dividend equivalents” from “specified” notional principal contracts, as well as “equity linked instruments.” Compliance with these rules is highly complex and costly to the banking and asset management industries.
On President Obama’s last day in office, the IRS released regulations that provide guidance on the rules. Despite the fact that the Section 871(m) regulations were officially published on January 24, 2017, after the January 20, 2017, freeze order, the IRS did not withdraw them. The IRS released a statement indicating that the regulations were approved by the Office of Management and Budget. However, it is unclear whether the IRS received approval from the administration for this action in accordance with the freeze order. It is possible that the IRS may need to withdraw them in the near future.
Insights
The above regulations may remain in a state of limbo until President Trump assembles a team of tax policy officials that will give direction to the Treasury Department and IRS. There are also larger questions of tax reform and whether the Partnership Audit Rules and Dividend Equivalent Withholding Rules will be targeted for repeal in connection with that reform or other actions of the Trump administration.
Roth & Co.’s team can assist you with all of your accounting and financial needs. Speak to your account representative for more information, or contact an accountant today at 718.236.1600 to schedule an appointment.
This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (February 2017). Copyright © 2017 BDO USA, LLP. All rights reserved. www.bdo.com
January 04, 2017 — BY Yosef Z. Klein, CPA
• The minimum wage has been raised in New York and New Jersey as of beginning of this year.
• Review and update your wage schedules as soon as possible.
• Employees subject to minimum wage laws need to be paid the higher of the federal and applicable state minimum wage.
Federal:
The federal minimum wage for covered nonexempt employees is $7.25.
Many states also have minimum wage laws. In cases where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.
New York:
The 2017 minimum wage in New York State can be from $9.70 to $11.00 and in some cases $12.00. This depends on your location, industry and size.
For example:
• A large (11 or more employees) employer in New York City must pay $11.00/hour.
• Fast food employers in New York City must pay $12.00/hour.
New Jersey:
The 2017 minimum wage in New Jersey is $8.44 (up from $8.38 in 2016).
If you have any questions about whether and how this will impact you, please speak with a Roth & Co professional, who will be able to guide you with any changes that may be necessary.
Additional resources
Federal Minimum Wage: http://bit.ly/2iACTgg
New York Minimum Wage: http://on.ny.gov/2j4QoBU
New Jersey Minimum: Wage: http://bit.ly/2iIw4dh
Other states: http://bit.ly/1T5AzJV
December 29, 2016 — BY Shulem Rosenbaum, CPA
December 21, 2016
December 20, 2016 — BY Jeremy Pasternak
Roth&Co continues to grow its staff in order to meet the accounting needs of the community.
Roth&Co, Brooklyn’s largest accounting firm, continues its growth as it recently announced the addition of three new partners. Formerly Senior Managers; Moshe Schupper, Moshe Seidenfeld, and Ben Spielman have been with Roth&Co for over 10 years each, and have proven their commitment not only to Roth&Co’s values, but to the community and its needs. As of January 2017, they will join current partners Heshy Katz and Alan Botwinick, working together with Co-Managing Partners Abraham Roth and Zacharia Waxler.
Moshe Schupper, who was a manager in Roth&Co’s Assurance division, has a unique background which allows him to simultaneously look at a client’s situation from both the tax and financial statement perspectives. This multi-faceted approach helps Mr. Schupper navigate any issues or questions a client may have, and he brings this experience with him to all clients that he serves. Mr. Schupper said he was “honored to be admitted as a Roth&Co partner” and greatly appreciates this opportunity.
Moshe Seidenfeld helps his clients manage and understand the financial and tax compliance aspects of their businesses. Mr. Seidenfeld serves as a consultant to his clients and has established a solid reputation of excellence in servicing businesses beyond the books, by providing tax strategies and assisting clients to successfully navigate the business world. Moshe commented on his promotion “when you make sure to always have the best interests of your clients in mind, the results are typically optimal for everyone involved”.
Ben Spielman works in Roth & Co’s entrepreneurial services department. Mr. Spielman has extensive experience servicing the Real Estate, E-Commerce, and Health Care Industries. Mr. Spielman also serves on Roth & Co’s Banking Committee, alongside Mr. Seidenfeld, where they build relationships with banks to help secure financing for businesses. When asked to comment about his promotion, Mr. Spielman said “I am humbled by this honor, and will continue to put our clients and their needs first”.
“At Roth & Co, we believe that our firm is only as good as our team. Our clients rely on our accountants and professionals, and so we actively cultivate an environment that supports both personal and professional growth” responded Abraham Roth, when asked about the reason for the promotions. He continued, “this ensures that the potential of each Roth & Co employee is actualized. We are proud of what we have built, and continue to build together.”
Zacharia Waxler, who has taken on the role of Co-Managing partner, echoed Mr. Roth’s sentiment. He added, “Roth&Co was created nearly 40 years ago in order to give people opportunity- This includes our clients, who we invest ourselves into; the community, where we always look for opportunities to give back; and especially our hard working employees, who will always be rewarded for their hard work and commitment to the Roth&Co vision.”
Roth&Co was founded in 1978 by Abe Roth, with a vision of building a firm on a set of values designed not just to create a better future for its clients and employees, but to positively impact our community and the world around us. Nearly four decades later, Roth & Co. is now the largest accounting firm in Brooklyn, with two locations, relationships that span more than three decades, and over eighty specialized employees ready to serve as trusted guides through the complicated maze of the financial world. For more information or to speak with a professional, visit www.rothcocpa.com or call 718-236-1600
December 05, 2016 — BY Zacharia Waxler, CPA
November 30, 2016 — BY Shulem Rosenbaum, CPA
In a recent article, the New York Times declared: “If a family is considering doing some tax planning and they’re putting it off to next year, they can’t go back in time and take advantage of the discounts.” The reason for this dramatic declaration is the fact that proposed IRS regulations aim to eliminate valuation discounts and severely limit the ability to shift wealth. These proposed regulations may significantly impact our ability to provide the ideal estate tax planning to you and our high net-worth clients.
The recent elections illustrate the importance of proper tax planning. President-elect Donald Trump has vowed to repeal the estate tax and replace the “death tax” with a capital gain tax on assets upon the owner’s death. Democrats vow to block any such efforts and plan to reduce the gift tax exception to $1 million. This volatility means that the perfect time for estate planning is now, before any extreme changes are made that limit planning tools that are currently available.
Estate Taxes
Estate tax is a 40% tax that is applied to the fair market value of a decedent’s estate or transfers in the form of gifts during his or her lifetime. In order to limit the double taxation effect of the estate taxes, Congress allowed for a tax credit to allow for a small estate, or an estate with assets of less than $5.45 million, to be exempt. This credit allows for a lifetime exclusion, per person, to transfer up to $5.45 million without being subject to tax.
Tax Planning
An extremely popular tax planning technique to minimize estate taxes is by transferring assets that are held in privately-owned businesses at a reduced fair market value. The fair value of a privately-held business is different from the market value of a publicly-traded stock because of the lack of marketability. Likewise, shares with significant influence or control of a business are more valuable than debt or equity with no voting rights. These concepts provide for a discount that can shrink the appraised value of a business asset by up to 40% and can be used to minimize any estate or gift taxes.
Proposed Regulations
The Treasury Department stated its desire to eliminate these valuation techniques by 2017. This will increase the value of businesses for estate or inheritance tax purposes, including capital gain taxes as proposed by the incoming administration.
Estate Planning
Estate planning involves more than just Federal taxes. Most states levy inheritance taxes and may have restrictions on any Federal tax planning. In addition, basic estate planning documents and trusts can be used to protect assets from creditors, predators or divorce. Finally, business planning and succession may be necessary to specify business continuity while providing for family members who are not involved in the business.
November 18, 2016
November 14, 2016 — BY Moshe Gelbtuch, CPA
November 09, 2016
Small businesses are loved because of the personalized service they can provide. But what happens when a customer shows up with a list of demands longer than the mighty Mississippi? Unfortunately, it’s not uncommon for an oddball request to push the boundaries of the owner-client relationship. When demands are made, remember these tips:
1. Don’t blow a fuse.
Even if the request seems ridiculous, take a deep breath and maintain your composure. Your calm demeanor can help change the course of the conversation and get to a reasonable resolution.
2. Empathy goes a long way.
Even if the request is over the top, put yourself in your customers’ shoes. It shows that you’re listening and willing to work toward a solution.
3. Just say no.
There may be a time when you simply can’t honor a request, such as if it conflicts with company policy or legal regulations. Instead, offer a new option the customer might not have considered and work toward a compromise.
4. Rein it in.
After handling a request, gently set the expectation that this will be a one-time option due to business constraints, but that you’re happy to make an exception for a loyal customer.
Seemingly unreasonable demands can test anyone’s patience. But if handled appropriately—with tact and understanding—you can still maintain high customer satisfaction and loyalty.
Roth&Co’s team can assist you with all of your accounting and financial needs. Speak to your account representative for more information, or contact an accountant today at 718.236.1600 to schedule an appointment.
November 09, 2016
1. Don’t Confuse Profits With Cash
When booking profits on paper, be sure to have the cash in the bank. This may seem obvious, but a lot of business owners don’t make the distinction—to their detriment. For example, your business may get a big order, but you have to sink money into production to fill it. If the client pays you 90 to 120 days later, your cash flow can turn negative. According to Parsons, many small businesses that fail do so not because they are unprofitable, but because they run out of money. The reasons vary, from long payment cycles to inventory management to a lack of investment capital. Understanding the levers that impact your cash flow can help you get a handle on this important metric. Parsons recommends using one of the many free cash flow calculators available to analyze and forecast your cash flow, like this one on her company’s site.
2. Revamp Your Payment Terms
Many small-business owners are at the mercy of big clients, who may take 60 or 90 days (or more!) to pay them. “We give our clients free money for 60 days,” says Parsons. “No bank would do that!” Parsons advises small-business owners to get tough and put clear payment policies in place. Know your industry averages. If other companies in your field have 15-day payment terms, you should too. And it’s not enough to stamp “Net 30” on invoices. Parsons recommends adding a late fee for tardy payments. For service-oriented companies, she suggests requiring bigger up-front deposits to cover costs and collecting the balance upon delivery. Finally, she advised, don’t underprice. Make sure you are building in a healthy profit margin and that you account for your time, including time spent traveling and planning. “It’s okay to charge for what you’re worth,” she says.
3. Plan for the Future
Don’t wait until it’s too late. Make sure you have enough cash to manage your business and cover upcoming expenses. Parson says that, according to her conversations with bank lenders, when a small business approaches a bank for a loan, 90 percent of the time they are already in trouble. The time to go to the bank, she says, is when things are going well and you foresee a need for cash in the future. That advice goes for outside capital too, says Kramlich. Building relationships with funders takes time, whether it’s a bank loan or a venture investment, so business owners should be looking out six to 18 months.
4. Understand Your Funding Options
There are many types of financing, each with their own costs and benefits. So business owners must assess what kind of capital is right for them. Loans that are secured—that is, that are backed by collateral of some sort—are often the lowest cost. That includes SBA loans and mortgages. Other asset-backed loans, such as factoring or purchase order financing, advance funds based upon your accounts receivable. These types of money lenders may take a really hefty chunk of your receivables, in some cases up to 40 percent, says Kramlich. But the trade-off might be worth it for business owners who need cash quickly. Debt can be valuable, says Kramlich, but sometimes it’s not enough to fuel a growing company. In that case, entrepreneurs may want to consider equity. Equity, or selling shares in your company, can be a great source of long-term capital, she says. That includes investments from friends and family, crowdfunding, angel investors, accelerator programs and venture capitalists. But you will give up some ownership of your company. The outside ownership, or dilution, is typically lowest with friends and family, but increases with angel and venture investors. A hybrid option is to invest in convertible debt, an interest-bearing loan that converts to stock over time. But Kramlich warns entrepreneurs to read the fine print closely and make sure they understand the terms, including how much of their company they are giving up.
5. Use Your Cash Flow to Help Attract Investors
Reiterating the importance of managing your cash flow, Kramlich stresses that a history of positive cash flow can help in obtaining outside capital. “Anyone who is going to finance you is going to look at that,” she says. In general, she advises businesses to do as much as they can to organically fund their growth and generate cash flow before turning to outside capital.
6. Leave the Excuses Behind
Finally, stop making excuses and start getting a grasp on your cash flow. “I hear all the excuses,” says Parsons, “from ‘I don’t have time,’ to ‘Why should I forecast, it never comes true?’” The fact is, an investment in understanding your cash flow may be the smartest one you can make.
Roth&Co’s team can assist you with all of your accounting and financial needs. Speak to your account representative for more information, or contact an accountant today at 718.236.1600 to schedule an appointment.
October 05, 2016 — BY Shulem Rosenbaum
Israel Your Home: No Longer A Tax Shelter
On September 30, 2016, Israeli banks and financial institutions delivered all financial information about American clients and U.S. Green Card holders with Israeli bank accounts to the Israel Tax Authority. The Israel Tax Authority is expected to supply the IRS with the names, account numbers and account balances of any U.S. account holders with more than $50,000 shortly.
Foreign Account Tax Compliance Act (FATCA)
On June 30, 2014 the American and Israeli governments entered into an intergovernmental agreement (IGA) to target taxpayers who use foreign accounts for tax evasion purposes. On August 1, 2016 the Knesset Finance Committee approved the implementation of FATCA along with other regulations passed by the Finance Ministry. Although the agreement was challenged to be unconstitutional, the Israeli Supreme Court threw out the petition and allowed Israeli banks to enforce the law. Under the law, bank accounts of American citizens and Green Card holders with more than $50,000 will be reported to the IRS. In addition, banks that are suspected to withhold information may be required to supply the IRS with all account information.
In addition, a temporary agreement allows for gemachim and nonprofits to not be reported until 2018. Under this agreement, gemachim will have to register with the Israeli Tax Authorities to be designated as “public service institutions” and be exempt from FATCA.
Many Americans maintain bank accounts in Israel for various reasons: business ties, costs associated with owning real estate in Israel, accounts to assist family members, etc. It is completely legal to have an account in Israel, provided that (1) the account is disclosed to the IRS on (a) IRS Form 1040, Schedule B, (b) the “FBAR“, Report of Foreign Bank and Financial Accounts, Form TD 90-22.1, (c) new IRS Form 8938, Statement of Specified Foreign Financial Assets, and (2) income earned in the account, including interest, dividends and capital gains, is reported to the IRS and taxes paid on this income. (Taxes paid in Israel on such income may offset U.S. taxes.) So long as these conditions are met, the account is tax compliant. If the account is not tax compliant, a U.S. taxpayer who owns or has beneficial interest in an Israeli account can be prosecuted for civil and criminal tax fraud.
October 05, 2016
August 29, 2016
Your Inheritance Is At Risk: Uncle Sam Wants a Bigger Piece
Elvis Presley may still be alive, but the Internal Revenue Service collected a whopping 73% of his estate in taxes. Financial titans and politically connected men such as J.P. Morgan, John D. Rockefeller Sr. and Frederick Vanderbilt lost a significant majority of their wealth due to estate shrinkage. All this was a result of poor estate planning. Estate planning allows an individual to transfer wealth during his life and after his death with the least possible negative tax consequences. There are various devices used to transfer property to family and friends, and an essential tool for estate planning are the valuation discounts. However, on August 2, 2016, the Treasury Department published Proposed Regulations that may substantially reduce the availability of valuation discounts for estate planning purposes.
What is estate planning?
Estate planning involves devising financial strategies to ensure that the decedent’s wishes are honored with respect to transferring property and business succession. In addition, an advisor can plan the transfer of property in a way that it can avoid the arduous probate process and reducing estate shrinkage by reducing the tax burden. An effective estate plan can be made by means of gifting the assets or transferring property to a trust during the lifetime of the transferor.
What is estate tax?
The unified federal transfer tax is a tax that is imposed on the transfer of wealth. The fair market value of an estate is subject to a tax of up to 40%, with an exemption amount of $5,450,000 for 2016 (indexed for inflation). In addition, a donor is liable to pay taxes on gift transfers during his or her lifetime in excess of the annual exclusion of $14,000. However, a gift splitting election allows married spouses to give away an amount up to twice the annual exclusion to a donee without paying gift taxes.
What is fair market value?
Estates and gifts are taxed on the fair market value of the transferred assets. Accordingly, transferred assets must be appraised to determine its value. The IRS (Revenue Ruling 59-60) defines fair market value as “the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.”
What are valuation discounts?
Valuation discounts reduce the fair value of an asset and can thus significantly diminish the tax burden. In addition, assets may be discounted to an extent so that it would not exceed the exemption amount. The two primary discounts are the discount for lack of control (also known as the minority discount) and the discount for lack of marketability (also known as the liquidity discount).
Discount for Lack of Control
The discount for the lack of control occurs when a transferor transfers minority interests in S corporations, family limited partnerships or limited liability companies. In theory, a person owning a 100% interest has greater control over the entity operations and would have a greater value than a person owning 51%, or limited control. This limited control is a result of having a partner or partners who must agree with business management decisions that require unanimous consent. Hence, the minority discount reflects the lack of control which includes the inability to appoint management or set policies, authorize acquisitions and liquidations of assets, or make fundamental changes. Thus, the IRS states: “In valuing the stock of closely held corporations, or the stock of corporations where market quotations are not available, all other available financial data, as well as all relevant factors affecting the fair market value must be considered for estate tax and gift tax purposes.” In addition, if the transferor imposed restrictions on the transfer of the assets then a minority discount is warranted. In Cravens v. Welch the Court rules that “…no consideration is given to the very apparent fact that minority stock interests in a ‘closed’ corporation are usually worth much less than the proportionate share of the assets to which they attach.”
Thus, the minority discount became a popular estate planning vehicle with the assets being discounted by 10% to 40%. For example, if Individual A owns an LLC with a net worth of $100 million, he can transfer a 10% interest ($10 million) at a 40% discount, or $4 million, to save $1.6 million in Federal gift tax.
Discount for Lack of Marketability
The fair value of a publicly-traded stock assumes that members can liquidate their investment and convert it into cash in a reasonable amount of time. However, interests in non-marketable, closely held investments, with no established markets complicates their conversion into cash. Accordingly, a discount for the illiquidity of the investment, or lack of marketability, can be assumed. The SEC (Accounting release No. 113) states: “Restricted securities are often purchased at a discount, frequently substantial, from the market price of outstanding unrestricted securities of the same class. This reflects the fact that securities which cannot be readily sold in the public market place are less valuable that securities which can be sold.” Indeed, studies of restricted stock of public companies, pre-IPO studies, and merger and acquisition studies indicated an historical illiquidity discount of 10%-50%. This discount, taken in seriatim with the minority discount, can result in a substantial reduction in the value of gifted or inherited assets.
Proposed Regulations
To address the fact that taxpayers were imposing restrictions on transferred interests in order to artificially reduce the value of assets for gift tax purposes, the Treasury Department published Proposed Regulations to Chapter 14 of the Internal Revenue Code. The Treasury Department did not like the fact that gifts were structured in a way that assets were divided between multiple family members or contain restrictions in order to trigger the minority discount. Accordingly, the proposed regulations – once enacted – will substantially limit the valuation discounts if the transferor or a related party – including members of the transferor’s family or an entity holding interests for such persons – can collectively remove or override those restrictions. Thus, family-controlled entities with business governance documents that contain restrictions that can be reversed or amended by family members or related entities (acting in unison, if necessary) will have limited use of valuation discounts.
Nevertheless, the Proposed Regulations must undergo a 90-day comment period and a public hearing is scheduled for December 1, 2016. Any final Regulations issued after this comment period will go into effect only 30 days after those final Regulations are published. Accordingly, it is now time to act and plan your inheritance in order to minimize the tax burden on your estate.
Roth&Co’s Trusts and Estates Team can assist you with all of your estate planning needs, including business succession planning, Medicaid planning, and trusts and estate planning. Speak to your account representative for more information, or contact an accountant today at 718.236.1600 to schedule an appointment.
February 07, 2016
When booking profits on paper, be sure to have the cash in the bank. This may seem obvious, but a lot of business owners don’t make the distinction—to their detriment. For example, your business may get a big order, but you have to sink money into production to fill it. If the client pays you 90 to 120 days later, your cash flow can turn negative. According to Parsons, many small businesses that fail do so not because they are unprofitable, but because they run out of money. The reasons vary, from long payment cycles to inventory management to a lack of investment capital. Understanding the levers that impact your cash flow can help you get a handle on this important metric. Parsons recommends using one of the many free cash flow calculators available to analyze and forecast your cash flow, like this one on her company’s site.
This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Winter 2015). Copyright © 2015 BDO USA, LLP. All rights reserved. www.bdo.com
