If you think you’ve heard it from us before, you’re right. We can’t say it often enough: internal controls can be the life-blood of your business. It is far cheaper to prevent fraud than it is to suffer a loss.
Let’s assume that you’ve taken our past advice. Approved department managers who do not write the checks, sign the checks and carefully review the back-up documentation; the monthly bank statements and cancelled checks are scrutinized by your CFO or your accounting manager and are reconciled monthly. The daily bank deposit is prepared by someone other than the cashier or accounts receivable clerk. You have an approved vendor list and it is updated monthly. You compare actual expenses to your detailed budget to check for anomalies. All employees who handle company assets are bonded. Your managers know to report significant changes in an employee’s lifestyle and all employees have a way to report fraud to the management either directly or anonymously. By instituting these controls, you’ve taken major steps to protect company assets.
This isn’t the time to get complacent. Cash is tight for everyone, and anything that can be converted into cash, or can replace a cash expense, deserves further attention. We don’t suggest you start counting paper clips, but there are tell-tale signs to alert you that measurable theft is occurring . For example, are you suddenly ordering three times as many boxes of file folders as you normally use? Lots of office supplies that hang out in the supply cabinet can easily be converted to cash by an employee who is under financial stress.
Your receiving and shipping departments are other potential leaks. For incoming deliveries, it’s important to catch shortages and report them to suppliers so they can be more vigilant at their end. Once it is known you have internal controls to catch such variances, you will be less likely to become the victim of this practice. If your customers complain they have received short-shipments from you, it is a siren going off that something is amiss in your operations.
If you suspect you are a victim of fraud, Lee Weir, CPA, and Suresh Narayanamoorthy, CPA, of our professional staff are Certified Fraud Examiners(CFE) and are qualified to investigate the allegations, document the theft, and prepare a report to provide to your insurance company as well as law enforcement agencies. Call your ELLS advisor to work with you to discuss procedures that will safeguard you from fraud.
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We’ve just finished a year when we’ve been bruised and battered as we’ve all worked to keep our businesses open. This is definitely the time to “make lemonade out of lemons” and get busy on planning for a better year ahead.
If concentrating on your bottom line gets you depressed, and you know you’ve instituted every cost-saving measure you can think of, then shift your focus to the top line … gross sales. It’s absolutely essential that you keep your current customers happy so they don’t go shopping around. Call them and meet with each one of them face-to-face and discuss how you can help each other. Empower your employees to immediately respond to complaints and solve them to the customer’s satisfaction. Make sure you are taking advantage of every opportunity to increase the value of your current customers: encourage customer feedback to see what they really value and then give it to them.
Review your business plan with your ELLS advisor. Set goals that are realistic and achievable and share these goals with your employees. Provide them with the tools they will need to meet your expectations.
Be vigilant about backing up data. Commit to make better use of technology to keep your business protected from possible failure. Remember, living in California can mean you’re just a minute away from a natural disaster of some sort. Affordable off-site backup system protect you even further by storing your critical data at another location. Your ELLS advisor can assist you in finding the right solution to your needs.
Approach 2010 as a new beginning and an opportunity to create new ways to grow and prosper. Your ELLS advisor is here to help in whatever way we can. If you have any questions please feel free to give us a call.
So you are worried about employee theft. What business owner these days isn’t? Due to the economic downturn over the last few years many employees are experiencing the hardest financial times of their lives and this has most owners looking over their shoulders and ledgers. Most employee theft isn’t done out of pure greed or malice but rather out of a perceived necessity. Financial pressures can result from high medical bills or vices such as gambling or drug addiction. However this has begun to change as even every day things like mortgage payments, car insurance and credit card bills have begun to pile up. Somebody wants their money for that 50” flat screen TV that was purchased on a Visa card over a year ago, and when creditors call, employee’s can often feel the pressure to steal.
Fortunately as a business owner there are many steps you can take to prevent such theft. Most importantly, employees can only steal where they have the opportunity to steal. If an employee believes they may get caught, then they are far less likely to do so.
While there are many things that can be put into place to stop stealing, the most important one is effective internal controls or “checks and balances” in the company’s accounting procedures. This includes, but is not limited too, cash receipts, accounts receivable, payroll and cash disbursements.
Many business owners believe they are too small to have an effective set of checks and balances over their accounting systems but this is simply not the case. Even seemingly small things such as having the owner sign all the checks, looking over all the detailed support for checks and receiving and reviewing monthly bank statements can make a big difference.
Looking at some employees one would never guess if they are stealing or not and no one wants to accuse an innocent person. However, here are a few “red flags” that an owner may watch for:
Unusual employee behavior such as being more irritable or nervous all the time. Also avoidance of looking people in the eye.
- Complaints from customers about an employee or their accounts.
- Employees who work excessive overtime or are secretive of their work.
- Missing or incomplete documentation such as bank reconciliation not being performed.
 What should you do if you expect fraud? Contact an experienced forensic accountant, such as a Certified Fraud Examiner, to investigate the situation and if need be prepare a report for insurance companies and the authorities. Many police departments don’t have the resources to investigate these types of crimes and they rely heavily on Certified Fraud Examiners to collect the evidence they need.
Time is running out on many tax savings and lucrative business credits. Extensions have been slow in materializing as Congress focuses its attention on Healthcare legislation while business is taking a back seat, at least for now. There are still opportunities for tax saving strategies that can be implemented before the final bell on December 31 st and we encourage you to look over the list and call your ELLS advisor if you think you may want to act on any of them.
New Sales Tax deduction for motor vehicles! Whether you itemize or take the standard deduction, you can increase your deduction by the amount of sales tax you paid on the purchase of any number of new motor vehicles (including motorcycles and motor homes) that were purchased after February 16 th and before December 31 st 2009. Sales tax on only the first $49,500 of purchase price qualifies. The phase out begins at $250,000 (married) or $125,000 (single) taxpayers.
Energy-saving tax credits: The credit percentages for building envelope components (windows, doors) is now 30% and the maximum credit is $1,500. Also applies to furnaces, furnace fans, central a/c and water heaters. Credit is available in 2010 and there is no phase out.
Employers who offer Flexible Spending Accounts: As part of their Cafeteria Plan have until Dec 31 st to change the rules to enable employees to have another 2 ½ months in 2010 to spend their 2009 allotments. The first $13,000 of gifts ($26,000 for married couples) made by a donor to each donee in calendar year 2009 is excluded from the amount of the donor’s taxable gifts. You must act no later than Dec 31 st to take complete advantage of annual gift tax exclusions. Unused annual exclusions can’t be carried over and are forever lost. The check must be presented in the calendar year for which completed gift treatment is sought. The donee should be sure to deposit and cash the check before year-end, so that there’s no doubt as to when the gift was made.
Machinery and Equipment: Most new machinery and equipment (as well as software) bought and placed in service in 2009 qualifies for a 5 0% bonus first year depreciation deduction. This benefit has not yet been extended beyond 2009. I ndividual taxpayers who are at least 70 ½ years old may contribute to charities directly from their IRAs without having the amount of their contribution included in their gross income. High-income taxpayers who are over AGI limits for a Cloverdell Education Savings Account (CESA) can contribute to a qualified 529 tuition plan instead. There are no AGI limits on contributions to 529 plans. Distributions from 529 plans are tax free only if used to pay for higher education.
Businesses of all sizes can now carry back operating losses for up to five years: To claim a full deduction on the 2009 return for a contribution of “qualified appreciated stock” to a private foundation, the private foundation must be set up and the contribution made before December 31, 2009 . A self-employed person who wants to contribute to a Keogh plan for 2009 must establish that plan before the end of 2009. If that is done, deductible contributions for 2009 can be made as late as the taxpayers extended tax return due date for 2009. Business taxpayers can claim a deduction under Code Section 199 to offset income from domestic manufacturing and other domestic production activities . Since the rate of deduction will increase to 9% in 2010from 6% in 2009, taxpayers in this case should consider deferring some of their domestic production activity income from 2009 to 2010. Again, check with your ELLS advisor for further details on any of the above tax-saving strategies.
If you have any questions about these or any other tax credits or deductions please contact us at anytime.
Greg Lewis Offers Planning Tips for Roth IRA Conversions
For tax years beginning after 2009, the $100,000 modified AGI limit on conversions of traditional IRAs to Roth IRAs is eliminated. Additionally, married taxpayers filing a separate return will be able to convert amounts in a traditional IRA into a Roth IRA. As a result, 2010 will be a pivotal one for retirement planning and poses significant tax planning challenges.
There are certain tax advantages to Roth IRAs. Qualified distributions are tax-free, they don’t enter into the calculation of tax owed on Social Security payments, and they have no effect on AGI-based deductions. These benefits flow through to beneficiaries of Roth IRAs as well.
Unless a taxpayer elects otherwise, none of the gross income from the conversion is included in income in 2010; half of the income resulting from the conversion will be includible in gross income in 2011 and the other half in 2012. A major wild card is the tax-rate picture after 2010. Absent Congressional action, after 2010, the tax brackets above the 15% bracket will revert to their pre-2001 levels. That means the top four brackets will be at least 39.6%, 36%, 31% and 28%. And, it has been rumored Congress is considering adding a new top bracket to the existing structure.
High-income taxpayers who plan to make large conversions in 2010 can elect to opt out of the deferral of tax until 2011 and 2012. In that case, these taxpayers should be considering ways to defer deductions to 2010 and accelerate income from next year into 2009 in an effort to avoid being pushed in the highest brackets by a large IRA-to-Roth-IRA conversion in 2010 . Your ELLS advisor still has time to work with you to structure your 2009 tax return to reflect this strategy.
Maria Arriola with Dave Wilkins of Transamerica Retirement Services
On Thursday, Nov. 5 th our very own Maria T. Arriola stole the show at the Transamerica Retirement Services Breakfast for Financial Advisers.
The presentation was attended by over 30 different businesses that operate in the retirement services arena and Maria was invited to co-present along with Dave Wilkins, Regional Vice President of Transamerica Retirement Services.
A gifted speaker, Maria talked about 401k ERISA audits and the importance of having a good working relationship with your auditor and third party administrator. She also recommended these three steps to help keep the process as smooth as possible: 1) Amend the plan to force out terminated employees with an account balance of less than $5,000. 2) Carefully review the participant list to ensure only eligible employees are included in the participant count. 3) Qualifying companies should take advantage of the 80-120 exemption and elect to be treated as a small company.
The presentation also went into detail on common errors in ERISA audits. Of particular note were errors in the handling of employee contributions, the new changes to EFAST/EFAST2 (ERISA Filing Acceptance System), and making sure the census information is filled out correctly.
Overall the presentation went very well and Maria has already given another one and fielded several offers to give more.
If you require a 401k pension audit or have any questions regarding them please feel free to contact Maria at ELLS CPA’s.
By Jeff BoxxÂ
The American Recovery and Reinvestment Act of 2009 (ARRA) included several provisions to help simulate the economy. One of these provisions changed the tax credits allowed for energy efficient changes to your home. These Tax credits have been around for awhile, but this new law has extended the benefits offered for energy efficient improvements.
Before getting into these changes, remember that qualified improvements must meet minimum efficiency standards in order to qualify for the tax credit. Not every energy efficient product counts. Manufactures will provide a detailed certification statement stating which of their products qualify. This certification is the key to unlocking your tax credit.
After June 1, 2009 the IRS has changed these minimum efficiency requirements and the manufactures will not be allowed to provide certifications for property that fails to meet the new standards. Be aware of products that might be energy efficient, but do not have a current certification. Manufactures are currently in the process of updating their product labels to help consumers determine which ones qualify for the tax credit. Not all products with an “Energy Star” label will automatically qualify; you will need to look for products that clearly state “Eligible for federal tax credit of up to $1,500” and are certified by the manufacturer.
At the time of purchase, it is important to save this certificate from the manufacture because you will need this support documentation in the event of an IRS audit.
Now, let’s look at some of the new changes affecting individuals:
Residential Energy Property Credit (Section 1121)
The tax credit is now 30 percent of the cost of all qualifying improvements with a maximum credit of $1,500 for improvements placed in service in 2009 and 2010.
Note that the total amount of the credit for 2009 and 2010 is $1,500. For example, if in 2009 you installed $5,000 of new energy efficient windows and in 2010 you added another $5,000 of energy efficient doors your credit was maxed out with the window upgrade in 2009. You would not receive another $1,500 credit for the doors in 2010.
Qualifying property includes insulation, exterior windows, exterior doors and heating and air conditioning systems for your primary residence. The primary residence requirement has to be met at the time of installation, so the credit only applies to existing homes.
Residential Energy Efficient Property Credit (Section 1122)
This credit is for qualified residential alternative energy equipment. This includes solar equipment, solar hot water heaters, geothermal heat pumps ( pumps heat to and from the ground to heat and cool your home) and wind turbines. Solar water heaters for pool or spa equipment are excluded from this credit.
For 2008, the credit is equal to 30 percent of qualifying expenditures with a maximum credit of $2,000 on qualified solar water heating property. There is no cap on qualified solar electric property.
For 2009, the $2,000 limit on qualified solar water heating property is removed. The heated water still has to be used in your house; pool and spa heaters are still excluded.
Additional credit limits are in place for qualified fuel cell property.
Other Credits
The American Recovery and Reinvestment Act of 2009 (ARPA) also included tax incentives relating to Plug-In Electric Vehicles. The key requirement for qualified vehicles is they “plug in” to recharge.
If you have any questions about energy efficient tax credits ask your CPA or feel free to give us a call.
10-29-09
Adding College to Your Deductions:
College, no other word strikes more joy into high school seniors and more fear into their parents or their wallets. The cost of college these days continues to rise each year but fortunately good old Uncle Sam has come up with some ways to help out, namely the new American Opportunity Tax Credit. Here are some of its’ key points.
This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expense that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses tuition, related fees, books and other required course material. Sorry that flat screen for your dorm room doesn’t apply.
The credit is equal to 100 percent of the first $2,000 spent and 25% percent of the next $2,000 per student each year. Therefore, the full $2,500 credit may be available to a tax payer who pays $4,000 or more in qualifying expenses for an eligible student.
The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
The credit can be claimed for qualified expenses paid for any of the first four years of post secondary education.
You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction, whichever is more beneficial to you.
So what does this all really mean? The two biggest things to remember are that A. 40% of the credit is now refundable, so now if you owe no tax you can still get money back and B. the qualified expenses has been extended to the first four years of college instead of the previous rule of two years.
If you have questions as to if the deduction or tax credit would be better for you, give us a call or consult your CPA.
IRS Extension
As a quick update last blog entry on the IRS voluntary disclosure program. The IRS has extended the deadline of the program to October 15 th, 2009. So if you have yet to report your overseas accounts there is still time to do so!
Posted 09/22/09
By Carol Painter
Many of you may, or may not be familiar with the use tax laws. However if you live in California and own any sort of business you had better become familiar with it because the Board of Equalization (BOE) is cracking down on it.
What is the use tax? I am glad you asked. What happens here is that items bought in other states are not subject to local sales tax and therefore no revenue is generated from them. (Think catalogs, online, phone orders etc…) Now we can’t have people getting away with buying things tax free, can we? So the BOE has come up with the ingenious idea of the use tax. Simply put, it is a sales tax levied on items bought out of state and brought into use in California
Who does it apply to? Technically everybody must pay the use tax, including individuals. So that Solid Gold Hits of the 70’s you ordered off Amazon? Yes, you are supposed to report that. In fact, most tax returns have a line for you to include your use tax on them. However, the individual returns are not the real concern of the recent BOE changes. What they are really cracking down on are businesses.
The new rules state that all businesses with at least $100,000 or more in gross receipts must register online with the BOE and pay their use taxes by April 15 th. $100,000 in gross receipts is a very low threshold and most businesses out there will have at least that much. So the bottom line is that the BOE is getting aggressive with businesses everywhere.
If you have a seller’s permit you are already registered with the BOE so this new rule won’t affect you. You’re already filing sales tax returns which include reporting use tax. However, companies that are not required to hold a seller’s permit are of particular concern here. This would include such services like CPA’s, doctors, distributers and any other service that does not sell a physical “product.”
So you folks in this category may be getting a letter from the BOE in the very near future informing you of the requirement to register. However the BOE targeting their criteria based on 2007 data. So if you qualified in 2007 but had less than $100,000 in gross receipts in 2008 or 2009 you need to contact the BOE and let them know you are exempt. If you have any questions about the use tax and registering with the BOE then please contact us here at ELLS or contact your CPA for more information.
Posted 09/11/09
