KLR Blog

Credit Card Fees on Contributions

2010-02-17T07:00:00.000-08:00

On February 3rd the web site CreditCards.com published an article entitled Charitable Charging Comes Under Scrutiny.

The article indicated that shortly after the earthquake in Haiti the major credit card processors all agreed to waive their interchange fees (ranging from 1% to 3%) on each donation directed to Haitians in need. Some charity watchdog groups and other interested parties called for credit card issuers to waive fees on charitable donations permanently. The political action group MoveOn.org started a petition which it will deliver to the CEOs of the major credit card processors.

This is not the first time that the credit card processors waived or cut their transaction fees. They waived fees in 2004 after the tsunami struck Southeast Asia. Capital One has been waiving transaction fees on charitable donations since the fall of 2008. Capital One operates a website called No Hassle Giving or the Network for Good and it processes transactions to almost any charity without a fee (of course, using your Capital One credit card). I am sure this is part marketing effort and part charitable giving on Capital One’s part and I applaud it.

However, before we all jump on the bandwagon and rush off to sign the MoveOn.org petition, I would like to have you think about a few concepts. We can think of the credit card processing fee as additional fee income for the credit card company and subconsciously think of the millions of dollars that this generates, or we can think of the costs involved in processing credit card transactions and realize that these costs are as low as they are because every transaction is sharing in the payment of those costs. We realize that costs may increase for the remainder if some are exempted.

We could think of the processing fee as a cost the charity is willing to pay to facilitate the receipt of donations from millions of people. The credit card facilitates the donor’s effort (no check writing, mailing, stamp costs, etc.) and facilitates the charity’s donation deposit (no mail opening, endorsing, bank clearing time, internal control issues, etc.) and the charity is more than willing to pay for all this assistance and service.

In certain circumstances and in certain disasters, the credit card industry is willing to take a temporary cut in revenue as their way of contributing to the cause. They do this to provide an added incentive to the donor while assisting the charity at the same time. Added incentives work – think of how often you shop a “sale”.

So I applaud the credit card companies for their processing fee elimination in response to the Haitian crisis. And I applaud Capital One’s marketing/charitable giving plan and wish them success. I am not rushing to sign the MoveOn.org petition. What do you think?

By Frank Monti, CPA
Not-for-Profit Group

Find Fraud: Know Where You Should Be Looking

2010-02-03T11:00:00.000-08:00

In my last post, I discussed some interesting facts about who is most likely to steal from your company and how much it is likely to cost you. (In case you missed it, here’s the link: http://www.kahnlitwin.com/blog/2010/01/can-you-identify-whos-going-to-steal_06.html.)

The cost of fraud to an organization can be devastating, yet many people don’t want to hear about it until it’s too late. You don’t have to be a financial expert to implement controls to prevent fraud, but you do need, at a minimum, a basic understanding of the different types of fraud in order to know what you are trying to prevent.

With that, I wanted to take some time now to highlight some of the common areas that are susceptible to fraud and the types of theft related to them.

Cash theft schemes – these can include the obvious to the not so obvious. Under this category you will find theft of cash payments, theft of all or part of a daily deposit, skimming from a daily deposit, voided sales and/or revenue transactions, and the theft of petty cash funds.
Accounts receivable schemes – receivables schemes are directly related to the theft of cash. These can be a bit more complicated, and can include the lapping of receivables (which involves shifting receipts amongst customer balances to cover up theft), the unauthorized crediting of customer accounts, and the re-aging of receivables in order to hide misappropriations.
Inventory schemes – these can include the theft of inventory and supplies, as well as the scrapping and subsequent resale of inventory.
Fixed asset schemes – these schemes can come in a variety of different forms. They can include the theft of equipment and other assets held for use, the personal use of company assets, over-purchasing schemes, as well as the recording of fictitious assets (which in turn can conceal other thefts).
Payables and disbursement schemes – these schemes are also directly related to the theft of cash. Payables schemes can include payments made on false or inflated invoices (including those to shell companies), excess purchasing as well as duplicate payment schemes. In addition, you can have situations where the employee is brazen enough to write the check directly to themselves or a family member, as well as the stealing of check stock for future use.
Payroll schemes – payroll schemes can be some of the easier schemes to detect, yet they often fly under the radar. These can include payments to fictitious employees, overpaying/double paying current employees, paying terminated employees, the diversion of tax and/or employee benefit plan payments, and various expense report reimbursement schemes.

Please keep in mind that the above is just the tip of the iceberg, and some of these schemes (and others not mentioned above) can be occurring in your organization right now. Fraudsters have been getting more and more sophisticated and are continuing to utilize advancements in technology to further their efforts. You need to be proactive in not only understanding the different ways these criminals can steal from your organization, but how to best protect yourself.

In my next post, I will begin to explore these areas in greater detail, highlighting the various opportunities for internal theft and what you can start to do to protect yourself. Until then, remember, it will always be more economical to implement measures to prevent fraud than it will be to detect it.

By John Surrette, Jr., CPA, CFE, MBA
Senior Audit Manager

The Endless Economic Cycle

2010-01-27T07:00:00.000-08:00

Riddle: What is it that happens on a continual basis and yet, is always ignored until it’s too late? Answer: Economic downturns. The world economy is in an endless cycle of expansion and contraction and the only thing that changes is how extreme the highs and lows reach before reversing. But somehow, no one wants to think of the lows until they are actually facing them.

Expansions are easy to deal with. As revenues increase; businesses, governments, and households find ways to spend their new found wealth. It’s the contractions that are a problem. Most businesses are able to fend off reductions in revenue by cutting costs. Payroll being the quickest, explains the run up of unemployment at every contraction. Households don’t fare as well. Most of their expenses are related to basic needs like food and shelter with the rest being debt. The problems arise when there’s not much that can be cut. In this light, government fairs the worst. They get a double whammy at every economic downturn. Revenues decrease and expenses increase - as support is given to shore up the sagging economy. But something has happened in this downturn that is shining a bright light on some real problems.

One is, government spends all the money they take in – good times or bad. Which is understandable since there is constant pressure to do as much as possible with the resources available. The flaw that becomes very evident in this downturn is that most of this spending is fixed either by law, contract, or entitlement. No one stands up and volunteers for a cut, and worse – all proposed cuts are fought tooth and nail. If spending can’t be reduced, we are faced with deficit spending, which means borrowing against future tax collections. This simply isn’t sustainable and just makes the problem worse later on. Ask any homeowner who got caught up in the equity splurge - you can’t borrow your way out of trouble.

So – wouldn't it make sense to have a balanced budget based on average tax revenue instead of projected revenue? This probably sounds easier than it is, but it sure would go a long way in smoothing out the extremes. Some form of this has been tried with things like rainy day funds, but somehow those funds always seem to get tapped even before the rain. How about trying something like, excess revenues collected during upturns are only spent on things that can be put on hold during downturns – like road repair or building improvements. Locking in an endless stream of fixed costs will always bring us back to where we are today – massive deficits and unpleasant remedies.

By. Norman LeBlanc, CPA

Tax Services Group

I Want To Sell My Company But No One's Buying

2010-01-13T07:30:00.000-08:00

Are you one of the many business owners out there who have been planning a sale of your company but can’t find any buyers as a result of the current economy? Maybe there’s a solution to your problem in the form of an Employee Stock Ownership Plan or ESOP.

Tracing their roots as far back as 1973, ESOPs are a well known but often misunderstood business ownership structure that can provide liquidity to business owners. The concept is not to be confused with a stock option plan commonly established to compensate executive level employees. Instead, an ESOP is a tool that allows business owners to sell all or part of their ownership interest to their employees using debt.

The topic is frequently married with a discussion of the numerous tax benefits an ESOP can provide which includes repaying ESOP debt, principal and interest, with pre-tax dollars. There are other benefits which may include being able to find a ready buyer for your shares, the possibility of more favorable financing terms and the advantages of avoiding the strenuous, time consuming and often expensive process of selling your company through an investment bank or business broker. There are also the cultural benefits of employee ownership which may lead to higher profitability.

Sometimes business owners don’t want to give up control of their company but are interested in diversifying only some of their shares. An ESOP can help here too! In fact, many ESOPs are set up as minority owners so that existing business owners can take advantage of the ESOP tax benefits available to their company while enjoying the benefits an employee ownership culture. Also, if structured correctly, the business owner may be able to defer any capital gains taxes associated with the sale of these shares.

Although not all companies qualify and sometimes those that do find the IRS rules too restrictive, an ESOP is still an option often overlooked by business owners. With the help of a qualified accountant and attorney to help demystify the world of ESOPs, it might be worthwhile to find out if an ESOP makes sense for your company.

By. Gregg Hamilton-Piercy, CFA
Senior Valuation Manager

Can you identify who’s going to steal from your company?

2010-01-06T07:00:00.000-08:00

One theme that has been in the news over the past several months is the fact that accounting fraud has risen significantly over the past couple of years. Who didn’t see that one coming? Increased unemployment, the resetting of interest rates on adjustable rate mortgages, and the loss of personal wealth (mainly from declines in home values) are all reasons why we have seen a spike in this type of fraud.

At the end of my last post, I had mentioned that I was going to start to discuss some of the different types of fraud. As I think it’s important to understand who might be perpetrating the fraud, we’ll get into that topic next time.

So, you ask, what type of person is most likely to commit fraud? According to the 2008 Report to the Nation on Occupational Fraud & Abuse report (the Report) published by the ACFE, research shows that:

• Fraud is a man’s world. According to the survey, males are more than twice as likely to commit fraud as their female colleagues. Significantly, the median loss of fraud by men is more than twice as great as frauds perpetrated by women, according to the study.

• Many fraudsters are in their forties. The highest percentage of fraudsters in the study were between the ages of 41-50 (in more than half of all cases, the perpetrator was over 40). Generally speaking, older professionals often occupy positions with authority and more access to company resources. The Report finds that the median loss from fraud rose as the age of the fraudster increased. Schemes perpetrated by individuals in their 50s resulted in a median loss of $500,000, twice as high as any age bracket below them.

• The ‘lone wolf’ versus cooperative crooks. In nearly two-thirds of the fraud schemes covered by the study, the perpetrator acted alone. Yet when the scheme did involve collusion of two or more parties, the results were much more costly. Cases of collusion resulted in a median loss over four times higher than the amount lost to fraudsters acting alone. This might mean that collusion enables employees to better circumvent controls that might stop a single perpetrator.

• Education and position. Most perpetrators have attended or graduated from college.
About 11 percent have obtained a post-graduate degree. In general, the higher the education level, the more costly the fraud. Furthermore, the highest percentage of fraudsters worked in the accounting department when they executed their scheme. Because these employees handle financial transactions, they normally have the easiest access to fiscal assets and the most opportunity to conceal a fraud. Executives and upper management made up the second-most common category of fraudsters. The least common perpetrators? Internal auditors.

• Living the fraud life. According to the Report, there are several behaviors that serve as red flags displayed by perpetrators. The two most common traits are a tendency to live beyond one’s means, and a struggle with financial difficulties. More than a third of those identified displayed at least one of the aforementioned behaviors, and about 20 percent had either a “wheeler-dealer attitude,” control issues (unwillingness to share duties), or personal problems, such as a divorce. Other red flags might include irritability or defensiveness, addiction problems, past legal problems, refusal to take vacation and complaining about inadequate pay.

If you’d like to learn more about the findings in the Report, you can download online at the ACFE’s web site: www.ACFE.com/RTTN.

There are several other studies out there that have come up with similar conclusions. I don’t think there is anything too surprising in the results, but don’t be fooled. I’ve seen frauds committed by men and women much younger and much older. However, the one theme that you should focus on is the fact that these people are in positions of power and influence within their respective organizations. If those positions are appropriately monitored, your exposure can be reduced significantly. Remember, it’s much easier (and cheaper) to prevent fraud than it is to detect it and recoup your losess.

The ability to appropriately monitor these positions is predicated on the fact that you know what risks your company are exposed to, and how you can appropriately mitigate them. Having an understanding of the different types of frauds and how they can be perpetrated can be very helpful in assessing your exposure. We will start to explore these areas in my next post.

By. John Surrette, Jr., CPA, CFE, MBA
Senior Audit Manager

Last-Minute Moves to Save 2009 Taxes

2009-12-16T08:00:00.000-08:00

There are only a few weeks left before the year ends and your 2009 tax life is sealed in stone. However, there is still time for considering a few tax-wise moves that could save you money now or in the future.

On involves making gifts to others. A person can give any other person up to $13,000 in 2009 without incurring any gift tax. The annual exclusion amount increases to $26,000 per donee if the donor's spouse joins in making a gift. Anyone who expects eventually to have estate tax liability and who can afford to make gifts to family members should do so. In addition to avoiding a gift tax today, if the property you are gifting (such as stock) increases in value, that increase in value is also out of your estate. With today’s deflated stock prices, this may be worth considering a bit more carefully than in prior years.

Double check your potential tax liability for 2009 and compare it to amounts paid in via withholding or estimated taxes. If you think you may be underpaid – perhaps you missed an estimated tax payment earlier in the year – you can increase your withholding for the last one or two pay periods in the year. All amounts paid via withholding count as if they were paid evenly throughout the year. So if you missed an estimated payment and face a penalty for the late payment of the amount, you may be able to eliminate that penalty by increasing your withholding before year-end.

If you have a health flexible spending account (FSA) at work and you must use the account before year-end, check to see if you have any unused funds in your account. If you have unused funds that you are in danger of losing, consider expenditures such as eyeglasses, contact lenses, etc. And, don’t forget that nonprescription drugs like antacid, allergy medicine, pain relievers or cold medicines qualify for FSA reimbursement. You need to make the purchase prior to year-end even if you are not able to submit the reimbursement until after the first of the new year.

While I am not expecting anyone to go out and buy a new car because of my blog, it is worth noting that depending on meeting certain conditions you can deduct qualified motor vehicle taxes paid on the purchase of a car in 2009 that you will not be able to deduct in 2010 (unless Congress changes the law). There are also tax credits available for the purchase of a qualifying fuel efficient car. The most widely available type of these vehicles is the hybrid.We don’t want you to miss any of these opportunities. If you have any questions, call your KLR tax advisor today.

By. Frank Monti, CPA
Not For Profit Group

Cut Costs by Increasing Your Efficiency

2009-12-02T07:56:00.000-08:00

In these troubling times every business seems to have one major goal -- cut costs. Unfortunately this happens most often as a knee jerk reaction with across the board cuts in payroll and everything that even smells non-essential. But what if there was a better way? And you could learn about it for FREE??

One of our clients has grabbed the Toyota concept of efficiency (lean) and taken it to an art form – and they are so passionate about it that the President of the company has felt the call to duty and is hosting a daily radio show on AM790 from 4 – 5pm. There is also a local website dedicated just to the war on waste (LeanRI.org). The show and site focuses on efficiency and cost cutting without using the all too common slash and burn process. If you can’t tune in, the show streams live from the 790 website and there are other tips you can read online. Here are some links to get you started.

http://www.790business.com/sectional.asp?id=35739
http://www.leanri.org/
http://www.facebook.com/pages/K-Dubs-Lean-Nation-Radio-Show/205913446176

What is lean anyway?
Lean is eliminating the 7 deadly wastes that are in every corner of our businesses, homes, and government.

1. Waiting - people or goods idle while a process finishes
2. Over production – making more than you need now
3. Over processing – doing more work than is necessary (too many steps)
4. Motion – reaching, turning, bending, or walking to your resources
5. Transportation – moving product around
6. Defects – we all know this one
7. Inventory – do you need more than you could have on-hand tomorrow?

I know these sound like they only apply to manufacturing but don’t be fooled. They apply to everything and anything that involves a process resulting in a finished product (even making toast has a process to it). What I’m saying is: everything is manufacturing when you think about it. For example (and I’ll pick a tough one) - an insurance agent. They might not have a machine shop but they do go through the process of obtaining leads, researching, quoting, revising, and ultimately binding coverage - all which results in the finish product of an insurance policy. Their equipment is a computer, printer, and fax machine instead of drill presses and grinding machines - but they still go through a process - and that process is burdened with the 7 wastes above.

You will never reach the perfection of a totally waste free environment but the idea is to continuously improve towards that goal. For a lot more on this topic check out one of the links above. You’ve got nothing to lose and it will make you look at your business in a whole new way.

By. Norman LeBlanc, CPA
Tax Services Group

Detecting Fraud

2009-11-17T07:00:00.000-08:00

How would you like another 7% to drop to the bottom line? Of course you would, right? Well, according to the Association of Certified Fraud Examiners 2008 Report to the Nation on Occupational Fraud & Abuse, that is the amount participants in the survey estimated was lost annually due to fraud. There are several other interesting statistics that came out of the survey, including the fact that the median loss was $175,000, and more than a quarter of the more than 959 cases studied suffered losses of over $1 million. With the economy continuing to decide on a direction, would you even want to suffer a loss of $10,000? I didn’t think so.

Now I know what you’re saying to yourself, my accountant is on the lookout for fraud so I have nothing to worry about. If you think that is the case, you may be in for a surprise. Bernie Madoff had an accountant too, who audited his company’s financial statements and issued a “clean” opinion on them. Remember Arthur Andersen? I know it’s been several years, but they were responsible for auditing Enron (and went out of business as a result of Enron’s collapse). I know these are two high profile examples, but the fact is, most frauds are uncovered by tips, and not by auditors.

So what does this all mean for you? What can you do to make sure your company is not the next to grace the front page with a story of financial malfeasance? There are a lot of different ways you can protect your assets, and it starts with taking a fresh look at your internal controls and evaluating where your exposure lies. In my next post I will start to explore the different types of internal fraud. Until then, remember, it’s always cheaper to prevent fraud than to try and recoup your loses after its been detected.

By. John Surrette, Jr., CPA, MBA
Senior Audit Manager

Hidden Savings Within Your Building

2009-11-10T07:00:00.000-08:00

Cost Segregation – Why use a Engineering Aproach?
Approximately eight years ago, we were approached by a Cost Segregation Engineering firm. We knew about cost segregation studies; but, we had never worked with an engineering firm. They emphasized the fact they specialized in “Engineering Approach”. So what’s the big deal? Before I continue, let me explain what a cost segregation study is.

How Does it Work?
Building costs are generally classified for tax purposes into three categories. Each has a different depreciation recovery period over which the cost of that category must be depreciated (i.e., expensed).

Tangible Personal Property- 5 or 7 years
Land Improvements- 15 years
Real Property- 27½ or 39 years

In addition to shorter depreciation periods, the first two categories can be depreciated on an accelerated basis while the last cannot. The term accelerated in this content, means more depreciation expense can be taken in the earlier years of the asset’s assigned life than in later years. This is a big deal. It can save taxpayers a lot of money!

A cost segregation study identifies assets that should be properly classified as tangible personal property or land improvements, rather than real property subject to a 39 year (non-accelerated) depreciation life.

For example, a taxpayer that owns a manufacturing facility could classify (or reclassify) such assets as security systems, ventilation systems, equipment foundations, loading dock equipment, etc.

Why an Engineering Approach?
Less than a year before meeting the engineering firm, we had moved into a new location. Most of the building at that time was basically a shell. We did our own build-out of the “raw” space. We diligently kept track of all expenses incurred. We classified the expenditures as personal property, land improvements or real property, keeping in mind the benefits of depreciating assets over shorter lives.

We decided to “test” these engineers by asking them to do a cost segregation study on our new building. We were sure what, if any, reclassifications would be small and insignificant.

Several weeks later, after visiting us and touring our building, their report was done. Much to our surprise, their engineering approach to the study had reclassified several hundred thousand dollars worth of assets into either personal property or land improvements. This amounted to a total first year tax savings of close to $100,000. It has been a wonderful marriage of accounting and engineering firm ever since, which has benefited many of our clients.

By. Robert D'Andrea, CPA
Principal

Simple Taxes

2009-10-28T07:51:00.000-07:00

There’s been some talk in Washington recently about simplifying the tax codes and there’s hardly anyone who wouldn’t agree -- our income tax system is too complicated. Why is that? Hasn’t congress simplified the system before?

The answer is: yes, the tax code has been rewritten many times. Sometimes to make sections of the code simpler and twice, in 1954 and 1986 the tax code was completely rewritten cover to cover. If that’s the case, why does the current code stand at 70,000 plus pages? The answer is simple… it has to be.

Every time congress makes the tax code less complicated, two things happen. One, savvy tax advisors find loopholes in the law and show their clients how to save money by structuring their transactions accordingly. There is nothing illegal about this, the tax code is there to be adhered to, whether that helps or hurts. Congress then reacts by modifying the law and closing the loophole. The second phenomena we see is congress realizing that many things can be accomplished quickly by putting a monetary incentive to it. This tool can really rack up the page count.

These are just two of the reasons you probably will never see a simple tax system in the U.S. Another major factor is fairness. Believe it or not, our tax system is designed to allow taxpayers with the lowest incomes to pay the least tax (as a percentage of income). Despite all the commentary, high income earners pay a much higher percentage than their lower income counterpart and many of the deductions and credits afforded to lower bracket taxpayers are passed out or disallowed for higher earners. This is partially what complicates the tax code. There are countless triggers and mechanics to calculate and formalize who gets a deduction/exemption/ credit and who doesn’t.

So what are the alternatives? There’s always a flat tax, but is that the best way to administer a tax system considering the same total dollars need to be collected? Wouldn’t it shift the tax burden? If it doesn’t, how would it be different than what we have now? Many European countries have implemented a variation of a flat tax by using a value added tax. The disadvantages of a value added tax are: anyone who provides goods or services becomes the tax collector and, the tax is continuously rolled into the cost of the product so no one really knows how much tax they are paying. Ask a European how much tax they pay and many will respond with - I don’t pay tax. In the U.S. there have been proposals of a national sales tax. This, unfortunately, isn’t much different than a value added tax because tax is paid as part of the cost of goods and services.

There have also been proposals to have the IRS prepare income tax returns for all tax payers having simple sources of income like W2 wages and bank interest. Does this really help considering that the real complexities of the tax law don’t affect this category of taxpayer?
So what’s the solution? Do we continue with the system we have, do we opt for stealth taxes like the value added tax or do we have the IRS do tax returns for us? It’s likely that there is no easier solution than the tax code we have. For every gain in simplification, we lose in transparency, fairness, and administration. How about no tax at all? Oh yea, that doesn’t work either.

By Norman LeBlanc, CPA
Tax Services Group

Regulation and Compliance Continue to Invade the World of Not-for-Profit Organizations

2009-10-06T11:04:00.000-07:00

Once upon a time not-for-profit organizations were left alone to devote as much of the resources they could marshal together on their mission. The board, comprised of individuals from the community, was the only oversight in place charged with making sure the organization did the right thing. This lack of regulation and red tape along with exemption from Federal and State income taxes was part of society’s “gift” to the not-for-profit organization as gratitude for their mission oriented work.

All of that is changing and changing rapidly. The IRS Form 990, annual information return, completed by most not-for-profit organizations has completely changed and is now a document that will consume 40 or more pages and contain information and disclosures never before seen by the general public. Throughout 2008 we conducted half-day seminars for our clients just to get ready for the requirements imposed by this new form. As our clients struggle with the preparation of this form, the learning continues as we both examine transactions and relationships that had not been subject to this level of scrutiny in the past.

The not-for-profit pension plan created under Section 403(b) of the Internal Revenue Code was once a pension plan with an unusual ease of creation and administration. Beginning in 2009 these pension plans come under new levels of regulation including a requirement that the plan be audited by independent accountants if the plan has more than 100 participants.

Executive Directors and board members who may have been identified as the plan administrators of these 403(b) plans are suddenly hearing about the potential of fiduciary liability that has suddenly been identified with these plans. How could I as a Treasurer of a not-for-profit organization have a liability in connection with an employee of the not-for-profit deciding to save for retirement? The organization withholds the money as directed by the employee from their pay and sends it along a few days later to the investment company for deposit into an investment vehicle selected by the employee. What could be easier than that? There is so much more to this simple transaction under the new regulations that we are conducting additional half-day seminars designed to get the information out in a timely manner. The next one is scheduled for October 21, 2009 in our Waltham office.

What is behind all of this increased interest in the not-for-profit organization? One factor is that the not-for-profit organization is much more prevalent in our society than it was 30 years ago. Some estimates have the not-for-profit sector accounting for as much as one third of the general economy. Some would say that the not-for-profit sector, which has always been important to society for the mission work that it does in that society, is now such a significant factor in the economy as a whole that it needs the same level of control, monitoring and oversight imposed on the rest of American business. Another factor may be that there have been some spectacular failures in not-for-profit organizations. By this I mean not-for-profit organizations that were engaged in activities or practices that they should not have been according to their not-for-profit mission. While these failures are really a failure of the Board oversight role, the response to the failures is additional oversight and regulation from the government sector rather than training and qualification standards for Board members.

Whatever the reason, the fact is that the landscape for the not-for-profit organization has changed and the prospects of returning to those days of yester-year are non-existent.

For further information or to register for our upcoming 403(b) seminar please RSVP to Ashley Levesque at: 888-557-8557 or email ALevesque@KahnLitwin.com

By. Frank Monti, CPA
Not For Profit Group

Are Quarterly Payments Getting You Down?

2009-09-29T07:00:00.000-07:00

I have noticed that people generally get excited when they talk about paying taxes, but they get really excited when they talk about paying their property taxes. How come? The upsetting factor seems to be making the payments. I’m not so sure landowners don’t feel they are getting their money’s worth -- it’s more about the actual payments. Of course that makes me think - wow - I wonder what would happen if all taxes had to be paid the same way as property taxes; you know - quarterly.

It would mean that an unmarried person who makes $25,000 a year would need to write a quarterly check for $502.50 to the US Treasury, a check for $150.75 to the State, and a check for $478.13 to the Social Security Administration. That is $1,131.38 in tax payments every three months. That is surely more than the property tax check for this individual.

What about a married couple making $70,000 a year? That would mean quarterly checks to the US Treasury for $1,754, the State for $505.25, and the Social Security Administration for $1,338.75. Each quarter would see the couple writing checks for $3,598 and they would do this four times a year (or put another way, $1,199.33 a month)!

How about sales tax? The $25,000 single person will spend an average of $5,200 a year on consumables for an additional check to the State for $364. The married couple will spend an average of $11,700 for an additional check to the State for $819.

This does seem a lot less pleasant than having the income and social security taxes withheld from our paychecks. And paying the sales tax annually is not nearly as nice as paying a little bit with every purchase. With that in mind, we could be thankful that there is a system to make paying our income, social security, and sales taxes so convenient. Maybe someone could find a way for property taxes to be withheld from our paychecks - it would be a lot easier than making those quarterly payments.

By. Norman LeBlanc, CPA
Tax Services Group

Tax Saving Opportunity

2009-09-21T07:48:00.000-07:00

Why is the KLR director of the tax-exempt not-for-profit team blogging about taxes? Because I hate paying taxes so much I had to make my career in the tax-exempt area. But in 2010 we individuals have an unusual opportunity to save some taxes for ourselves and our heirs, and it got my attention, so I thought I would share the info with you.

Starting Jan. 1, 2010, all U.S. citizens will have an equal ability to convert traditional Individual Retirement Accounts to Roth IRAs. Currently only taxpayers with modified gross-adjusted incomes under $100,000 are allowed to convert to Roth IRAs--the same limit applies to both singles and couples.

As you know, in a traditional IRA, contributions are tax deductible, but all withdrawals are eventually taxed as ordinary income. While there is no deduction for contributing to a Roth, the contributions are not taxed when they're withdrawn.

Next year, the government is giving us all the opportunity to convert funds that are in our traditional pre-tax IRAs and roll the funds into a Roth IRA. Of course, when you roll the money out of your traditional IRA it will be taxed at the regular 2009 personal income tax rates. But once this money is in the Roth IRA, it is free of tax for you or your heirs who may inherit the Roth IRA account. And, I think it is a safe assumption that income tax rates are going to be higher in the future than they are now. So a Roth conversion may make sense for you.

Although this conversion rule goes into affect in 2010 the old restrictions on who can contribute to a Roth IRA will continue. So if you like the concept of a Roth IRA but your adjusted gross income is high, conversion may be the only way you can get some investment money into the tax-favored Roth IRA vehicle.

Another feature of the Roth IRA is that you are not required to take minimum distributions at age 70½ from a Roth IRA that you are required to take from your regular IRA. This means that if you are so inclined, you can leave money to your heirs in a Roth IRA account. And, the money your heirs receive in the Roth IRA account is not taxable but the money they inherit from your regular IRA account is fully taxable to them. Even worse, if you leave a great deal to your heirs, they may face both the estate tax and the income tax on regular IRA inheritance funds.

Roths allow a non-spouse beneficiary to take out the distributions either by the end of the year of the fifth anniversary of the death of the first Roth owner or the beneficiary can take the money out over their life expectancy. This allows the money to come out tax free and compound tax free for the life of your heir.

One more feature of the traditional IRA to Roth conversion. The government says you only have to report the income and pay the tax on the traditional IRA in three equal amounts in 2010, 2011 and 2012.

So, what do you think about this? How attractive is this? What are some key differences that people should keep in mind as they consider this? Who would benefit from such a conversion?

Contact the KLR Wealth Management Services to see if a Roth IRA conversion would benefit your family.

By. Frank Monti, CPA
Not For Profit Group

Super Tax Incentives

2009-09-10T07:30:00.000-07:00

Wow – if you like incentives, tis the season. Cash for clunkers; First time homebuyers; Bonus depreciation; Energy credits. One of these is sure to get you stimulated.

Remember in my last post (Constantly Changing Tax Laws) I talked about how tax policy is often used as a means to social policy…..and I promised to cover super incentives next time. Well, the supers are here!!

We all know it’s nice to get a tax deduction for mortgage interest (subject to limits of course) or it’s nice to get a learning credit for spending on higher ed, but these probably aren’t big enough by themselves to make or break your decision to buy a house or go to college. Why? Because they are governmental tokens of affection and not a lot more than that. And, they are chump change compared to a super incentive like the homebuyer credit. Think about this: If you’re a first time homebuyer and closing before November 30, 2009, you can get a credit of $8,000 directly on your tax return -- and this credit is refundable, which means a check from the US Treasury. Still seems small? Did you know that an $8,000 tax credit is equivalent to a $40,000 deduction for most taxpayers? And, it gets better.

In the cash for clunkers program, you don’t even need to wait for a tax return. You don’t even need to file a thing. A payment of $4,500 can go directly to the auto dealer – no waiting. Now, $8,000 for the homebuyer sounded pretty good but when your buying a house, $8,000 doesn’t go far (it’s probably only 4-5% of the purchase price). A clunker rebate is closer to 25% of a car’s price tag. Who wouldn’t want that? Match that up with a few dealer incentives and the cars are flying off the lot.

How about going green? The federal government will give you a 30% tax credit towards the cost of adding alternative energy sources to your home – things like solar, wind, and geothermal. The best part -- there’s no limit to this credit. So, if you spent $50,000 on a wind turbine, you get a tax credit of $15,000 which can be used just like a tax payment on your personal return. It’s like someone is sending a payment to the IRS for you!

But we can’t leave out the business owner. Here is the granddaddy of all incentives -- bonus depreciation. It doesn’t sound fancy, but what it does is allow businesses who buy brand new furniture, fixtures, and equipment to deduct half the cost in the year of purchase. Under normal circumstances, a business is required to deduct these purchases over 7 years. Still doesn’t sound like much? How about this: MegaStore buys $10 million dollars of new store shelving in 2009. They get to bonus depreciate $5 million in 2009 alone – this saves MegaStore $2,000,000 in federal taxes! Under the normal rules, Mega would have saved $500,000. That’s an incentive of $1.5 million dollars. Wouldn’t you think it was super if someone lowered your tax bill by $1.5 million? It’s so good; the States don’t even allow it.

Now the hard part – someone has to pay for these jumbo credits and deductions. To see how that’s done, tune in next time when we’ll talk about disincentives.

By. Norman LeBlanc, CPA

Tax Services Group

Board Communications

2009-09-03T08:00:00.000-07:00

As I write in my own KLR blog, I got to thinking about the challenges and opportunities of keeping the nonprofit board involved and aware of what is going on in their not-for-profit organization. It struck me that many organizations are only scratching the surface of technology when it comes to communications with the board.

Many are using e-mail to announce or confirm meetings and many are using e-mail for critical votes that must be taken between scheduled board meetings but technology can assist organizations much more. Here are some ideas.

Sharing documents via e-mail is a great time and paper saver. You may have to purchase a scanner in order to turn documents into PDF files and provide additional training but teaching your board how to comment on documents by inserting comments into the PDF document and “replying to all” may be a way to facilitate understanding and reduce the time required at the meeting to discuss the item.

You might also consider creating a section of your web site which is accessible only to Board members. This provides you with an even easier way to inform members and archive the information so that members can check back whenever they feel the need to double check something in the past.

Prior board minutes, certain policies such as the conflict of interest policy, board meeting attendance policy, etc., could also be available on the internet portal as well as the by-laws and other documents one has an occasional need to refer to but which are seldom easily available when needed.

I’ve been at board meetings where certain staff were presenting an education session for the board about one of the organization’s programs or services. This is very important and helpful information for Board members. An alternative and perhaps better way of providing board members with this information may be in the form of a webinar which a board member can watch at their convenience from wherever they like. In addition this information would be continually available and possibly find uses in other areas.

CEOs might want to consider starting a blog to continually communicate with the Board. Comments and thoughts of the readers would be instantly shared among all board members.

If you would like to discuss ways technology can help your board or would like assistance implementing your ideas, please feel free to contact me. We have a technology arm of KLR that can help you achieve whatever your goals may be.

By Frank Monti, CPA
Not For Profit Group

Become a Valued Employee

2009-08-27T07:00:00.000-07:00

We would all like to think we are invaluable to our employers. But few understand what is valuable to their employer. Valued employees are compensated higher because they are, well, more valuable to their employer than others. There are numerous web sites devoted to the traits of a valuable employee.

I had a recent experience over the holiday weekend that brought this to mind and demonstrated how simple being valuable can be. On two successive evenings, my wife and I decided to go out to dinner. Nothing fancy, just mid-range restaurants where we could have a good meal choice and not have to clean up afterward.

In both cases, I called ahead as I was concerned about the wait once we got to the restaurant. In the first instance, I asked about placing my name on the “call-ahead seating” list and the employee who answered the phone said they did not have one. I asked about the wait and was told it was only about 10-15 minutes. I pushed and asked if he would put my name on the waiting list as I was about 10-15 minutes away from the restaurant. The employee repeated that they “did not do that” and hung up.

On the second evening, I did the same thing to a different restaurant. The employee who answered the phone this time said that reservations were not necessary, but why didn’t I give her my name and she would be sure to have an excellent table waiting for me when I arrived and when did I think that would be.

The difference? On the first evening, I wasn’t convinced that they wanted our business; nothing was making me continue to drive to that restaurant and when we passed other eating establishments on the way we could have turned into any one of them. On the second evening, I felt committed to the restaurant I called; I felt they were waiting for us and we had to fulfill our “commitment” to go there and occupy our special table.

When we got to the restaurant on the second night, we discovered a restaurant that was more than half empty. When we walked in the hostess greeted us by name (obviously no one else had called ahead) and we were shown to our special table (among many empty tables). All-in-all a nice experience in a very ordinary restaurant.

So who is the more valuable employee? It is obvious; the second employee clearly understands what her job is – getting and keeping customers happy – and has figured out a few tactics to accomplish her job. The more customers she brings (or brings back) to the restaurant, the more valuable she is. The difference will be obvious to the employer and the valued employee will have a compensation level that reflects his or her value.

What can you do to increase your value to your employer?

By Frank Monti, CPA
Not For Profit Group

Going Green and Saving Green

2009-08-20T08:00:00.000-07:00

In today’s world, we are inundated with information about the environment and “going green”. For some people, this issue is more pressing than for others, but in 2009, almost everyone is looking for ways to “go green”, whether it’s in small ways or major life changes. For businesses, these efforts usually have to be weighed against their costs. There are many green initiatives that can be undertaken easily that will save money quickly and make a real impact, though they may require changing habits. But even those that may cost a little more up-front, and may at first glance appear to be too much for a small business, may still be worth it.

Many major companies are making big changes that lower their environmental impact. They are aware that customers have gotten savvier about green watching. They can’t just make superficial efforts as a marketing ploy anymore, and they’re taking serious steps that have a real effect. This is generally not due to a sudden conscience about the environment, but because going green often saves green – as in, money. While these major corporations, such as HP, Google, DuPont and Wal-Mart, may have more money at stake, small businesses and individuals can also get in the green game. True green initiatives, whether they’re done for public relations, to save money, concern for the environment, or all three, are something all businesses need to think about.

At KLR, we have formed a Green Committee to help develop ways to be more green. Some steps were easy and happened quickly: we were already recycling, but we made more vibrant signage and educated staff about what could be recycled and where, which has had a huge impact on the volume of recyclables. While we are “paperless”, we still manage to use a lot of paper, much of which has confidential information, so it can’t simply go in the blue bin; we made sure that our shredding company upholds our confidentiality standards while also recycling the paper once shredded. Our technology company, Envision, engages in e-cycling computer and other technology waste.

Other steps are taking a little longer to truly realize their potential. We have been “paperless” for years, but we’re trying to continually decrease the amount of paper we use, which involves changing habits. All of our tax clients have the option of receiving returns on a CD now instead of paper copies – over the next tax season, we hope more clients will take advantage of the opportunity to help us save paper. We have also explored measures such as motion-sensor lighting in less-used rooms, and more efficient ways to use water. We know that this is an on-going process, and continue to try to find new ways to uphold our green mission: “The KLR team is committed to environmental responsibility in our offices, community and homes. We strive to be environmentally-conscious citizens by using appropriate energy, resources and materials. We will develop environmental practices and educate our team members in order to ensure that our behavior and actions have a positive impact on our environment. We will make our commitment to the environment a fundamental part of KLR’s culture.”

Everyone, from manufacturing businesses, to doctors’ offices, to social service agencies, to individuals, can find ways to go green and save green. There are many ways to start, and once you begin, new ideas to ensure that your bottom line improves, both financially and environmentally, will continually develop. Here are just a few ideas:

• Energy efficient lighting, including motion sensors – start with less-used rooms such as kitchens and bathrooms

• Really go “paperless” – less printing involves changing habits. Dual, high-quality monitors help, as does making the commitment at the top.

• If you aren’t recycling, start! If you already are, make it easier – place bins in strategic locations (in the mail room for paper, in the kitchen for bottles/cans) and make sure they are well-labeled.

• Recycle e-waste! Computers, monitors and other electronics are toxic as well as take up a lot of landfill space. KLR’s technology company, Envision, will help you recycle electronic waste – contact them at info@envisionsuccess.net.

• Use environmentally friendly supplies, such as recycled paper, green cleaning products, or bio-degradable disposable lunch-room supplies.

• Use less disposable materials! If there are paper cups and mugs next to the coffee, the paper cups will probably be used first; remove them, and people will use mugs. Air-dryers in restrooms avoid disposable towels as well as improve sanitation.

• Be more efficient. Finding efficiencies, whether in the manufacturing process, in shipping and delivery, though using digital client records and electronic time-cards, buying in bulk, or simply using more energy-efficient appliances saves money and the environment.

• Source locally whenever possible – closer suppliers reduces the energy used in transportation, often the biggest environmental offender, and supporting the local economy helps us all.

To keep up in 2009, companies need to make “going green” a part of the plan. Forming a Green Committee may generate ideas you’d never think of otherwise that will work for your business. But however it’s done, it’s easy to start finding ways to go green, and save green.

By Shauna Duffy
Not-For-Profit Group

Constantly Changing Tax Laws

2009-07-28T11:11:00.001-07:00

Have you ever noticed that our tax laws are constantly changing? (and I do mean constantly). When was the last time a tax form had the same lines on it two years in a row? Hint: stop trying to remember.

Do you think it’s because our lawmakers have a strong desire to fine tune the system so it will be as fair and equitable as possible for everyone? Do you think it's because some things are not working quite right and need fixing? If either of these were true, our tax code would be perfect by now with all the “improvements” our governing bodies are making. Why can’t the tax system just get established once and for all and be left alone (with maybe an update now and then for inflation)? Can you imagine if a retail store changed its pricing policies the way are tax system changes? One month you’d get a discount for shopping on Tuesdays between 10 and 2, and the next month you’d get a credit for buying a solar powered flashlight – if bought on a Wednesday and only if paid in cash using bills no larger than $5. Why does it have to be so complicated?

Maybe there’s an ulterior motive in the tax system. Steady now - I’m not suggesting there is a conspiracy or that we are being taken as fools. What I am suggesting is that our tax laws are more than just tax laws. Our tax laws are a huge carrot and stick that pulls us - like a magnet - right into the socially acceptable agenda of the day. The carrot / magnet is the money we save by voluntarily maximizing our tax benefits. For example:

1. Buy a home - get a deduction for interest and taxes. (no deduction for rent)
2. Go to college - get a credit for tuition and a deduction for student loan interest
3. Buy a hybrid car or add solar panels to your house – get a large tax credit

The list could go on for pages. The point you see, is that the leadership’s view of what will help America’s future is written right into the tax code. Sure, the legislators could write other kinds of laws to shape social policy but we all know that nothing works faster than an economic incentive. Besides that, the Constitution protects us from forced actions and violations of our civil rights. So, why not make the actions voluntary by giving a little tax reward to those who are socially compliant. Brilliant!

Hmmm….maybe even more can be accomplished by adding super-incentives to the tax code. More on that next time.

By Norman LeBlanc, CPA
Tax Services Group