Private companies that follow U.S. Generally Accepted Accounting Principles (GAAP) must comply with the landmark new revenue recognition standard in 2019. Many private company CFOs and controllers report that they still have significant work to do to meet the demands of the sweeping rules. If you haven’t started the implementation process, it’s time to get the ball rolling. Lessons from public company peers Affected private companies must start following Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification Topic 606), the first time they issue financial statements in 2019. For private companies with a fiscal year end or issuing quarterly statements under U.S. GAAP, that could be within the next few months. Other private companies have until the end of the year or even early 2020. No matter what, it’s crunch time. Public companies, which had to begin following the standard in 2018, reported that,...[ Read More ]
Churches, synagogues, mosques and other religious congregations aren’t required to file tax returns, so they might not regularly hire independent accountants. But regardless of size, religious organizations often are subject to other requirements, such as paying unrelated business income tax (UBIT) and properly classifying employees. Without the oversight of tax authorities or outside accountants, religious leaders may not be aware of all requirements to which they’re subject. This can leave their organizations vulnerable to fraud and its trustees and employees subject to liabilities. Common vulnerabilities To effectively prevent financial and other critical mistakes, make sure your religious congregation complies with IRS rules and federal and state laws. In particular, pay attention to: Employee classification. Determine which workers in your organization are full-time employees and which are independent contractors. Depending on many factors, such as the amount of control your organization has over them, their responsibilities, and their form of compensation,...[ Read More ]

Evaluating Your Audit Committee

Posted February 22, 2019

Under the Sarbanes-Oxley Act, the audit committee — not management or the full board of directors — is directly responsible for appointing, compensating and overseeing external auditors. Periodically, it’s a good idea to assess the effectiveness of your audit committee by performing a self-evaluation. Here are reasons to conduct a self-evaluation, along with some common techniques. Why? If your company is listed on the New York Stock Exchange, an annual self-evaluation is required. However, the American Institute of Certified Public Accountants (AICPA) recommends that all other companies, including not-for-profit entities and private firms, complete voluntary self-evaluations. The benefits include: • Improving audit committee performance, • Promoting candid discussions, and • Identifying practices and procedures to conduct more effective meetings. In general, a self-evaluation strives to make your audit committee more effective at assessing fraud risks and evaluating internal and independent auditors. How? There’s no universal right way to conduct a...[ Read More ]
The commerciality doctrine was created along with the operational test to address concerns over not-for-profits competing at an unfair tax advantage with for-profit businesses. But even business activities related to your exempt purpose could fall prey to the commerciality doctrine, resulting in the potential loss of your organization’s exempt status. Several factors considered The operational test generally requires that a nonprofit be both organized and operating exclusively to accomplish its exempt purpose. It also requires that no more than an “insubstantial part” of its activities further a nonexempt purpose. Your organization can operate a business as a substantial part of its activities as long as the business furthers your exempt purpose. But under the commerciality doctrine, courts have ruled that some organizations’ otherwise exempt activities are substantially the same as those of commercial entities. They consider several factors when evaluating commerciality, including: • Whether an organization has set prices to...[ Read More ]
The Financial Accounting Standards Board (FASB) recently gave private companies long-awaited relief from one of the most complicated aspects of financial reporting — consolidation of variable interest entities (VIEs). Here are the details. Old rules Accounting Standards Codification (ASC) Topic 810, Consolidation, was designed to prevent companies from hiding liabilities in off-balance sheet vehicles. It requires businesses to report on their balance sheets holdings they have in other entities when they have a controlling financial interest in those entities. For years, the decision to consolidate was based largely on whether a business had majority voting rights in a related legal entity. In 2003, in the wake of the Enron scandal, the FASB amended the standard to beef up the guidelines on when to consolidate. New rules The updated standard introduced the concept of VIEs. Under the VIE guidance, a business has a controlling financial interest when it has: The power...[ Read More ]
A bad hire can lead to more than just disappointment. Disgruntled employees may draw bad publicity; file complicated, expensive lawsuits; and even disclose or destroy sensitive data. Many employers are adding background checks to their hiring processes for these reasons. If you’re thinking about joining them, here are some dos and don’ts to follow. What you should do First and foremost, create a background check process that complies with federal laws that protect applicants from discrimination. Although several laws may come into play, the Fair Credit Reporting Act (FCRA) specifically sets out federal requirements for background checks. Under the FCRA, background checks can seek out information regarding an applicant’s creditworthiness, as well as his or her “character, general reputation, personal characteristics, or mode of living.” The FCRA’s most fundamental requirement is that you inform job applicants, or those to whom you have made contingent job offers (the contingency being the...[ Read More ]
The phrase “payroll record-keeping” may conjure images of pay-stubs and W-4s. But there are other aspects that often fly under the radar and lead to administrative slip-ups. Here are three examples. 1. Fringe benefit records The tax code provides an explicit record-keeping requirement for employers with enumerated fringe benefit plans, such as: Health insurance, Cafeteria plans, Educational assistance, Adoption assistance, and Dependent care assistance. You’re required to keep whatever records are needed to determine whether the plan meets the requirements for excluding the benefit amounts from employees’ taxable income. Tax code provisions regarding fringe benefit records don’t specify how long records pertaining to fringe benefits should be kept. Presumably, they’re subject to the four-year rule that’s widely applicable to payroll record-keeping. Thus, you should retain them for at least four years after the due date of any federal income, Social Security and Medicare taxes for the return period to which...[ Read More ]
The dawning of 2019 means the 2018 income tax filing season will soon be upon us. After year end, it’s generally too late to take action to reduce 2018 taxes. Business owners may, therefore, want to shift their focus to assessing whether they’ll likely owe taxes or get a refund when they file their returns this spring, so they can plan accordingly. With the biggest tax law changes in decades — under the Tax Cuts and Jobs Act (TCJA) — generally going into effect beginning in 2018, most businesses and their owners will be significantly impacted. So, refreshing yourself on the major changes is a good idea. Taxation of pass-through entities These changes generally affect owners of S corporations, partnerships and limited liability companies (LLCs) treated as partnerships, as well as sole proprietors: Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket)...[ Read More ]
A tried-and-true year end tax strategy is to make charitable donations. As long as you itemize and your gift qualifies, you can claim a charitable deduction. But did you know that you can enjoy an additional tax benefit if you donate long-term appreciated stock instead of cash? 2 benefits from 1 gift Appreciated publicly traded stock you’ve held more than one year is long-term capital gains property. If you donate it to a qualified charity, you may be able to enjoy two tax benefits: If you itemize deductions, you can claim a charitable deduction equal to the stock’s fair market value, and You can avoid the capital gains tax you’d pay if you sold the stock. Donating appreciated stock can be especially beneficial to taxpayers facing the 3.8% net investment income tax (NIIT) or the top 20% long-term capital gains rate this year. Stock vs. cash Let’s say you donate...[ Read More ]

2018 Year End Planning

Posted December 17, 2018

Year-end planning for 2018 takes place against the backdrop of a new tax law-the Tax Cuts and Jobs Act-that makes major changes in the tax rules for individuals and businesses. We have compiled a checklist of actions that may help you save tax dollars if you act before year end. Not all actions will apply in your particular situation; however, you (or a family member will likely benefit from some of them. Please review the following list and contact us if you have any questions. Businesses & Business Owners: Pass-through Income Deduction Businesses (other than C corporations) may be entitled to a deduction of up to 20% of their qualified business income. Expensing vs. Capitalizing A 100% bonus first year depreciation deduction for machinery and equipment bought used (with some exceptions) or new, if purchased and placed in service in 2018. For 2018, the expensing limit is $1,000,000, and the...[ Read More ]