Bonus Depreciation and the TCJA

The TCJA temporarily expands bonus depreciation

bonus depreciationThe Tax Cuts and Jobs Act (TCJA) enhances some tax breaks for businesses while reducing or eliminating others. One break it enhances — temporarily — is bonus depreciation. While most TCJA provisions go into effect for the 2018 tax year, you might be able to benefit from the bonus depreciation enhancements when you file your 2017 tax return.

Pre-TCJA bonus depreciation
Under pre-TCJA law, for qualified new assets that your business placed in service in 2017, you can claim a 50 percent first-year bonus depreciation deduction. Used assets don’t qualify. This tax break is available for the cost of new computer systems, purchased software, vehicles, machinery, equipment, office furniture, etc.

In addition, 50 percent bonus depreciation can be claimed for qualified improvement property, which means any qualified improvement to the interior portion of a nonresidential building if the improvement is placed in service after the date the building is placed in service. But qualified improvement costs don’t include expenditures for the enlargement of a building, an elevator or escalator, or the internal structural framework of a building.

TCJA expansion
The TCJA significantly expands bonus depreciation:  For qualified property placed in service between September 28, 2017, and December 31, 2022 (or by December 31, 2023, for certain property with longer production periods), the first-year bonus depreciation percentage increases to 100 percent. In addition, the 100 percent deduction is allowed for not just new but also used qualifying property.

The new law also allows 100 percent bonus depreciation for qualified film, television and live theatrical productions placed in service on or after September 28, 2017. Productions are considered placed in service at the time of the initial release, broadcast or live commercial performance.

Beginning in 2023, bonus depreciation is scheduled to be reduced 20 percentage points each year. So, for example, it would be 80 percent for property placed in service in 2023, 60 percent in 2024, etc., until it would be fully eliminated in 2027.

For certain property with longer production periods, the reductions are delayed by one year. For example, 80 percent bonus depreciation would apply to long-production-period property placed in service in 2024.

Bonus depreciation is only one of the business tax breaks that have changed under the TCJA. Our advice is, Don’t go it alone. David Reape, CPA, Ciuni & Panichi, Inc. Tax Principal, has extensive experience and expertise in tax laws and is knowledgeable about the TCJA. He can provide valuable advice for your business. Contact him 216-831-7171 or by email here.

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Time for Strategic Planning

You must find time for strategic planning

businessman's hand holds an alarm clock.As a business owner, you know that it’s easy to spend nearly every working hour on the multitude of day-to-day tasks and crises that never seem to end. It’s essential to your company’s survival, however, to find time for strategic planning. Lost in the weeds Business owners put off strategic planning for many reasons. New initiatives, for example, usually don’t begin to show tangible results for some time, which can prove frustrating. But perhaps the most significant hurdle is the view that strategic planning is a time-sucking luxury that takes one’s focus off of the challenges directly in front of you. Although operational activities are obviously essential to keeping your company running, they’re not enough to keep it moving forward and evolving. Accomplishing the latter requires strategic planning. Without it, you can get lost in the weeds, working constantly yet blindly, only to look up one day to find your business teetering on the edge of a cliff — whether because of a tough new competitor, imminent product or service obsolescence, or some other development that you didn’t see coming. Quality vs. quantity So how much time should you and your management team devote to strategic planning? There’s no universal answer. Some experts say a CEO should spend only 50 percent of his or her time on daily operations, with the other half going to strategy — a breakdown that could be unrealistic for some. The emphasis is better put on quality rather than quantity. However many hours you decide to spend on strategic planning, use that time solely for plotting the future of your company. Block off your schedule, choose a designated and private place, and give it your undivided attention. Make time for strategic planning just as you would for tending to an important customer relationship. Time well spent Effective strategic planning calls for not only identifying the right business-growing initiatives, but also regularly re-evaluating and adjusting them as circumstances change. Thus, strategizing should be part of your weekly or monthly routine — not just a “once in a while, as is convenient” activity. You may need to delegate some of your current operational tasks to make that happen but, in the long run, it will be time well spent. One way to stay on track is to work with a business advisor. By way of scheduled meetings with your advisor, time is designated for planning. Contact Mike Benz, Ciuni & Panichi, Inc. Executive Advisor, 216-831-7171 or by email to learn about the many advisory services the firm offers that will help you achieve your business goals in 2018. You may also be interested in: Is Your Company’s Retirement Plan as Good as it Could Be? Private Companies and Financial Reporting

2018 Q1 Tax Calendar

Key tax deadlines for businesses and other employers

Q1 tax planningHere are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact Nick Leacoma, CPA, Ciuni & Panichi, Inc. Tax Department senior manager, at 216.831.7171 or by email at nleacoma@cp-advisors.com to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements. January 31

  • File 2017 Forms W-2, “Wage and Tax Statement,” with the Social Security  Administration and provide copies to your employees.
  • Provide copies of 2017 Forms 1099-MISC, “Miscellaneous Income,” to recipients of  income from your business where required.
  • File 2017 Forms 1099-MISC reporting nonemployee compensation payments in Box 7  with the IRS.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for  2017. If your un-deposited tax is $500 or less, you can either pay it with your return or  deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax  for the year in full and on time, you have until February 12 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social  Security and income taxes withheld in the fourth quarter of 2017. If your tax liability is  less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax  for the quarter in full and on time, you have until February 12 to file the return.  (Employers that have an estimated annual employment tax liability of $1,000 or less may  be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”)
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2017 to report  income tax withheld on all non-payroll items, including backup withholding and  withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less  than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for  the year in full and on time, you have until February 12 to file the return.

February 28

  • File 2017 Forms 1099-MISC with the IRS if 1) they’re not required to be filed earlier and  2) you’re filing paper copies. (Otherwise, the filing deadline is April 2.)

March 15

  • If a calendar-year partnership or S corporation, file or extend your 2017 tax return and  pay any tax due. If the return isn’t extended, this is also the last day to make 2017  contributions to pension and profit-sharing plans.

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Tax and Year-end Charitable Giving in 2017

What you need to know about year-end charitable giving in 2017

94614509 7LDtuFbZN m 1 2491365522 B6DDA49AAC07AB657567EBDF0BCF5C93 rCharitable giving can be a powerful tax-saving strategy: Donations to qualified charities are generally fully deductible, and you have complete control over when and how much you give.

Here are some important considerations to keep in mind this year to ensure you receive the tax benefits you desire.

Delivery date
To be deductible on your 2017 return, a charitable donation must be made by Dec. 31, 2017. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?

The delivery date depends in part on what you donate and how you donate it. Here are a few examples for common donations:

Check. The date you mail it.

Credit card. The date you make the charge.

Pay-by-phone account. The date the financial institution pays the amount.

Stock certificate. The date you mail the properly endorsed stock certificate to the charity.

Qualified charity status
To be deductible, a donation also must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions.

The IRS’s online search tool, Exempt Organizations (EO) Select Check, can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access EO Select Check at http://apps.irs.gov/app/eos. Information about organizations eligible to receive deductible contributions is updated monthly.

Potential impact of tax reform
The charitable donation deduction isn’t among the deductions that have been proposed for elimination or reduction under tax reform. In fact, income-based limits on how much can be deducted in a particular year might be expanded, which will benefit higher-income taxpayers who make substantial charitable gifts.

However, for many taxpayers, accelerating into this year donations that they might normally give next year may make sense for a couple of tax-reform-related reasons:

  1. If your tax rate goes down for 2018, then 2017 donations will save you more tax because  deductions are more powerful when rates are higher.
  2. If the standard deduction is raised significantly and many itemized deductions are  eliminated or reduced, then it may not make sense for you to itemize deductions in 2018,  in which case you wouldn’t benefit from charitable donation deduction next year.

Many additional rules apply to the charitable donation deduction. Our advice is: Don’t go it alone. David Reape, CPA, Ciuni & Panichi, Inc. Tax Principal, has extensive experience and expertise in the tax laws regarding charitable donations. Contact him at dreape@cp-advisors.com or 216-831-7171.

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Risk Management and Your Business

Do your financial statements contain hidden messages?

Do you “Read” your financial statements?

Key Performance IndicatorOver time, many business owners develop a sixth sense: They learn how to “read” a financial statement by computing financial ratios and comparing them to the company’s results over time and against those of competitors. Here are some key performance indicators (KPIs) that can help you benchmark your company’s performance in three critical areas.

  1. Liquidity
    “Liquid” companies have sufficient current assets to meet their current obligations. Cash is obviously the most liquid asset, followed by marketable securities, receivables and inventory.

    Working capital — the difference between current assets and current liabilities — is one way to measure liquidity. Other KPIs that assess liquidity include working capital as a percentage of total assets and the current ratio (current assets divided by current liabilities). A more rigorous benchmark is the acid (or quick) test, which excludes inventory and prepaid assets from the equation.

  2. Profitability
    When it comes to measuring profitability, public companies tend to focus on earnings per share. But private firms typically look at profit margin (net income divided by revenue) and gross margin (gross profits divided by revenue).

    For meaningful comparisons, you’ll need to adjust for nonrecurring items, discretionary spending and related-party transactions. When comparing your business to other companies with different tax strategies, capital structures or depreciation methods, it may be useful to compare earnings before interest, taxes, depreciation and amortization (EBITDA).

  3. Asset management
    Turnover ratios show how efficiently companies manage their assets. Total asset turnover (sales divided by total assets) estimates how many dollars in revenue a company generates for every dollar invested in assets. In general, the more dollars earned, the more efficiently assets are used.
    Turnover ratios also can be measured for each specific category of assets. For example, you can calculate receivables turnover ratios in terms of days. The collection period equals average receivables divided by annual sales multiplied by 365 days. A collection period of 45 days indicates that the company takes an average of one and one-half months to collect invoices.

It’s all relative
The amounts reported on a company’s financial statements are meaningless without a relevant basis of comparison. Our advice is: Don’t go it alone. Dan Hout-Reilly, CPA, CVA, Ciuni & Panichi, Inc. Senior Manager, works with companies to help them assess their current practices and situation and identify opportunities for improvement. Please contact Dan at 216-831-7171 or dhout-reilly@cp-advisors.com to learn more about how we can help your business.

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Demystifying the Audit Process

Audit and You

audit concept hand drawing on tablet pcIndependent auditors provide many benefits to business owners and management: They can help uncover errors in your financials, identify material weaknesses in your internal controls, and increase the level of confidence lenders and other stakeholders have in your financial reporting.

But many companies are unclear about what to expect during a financial statement audit. Here’s an overview of the five-step process.

  1. Accepting the engagement
    Once your company has selected an audit firm, you must sign an engagement letter. Then your auditor will assemble your audit team, develop a timeline, and explain the scope of the audit inquiries and onsite “fieldwork.”
  2. Assessing risk
    The primary goal of an audit is to determine whether a company’s financial statements are free from “material misstatement.” Management, along with third-party stakeholders that rely on your financial statements, count on them to be accurate and conform to U.S. Generally Accepted Accounting Principles (GAAP) or another accepted standard.

    Auditing rules require auditors to assess general business risks, as well as industry- and company-specific risks. The assessment helps auditors 1) determine the accounts to focus audit procedures on, and 2) develop audit procedures to minimize potential risks.

  3. Planning
    Based on the risk assessment, the audit firm develops a detailed audit plan to test the internal control environment and investigate the accuracy of specific line items within the financial statements. The audit partner then assigns audit team members to work on each element of the plan.
  4. Gathering evidence
    During fieldwork, auditors test and analyze internal controls. For example, they may trace individual transactions to original source documents, such as sales contracts, bank statements or purchase orders. Or they may test a random sample of items reported on the financial statements, such as the prices or number of units listed for a randomly selected sample of inventory items. Auditors also may contact third parties — such as your company’s suppliers or customers — to confirm specific transactions or account balances.
  5. Communicating the findings
    At the end of the audit process, your auditor develops an “opinion” regarding the accuracy and integrity of your company’s financial statements. In order to do so, they rely on quantitative data such as the results of their testing, as well as qualitative data, including statements provided by the company’s employees and executives. The audit firm then issues a report on whether the financial statements 1) present a fair and accurate representation of the company’s financial performance, and 2) comply with applicable financial reporting standards.

An audit can provide real value to your business.
Understanding the audit process can help you understand its value. An audit can provide insight into your business and help identify areas for improvement. And if your company doesn’t currently issue audited financial statements, your current level of assurance may not be adequate.

Trying to figure out if your company needs audited financial statements is an important decision. We can help. We welcome your questions. Let’s have a conversation. Contact Jerad Locktish, CPA, Ciuni & Panichi, Inc. Audit and Accounting Senior Manager at 216-831-7171 or jlocktish@cp-advisors.com to learn more.

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Moving 2018 Property Tax Payment to 2017

Why you may want to accelerate your property tax payment into 2017

own a homeAccelerating deductible expenses, such as property tax on your home, into the current year typically is a good idea. Why? It will defer tax, which usually is beneficial. Prepaying property tax may be especially beneficial this year, because proposed tax legislation might reduce or eliminate the benefit of the property tax deduction beginning in 2018.

Proposed changes
The initial version of the House tax bill would cap the property tax deduction for individuals at $10,000 in 2008. The initial version of the Senate tax bill would eliminate the property tax deduction for individuals altogether.

In addition, tax rates under both bills would go down for many taxpayers, making deductions less valuable. And because the standard deduction would increase significantly under both bills, some taxpayers might no longer benefit from itemizing deductions.

2017 year-end planning
You can prepay (by December 31) property taxes that relate to 2017 but that are due in 2018 and deduct the payment on your 2017 return. But you generally can’t prepay property tax that relates to 2018 and deduct the payment on your 2017 return.

Prepaying property tax will in most cases be beneficial if the property tax deduction is eliminated beginning in 2018. But even if the property tax deduction is retained, prepaying could still be beneficial. Here’s why:

  • If your property tax bill is very large, prepaying is likely a good idea in case the property  tax deduction is capped beginning in 2018.
  • If you could be subject to a lower tax rate in 2018 or won’t have enough itemized  deductions overall in 2018 to exceed a higher standard deduction, prepaying is also  likely tax-smart because a property tax deduction next year would have less or no  benefit.

However, there are a few caveats:

  • If you’re subject to the AMT in 2017, you won’t get any benefit from prepaying your  property tax. And if the property tax deduction is retained for 2018, the prepayment could  cost you a tax-saving opportunity next year.
  • If your income is high enough that the income-based itemized deduction reduction  applies to you, the tax benefit of a prepayment may be reduced.
  • While the initial versions of both the House and Senate bills generally lower tax rates,  some taxpayers might still end up being subject to higher tax rates in 2018, either  because of tax law changes or simply because their income goes up next year. If you’re  among them and the property tax deduction is retained, you may save more tax by  holding off on paying property tax until it’s due next year.

It’s still uncertain what the final legislation will contain and whether it will be passed and signed into law before the end of this year. But it’s good to consider the proposed changes and plan for the best outcome for you based on the information we have.

Our advice is:  Don’t go it alone. David Reape, CPA, Ciuni & Panichi, Inc. Tax Principal has been helping clients make sound financial decisions related to tax for over 20 years. He is a trusted advisor to both not-for-profit and for- profit organizations. If you have questions, contact him at: 216-831-7171 or dreape@cp-advisors.com.

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Risk Management and Your Business

Fortifying your Business with Enterprise Risk Management

Medieval castle, SpainHundreds of years ago, prosperous towns managed the various risks of foreign invaders, thieves and wild animals by fortifying their entire communities with walls and towers. Today’s business owners can take a similar approach with enterprise risk management (ERM).

Assessing threats
In short, ERM is an integrated, companywide system of identifying and planning for risk. Many larger companies have entire departments devoted to it. If your business is ready to implement an ERM program, be prepared for a lengthy building process.

This isn’t an undertaking most business owners will be able to complete themselves. You’ll need to sell your managers and employees on ERM from the top down. After you’ve gained commitment from key players, spend time assessing the risks your business may face. Typical examples include:

  • Financial perils,
  • information technology attacks or crashes,
  • weather-related disasters,
  • regulatory compliance debacles, and
  • supplier/customer relationship mishaps.

Because every business is different, you’ll likely need to add other risks distinctive to your company and industry.

Developing the program
Recognizing risks is only the first phase. To truly address threats under your ERM program, you’ll need to clarify what your company’s appetite and capacity for each risk is, and develop a cohesive philosophy and plan for how they should be handled. Say you’re about to release a new product. The program would need to address risks such as:

  • Potential liability,
  • protecting intellectual property,
  • shortage of raw materials,
  • lack of manufacturing capacity, and
  • safety regulation compliance.

Again, the key to success in the planning stage is conducting a detailed risk analysis of your business. Gather as much information as possible from each department and employee.

Depending on your company’s size, engage workers in brainstorming sessions and workshops to help you analyze how specific events could alter your company’s landscape. You may also want to designate an “ERM champion” in each department who will develop and administer the program.

Ambitious undertaking
Yes, just as medieval soldiers looked out from their battlements across field and forest to spot incoming dangers, you and your employees must maintain a constant gaze for developing risks.

Our advice is: “Don’t go it alone.” Contact Reggie Novak, CPA, CFE, Ciuni & Panichi, Inc., Senior Manager for help at rnovak@cp-advisors.com or 216.831.7171. He is experienced in risk assessment and management and with his expertise, he can help you and your employees design and implement a program to protect your business.

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GAAP vs. Tax-Basis Reporting

GAAP vs. tax-basis reporting: Choosing the right model for your business

Stock Trader Watching Computer Screens With Hands On HeadVirtually every business must file a tax return. Some private companies choose to issue tax-basis financial statements, rather than statements that comply with U.S. Generally Accepted Accounting Principles (GAAP), in order to keep their financial statements in line with their tax return. But the method of reporting has implications beyond the format of the financial statements, impacting specific line items on the financial statements.  Here are the key differences between these two financial reporting options.

GAAP
GAAP is the most common financial reporting standard in the United States. The Securities and Exchange Commission requires public companies to follow it. Many lenders expect private borrowers to follow suit, because GAAP is familiar and consistent.

In a nutshell, GAAP is based on the principle of conservatism, which generally ensures proper matching of revenue and expenses with a reporting period. The principle also aims to prevent businesses from overstating profits and asset values to mislead investors and lenders.

Tax-basis reporting
Compliance with GAAP can also be time-consuming and costly, depending on the level of assurance provided in the financial statements. So some smaller private companies opt to report financial statements using a special reporting framework. The most common type is the tax-basis format.

Tax-basis statements employ the same methods and principles that businesses use to file their federal income tax returns. Contrary to GAAP, tax law tends to favor accelerated gross income recognition and won’t allow taxpayers to deduct expenses until the amounts are known and other requirements have been met.

Key differences
When comparing GAAP and tax-basis statements, one difference relates to terminology used on the income statement: Under GAAP, businesses report revenues, expenses and net income. Tax-basis entities report gross income, deductions and taxable income. Their nontaxable items typically appear as separate line items or are disclosed in a footnote.

Capitalization and depreciation of fixed assets is another noteworthy difference. Under GAAP, the cost of a fixed asset (less its salvage value) is capitalized and systematically depreciated over its useful life. Businesses must assess whether useful lives and asset values remain meaningful over time and they may occasionally incur impairment losses if an asset’s market value falls below its book value.

For tax purposes, fixed assets typically are depreciated under the Modified Accelerated Cost Recovery System (MACRS), which generally results in shorter lives than under GAAP. Salvage value isn’t subtracted for tax purposes, but Section 179 expensing and bonus depreciation are subtracted before computing MACRS deductions.

Other reporting differences exist for inventory, pensions, leases, and accounting for changes and errors. In addition, businesses record allowances for bad debts, sales returns, inventory obsolescence and asset impairment under GAAP. But these allowances generally aren’t permitted under tax law; instead, they are deducted when transactions take place or conditions are met that make the amount fixed and determinable. Tax law also limits the deduction of certain expenditures such as penalties, fines, meals and entertainment and accrual expenses not paid within 2-1/2 months of year-end.

Pick a winner
Tax-basis reporting is a shortcut that makes sense for certain types of businesses. But for others, tax-basis financial statements may result in missing or even misleading information. Contact Herzl Ginsburg, CPA, Ciuni & Panichi, Inc. Audit and Accounting Services Department senior manager, at hginsburg@cp-advisors.com or 216.831.7171 to discuss which reporting model will work best for your business.

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Avoid ERISA Litigation

Avoid ERISA litigation with attention to common red flags

ERISAAny size retirement plan can run into serious trouble when sponsors aren’t careful. With some planning, though, your qualified retirement plan doesn’t have to be the target of ERISA litigation. Awareness of some of the most common red flags leading to litigation might be helpful.

Reasonable expenses
Of course, you can’t assure consistently strong investment performance. But plan sponsors can — and must — ensure that expenses are reasonable.

When your plan’s investment portfolios are performing well, it’s easy to pay less attention to the recordkeeping costs and investment management fees. But when performance is subpar, out-of-line expenses stick out like the proverbial sore thumb. Make sure you schedule regular, independent reviews of your plan expenses and fees every three to five years as part of your due diligence.

Opaque fee structures
In the past, complex and opaque fee structures such as revenue-sharing arrangements between asset managers and third-party administrators made it harder to get a handle on cost. But with the U.S. Department of Labor’s fee disclosure regulations now in their fourth year, pleading ignorance is no excuse. In fact, it never really was.

Mutual fund shares with built-in revenue sharing features still exist but, with required disclosure statements, it’s easier for you (and plan participants) to understand what they are. Although these built-in revenue sharing features aren’t inherently bad, they tend to be associated with funds that have higher expense charges.

In some plan fee litigation, courts have deemed fee-sharing arrangements a payoff to an administrator to recommend those funds, subordinating its assessment of the funds’ merits as sound investments.

Bundled services
Another expense-related red flag that could trigger litigation is exclusive use of a bundled plan provider’s investment funds. This also can raise questions about the effort that you put into investment performance evaluation.

So if you use only a bundled provider’s funds, you could give the appearance of not performing your fiduciary duty to seek out the most appropriate and competitively priced funds. And in fact, the odds are slim that one bundled provider has best-of-class funds in all of your desired investment strategy categories and asset classes. When retaining a bundled provider, question whether the recommendation of primarily proprietary funds could result in a conflict of interest if better performing and lower cost funds are available on their platform.

Share classes
Even when your plan’s investment lineup features funds from multiple asset management companies, you could be inadvertently flying a red flag if the funds in your investment menu are in an expensive share class. Individual investors, unless they have very deep pockets, generally have access to only retail-priced share classes. In contrast, retirement plans, even small ones, typically can use more competitively priced institutional share classes. The failure to use institutionally priced share classes has been at the heart of many class actions against plan sponsors.

Different share classes of the same mutual fund have different ticker symbols; that’s one easy way to determine what’s in the portfolio. Fund companies that offer shares with sales loads typically offer more variations, with “A,” “B” and “C” categories of retail shares, and an institutionally priced “I” share class without embedded sales charges.

Having some high-cost investments in your fund lineup isn’t in itself a reason that you’ll be deemed to have breached your fiduciary duties. There may indeed be good reasons to include them, notwithstanding the higher costs.

Investment policy statements
The concept of “procedural prudence” is embedded in ERISA and case law. This means plan sponsors must establish — and follow — policies and procedures to safeguard participants’ interests and set the criteria used to evaluate vendors, including asset managers.

Create an investment policy statement (IPS) to articulate your vision for plan investments overall, and the investment options you want to make available to participants. The IPS should clearly state:

  • What kind of assets you’ll include in investment options,
  • The degree of investment risk and volatility that’s acceptable,
  • How you’ll assess investment performance, and
  • When you’ll change managers.

Although having an IPS isn’t obligatory, doing so can show that you’re exercising procedural prudence — provided you can document your compliance with it. Merely signaling prudence won’t get you off the hook; following carefully crafted procedures and policies will go a long way toward preventing missteps that could lead to litigation in the first place. If you already have an IPS, be sure to follow it.

Next steps
Avoiding ERISA litigation is on every plan sponsor’s wish list. Reviewing expenses, fee structures and bundled services, and creating and following an IPS, can help you achieve this. Start by making periodic review of these areas the norm, in good times and bad.

Our advice is:  Don’t go it alone. Contact George Pickard, CPA, Ciuni & Panichi, Inc. Accounting and Audit Senior Manager, at 216-831-7171 or gpickard@cp-advisors.com for help with your plan. His expertise includes performing your plan audit, advising you on compliance issues and helping to avoid litigation.

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More Tax Reform Details Revealed

Tax Reform Details

Families and Individuals
The number of tax brackets for individuals have been reduced from seven to four brackets, with the top bracket remaining at 39.6%. Preliminary break points are as follows: komos tax
The lower tax rates begin to phase-out for income in excess of $1.2 million if filing joint, $1 million of all others.

State and local income taxes will no longer be deductible.  Only the first $10,000 of real estate taxes will be deductible.  Mortgage interest on new mortgages will only be deductible to the extent of the first $500,000 of debt.  The alternative minimum tax will go away.  The estate tax will be phased-out.

Business Tax Reform
Corporate Income Tax is reduced from 35 percent today to 20 percent.

Pass-through business income would be taxed depending on the type of business and the owner’s level of activity in the business.  This includes sole proprietorships, partnerships, Subchapter-S corporations, and limited liability companies.

  1. Personal service type business income – maximum rate of 39.6%
  2. Active owners in non-personal service business entities – maximum rate of 35%
  3. Other non-personal service business owners – maximum rate of 25%

Flow through firms earning less than $25 million can deduct interest in full. Corporations and large flow through firms are limited to an interest deduction equal to roughly 30 percent of profits.

Flow through firms can use small business expensing, which rises from $1 million to $5 million annually. All other firms can immediately expense all business investments (except buildings, land, and intangibles) for the next five years. This is known as “full business expensing.”

Ciuni & Panichi, Inc. will continue to stay abreast of the tax reform movement and will continue to keep you informed of significant changes. If you have any concerns, please contact, Jim Komos, CPA, CFP, Tax Partner, at 216-831-7171 or jkomos@cp-advisors.com

Investors: Beware of the Wash Sale Rule

Don’t let the wash sale rule wash out the potential tax benefits of a capital loss.

Wash sale ruleA tried-and-true tax-saving strategy for investors is to sell assets at a loss to offset gains that have been realized during the year. So if you’ve cashed in some big gains this year, consider looking for unrealized losses in your portfolio and selling those investments before year-end to offset your gains. This can reduce your 2017 tax liability.

But what if you expect an investment that would produce a loss if sold now, to recover and thrive in the future? Or perhaps you simply want to minimize the impact on your asset allocation. You might think you can simply sell the investment at a loss and then immediately buy it back. Not so fast: You need to be aware of the wash sale rule.

The rule up close
The wash sale rule prevents you from taking a loss on a security if you buy a substantially identical security (or an option to buy such a security) within 30 days before or after you sell the security that created the loss. You can recognize the loss only when you sell the replacement security.

Keep in mind that the rule applies even if you repurchase the security in a tax-advantaged retirement account, such as a traditional or Roth IRA.

Achieving your goals
Fortunately, there are ways to avoid the wash sale rule and still achieve your goals:

  • Sell the security and immediately buy shares of a security of a different company in the  same industry or shares in a mutual fund that holds securities much like the ones you  sold.
  • Sell the security and wait 31 days to repurchase the same security.
  • Before selling the security, purchase additional shares of that security equal to the  number you want to sell at a loss. Then wait 31 days to sell the original portion.

If you have a bond that would generate a loss if sold, you can do a bond swap. This is where you sell a bond, take a loss and then immediately buy another bond of similar quality and duration from a different issuer. Generally, the wash sale rule doesn’t apply because the bonds aren’t considered substantially identical. Thus, you can achieve a tax loss with virtually no change in economic position.

Minimizing your tax liability on your investments can be complicated. Our advice is, “Don’t go it alone.” James R. Komos, CPA, CFP, Tax Department Partner-in-Charge, has extensive experience in tax planning and preparation and he is a certified financial planner. He has the knowledge and expertise you need to make the right decisions for your family and business finances. Contact him at jkomos@cp-advisors.com or 216-831-7171.

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Is Your Company’s Retirement Plan as Good as It Could Be?

Many retirement plans need refining. Others need to avoid conflicts with Department of Labor rules.

Provided by Dane A. Wilson, Wealth Management Advisor

DaneWilson-01 smaller2At times, running your business takes every ounce of energy you have. Whether you have a human resources officer at your company or not, creating and overseeing a workplace retirement plan takes significant effort. These plans demand periodic attention.

As a plan sponsor, you assume a fiduciary role. You accept a legal responsibility to act with the best financial interests of others in mind – your retirement plan participants and their beneficiaries. You are obligated to create an investment policy statement (IPS) for the plan, educate your employees about how the plan works, and choose the investments involved. That is just the beginning.1

You must demonstrate the value of the plan. Your employees should not merely shrug at what you are offering – a great opportunity to save, invest, and build wealth for the future. Financial professionals know how to communicate the importance of the plan in a user-friendly way, and they can provide the education that “flips the switch” and encourages worker participation. If this does not happen, your employees may view the plan as just an option instead of a necessity as they save for retirement.

You must monitor and benchmark investment performance and investment fees. Some plans leave their investment selections unchanged for decades. If the menu of choices lacks diversity, if the investment vehicles underperform the S&P 500 year after year and have high fees, how can this be in the best interest of the plan participants?

You must provide enrollment paperwork and plan notices in a timely way. Often, this duty falls to a person that has many other job tasks, so these matters get short shrift. The plan can easily fall out of compliance with Department of Labor rules if these priorities are neglected.

You must know the difference between 3(21) and 3(38) investment fiduciary services. The numbers refer to sections of ERISA, the Employment Retirement Income Security Act. Most investment advisors are 3(21) – they advise the employer about investment selection, but the employer makes the final call. A 3(38) investment advisor has carte blanche to choose and adjust the plan’s investments – and he or she needs to be overseen by the plan sponsor.2

To avoid conflicts with the Department of Labor, you should understand and respect these requirements and responsibilities. Beyond the basics, you should see that your company’s retirement plan is living up to its potential.

We can help you review your plan and suggest ways to improve it. An attractive retirement plan could help you hire and hang onto the high-quality employees you need. Ask us about a review, today – you need to be aware of your plan’s mechanics, fees, and performance, and you could face litigation, fines, and penalties if your plan fails to meet Department of Labor and Internal Revenue Service requirements.

Dane A. Wilson may be reached at 216-831-7171 or dwilson@cp-advisors.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities offered through 1st Global Capital Corp., Member FINRA/SIPC

Investment returns fluctuate and there is no assurance that a single rate of return will be sustained over an extended period of time. Investments are subject to market risks including the potential loss of principal invested

 
Citations.
1 – cnbc.com/2017/08/23/qualified-retirement-plan-sponsors-are-fiduciaries.html [8/23/17]
2 – tinyurl.com/ycrqheey [4/7/17]

 

Ready for the new not-for-profit accounting standard?

A new accounting standard goes into effect starting in 2018 for churches, charities and other not-for-profit entities.

Here’s a summary of the major changes:

Group of people around the worldNet asset classifications
The existing rules require not-for-profit organizations to classify their net assets as either unrestricted, temporarily restricted or permanently restricted. But under Accounting Standards Update (ASU) No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, there will be only two classes: net assets with donor restrictions and net assets without donor restrictions.

The simplified approach recognizes changes in the law that now allow organizations to spend from a permanently restricted endowment even if its fair value has fallen below the original endowed gift amount. Such “underwater” endowments will now be classified as net assets with donor restrictions, along with being subject to expanded disclosure requirements. In addition, the new standard eliminates the current “over-time” method for handling the expiration of restrictions on gifts used to purchase or build long-lived assets (such as buildings).

Other major changes
The new standard includes specific requirements to help financial statement users better assess a nonprofit’s operations. Specifically, organizations must provide information about:

Liquidity and availability of resources. This includes qualitative and quantitative  disclosures about how they expect to meet cash needs for general expenses within one  year of the balance sheet date.

Expenses. The new standard requires all not-for-profit entities to report expenses by  both function (which is already required) and nature in one location. In addition, it calls  for enhanced disclosures regarding specific methods used to allocate costs among  program and support functions.

 Investment returns. Organizations will be required to net all external and direct internal  investment expenses against the investment return presented on the statement of  activities. This will facilitate comparisons among different not-for-profit entities,  regardless of whether investments are managed externally (for example, by an outside  investment manager who charges management fees) or internally (by staff).

Additionally, the new standard allows not-for-profit entities to use either the direct or indirect method to present net cash from operations on the statement of cash flows. The two methods produce the same results, but the direct method tends to be more understandable to financial statement users. To encourage not-for-profits to use the direct method, entities that opt for the direct method will no longer need to reconcile their presentation with the indirect method.

To be continued
ASU 2016-14 is the first major change to the accounting rules for not-for-profits since 1993. However, it’s only phase one of a larger project to enhance financial reporting transparency for donors, grantors, creditors and other users of not-for-profits’ financial statements.

Our best advice is: “Don’t go it alone.” If you have questions, contact Michael B. Klein, CPA, MBA, Ciuni & Panichi, Inc. Partner who leads the Not-for-Profit Group at 216-831-7171 or mklein@cp-advisors.com.

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Digital Marketing

Putting Hedging Strategies to Work for Your Business

Hedging Strategies

Discussing business graphsThe Financial Accounting Standards Board (FASB) recently issued some targeted improvements to its guidance that could encourage more companies to engage in hedging arrangements to minimize volatility in their financial statements. Here’s a close-up on how businesses can hedge price fluctuations and why businesses and their investors alike approve of the changes to the hedge accounting rules.

Hedging
Some costs — such as interest rates, exchange rates and commoditized raw materials — are subject to price fluctuations based on changes in the external markets. Businesses may try to “hedge” against volatility in earnings, cash flow or fair value by purchasing derivatives based on those costs.

If futures, options and other derivative instruments qualify for hedge accounting treatment, any gains and losses are generally recognized in the same period as the costs are incurred. But hedge accounting is a common source of confusion (and restatements) under U.S. GAAP.

To qualify for the current hedge accounting rules, a transaction must be documented at inception and be “highly effective” at stabilizing price volatility. In addition, businesses must periodically assess hedging transactions for their effectiveness.

Simplification
In August 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The updated standard expands the range of transactions that qualify for hedge accounting and simplifies the presentation and disclosure requirements.

Notably, the update allows for hedging of nonfinancial components that are contractually specified and adds the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate to the list of acceptable benchmarks for fixed interest rate hedges.

ASU 2017-12 also eliminates the requirement to measure and report hedge “ineffectiveness.” That’s the amount the hedge fails to offset the hedged item.

Instead of reporting hedge ineffectiveness separately for cash flow hedges, the entire change in value of the derivative will be recorded in other comprehensive income and reclassified to earnings in the same period in which the hedged item affects earnings. Companies might still mismatch changes in value of a hedged item and the hedging instrument under the new standard, but they won’t be separately reported.

Universal support
Businesses, investors and other stakeholders universally welcome the changes to the hedge accounting rules. Although the updated standard goes into effect in 2019 for public companies and 2020 for private ones, many businesses that use hedging strategies are expected to adopt it early — and the FASB has hinted that the changes might encourage more companies to try hedging strategies.

Could hedging work for your business? If you have questions, contact George Pickard, CPA, MSA, Ciuni & Panichi, Inc. Senior Manager, at gpickard@cp-advisors.com or 216-831-7171 to discuss your options.

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Risk Management Framework

Risk Management Framework Maximizes Upsides

How effectively do you manage risk?

Risk and reward balanceBusinesses can’t eliminate risk, but they can manage it to maximize the entity’s economic return. A new framework aims to help business owners and managers more effectively integrate ERM practices into their overall business strategies.

A five-part approach is advisable
On September 6, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) published Enterprise Risk Management — Integrating with Strategy and Performance. You can use the updated framework to develop a more effective risk management strategy and to monitor the results of your ERM practices.

The updated framework discusses ERM relative to the changes in the financial markets, the emergence of new technologies and demographic changes. It’s organized into five interrelated components:

  1. Governance and culture. This refers to a company’s “tone at the top” and oversight function. It includes ethics, values and identification of risks.
  2. Strategy and objective setting. Proactive managers align the company’s appetite for risk with its strategy. This serves as the basis for identifying, assessing and responding to risk. By understanding risks, management enhances decision making.
  3. Performance. Management must prioritize risks, allocate its finite resources and report results to stakeholders.
  4. Review and revision. ERM is a continuous improvement process. Poorly functioning components may need to be revised.
  5. Information, communication and reporting. Sharing information is an integral part of effective ERM programs.

COSO Chair Robert Hirth said in a recent statement, “Our overall goal is to continue to encourage a risk-conscious culture.” He also said that the updated framework is not intended to replace COSO’s Enterprise Risk Management — Integrated Framework. Rather, it’s meant to reflect how the practice of ERM has evolved since 2004.

New insights
The updated framework clarifies several misconceptions from the previous version. Specifically, effective ERM encompasses more than taking an inventory of risks; it’s an entity-wide process for proactively managing risk. Additionally, internal control is just one small part of ERM; ERM includes other topics such as strategy setting, governance, communicating with stakeholders and measuring performance. These principles apply to all business levels, across all business functions and to organizations of any size.

Moreover, the update enables management to better anticipate risk so they can get ahead of it, with an understanding that change creates opportunities — not simply the potential for crises. In short, it helps increase positive outcomes and helps reduce negative surprises that come from risk-taking activities.

ERM in the future
Our advice is, “Don’t go it alone.” We can help you identify and optimize risks in today’s complex, volatile and ambiguous business environment. We’re familiar with emerging ERM trends and challenges, such as dealing with prolific data, leveraging artificial intelligence and automating business functions. Contact Reggie Novak, CPA, CFE, Ciuni & Panichi, Inc. senior manager, at 216.831.7171 or rnovak@cp-advisors.com for help adopting cost-effective ERM practices to help make your business more resilient and keep your business protected.

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Thinking about Outsourcing Payroll?

Protect your Payroll and Ask for a Service Audit Report

Business People Meeting Communication Working Office ConceptPayroll can be an administrative nightmare if done in-house, especially for smaller companies. In addition to keeping up with employee withholdings and benefits enrollment, you must file state and federal payroll tax returns and follow union reporting requirements. Outside service companies that specialize in payroll administration can help you manage all of the details and minimize mistakes. Payroll providers can also handle expense reimbursement for employees and provide other services.

When payroll is outsourced, however, your company could be exposed to identity theft and other fraud risks if the service provider lacks sufficient internal controls. For example, sensitive electronic personal data could be hacked from your network and sold on the Dark Net — or old-fashioned paper files could be stolen and used to commit fraud.

Audits of payroll companies
Fortunately, CPAs offer two types of reports that provide assurance on whether an outside payroll provider’s controls over paper and electronic records are adequate.

Type I Audits.  This level of assurance expresses an opinion as to whether controls are properly designed.

Type II Audits.  Here, the auditor goes a step further and expresses an opinion on whether the controls are operating effectively.

When performing these attestation engagements, Statement on Standards for Attestation Engagements (SSAE) No. 18 requires:

  • The payroll company’s management to provide a written assertion about the fairness of the presentation of the description of the organization’s control objectives and related controls and the suitability of their design; and for a Type II audit, the operating effectiveness of those control objectives and related controls,
  • The auditor’s opinion in a Type II audit regarding description and suitability to cover a period consistent with the auditor’s tests of operating effectiveness, rather than being as of a specified date, and
  • Auditors to identify in the audit report any tests of control objectives and related controls conducted by internal auditors.

Further, auditors are prohibited from using evidence on the satisfactory operation of controls in prior periods as a basis for a reduction in testing in the current period, even if it’s supplemented with evidence obtained during the current period.

When an audit is complete, the service auditor typically will issue a report to the payroll company.

As the customer of the service provider, it is then up to you to obtain a copy of the audit report from the payroll provider and distribute it to your financial statement auditors as evidence of internal controls.

Outsourcing with confidence
Your financial statement auditors are required to consider the internal control environment for any services you outsource, including payroll, customer service, benefits administration and IT functions. Most service providers obtain service audit reports. If yours doesn’t, you might need to request permission for your CPA to contact and visit the payroll provider to plan their financial statement audit.

The best advice we can offer is:  Don’t go it alone.  Contact Robert Smolko, CPA, Ciuni & Panichi, Inc. audit partner, at 216-831-7171 or rsmolko@cp-advisors.com for sound advice when making decisions about your business.

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Close-up on restricted cash

Tax Reform Framework Released

Tax reform 2017

JRKsmallersmallerThe Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance released a framework for tax reform yesterday that they hope will be enacted by year-end. The framework is intended to become the template on which the tax-writing committees will develop legislation. It is designed to keep the promises President Donald Trump made during his campaign.

A Summary of the Framework

For Individuals

  • Three tax brackets: 12 percent, 25 percent, and 35 percent (currently there are seven brackets, with the lowest one being 10 percent and the top one being 39.6 percent). However, the framework allows congressional tax-writing committees to add a fourth, higher bracket for high-income individuals. The income levels at which the three brackets would apply were not specified.
  • Repeal of the alternative minimum tax.
  • Repeal of the estate tax and the generation-skipping transfer tax.
  • Taxing pass-through income at a maximum rate of 25 percent. (The tax-writing committees would be given the task of developing rules to ensure that high-income taxpayers do not use this provision to avoid the 35 percent bracket.)
  • Increase the standard deduction to $12,000 for individuals and to $24,000 for married couples filing jointly.
  • Increase the child tax credit and provide a $500 credit for care of non-child dependents.
  • Eliminate most itemized deductions, including the deduction for state and local taxes.  They plan to preserve the deductibility of mortgage interest and charitable contributions. The framework directs Congress to maintain tax incentives for higher education, retirement savings, and employment.
  • Repeal of the death tax and generation-skipping transfer tax.

For Businesses

  • Limits the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25 percent.
  • Reduces the corporate tax rate to 20 percent. The committees also may consider methods to reduce the double taxation of corporate earnings.
  • Allow businesses to immediately write off (or “expense”) the cost of new investments in depreciable assets other than structures made after September 27, 2017, for at least five years. This policy represents an unprecedented level of expensing with respect to the duration and scope of eligible assets. The committees may continue to work to enhance unprecedented expensing for business investments, especially to provide relief for small businesses.
  • An end to taxation of U.S. companies’ worldwide income and a move to a territorial system. The tax-writing committees would have discretion to write anti-base-erosion measures.
  • A one-time tax on accumulated offshore earnings, which would be taxed at two unspecified rates: One rate for cash and cash equivalents and a lower rate for other assets.
  • Limit the deductibility of interest by C corporations.  The committees will also consider the tax treatment of interest paid by non-corporate taxpayers.  No further details provided.
  • Eliminate deductions, at the tax-writing committees’ discretion, but the framework calls for the research and low-income housing credits to be retained.

You can read the entire framework here.

If you have questions about how this reform will affect you, contact your tax advisor at Ciuni & Panichi, Inc. or Jim Komos, CPA, Tax Partner, at 216-831-7171 or jkomos@cp-advisors.com.

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The ABCs of the Tax Deduction for Educator Expenses

The ABCs of the Tax Deduction for Educator Expenses

Teachers who buy supplies for their classrooms may be eligible for a tax break.

Back to school compositionAt back-to-school time, much of the focus is on the students returning to the classroom — and on their parents buying them school supplies, backpacks, clothes, etc., for the new school year. But let’s not forget about the teachers. It’s common for teachers to pay for some classroom supplies out of pocket, and the tax code provides a special break that makes it a little easier for these educators to deduct some of their expenses.

The miscellaneous itemized deduction
Generally, your employee expenses are deductible when they are not reimbursed by your employer and ordinary and necessary to your business of being an employee. An expense is ordinary if it is common and accepted in your business. An expense is necessary if it is appropriate and helpful to your business.

These expenses must be claimed as a miscellaneous itemized deduction and are subject to a two percent of the adjusted gross income (AGI) floor. This means you’ll enjoy a tax benefit only if all your deductions subject to the floor, combined, exceed two percent of your AGI. For many taxpayers, including teachers, this can be a difficult threshold to meet.

The educator expense deduction
Congress created the educator expense deduction to allow teachers and other educators to receive a tax benefit from some of their unreimbursed out-of-pocket classroom expenses.

The break was made permanent under the Protecting Americans from Tax Hikes (PATH) Act of 2015.  Since 2016, the deduction has been annually indexed for inflation (though because of low inflation it hasn’t increased yet) and has included professional development expenses.

Qualifying elementary and secondary school teachers and other eligible educators (such as counselors and principals) can deduct up to $250 of qualified expenses. (If you’re married filing jointly and both you and your spouse are educators, you can deduct up to $500 of unreimbursed expenses — but not more than $250 each.)

Qualified expenses include amounts paid or incurred during the tax year for books, supplies, computer equipment (including related software and services), other equipment and supplementary materials that you use in the classroom. For courses in health and physical education, the costs for supplies are qualified expenses only if related to athletics.

An added benefit
The educator expense deduction is an “above-the-line” deduction, which means you don’t have to itemize and it reduces your AGI, which has an added benefit:  Because AGI-based limits affect a variety of tax breaks (such as the previously mentioned miscellaneous itemized deductions), lowering your AGI might help you maximize your tax breaks overall.

The best advice we can offer is “don’t go it alone.” Contact Tax Department Accountant Eden LaLonde, CPA, MAcc, at 216-831-7171 or elalonde@cp-advisors.com for more details about the educator expense deduction or tax breaks available for other work-related expenses.

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Having the Money Talk with Your Children

How much financial knowledge do they have?

Provided by Dane A. Wilson, Wealth Management Advisor

401(k) 403(b) audit SSAESome young adults manage to acquire a fair amount of financial literacy. In the classroom or the workplace, they learn a great deal about financial principles. Others lack such knowledge and learn money lessons by paying, to reference William Blake, “the price of experience.”

Broadly speaking, how much financial literacy do young people have today? At this writing, some of the most recent data appears in U.S. Bank’s 2016 Student and Personal Finance Study. After surveying more than 1,600 American high school and undergraduate students, the bank found that just 15% of students felt knowledgeable about investing. For that matter, just 42% felt knowledgeable about deposit and checking accounts.1

Relatively few students understood the principles of credit. Fifty-four percent thought that having “too many” credit cards would negatively impact their credit score. Forty-four percent believed that they could build or improve their credit rating by using credit or debit cards. Neither perception is accurate.1

Are parents teaching their children well about money? Maybe not. An interesting difference of opinion stood out in the survey results. Forty percent of the parents of the survey respondents said that they had taught their kids specific money management skills, but merely 18% of the teens and young adults reported receiving such instruction.1,2

A young adult should go out into the world with a grasp of certain money truths. For example, high-interest debt should be avoided whenever possible, and when it is unavoidable, it should be the first debt attacked. Most credit cards (and private student loans) carry double-digit interest rates.3

Living independently means abiding by some kind of budget. Budgeting is a great skill for a young adult to master, one that may keep them out of some stressful financial predicaments.

At or before age 26, health insurance must be addressed. Under the Affordable Care Act, most young adults can remain on a parent’s health plan until they are 26. This applies even if they marry, become parents, or live away from mom and dad. But what happens when they turn 26? If they sign up for an HMO, they need to understand how out-of-network costs can creep up on them. They should understand the potentially lower premiums that they could pay if enrolled in a high-deductible health plan (HDHP), but also the tradeoff – they might get hit hard in the wallet if a hospital stay or an involved emergency room visit occurs.3,4

Lastly, this is an ideal time to start saving & investing. Any parent would do well to direct their son or daughter to a financial professional of good standing and significant experience for guidance about building and keeping wealth. If a young adult aspires to retire confidently later in life, this could be the first step. A prospective young investor should know the types of investments available to them as well as the difference between investments and investment vehicles (which many Americans, young and old, confuse).

A money talk does not need to cover all the above subjects at once. You may prefer to dispense financial education in a way that is gradual and more anecdotal than implicitly instructive. Whichever way the knowledge is shared, sooner is better than later – because financially, kids have to grow up fast these days.

Dane A. Wilson may be reached at 216-831-7171 or dwilson@cp-advisors.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
 
Securities offered through 1st Global Capital Corp., Member FINRA/SIPC

Investment returns fluctuate and there is no assurance that a single rate of return will be sustained over an extended period of time. Investments are subject to market risks including the potential loss of principal invested
  
Citations.
1 – stories.usbank.com/dam/september-2016/USBankStudentPersonalFinance.pdf [9/16]
2 – tinyurl.com/yc6ejxjp [10/27/16]
3 – cnbc.com/2017/03/02/parents-need-to-have-real-world-money-talk-with-kids.html [3/2/17]
4 – healthcare.gov/young-adults/children-under-26/ [6/8/17]