Monthly Archives: September 2016

Save Tax Dollars and Fund Your Health Savings Account

What’s the right tax-advantaged account to fund your health care expenses?

Jeff SpencerHealth care costs continue to climb. Jeffrey R. Spencer, CPA, MAcc, Ciuni & Panichi, Inc. Principal, explains some tax-friendly ways to cover your health care expenses.

Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Accounts (HRAs) all provide opportunities for tax-advantaged funding of health care expenses. But it’s important to know the difference to figure out what works best for you. Here’s an overview:

HSA
If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,350 for individual coverage and $6,750 for family coverage for 2016. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

The advantage of an HSA is you own the account and it can bear interest or be invested, growing in tax-deferred dollars similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

FSA
Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,550 in 2016. The plan pays or reimburses you for qualified medical expenses, so you are paying for medical expenses with pretax dollars.

However, you need to predict your annual medical expenses because what you don’t use by the plan year’s end, you generally lose. Some plans may allow you to roll over up to $500 to the next year. Or it might give you a 2 1/2-month grace period to incur expenses to use up the previous year’s contribution.

HRA
An HRA is an employer-sponsored account that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

The best advice we can offer is: “Don’t go it alone.” We’re here to help you make the right financial decisions for yourself and your employees. Please contact Jeff at 216-831-7171 or jspencer@cp-advisors.com for more information.

You may also be interested in:

Getting Comfortable with the Home Office Tax Deduction

Tax Smart Gifting Strategies

© 2016

Why Good Governance Depends on Effective Oversight

Effective Finance Governance Protects Your Organization

MikeKlein9848Unlike public companies, an audit committee is not required by not-for-profit boards. In fact the Stanford Graduate School of Business 2015 Survey on Board of Directors of Nonprofit Organizations found a surprising 42 percent of not-for-profit organizations don’t have audit committees. If your organization is among that 42 percent, think seriously about creating an audit committee or assigning these all-important functions to another committee (e.g., finance committee).

Good audit and finance committees help ensure financial integrity, limit risk, and protect your reputation with regulators and the public. Most importantly, they help ensure good governance. Finance committee responsibilities include monitoring the organization’s budget and approving the distribution of its financial resources. Duties specific to the audit committee include oversight of:
• Financial reporting
• External and internal audit
• Compliance with legal and regulatory requirements
• Internal controls
• Form 990 review and filings and other reporting to regulatory agencies
• Recommendations in response to audit results
• Deciding whether a second opinion is required to resolve auditing issues

Ultimately, the audit (or finance) committee members are responsible for ensuring that all financial reports are accurate and portray your organization’s condition and performance transparently. Additionally committee members should look for signs of fraud — such as unreported revenue — in your organization’s financial statements.

Internal and external auditors
Finance and/or audit committee members regularly interact with the internal and external auditors. They approve the annual internal audit plan and review the internal auditors’ reports. Your committee members also may be responsible for approving the appointment of the internal audit head.  Committee members are also responsible for hiring, compensating and overseeing the external auditors as well as being their point of contact. Your committee members should regularly communicate with the auditors. For example, hold pre-audit meetings to discuss the work plan, request regular updates during the audit and conduct post-audit discussions to review findings before you present them to your board.

Controlling risk
An audit committee function that sometimes goes unmet by a finance committee relates to risk management. Committee members should ensure that  specific measures are in place to reduce your not-for-profit’s risk profile by conducting a comprehensive risk assessment to identify financial vulnerabilities such as those related to investment practices, antifraud policies, insurance coverage, and compliance with laws, regulations and donor and grantor requirements. And your committee members should take the lead in ensuring that internal controls are effective in minimizing those risks it identifies as the greatest threats.

Ideal committee members
The composition of finance and audit committees might vary, but one thing is certain — most members should have strong financial expertise including a working knowledge of financial reporting (including Generally Accepted Accounting Principles) and internal controls. Specific knowledge of not-for-profit-sector accounting and financial reporting issues is valuable too.
In addition, the American Institute of Certified Public Accountants recommends that at least a few committee members also serve on the board of directors. However, some states limit the number of audit committee members who may also serve on the board. And also be aware that appointing your board treasurer to the audit committee may create a conflict of interest, because the audit committee is responsible for independent monitoring of financial results.
Above all, committee members must maintain their independence.

We can help
The best advice we can offer is: “Don’t go it alone.” Ciuni & Panichi, Inc. has a dedicated team of professionals available to provide financial services including audit, accounting and 990 Form filings and a consulting practice to help you enrich and engage volunteer committees including the finance and audit committees. To learn more, contact Michael B. Klein, CPA, Partner-in-Charge of the Not-for-Profit Group at 216-831-7171 or mklein@cp-advisors.com.

 

Proposed IRS Regulations Could Reduce Valuation Discounts for Family-held Entities

What the proposed valuation regulation means for family-owned businesses

JRKsmallersmallerIRS Proposed Regulations clearly signal the Treasury Department’s intent to severely curtail the use of valuation discounts in family-owned entity transfers. Currently valuation discounts for items such as lack of marketability and/or lack of control are often used when valuing transfers amongst family members. A lower business valuation provides an attractive way to transfer assets to the next generation at a reduced tax cost.

Restrictions
The new regulations have four new types of restrictions called “disregarded restrictions” that will not be allowed to be taken into account when valuing certain interests that are transferred. These restrictions include the ability to liquidate the transferred interest; limit the liquidation proceeds to an amount less than a minimum value; defer the payment of the liquidation proceeds to six months or more; and permit the liquidation proceeds payment in any other manner than in cash or other property (other than certain notes). Also, taxpayers are prohibited from transferring a nominal interest to non-family members, such as employees or charities, in order to prevent a restriction from becoming a disregarded restriction.

Also, the regulation states that non-voting shares transferred to family members will be eligible for a valuation discount. However, if the owner who transfers the non-voting shares dies within three years of the transfer, the difference in value between non-voting shares and voting shares will become part of the owner’s estate.

Control and Lapsed Rights
The new regulations also expand the definition of “control” of an entity to holding at least 50 percent of capital or profits or ownership of any equity interest with the ability to cause liquidation. This expanded definition of control reduces the likelihood of being able to take a valuation discount. And the family member’s percentage of interests is calculated based on the entire family’s interest held including interest held indirectly by other entities. The new regulation also requires that if there is a lapse of a voting or liquidation right in an entity and the owner’s family holds control before and after the lapse, then its value is treated as a gift for taxation purposes.

Timing
The proposed regulations are proposed, but not yet law. The regulations were released at the beginning of August and a 90-day public comment period will ensue followed by a hearing set for December 1, 2016. The final regulations, which may be different than originally proposed, will be finalized once the Treasury Department publishes them. Although it’s not completely clear exactly what the final regulations will be, it is an indication that a change is coming.

What you should do now
Call us and we can help you prepare for the changes to come. Even if these changes are delayed or altered during the comment period and hearing, it is clear that changes are coming. Your CPA is your best adviser to help you navigate the changes for the best result for you. Contact Ciuni & Panichi, Inc. – Jim Komos, Tax Partner, at 216-831-7171 or jkomos@cp-advisors.com.