Monthly Archives: March 2017

Tax Calendar Update

2017 Q2 tax calendar: Key deadlines for businesses and other employers

20171Here are some of the key tax-related deadlines affecting businesses and other employers during the second quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

April 18

  • If a calendar-year C corporation, file a 2016 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004), and pay any tax due. If the return isn’t extended, this is also the last day to make 2016 contributions to pension and profit-sharing plans.
  • If a calendar-year C corporation, pay the first installment of 2017 estimated income taxes.

May 1

  • Report income tax withholding and FICA taxes for first quarter 2017 (Form 941), and pay any tax due. (See exception below.)

May 10

  • Report income tax withholding and FICA taxes for first quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

June 15

  • If a calendar-year C corporation, pay the second installment of 2017 estimated income taxes.

Need more information?  Contact James Komos, CPA, partner in Ciuni & Panichi, Inc.’s tax department at 216.831.7171 or jkomos@cp-advisors.com.

You may also be interested in:

Sales Tax and Your Return

Safe Harbor Deduction

© 2017

2016 IRA Contributions — It’s Not Too Late!

Yes, there’s still time to make 2016 contributions to your IRA.

IRA piggieThe deadline for such contributions is April 18, 2017. If the contribution is deductible, it will lower your 2016 tax bill. But even if it isn’t, making a 2016 contribution is likely a good idea.

Benefits beyond a deduction
Tax-advantaged retirement plans like IRAs allow your money to grow tax-deferred — or, in the case of Roth accounts, tax-free. But annual contributions are limited by tax law, and any unused limit can’t be carried forward to make larger contributions in future years.

This means that, once the contribution deadline has passed, the tax-advantaged savings opportunity is lost forever. So it’s a good idea to use up as much of your annual limit as possible.

Contribution options
The 2016 limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on December 31, 2016). If you haven’t already maxed out your 2016 limit, consider making one of these types of contributions by April 18:

  1. Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — the contribution is fully deductible on your 2016 tax return. Account growth is tax-deferred; distributions are subject to income tax.
  2. Roth. The contribution isn’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits, however, may reduce or eliminate your ability to contribute.
  3. Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take qualified distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Want to know which option best fits your situation? Contact Tony Constantine, CPA, Partner at Ciuni & Panichi, Inc. at 216.831.7171 or tconstantine@cp-advisors.com.

You may also be interested in:

Safe Harbor Deduction

Elderly Parent as a Tax Deduction
© 2017

Safe Harbor Deduction

safe harborTangible property safe harbors help maximize deductions

If last year your business made repairs to tangible property, such as buildings, machinery, equipment or vehicles, you may be eligible for a valuable deduction on your 2016 income tax return. But you must make sure they were truly “repairs,” and not actually “improvements.”
Why? Costs incurred to improve tangible property must be depreciated over a period of years. But costs incurred on incidental repairs and maintenance can be expensed and immediately deducted.

What’s an “improvement”?
In general, a cost that results in an improvement to a building structure or any of its building systems (for example, the plumbing or electrical system) or to other tangible property must be capitalized. An improvement occurs if there was a betterment, restoration or adaptation of the unit of property.

Under the “betterment test,” you generally must capitalize amounts paid for work that is reasonably expected to materially increase the productivity, efficiency, strength, quality or output of a unit of property or that is a material addition to a unit of property.

Under the “restoration test,” you generally must capitalize amounts paid to replace a part (or combination of parts) that is a major component or a significant portion of the physical structure of a unit of property.

Under the “adaptation test,” you generally must capitalize amounts paid to adapt a unit of property to a new or different use — one that isn’t consistent with your ordinary use of the unit of property at the time you originally placed it in service.

Two safe harbors
Distinguishing between repairs and improvements can be difficult, but a couple of IRS safe harbors can help:

  1. Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. These are activities that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.Amounts incurred for activities outside the safe harbor don’t necessarily have to be capitalized, though. These amounts are subject to analysis under the general rules for improvements.
  2. Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the unadjusted basis of the property for repairs, maintenance, improvements and similar activities each year. A qualified small business is generally one with gross receipts of $10 million or less.

There is also a de minimis safe harbor as well as an exemption for materials and supplies up to a certain threshold. Contact us for details on these safe harbors and exemptions and other ways to maximize your tangible property deductions.

Need more information?  Contact James Komos, CPA, CFP at Ciuni & Panichi, Inc. 216.831.7171 or jkomos@cp-advisors.com.

You may also be interested in:

Sales Tax and Your Return

Donating Appreciated Stock
© 2017

What if You Find a Mistake in Your Retirement Plan?

How common is this? How can you try to correct it if it occurs?

Provided by Dane A. Wilson, Wealth Management Advisor

401(k) 403(b) audit SSAEYour latest retirement plan account statement arrives in your email inbox. You take a look at it – and something seems amiss. “That can’t be right,” you say to yourself. There must be some kind of mistake. Who should you talk to about this? Who can fix it?

Mistakes do happen with retirement plans. As a consultant to these programs told the trade journal PLANSPONSOR, they are “ubiquitous.” In fact, they are so prevalent that the Internal Revenue Service devotes more than 20 web pages to helping employers fix them over at irs.gov.1,2

A small business has much on its collective mind, and sometimes its retirement savings program may get short shrift. Errors may occur regarding ongoing salary deferral amounts, plan participant loans, or company matches when an employee’s pay is boosted by tips or bonuses. In the case of traditional pension plans, an employer may even pay the retired worker too much.

How can you detect mistakes? Look at your paystubs consistently to make sure your account balance reflects your contributions. This will not be a direct relationship because of compound interest and yield over the years, but if something is really off, it should be evident. If you happen to have taken a loan from your plan, check to see that the balance reflects this. If you have changed your investment mix or the percentage of salary you defer into the plan per paycheck, examine your account statements over the next several months or year to confirm that these changes are carried out.

How can you try to fix these errors? You should turn to the plan sponsor (your employer) first. Approach your employer’s human resources department according to procedure. Read the rules for addressing such mistakes within the summary plan description (the booklet about the plan that you should have received at or shortly after your enrollment) and bring your account statements with you. Your employer will want to know about any potential mistake, because if it is not corrected, it could mean trouble with the IRS.1,3

About 40% of all workplace retirement plans in America are sponsored by companies with less than 10 employees. In such cases, your human resources contact may, effectively, be your boss. How should you bring up such a delicate matter to him or her?3

One, meet with your boss privately and be very polite. Maintain a pleasant attitude. Avoid appearing disgruntled. The conversation could awaken your boss to the need for better administration, better supervision of the plan.

If the answers you get at work don’t seem adequate, then contact the plan provider (the investment firm that furnishes the plan for your employer). You could also ask the financial professional who consults you to look into the matter on your behalf.

If you have retired after participating in a pension plan and you wish to challenge what you feel is a mistake, you may want to contact the Pension Rights Center at 888-420-6550 or via its website, pensionhelp.org.4

Dane A. Wilson may be reached at 216-831-7171 or dwilson@cp-advisors.com.
www.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 – plansponsor.com/Plan-Sponsors-Should-Be-Aware-of-Common-Errors/ [6/1/15]
2 – irs.gov/retirement-plans/plan-sponsor/fixing-common-plan-mistakes [9/15/16]
3 – thefiscaltimes.com/Articles/2014/01/08/How-Convince-Your-Employer-Fix-Your-401k [1/8/14]
4 – marketwatch.com/story/what-happens-when-theres-a-mistake-in-your-401k-2016-10-24 [10/24/16]

 

Elderly Parent as a Tax Deduction

When an elderly parent might qualify as your dependent

elderlyIt’s not uncommon for adult children to help support their aging parents. If you’re in this position, you might qualify for the adult-dependent tax exemption. It allows eligible taxpayers to deduct up to $4,050 for each adult dependent claimed on their 2016 tax return.

Basic qualifications
For you to qualify for the adult-dependent exemption, in most cases your parent must have less gross income for the tax year than the exemption amount. (Tax exceptions may apply if your parent is permanently and totally disabled.) Generally Social Security is excluded, but payments from dividends, interest and retirement plans are included.

In addition, you must have contributed more than 50% of your parent’s financial support. If you shared caregiving duties with a sibling and your combined support exceeded 50%, the exemption can be claimed even though no one individually provided more than 50%. However, only one of you can claim the tax exemption.

Factors to consider
Even though Social Security payments can usually be excluded from the adult dependent’s income, they can still affect your ability to qualify. Why? If your parent is using Social Security money to pay for medicine or other expenses, you may find that you aren’t meeting the 50% test.

Don’t forget about your home. If your parent lives with you, the amount of support you claim under the 50% test can include the fair market rental value of part of your residence. If the parent lives elsewhere — in his or her own residence or in an assisted-living facility or nursing home — any amount of financial support you contribute to that housing expense counts toward the 50% test.

Easing the financial burden
Sometimes caregivers fall just short of qualifying for the exemption. Should this happen, you may still be able to claim an itemized deduction for the medical expenses that you pay for the parent. To receive a tax benefit, the combined medical expenses paid for you, your dependents and your parent must exceed 10% of your adjusted gross income.

The adult-dependent exemption is just one tax break that you may be able to employ to ease the financial burden of caring for an elderly parent. Contact us for more information on qualifying for this break or others.

For more information and to see if you qualify, contact Ciuni & Panichi, Inc. Partner Tony Constantine, CPA at 216.831.7171 or tconstantine@cp-advisors.com.

You may also be interested in:

Getting comfortable with the Home Office Tax Deduction

When to File a Gift Tax Return

© 2017

Don’t Lose Revenue to Fraud

Getting employees to join the fight against fraud

By Reggie Novak, CPA, CFE, Senior Manager, Audit and Accounting Services

ReggieNovakThe manufacturing sector is especially vulnerable to fraud schemes involving billing, corruption, and noncash assets, such as theft of inventory and equipment. Research suggests that businesses that provide a convenient and confidential way for employees to report unethical behavior are more likely to unearth embezzlement and other wrongdoing sooner and suffer smaller losses than those without established “whistleblower” policies.

To Catch a Thief
Proactive fraud prevention and detection controls can substantially reduce a company’s risk of fraud and minimize fraud losses. But all antifraud tools aren’t created equal. In each biennial edition of its Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) has consistently found that tips are the most common method of detecting fraud by a significant margin.

In the 2016 report, the ACFE found that more than 39 percent of frauds were detected by tips. About half of these tips came from employees, and the rest were reported by vendors, customers, and anonymous sources. The second most common method of detection was internal audit, which unearthed fraud in 16.5 percent of the cases in the study.

Based on these statistics, it stands to reason that reporting hotlines can be a critical weapon when deterring fraud and minimizing losses. The ACFE reports that organizations that had reporting hotlines were much more likely to detect fraud, 47 percent compared to 28 percent.

Many private, smaller companies forgo reporting hotlines, because they’re seen as expensive and too formal for closely held organizations. However the median loss suffered by small organizations (those with fewer than 100 employees) was the same as that incurred by the largest organizations (those with more than 10,000 employees) the study found. This type of loss is likely to have a much greater impact on smaller organizations.

Implementing an effective reporting mechanism can be a powerful way to prevent and detect fraud for companies of all sizes.

Minimize the Fear of Retaliation
Most employees are honest and want to do what’s best for their employers. But the prevalence of anonymous tips suggests that many whistleblowers fear retaliation from co-workers if they speak up against wrongdoers or their allegations don’t pan out. This is especially true in smaller companies where it may be harder to safeguard a whistleblower’s identity.

An important component of an effective reporting hotline is to establish policies to protect the confidentiality of whistleblowers and prevent backlash, including verbal bullying or job loss — especially when employees report on suspected wrongdoing by their superiors. Often it’s beneficial to consult with an attorney to ensure that the company’s hotline and related policies comply with employment laws and other regulations that may apply where you operate.

When selecting a manager to oversee the reporting hotline, choose someone who’s fair and impartial and engenders trust among people inside and outside the organization. Provide your “ethics officer” with authority and training to act on information conveyed through the hotline. Hotlines can also be managed externally by third-party vendors.

Promote and Facilitate Reporting
Of course, employees need to know about the hotline before they’ll use it. Once you implement a confidential telephone or Internet reporting hotline, conduct a meeting to promote it to both would-be perpetrators and those who might make a report, including employees, clients, shareholders and vendors. The hotline should be convenient to use and available 24/7 in multiple languages.

Distribute guidelines for the reporting hotline when it’s first launched, when you conduct periodic fraud prevention training and when new employees join the company. Also create print and electronic promotional materials for the hotline to display in high-profile locations, such as in the lunchroom and on the company’s intranet site.

Remember, too, that reporting hotlines can unearth other problems besides fraud, such as unsafe working conditions or drug abuse by co-workers. Some companies even set up their hotlines to serve as an electronic “suggestion box” for ways to improve operating efficiencies or offer new product ideas.

Follow Up on Tips
Employees are more likely to report fraud if the company acts on tips in a prompt, serious manner and demonstrates a zero-tolerance policy for fraud. The most serious allegations should be reviewed with legal counsel first. Often, timely follow-up necessitates the use of an outside forensic accounting specialist who is trained in collecting a thorough and defensible trail of evidence.

The best advice we can offer is, “Don’t go it alone.” To ensure your business is protected, contact Reggie Novak, CPA, CFE, Senior Manager at Ciuni & Panichi, Inc., at 216-831-7171 or rnovak@cp-advisors.com.

You may also be interested in:

Know Your Customers before Extending Credit

Changed Deadlines for Forms 1099

When to File a Gift Tax Return

Do you need to file a 2016 gift tax return by April 18?

TJCGenerally, you’ll need to file gift tax return if you made gifts that exceeded the $14,000-per-recipient gift tax annual exclusion (unless to your U.S. citizen spouse) and in certain other situations. If you transferred hard-to-value property, such as artwork or interests in a family business, consider filing a gift tax return even if not required.

Some transfers require a return even if you don’t owe tax. And sometimes it’s desirable to file a return even if it isn’t required.

When filing is required
You’ll need to file a gift tax return for 2016 if, during the tax year, you made gifts:

  • That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your  U.S. citizen spouse)
  • That exceeded the $148,000 annual exclusion for gifts to a noncitizen spouse
  • You wish to split with your spouse to take advantage of your combined $28,000 annual  exclusions
  • To a Section 529 college savings plan for your child, grandchild or other loved one  and you wish to accelerate up to five years’ worth of annual exclusions ($70,000) into  2016
  • Of future interests — such as remainder interests in a trust — regardless of the amount
  • Of jointly held or community property

When filing isn’t required
No return is required if your gifts for the year consist solely of annual exclusion gifts, present interest gifts to a U.S. citizen spouse, qualifying educational or medical expenses paid directly to a school or health care provider, and political or charitable contributions.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if it’s not required. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

Meeting the deadline
The gift tax return deadline is the same as the income tax filing deadline. For 2016 returns, it’s April 18, 2017 (or October 16 if you file for an extension). If you owe gift tax, the payment deadline is also April 18, regardless of whether you file for an extension.

The best advice we can offer is, “don’t go it alone.” Contact Tony Constantine, CPA, Ciuni & Panichi, Inc. Tax Partner, at 216-831-7171 or tconstantine@cp-advisors.com for the advice you need for a positive tax filing experience.

You may also be interested in:

Sales Tax and Your 2016 Tax Return

Donating Appreciated Stock Offers Tax Advantages