Monthly Archives: April 2017

Key Individual 2017 Tax Deadlines You Need to Know

Additional Tax Deadlines

tax-formWhile April 15 (April 18 this year) is the main tax deadline on most individual taxpayers’ minds, it’s important to be aware of other deadlines throughout the rest of year. Here’s a look at when some key tax-related forms, payments and other actions are due.

June 15

  • File a 2016 individual income tax return (Form 1040) or file for a four-month extension (Form 4868), and pay any tax and interest due, if you live outside the United States.
  • Pay the second installment of 2017 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

September 15

  • Pay the third installment of 2017 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

October 2

  • If you’re the trustee of a trust or the executor of an estate, file an income tax return for the 2016 calendar year (Form 1041) and pay any tax, interest and penalties due, if an automatic five-and-a-half month extension was filed.

October 16

  • File a 2016 income tax return (Form 1040, Form 1040A or Form 1040EZ) and pay any tax, interest and penalties due, if an automatic six-month extension was filed (or if an automatic four-month extension was filed by a taxpayer living outside the United States).
  • Make contributions for 2016 to certain retirement plans or establish a SEP for 2016, if an automatic six-month extension was filed.
  • File a 2016 gift tax return (Form 709) and pay any tax, interest and penalties due, if an automatic six-month extension was filed.

December 31

  • Make 2017 contributions to certain employer-sponsored retirement plans.
  • Make 2017 annual exclusion gifts (up to $14,000 per recipient).
  • Incur various expenses that potentially can be claimed as itemized deductions on your 2017 tax return. Examples include charitable donations, medical expenses, property tax payments and expenses eligible for the miscellaneous itemized deduction.

Keep in mind that this list isn’t all-inclusive. Your accountant is your best advisor to make sure you are in compliance. Need help? Contact Nick Leacoma, CPA, Ciuni & Panichi, Inc. Tax Department senior manager at nleacoma@cp-advisors.com or 216-831-7171.

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Have a plan not just a portfolio

Safe Harbor Deduction

 

Have a Plan, Not Just a Stock Portfolio

Diversification still matters. One day, this bull market will end.

Provided by Dane A. Wilson, Wealth Management Advisor

bull1In the first quarter of 2017, the bull market seemed unstoppable. The Dow Jones Industrial Average soared past 20,000 and closed at all-time highs on 12 consecutive trading days. The Nasdaq Composite gained almost 10% in three months. (1)

An eight-year-old bull market is rare. This current bull is the second longest since the end of World War II; only the 1990-2000 bull run surpasses it. Since 1945, the average bull market has lasted 57 months. (2)

Everyone knows this bull market will someday end – but who wants to acknowledge that fact when equities have performed so well?

Overly exuberant investors might want to pay attention to the words of Sam Stovall, a longtime, bullish investment strategist and market analyst. Stovall, who used to work for Standard & Poor’s and now works for CFRA, has seen bull and bear markets come and go. As he recently noted to Fortune, epic bull markets usually end “with a bang and not a whimper. Like an incandescent light bulb, they tend to glow brightest just before they go out.” (2)

History is riddled with examples. Think of the dot-com bust of 2000, the credit crisis of 2008, and the skyrocketing inflation of 1974. These developments wiped out bull markets; this bull market could potentially end as dramatically as those three did. (3)

A 20% correction would take the Dow down into the 16,000s. Emotionally, that would feel like a much more significant market drop – after all, the last time the blue chips fell 4,000 points was during the 2007-09 bear market. (4)

Investors must prepare for the worst, even as they celebrate the best. A stock portfolio is not a retirement plan. A diversified investment mix of equity and fixed-income vehicles, augmented by a strong cash position, is wise in any market climate. Those entering retirement should have realistic assessments of the annual income they can withdraw from their savings and the potential returns from their invested assets.

Now is not the time to be greedy. With the markets near historic peaks, diversification still matters, and it can potentially provide a degree of financial insulation when stocks fall. Many investors are tempted to chase the return right now, but their real mission should be chasing their retirement objectives in line with the strategy defined in their retirement plans. In a sense, this record-setting bull market amounts to a distraction – a distraction worth celebrating, but a distraction, nonetheless.

Dane A. Wilson, C&P Wealth Management, 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 – money.cnn.com/2017/03/31/investing/trump-rally-first-quarter-wall-street/index.html [3/31/17]
2 – fortune.com/2017/03/09/stock-market-bull-market-longest/ [3/9/17]
3 – kiplinger.com/article/investing/T052-C008-S002-5-reasons-bull-markets-end.html [4/3/14]
4 – thebalance.com/stock-market-crash-of-2008-3305535 [4/3/17]

 

You filed your taxes – could an audit follow?

So you just filed your taxes — could an audit be next?

irs auditLike many people, you probably feel a great sense of relief wash over you after your tax return is completed and filed. Unfortunately, even professionally prepared and accurate returns may sometimes be subject to an IRS audit.

The good news? Chances are slim that it will actually happen. Only a small percentage of returns go through the full audit process. Still, you’re better off informed than taken completely by surprise should your number come up.

Red flags
A variety of red flags can trigger an audit. Your return may be selected because the IRS received information from a third party — say, the W-2 submitted by your employer — that differs from the information reported on your return. This is often the employer’s mistake or occurs following a merger or acquisition.

In addition, the IRS scores all returns through its Discriminant Inventory Function System (DIF). A higher DIF score may increase your audit chances. While the formula for determining a DIF score is a well-guarded IRS secret, it’s generally understood that certain things may increase the likelihood of an audit, such as:

  • Running a traditionally cash-oriented business,
  • having a relatively high adjusted gross income,
  • using valid but complex tax shelters, or
  • claiming certain tax breaks, such as the home office deduction.

Bear in mind, though, that no single item will cause an audit. And, as mentioned, a relatively low percentage of returns are examined. This is particularly true as the IRS grapples with its budget issues.

Finally, some returns are randomly chosen as part of the IRS’s National Research Program. Through this program, the agency studies returns to improve and update its audit selection techniques.

Careful reading
If you receive an audit notice, the first rule is:  Don’t panic! Most are correspondence audits completed via mail. The IRS may ask for documentation on, for instance, your income or your purchase or sale of a piece of real estate.

Read the notice through carefully. The pages should indicate the items to be examined, as well as a deadline for responding. A timely response is important because it conveys that you’re organized and, thus, less likely to overlook important details. It also indicates that you didn’t need to spend extra time pulling together a story.

Your response (and ours)
Should an IRS notice appear in your mail, Ciuni & Panichi, Inc. can help.  Please contact Tony Constantine, CPA, at 216-831-7171 or tconstantine@cp-advisors.com. We can fully explain what the agency is looking for and help you prepare your response. If the IRS requests an in-person interview regarding the audit, we can accompany you — or even appear in your place if you provide authorization.

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2016 IRA Contributions

 

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Saving tax with home-related deductions and exclusions.

real estate trustCurrently, home ownership comes with many tax-saving opportunities. Consider both deductions and exclusions when you’re filing your 2016 return and tax planning for 2017:
Property tax deduction. Property tax is generally fully deductible — unless you’re subject to the alternative minimum tax (AMT).

Mortgage interest deduction. You generally can deduct interest on up to a combined total of $1 million of mortgage debt incurred to purchase, build or improve your principal residence and a second residence. Points paid related to your principal residence also may be deductible.

Home equity debt interest deduction. Interest on home equity debt used for any purpose (debt limit of $100,000) may be deductible. But keep in mind that, if home equity debt isn’t used for home improvements, the interest isn’t deductible for AMT purposes.

Mortgage insurance premium deduction. This break expired December 31, 2016, but Congress might extend it.

Home office deduction. If your home office use meets certain tests, you generally can deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, and the depreciation allocable to the space. Or you may be able to use a simplified method for claiming the deduction.

Rental income exclusion. If you rent out all or a portion of your principal residence or second home for less than 15 days, you don’t have to report the income. But expenses directly associated with the rental, such as advertising and cleaning, won’t be deductible.

Home sale gain exclusion. When you sell your principal residence, you can exclude up to $250,000 ($500,000 for married couples filing jointly) of gain if you meet certain tests. Be aware that gain allocable to a period of “nonqualified” use generally isn’t excludable.

Debt forgiveness exclusion. This break for homeowners who received debt forgiveness in a foreclosure, short sale or mortgage workout for a principal residence expired December 31, 2016, but Congress might extend it.

The debt forgiveness exclusion and mortgage insurance premium deduction aren’t the only home-related breaks that might not be available in the future. There have been proposals to eliminate other breaks, such as the property tax deduction, as part of tax reform.

Whether such changes will be signed into law and, if so, when they’d go into effect is uncertain. Also keep in mind that additional rules and limits apply to these breaks. So contact us for information on the latest tax reform developments or which home-related breaks you’re eligible to claim.

Need more information or assistance?  Contact Jim Komos, Partner in the Ciuni & Panichi, Inc. Tax Department at 216.831.7171 or jkomos@cp-advisors.com.

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© 2017

Looking for New Accounting Software

Don’t Shortcut Your Search for New Accounting Software

By Jim Komos, CPA, Partner, Tax Department

JRKsmallersmallerTechnology, used well, saves time and money. But when the technology solution doesn’t meet your needs or your organization’s abilities, it becomes a burden and source of ongoing frustration. So how do you get the benefits without the pain? It pays to put a little extra effort into the planning up front.  You should also discuss your options with your IT people and your accountant before you purchase accounting software.

All too often we see expensive accounting software packages underutilized or even not used at all.  A major reason for this is that either the system does not really match the needs of the organization, the systems are too complex for the personnel assigned to use the software, or there is insufficient resources to properly set up the system and related processing.  It is not uncommon for a well-run system to fall apart after a change in accounting personnel.

To help minimize these problems it is important to begin the process with an inventory of your software. What do you have now that you want to continue to use and what functions would you like to add. When thinking of enhancements, define them in terms of what you want to do. Let your potential vendor determine what technology you need to accomplish it.

Many construction / real estate companies buy accounting software and, even when the installation goes well, quickly grow frustrated when they don’t get the return on investment they’d expected. From an accounting perspective, two of the primary implementation risks that contractors face are bad data and missed opportunities.

Clean up before you boot up
You’ve probably heard that old tech adage, “garbage in, garbage out.” The “garbage” referred to is bad data. If inaccurate or garbled information goes into your new system, the reports coming out of it will be flawed. And this is a particular danger when transitioning from an older software platform to a newer one.  For example, you may be working off of inaccurate inventory counts or struggling with duplicate vendor entries. On a more serious level, your database may store information that reflects improperly closed quarters, unbalanced accounts because of data entry errors or outstanding retainage on old jobs.

Too often there is a rush to implement a new system by a specified date.  Cleaning up the data is usually the first thing to go when trying to meet these deadlines.

A methodical, analytical implementation should uncover some or, one hopes, all of such problems. You can then clean up the bad data and adjust entries to tighten the accuracy of your accounting records and, thereby, improve your financial reporting.

Seizing opportunities 
A major risk to construction accounting software implementation is imprecise or incomplete job-costing data. Contractors face a distinctive challenge in integrating not only general business accounting data, but also the details of multiple, ongoing projects.

A typical approach is to move job-costing info from the old system to the new one as quickly as possible, using whatever on-the-fly method seems most expedient.

Naturally, doing so can lead to data transfer errors. But, again, there’s also a risk of missed opportunity here. When upgrading to a new system, you’ll have the chance to improve your job costing. You may be able to, for instance, add new phases or cost code groups that allow you to manage project expenses much more efficiently and closely.

Beyond job costing, other opportunities for improvement include optimizing your chart of accounts and improving your internal controls. Again, to obtain these benefits, you’ll need to take a slow, patient approach to the software implementation.

Getting a leg up
Just thinking about what could go wrong will give you a leg up on avoiding the biggest disasters. To further increase your chances for success, involve your CPA in the implementation. “We’ve helped companies ease into their new software systems and get the results they expect,” said Jim Komos, CPA, Partner, Ciuni & Panichi, Inc. “And we’ve helped others recover from a very unpleasant implementation experience. Our advice is, don’t go it alone.” Contact Jim at 216-831-7171 or jkomos@cp-advisors.com.

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Transferring Not-for-Profit Leadership

Founder’s Syndrome and Not-for-Profits

By Mike Klein, CPA

mbkFounder’s Syndrome is a term that describes the challenge a not-for-profit organization could encounter when the time comes to transition its leadership functions from its founder to new management. The ailment occurs if the original leader has resisted delegating key responsibilities to other staff members — or helping the organization transition to a new leader.

It’s worth noting that founders’ reluctance to loosen their grip isn’t necessarily due to a power-hungry need to control. Founders tend to care deeply for their organizations and may fear that the organization would falter without their continued connection.

For example, they worry that donations might drop off if they’re not reaching out into the community anymore. They may be concerned that others in the organization lack the background to make savvy decisions. Or founders might have invested so much of themselves and their lives in the organization that they simply can’t imagine a different path.

Is your organization vulnerable?
Not-for-profits suffering from this affliction generally share some common characteristics: For example, because the founder has earned the trust of board members through their long-time relationships working together to advance the organization, they may be reluctant to give up their reliance on the founder for advice and guidance through decision making.

Another characteristic is the founder may not have transitioned day-to-day decision making to his or her subordinates, more out of habit than disregard for their leadership skills. Nevertheless, the appropriate mentoring and sharing of power necessary to prepare a successor and a strong leadership team is not occurring.

These conditions leave organizations in a vulnerable and risky position. If something should happen to the founder — retirement, death, disability or something else — how would the organization carry on?

How can you treat the “syndrome”?
The good news is that Founder’s Syndrome is treatable. The first step is to address the situation with the founder. This can be uncomfortable, but it’s critical. Members of the board or perhaps senior staff should begin by acknowledging the founder’s invaluable role over the years. They can then move on to discuss the importance of preserving the founder’s legacy when he or she inevitably can no longer lead.

Here are some other advisable actions:
Form a succession plan. A succession plan is a vital ingredient in preserving the organization. If no one in the organization wants to tackle this discussion with the founder, a professional coach or consultant could be retained.

Encourage founders to be active in the transition. Don’t just impose a transition onto the founder. One important contribution founders can make is recording their institutional memories. The leader’s vast knowledge should be documented so the organization can continue to benefit from it.

Ask the board of directors to step up. The board may need to step up its accountability in the absence of the strong leader to whom they’ve been accustomed. Board members must seize the reins and educate themselves about the organization in any areas where they’re lacking. This may require replacing existing board members. Bringing on new staff may be advisable, too.

The board can form an active fundraising committee so that a single individual isn’t responsible for driving donations. An army of zealous volunteers could be deployed as a bulwark against donation decline.

Entering Phase Two
Your organization’s founder likely has invested the proverbial blood, sweat and tears into launching your not-for-profit and overseeing its growth. That person, ideally, should become part of the plan as you create a road map for the organization’s future. Planning for the second generation of nonprofit leadership is in its own way just as important as creating a start-up nonprofit — be sure to allow your organization the time it needs to ready itself for that next stage.

Founder’s Syndrome is a difficult ailment to manage. The best advice we can offer is, “Don’t go it alone.” One of the best benefits of working with a consultant is he or she can help with the difficult conversations. Ciuni & Panichi, Inc. offers a wide range of not-for-profit consulting services, including executive coaching, board development and engagement, strategic fundraising, and marketing. To learn more, contact Mike Klein, CPA, MBA, at 216-831-7171 or mklein@cp-advisors.com.