Monthly Archives: December 2017

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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