Category Archives: Small Business

Two tax credits just for small businesses

Small Business Tax CreditTwo tax credits just for small businesses may reduce your 2017 and 2018 tax bills

Tax credits reduce tax liability dollar-for-dollar, potentially making them more valuable than deductions, which reduce only the amount of income subject to tax. Maximizing available credits is especially important now that the Tax Cuts and Jobs Act has reduced or eliminated some tax breaks for businesses. Two still-available tax credits are especially for small businesses that provide certain employee benefits.

1. Credit for paying health care coverage premiums
The Affordable Care Act (ACA) offers a credit to certain small employers that provide employees with health coverage. Despite various congressional attempts to repeal the ACA in 2017, nearly all of its provisions remain intact, including this potentially valuable tax credit.

The maximum credit is 50 percent of group health coverage premiums paid by the employer, if it contributes at least 50 percent of the total premium or of a benchmark premium. For 2017, the full credit is available for employers with 10 or fewer full-time equivalent employees (FTEs) and average annual wages of $26,200 or less per employee. Partial credits are available on a sliding scale to businesses with fewer than 25 FTEs and average annual wages of less than $52,400.

The credit can be claimed for only two years, and they must be consecutive. (Credits claimed before 2014 don’t count, however.) If you meet the eligibility requirements but have been waiting to claim the credit until a future year when you think it might provide more savings, claiming the credit for 2017 may be a good idea. Why? It’s possible the credit will go away in the future if lawmakers in Washington continue to try to repeal or replace the ACA.

At this point, most likely any ACA repeal or replacement wouldn’t go into effect until 2019 (or possibly later). So if you claim the credit for 2017, you may also be able to claim it on your 2018 return next year (provided you again meet the eligibility requirements). That way, you could take full advantage of the credit while it’s available.

2. Credit for starting a retirement plan
Small employers (generally those with 100 or fewer employees) that create a retirement plan may be eligible for a $500 credit per year for three years. The credit is limited to 50 percent of qualified start-up costs.

Of course, you generally can deduct contributions you make to your employees’ accounts under the plan. And your employees enjoy the benefit of tax-advantaged retirement saving.

If you didn’t create a retirement plan in 2017, you might still have time to do so. Simplified Employee Pensions (SEPs) can be set up as late as the due date of your tax return, including extensions. If you’d like to set up a different type of plan, consider doing so for 2018 so you can potentially take advantage of the retirement plan credit (and other tax benefits) when you file your 2018 return next year.

Determining eligibility
Keep in mind that additional rules and limits apply to these tax credits. We’d be happy to help you determine whether you’re eligible for these or other credits on your 2017 return and also plan for credits you might be able to claim on your 2018 return if you take appropriate actions this year. Please contact Robert Smolko, CPA, Ciuni & Panichi, Inc. partner, at 216-831-7171 or for sound tax and business advice when making decisions about your business.

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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 for sound advice when making decisions about your business.

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Taxes and Cost Segregation

Could a cost segregation study save your company taxes?

cost segregationIf your business has acquired, constructed or substantially improved a building recently, consider a cost segregation study. One of these studies can enable you to identify building costs that are properly allocable to tangible personal property rather than real property. And this may allow you to accelerate depreciation deductions, reducing taxes and boosting cash flow.

Overlooked opportunities
IRS rules generally allow you to depreciate commercial buildings over 39 years (27½ years for residential properties). Often, businesses will depreciate structural components (such as walls, windows, HVAC systems, elevators, plumbing and wiring) along with the building.

Personal property — such as equipment, machinery, furniture and fixtures — is eligible for accelerated depreciation, usually over five or seven years. And land improvements — fences, outdoor lighting and parking lots, for example — are depreciable over 15 years.

Too often, companies allocate all or most of a building’s acquisition or construction costs to real property, overlooking opportunities to allocate costs to shorter-lived personal property or land improvements. Items that appear to be part of a building may in fact be personal property.

Examples include:

  • Removable wall and floor coverings,
  • Detachable partitions,
  • Awnings and canopies,
  • Window treatments,
  • Signage, and
  • Decorative lighting.

In addition, certain items that otherwise would be treated as real property may qualify as personal property if they serve more of a business function than a structural purpose. Examples include reinforced flooring to support heavy manufacturing equipment, electrical or plumbing installations, and dedicated cooling systems for server rooms.

A study in action
Let’s say you acquired a nonresidential commercial building for $5 million on January 1. If the entire purchase price is allocated to 39-year real property, you’re entitled to claim $123,050 (2.461 percent of $5 million) in depreciation deductions the first year.

A cost segregation study may reveal that you can allocate $1 million in costs to five-year property eligible for accelerated depreciation. Reallocating the purchase price increases your first-year depreciation deductions to $298,440 ($4 million × 2.461 percent, plus $1 million × 20 percent).

Impact of tax law changes
Bear in mind that tax law changes may occur this year that could significantly affect current depreciation and expensing rules. This in turn could alter the outcome and importance of a cost segregation study. Contact our firm for the latest details before you begin.

On the other hand, any forthcoming tax law changes likely won’t affect your ability to claim deductions you may have missed in previous tax years.

Worthy effort
As you might suspect, a cost segregation study will entail some effort in analyzing your building’s structural components and making your case to the IRS. But you’ll likely find it a worthy effort.

A look-back study may also deliver benefits
If your business invested in depreciable buildings or improvements in previous years, it may not be too late to take advantage of a cost segregation study. A “look-back” cost segregation study allows you to claim missed deductions in qualifying previous tax years.

To claim these tax benefits, we can help you file Form 3115, “Application for Change in Accounting Method,” with the IRS and claim a one-time “catch-up” deduction on your current year’s return. There will be no need to amend previous years’ returns.

The best advice we can offer is, “don’t go it alone.” Contact Tony Constantine, CPA, Ciuni & Panichi, Inc. Tax Partner, at or 216-831-7171. He can help you make sure you are not missing any of the tax benefits available to you.

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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

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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

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© 2017

Know your Customers Before you Extend Credit

Safeguard Your Cash Flow

By John Troyer, CPA, Partner, Audit and Accounting Services

Small JohnTroyer-04 HighResThe funny thing about customers is that they can keep you in business — but they can also put you out of it. The latter circumstance often arises when a company overly relies on a few customers that abuse their credit to the point where the company’s cash flow is dramatically impacted. To guard against this, diligently assess your customer’s credit worthiness before getting too deeply involved.

Gather information
A first step is to gather as much information as you can from new customers. Ask them to complete a credit application with the usual information, company name, address, website, phone number and tax identification number, number of years the company has existed, its legal form and parent company, if one exists. And depending on the amount of credit this new customer is asking you to extend to him or her, consider also asking for a bank reference and several trade references.

If the company is private, again depending on the amount of credit your customer is seeking, consider asking for an income statement and balance sheet. You’ll want to analyze financial data such as the profit margin, or net income divided by net sales. Ideally, this will have remained steady or increased during the past few years. The profit margin also should be similar to that of other companies in its industry.

From the balance sheet, you can calculate the current ratio, or the company’s current assets divided by its current liabilities. The higher this is, the more likely the company will be able to cover its bills. Generally, a current ratio of 2:1 is considered acceptable.

Check references and more
Next up is contacting the potential customer’s trade references to check the length of time the parties have been working together, the approximate size of the potential customer’s account and its payment record. Of course, a history of late payments is a red flag.

Similarly, you’ll want to follow up on the company’s bank references to determine the balances in its checking and savings accounts, as well as the amount available on its line of credit. Equally important, you’ll want to find out whether the company has violated any of its loan covenants. If so, the bank could withdraw its credit, making it difficult for the company to pay its bills.

After you’ve completed your own analysis, find out what others are saying — especially if the potential customer could be a significant portion of your sales. Search for articles on the company, paying attention to any that raise concerns, such as stories about lawsuits or plans to shut down a division.

In addition, you may want to order a credit report on the business from one of the credit rating agencies, such as Dun & Bradstreet or Experian. Among other information, the reports describe the business’s payment history and tell whether it has filed for bankruptcy or had a lien or judgment against it.

Most credit reports can be had for a nominal amount these days. The more expensive reports, not surprisingly, contain more information. The higher price tag also may allow access to updated information on a company over a period of time.

Stay informed, always
Assessing a potential customer’s ability to pay his or her bills requires some work upfront. Our recommendations are reminders that your business should have an established criterion that dictates the level of investigation necessary before granting credit based on:
• If the customer is new,
• The amount of credit being sought,
• Any history of not making payments on time, or
• A business environment change that may negatively impact your creditors’ business.

Making informed credit decisions is one key to running a successful company.

The best advice we can give is, “Don’t go it alone.” Contact John Troyer, CPA, Partner, Audit and Accounting Services, at 216-831-7171 or, for business and management advice.

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Know the IRS Tax Rules on Claiming Hobby Losses

Will you pay tax on a business or hobby?

By Silvia McClellan, CPA, Tax Department Senior Accountant

silvia-mcclellan-highres-6Are you launching a “side business”? Perhaps you hope to turn your love of writing or photography into a paying gig. Or maybe you’d like to sell some of that beer you’re brewing in the garage. If, like many start-up business owners, you’re operating at a loss, it’s critical to understand the IRS’s tax “hobby loss” rules.

Business losses are fully deductible, but hobby losses aren’t. Deductions for hobby expenses generally can’t exceed your gross receipts (if any) from the activity. Also, you must claim hobby losses as itemized deductions, which may further reduce their tax benefits.

What’s a hobby?
“Hobby” is a bit of a misnomer. You’ll find the rules in Internal Revenue Code Section 183, entitled “Activities not engaged in for profit.” The key to distinguishing between deductible and nondeductible losses is whether you engage in an activity with a profit motive. The IRS can’t read your mind, of course, so it analyzes objective factors, including the following, to decide whether an activity is engaged in for profit:

  • Whether you treat it like a business, keep accurate records and use those records to improve its performance,
  • your expertise and that of your advisors,
  • the time and effort you (or your employees) expend in carrying on the activity,
  • whether you expect to profit from the appreciation of assets used in the activity,
  • your success in carrying on other similar or dissimilar activities,
  • your history of income or loss with respect to the activity and whether its performance is improving at a reasonable rate, and
  • the amount of occasional profits, if any.

The IRS also considers whether you have other substantial sources of income from which you’re deducting losses (thus making it more likely the activity isn’t engaged in for profit) and elements of personal pleasure or recreation (the less enjoyable the activity, the more likely you have a profit motive).

No single factor determines the outcome. An activity is presumed to be for profit if it’s been profitable in at least three of the last five tax years (although the IRS can attempt to prove that it hasn’t been).

What if you incorporate?
There’s a common misconception that the hobby loss rules apply only to individuals. While the rules don’t apply to C corporations, operating an activity through a flow-through entity such as an S corporation, limited liability company or partnership won’t shield you from the hobby loss rules. In fact, doing so can lead to unexpected — and unwelcome — tax consequences.

Consider the recent case of Estate of Stuller v. U.S. The Stullers operated a horse-breeding farm through an S corporation. They owned the land used by the farm and received rental income from the S corporation. In a decision that was upheld on appeal, a federal district court ruled that the Stullers didn’t have a profit motive and, therefore, couldn’t deduct the S corporation’s substantial losses against their income from other sources. Even though the ruling meant that the Stullers received no tax benefit from the S corporation’s rental expenses, they were still required to report the rental income on their individual tax returns.

Treat it like a business
The best way to increase the chances that the IRS will treat an activity as a business is to conduct it in a businesslike manner. Create a business plan and budget, consult advisors and keep good records.  For sound business and tax advice for your business, contact Silvia McClellan, CPA, at Ciuni & Panichi, Inc., 216-831-7171 or

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© 2016

June Tax Tips – Affordable Care Act

employeesHow many employees does your business have for ACA purposes?

It seems like a simple question:  How many full-time workers does your business employ? But, when it comes to the Affordable Care Act (ACA), the answer can be complicated.

The number of workers you employ determines whether your organization is an applicable large employer (ALE). Just because your business isn’t an ALE one year doesn’t mean it won’t be the next year.

50 is the magic number
Your business is an ALE if you had an average of 50 or more full time employees — including full-time equivalent employees — during the prior calendar year. Therefore, you’ll count the number of full time employees you have during 2016 to determine if you’re an ALE for 2017.
Under the law, an ALE:

  • Is subject to the employer shared responsibility provisions with their potential penalties, and
  • must comply with certain information reporting requirements.

Calculating full-timers
A full-timer is generally an employee who works on average at least 30 hours per week, or at least 130 hours in a calendar month.

A full-time equivalent involves more than one employee, each of whom individually isn’t a full-timer, but who, in combination, are equivalent to a full-time employee.

Seasonal workers
If you’re hiring employees for summer positions, you may wonder how to count them. There’s an exception for workers who perform labor or services on a seasonal basis. An employer isn’t considered an ALE if its workforce exceeds 50 or more full-time employees in a calendar year because it employed seasonal workers for 120 days or less.

However, while the IRS states that retail workers employed exclusively for the holiday season are considered seasonal workers, the situation isn’t so clear cut when it comes to summer help. It depends on a number of factors.

We can help
Contact Jim Komos at 216.831.7171 or for help calculating your full-time employees, including how to handle summer hires. We can help ensure your business complies with the ACA.

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© 2016

Effective debt management for construction companies

Managing debt helps protect your construction business

TJCTimes are good in Northeast Ohio right now for construction companies and contractors.  However it wasn’t all that long ago the industry was struggling, so it’s important to know the rules to effectively manage your company’s debt and protect its future.

The rules
No one wants to think too much about debt, but knowledge is an important management tool to have.  For example, if a creditor loses hope of collecting an outstanding debt, it may cancel your debt and report the amount to the IRS using Form 1099-C.  This form helps determine:

  • Whether the debtor is personally liable for the debt,
  • whether the debt was canceled in a bankruptcy proceeding, and
  • the fair market value of any property that may be foreclosed on because of the debt cancellation.

When tax season arrives and you receive your 1099-C, you’ll need to report the canceled debt as additional taxable income.  Lenders may also issue a 1099-A, which is required if a debtor stops paying or abandons its debt.  But if the debt is canceled, the lender can include information regarding the abandonment on Form 1099-C instead of 1099-A.  The lender must send a copy of the form to the borrower by Jan. 31 of the year after the debt is canceled.

People often confuse “canceled” debt with “charged off” or “written off” debt.  A “charge-off” means the creditor has deleted your account from its active books and has likely sent the account for collection or sold the account to a debt buyer.  Keep in mind that a charge-off on your credit report doesn’t mean you don’t have to pay the debt.  Unless the debt was canceled with a 1099-C or discharged in bankruptcy, you still owe the money.

Swap debt for equity
One strategy to consider is a debt-for-equity exchange, which is when a business replaces its debt with a percentage of ownership in the business.  This solution often occurs when a company is unable to repay its creditors without going bankrupt.

Bear in mind, such a swap will likely mean a drastic restructuring of your construction business and may even result in a surrender of business leadership as creditors gain more control over operations.  The advantage, however, is the prospect of future growth:  Debt-for-equity frees up money that you would have previously spent on debt repayment.

Work with creditors
Coming to a debt agreement with creditors isn’t always a possibility.  But, if you have strong working relationships with one or more of these parties, it’s at least worth a try.  An informal debt agreement may enable you to freeze accrued interest on your debt and give you some welcome relief from the onslaught of letters, e-mails and calls from the creditor in question.
This option is also preferable because it does less damage to your construction company’s credit rating than bankruptcy would.  In addition, payments are often simpler, because, depending on the nature of the agreement, you may be able to pay a one-time sum to the creditor rather than keep up with multiple repayments.

If you plan to take this route, it’s generally best to engage an experienced debt agreement administrator to help negotiate and prepare the arrangement.

Get creative
When a contractor falls into major debt, filing for bankruptcy may seem like the easiest or only option.  Yet there may be a variety of ways to creatively restructure your financial obligations to your advantage — and we’ve mentioned only a couple of them here.

The best resource to help manage your financial health in good times and bad is a financial advisor.  Contact Tony Constantine, Ciuni & Panichi, Inc. Partner in the Construction and Real Estate Group, at 216-831-7171 or to learn how your company can benefit.

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Run a Side Business? The Tax Implications

Make sure it’s no hobby

side businessIf you run a business “on the side” and derive most of your income from another source (whether from another business you own, employment or investments), you may face a peculiar tax risk:  Under certain circumstances, this on-the-side business might not be a business at all in the eyes of the IRS.

Generally, a taxpayer can deduct losses from profit-motivated activities, either from other income in the same tax year or by carrying the loss back to a previous tax year or forward to a future tax year. But, to ensure some pursuits are really businesses — and not mere hobbies intended primarily to offset other income — the IRS enforces what are commonly referred to as the “hobby loss” rules.

For example, if you haven’t earned a profit from your business in three out of five consecutive years, you’ll bear the burden of proof to show that the enterprise isn’t merely a hobby. If a profit can be proven within this period, the burden falls on the IRS. In either case, the agency uses nine nonexclusive factors to determine whether the activity is a business or a hobby — including management expertise and time and effort dedicated.

If your enterprise is redefined as a hobby, there are many business deductions and credits that you won’t be eligible to claim. You may still write off certain expenses related to the hobby, but only to the extent of income the hobby generates. If you’re concerned about the hobby loss rules, we can help you evaluate your situation.

Contact Jim Komos at or 216.831.7171 for more information on any of our topics or to get expert tax assistance.

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A Good Tax Season for Ohio’s Small Business Owners

Ohio Tax Cuts

By David M. Reape, CPA, Ciuni & Panichi, Inc. Principal

David Reape HighRes-08Small business owners will reap the benefits of several Ohio tax cuts on their 2015 individual tax returns. The 2015 personal income tax rates were decreased 6.3 percent across the board as part of the budget bill passed this past summer. The top tax bracket, for example, decreased from 5.333 percent to 4.997 percent. This is especially good news, because most small business owners pay business income taxes on their individual tax return. These cuts free dollars that can help small business owners implement growth strategies such as increased marketing or staffing. Overall it makes the annual ritual of filing your taxes a little easier.

Again for 2015, 75 percent of the first $250,000 of business income will be excluded from your Ohio taxable income calculation. Business income includes income from pass through entities such as S-corporations, partnerships, and LLCs along with income reported on Schedules C, E, or F of your Federal 1040s. An important change for this year is in addition to the business income deduction, the remaining taxable business income will now be subject to a maximum tax rate of three percent! This rate change has the potential to save an Ohio business owner about $6,000 of tax on $500,000 of business income before the business deduction. Looking forward, it even gets better for 2016 and beyond. Next year, the deduction percentage for the first $250,000 of income increases from 75 to 100 percent.

Another new twist for this year is what business income is subject to the adjustment. Prior to 2015, only Ohio sourced income was eligible for the small business deduction. Beginning in 2015, business income from any state is eligible for the deduction. This means potential tax savings for anyone filing an Ohio income tax return containing income from any business regardless of its source. Also the business income calculation has been simplified this year. Prior to 2015, we had to adjust business income for certain federal adjustments such as one half of the self-employment tax, the self-insured health insurance deduction, and certain retirement contributions. Those federal adjustments are no longer considered when determining business income for purposes of the business deduction and new three percent tax rate. This results in more of the business owner’s income being eligible to the new three percent tax rate.

These are good changes for Ohio’s small businesses. As always, please feel free to reach out to a tax representative at Ciuni & Panichi, Inc. for any questions regarding your tax situation.

Ciuni & Panichi, Inc.’s Tax Compliance and Consulting members have advised hundreds of business owners on their tax issues and more. To learn how you could benefit from their advice contact David Reape, CPA, Principal, at 216-765-6944 or

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TJCby Anthony J. Constantine, CPA, Partner, Ciuni & Panichi, Inc.

The Protecting Americans from Tax Hikes (PATH) Act of 2015 extended, and in a few cases made permanent, many favorable tax provisions for capital intensive businesses, real estate companies, and construction contractors.

The obvious change that we are thankful for is the now permanently enhanced Section 179 expensing.  This provision allows a trade or business to immediately expense up to $500,000 of equipment per year.  There are a couple limitations, most notably you must have taxable income and you are limited if you have over $2,000,000 in acquisitions during the year.  This provision has been extended each December for the past few years making planning an expensive gamble.  Now the provision is permanent. CFO’s can look ahead and plan capital expenditures more prudently.

Over the past fifteen years, in addition to Section 179, taxpayers have been able to take advantage of a provision under Section 168(k) known as bonus depreciation that allows taxpayers to immediately expense a portion of their capital purchases in the first year.  The IRS extended the provision at 50 percent through 2017, 40 percent in 2018, and 30 percent in 2019.  The provision goes away in 2020.  Bonus depreciation is different from Sec 179 expensing in that:

  • No taxable income limitation
  • Not limited to tangible personal property
  • No investment limitation
  • Original use must begin with the taxpayer

Real estate lessors and lessees will benefit from the bonus depreciation available for property improvements considered Qualified Tenant Improvements.  Under the provision the depreciable life for property improvements are reduced to 15 years, much more favorable than the previous 39 years.  In order to be considered “qualifying” the improvement must meet the following criteria:

  • Made under or pursuant to a lease (related party leases do not count)
  • Made to a building that has been in service for at least three years
  • Does not include enlargements, elevators, escalators, and internal structural framework

The PATH Act modified the definition of qualifying improvement for purposes of bonus depreciation, effective for tax years beginning in 2016.  The modified category, Qualified Improvement Property, expands the property eligible for bonus depreciation.  Now these new rules provide that any improvement to an interior portion of a building which is nonresidential real property and placed in service after the date the building was first placed in service will qualify for bonus depreciation.  Exceptions include enlargements, elevators/escalators, and internal structural framework.

Basically, the provision allows for bonus depreciation on any interior improvement (subject to a few restrictions).  This means that even if the property doesn’t qualify for a 15 year life, it still may be eligible for bonus depreciation if purchased and placed in service in 2016 or later.

Example:  A manufacturer decides to renovate the interior of his plant.  The renovations will qualify for bonus depreciation as long as they are interior improvements that are not enlargements, elevators/escalators, and internal structural framework.  The remaining basis will be depreciated over 39 years.

Tax rules are complicated.  Your CPA is your best resource to take full advantage of tax benefits impacting your business.  Ciuni & Panichi, Inc. welcomes the opportunity to help your business prosper.  To learn more, contact Tony Constantine, CPA, Partner in the Real Estate and Construction Group at 216-765-6925 or

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© 2015

November Tax Tips

Gearing up for the ACA’s information reporting requirements

ACAStarting in 2016, applicable large employers (ALEs) under the Affordable Care Act (ACA) will have to file Forms 1094-C and 1095-C to provide information to the IRS and plan participants regarding their health care benefits for the previous year. Both the forms and their instructions are now available for ALEs to study and begin preparations for required filings. In addition, organizations that expect to file Forms 1094 and 1095 electronically can peruse two final IRS publications setting out specifications for using the new ACA Information Returns system.
Keep in mind that ALEs are employers with 50 or more full-time employees or the equivalent. And even ALEs exempt from the ACA’s shared-responsibility (or “play or pay”) provision for 2015 (that is, ALEs with 50 to 99 full-timers or the equivalent who meet certain eligibility requirements) are still subject to the information reporting requirements in relation to their 2015 health care benefits.

If your company is considered an ALE, please contact us for assistance in navigating the ACA’s complex requirements for avoiding penalties and properly reporting benefits. If you’re not an ALE, we can still help you understand how the ACA affects your small business and determine whether you qualify for a tax credit for providing coverage.

Selling rather than trading in business vehicles can save tax

car2Although a vehicle’s value typically drops fairly rapidly, the tax rules limit the amount of annual depreciation that can be claimed on most cars and light trucks. Thus, when it’s time to replace a vehicle used in business, it’s not unusual for its tax basis to be higher than its value.

If you trade a vehicle in on a new one, the un-depreciated basis of the old vehicle simply tacks onto the basis of the new one (even though this extra basis generally doesn’t generate any additional current depreciation because of the annual depreciation limits). However, if you sell the old vehicle rather than trading it in, any excess of basis over the vehicle’s value can be claimed as a deductible loss to the extent of your business use of the vehicle.

For example, if you sell a vehicle with an adjusted basis of $20,000 for $12,000, you’ll get an immediate write-off of $8,000 ($20,000 – $12,000). If you trade in the vehicle rather than selling it, the $20,000 adjusted basis is added to the new vehicle’s depreciable basis and, thanks to the annual depreciation limits, it may be years before any tax deductions are realized.

For more ideas on how to maximize your vehicle-related deductions, contact the tax experts at Ciuni & Panichi, Inc.  James Komos at or 216.831.7171.

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© 2015

More than Money: Customer-Smart Invoicing

Invoicing Should be Easy!

invoiceIt’s simple, right? You send customers an invoice and they pay up. But the process can be so much more — it can be an opportunity to improve business relationships and gather useful data. It’s called “customer-smart invoicing,” and it’s about more than just money.

What’s the problem?
Ask contractors why they’re not getting paid and many might say, “They don’t have the money!” Just last year, postsale relationship consultants TermSync surveyed businesses about delayed payments. Some 49% of respondents blamed purchase order (PO) miscommunications as the top reason for tardy accounts receivable. Insufficient funds did come in second, but at a much lower 27% of respondents.

This is actually good news. You can’t do much about your customers’ cash flows. And, in the “paid when paid” environment of the construction industry, payments will likely always be challenging. But you can improve the invoicing discrepancies that could be causing payers to set your bills aside to call about later — much later.

How well do you communicate?
Customer-smart invoicing is broadly based on two concepts: communication and information. Let’s start with the former, for which your objective is to prevent the PO perplexity mentioned in the survey above.

Start looking at invoices as opportunities to reach out to customers and initiate positive interactions. For example, several days after sending out invoices, you might dispatch follow-up e-mails expressing gratitude for the business, requesting confirmation receipts and asking whether anything is unclear.

For high-importance customers, you could get your sales staff in on the process. Have them make phone calls — not to demand payment, of course, but just to ensure the invoice got there and to clarify any confusion as to its terms.

Are you learning anything?
The second major aspect of customer-smart invoicing is information. Or perhaps a better word might be “education.” By tracking a few key metrics, your invoices can teach you invaluable things. Such metrics include:

  1. Time to payment. The time from the date you remit an invoice until you have the check in your hands should, obviously, be as short as possible. But it’s important to track trends to make sure payment times aren’t dragging out of control.
  2. Accuracy of invoicing. Total the number of invoices you’ve sent out over a given period (say, six months or a year) and then compare it to the number of customer questions or disputes. (You’ll need to start tracking those, too.) The resulting ratio should be as far apart as possible — if you’re creeping toward 1:1, something is definitely wrong!
  3. Time to resolution. As you track customer invoice inquiries and disputes, record the date of the very first interaction and the date of resolution. If it’s taking many days or even weeks to resolve problems, you’ll know (at least partly) why your collections and cash flow are suffering.
  4. Customer satisfaction. Gathering this information can be as simple as asking customers to fill out a brief (three to five questions) “on a scale of 1 to 10” survey about their experience with your construction company. You can include this as a postage-paid card in paper invoices or as a hyperlink included in e-mailed or online invoices.

Where to begin?
Adapting to customer-smart invoicing doesn’t necessarily mean overhauling your entire system. To begin with, identify the areas that need improvement and then decide whether better customer communication or gathering more information could serve you well.

Contact Bob Smolko at 216.831.7171 or to see how the Small Business Group at Ciuni & Panichi, Inc. can assist.

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© 2014

Hidden Messages in your Financial Statements

Ratio analysis and industry benchmarking provide added insight

mfg77By themselves, financial statements provide limited insight into a manufacturer’s performance. To get a clearer picture of what’s really happening requires a relevant basis of comparison. Financial ratios and industry benchmarks provide management with the tools to identify strengths and weaknesses.

Which ratios should you focus on?

Financial ratios are calculated by comparing two or more items on your balance sheet or income statement. While this can be done in a variety of ways, manufacturers tend to use certain ratios more often than others.

For example, the debt to assets ratio is calculated by dividing your total debt by total assets. More debt results in a higher ratio. Because banks will likely take this ratio into consideration when you apply for a business loan, strive for a ratio of 1 to 2, or 50%, to be considered a reliable applicant with manageable debt.

The return on assets (ROA) ratio shows how much profit you’re generating for each dollar invested in total assets. This is calculated by dividing net income by total assets. A higher ROA generally means greater efficiency, because you’re earning more money on less investment.

Additional ratios include the:

  • Current ratio (current assets divided by current liabilities) — a current ratio of 2 to 1 is generally preferable,
  • quick ratio (current assets minus inventory, then divided by current liabilities) — a quick ratio of 1 to 1 or better is usually satisfactory, and
  • sales to inventory ratio (annual sales divided by inventory) — try to target for about 6 to 1, meaning you’ll need to order new inventory about six times a year.

Another useful ratio, the times interest earned ratio, is calculated by dividing net earnings before interest and tax by your interest expense. This reflects your company’s ability to meet interest expenses from operations.

How do you measure up?

In addition to measuring the progress of your business over a certain period and unearthing trends and problems, benchmarking presents a clearer view of where your manufacturing company stands in relation to your competitors.

Trade associations such as the National Association of Manufacturers provide up-to-date financial figures, including industry averages for rent, utilities, materials costs and employee compensation. Trade journals, as well as the U.S. Department of Labor, can also be helpful sources for relevant financial statistics.

To find the applicable industry statistics, you’ll need to know your specific industry segment’s North American Industry Classification System (NAICS) code. Find your NAICS code by visiting the U.S. Census Bureau website at

What’s the upside of benchmarking?

Benchmarking offers several benefits. First, it gauges your financial strength by comparing it to past company performance and industry averages. This allows your management team to gain insight into which goals the company has achieved and where it’s fallen short, providing tangible ratios for your reference.

Benchmarking also puts your financial operations under the magnifying glass. A close-up view brings to light small problems that could affect your company’s overall financial well-being.

How can you avoid potential pitfalls?

On the flip side, calculating and evaluating these ratios can be time consuming. Also, if a number is recorded incorrectly, a ratio is miscalculated, or a statistic is out of date, the process can yield misleading information — possibly leading to knee-jerk responses. If something seems out of whack, research it further before taking corrective measures.

Finding the right fit

Every manufacturing operation is unique. The generalized benchmarks discussed here are for a typical manufacturer. At Ciuni & Panichi, Inc. we specialize in manufacturing and distribution and can provide customized guidelines that will fit your manufacturing specialty and company’s size.

If you work with your financial advisor to analyze your company’s financial ratios on a regular basis, your benchmarking efforts are more likely to be meaningful and reliable.  Contact John Troyer at 216.831.7171 or for more information.

© 2014


Using CRUTs & CRATs to Sell Your Business Interest

These estate planning tools may also help in exit planning.

eggsDiscover a pair of underappreciated exit planning vehicles. Charitable remainder unit trusts (CRUTs) and charitable remainder annuity trusts (CRATs) are commonly seen as estate planning tools. What frequently goes unseen is their value in exit planning for business owners.

Does it look like you will sell your company to a third party? Do your “second act” or “third act” goals include financial independence, philanthropy and leaving significant wealth for your heirs? If you find yourself answering “yes” to these questions, a CRUT or CRAT may help you accomplish those objectives and enhance your outcome.

CRUTs & CRATs are variations of charitable remainder trusts (CRTs). A CRT is an irrevocable tax-exempt trust that you can fund with highly appreciated C corporation stock (or optionally, other types of highly appreciated assets).

How do you sell your ownership interest through a CRUT or CRAT? As the trust creator (or grantor), you donate said C corp stock to the CRUT or CRAT. Because the trust is tax-exempt, it can sell those highly appreciated C corp shares without triggering immediate capital gains tax.(1)

The CRUT or CRAT sells your ownership shares to the outside buyer of your company, and it becomes your tax-exempt retirement fund. It invests the cash realized from the sale of your ownership shares in either fixed-income or growth securities; it provides you with recurring payments out of the trust principal, which occur for X number of years or for the duration of your life (or even longer). The payments can even go to people other than yourself – they can optionally go to your parents, they could go to your grandkids.(1,2)

You are offered another tax break as well. You can take a one-time charitable income tax deduction for the value of the donation used to fund the trust (i.e., a tax deduction applicable in the current tax year). This demands an appraisal of the highly appreciated assets being donated to the CRUT or CRAT, obviously. The deduction amount also depends on calculations using IRS life expectancy tables, the term of the trust, interest rates, and payout schedules and amounts.(1,3)

On one level, a CRUT or CRAT is an agreement you make with the IRS. In exchange for all these tax perks, you agree to give 10% or more of the initial value of the CRUT or CRAT to a qualified charity or non-profit organization. Many CRUT or CRAT grantors intend to leave no more than that to charity.(2)

When the grantor passes away, a last tax break occurs. While 100% of the trust assets now become part of his or her taxable estate, the estate may take a deduction for the remainder  interest that goes to the qualified charity or non-profit.(3)

Some CRUT and CRAT grantors strategize to offset the eventual gifting of 10% (or more) of trust assets. They have the beneficiaries of the CRUT or CRAT fund an irrevocable life insurance trust (ILIT). When the grantor passes away, they receive insurance proceeds sufficient to replace the “lost” wealth. Since the ILIT owns the life insurance policy, the life insurance payout isn’t included in the taxable estate of the deceased and it isn’t subject to transfer taxes.(3)

What’s the fundamental difference between a CRUT & a CRAT? The difference concerns the recurring payments out of the trust to the grantor. In a CRUT, those payments represent a percentage of the fair market value of the principal of the trust (and that principal is revalued annually). In a CRAT, they represent a fixed percentage of the initial value of the principal.(1)

Older business owners may find the CRAT is a more appealing choice, while younger business owners may be more attracted to the CRUT. Yearly distributions from a CRUT must amount to at least 5% and no more than 50% of the trust principal revalued annually. Yearly distributions from a CRAT must come to at least 5% but no more than 50% of the initial value of the donated assets.(1,3)

Can an owner fund a CRUT or CRAT with S corp shares? No. A charitable remainder trust can’t serve as a shareholder in an S corp, so if you donate S corp stock to a CRT, there goes your S corp status. It should also be noted that C corp stock subject to recourse debt can’t go into a CRT.(1)

Are you interested in learning more? Talk to a financial or tax professional about the potential of CRUTs and CRATs. What you learn may lead you toward a better outcome for your business.

Jason Ice may be reached at 216-831-7171 or

Securities offered through 1st Global Capital Corp., Member FINRA/SIPC
Investment Advisory Services offered through 1st Global Advisors, Inc
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.
1 - [11/18/14]
2 - [8/14/13]
3 - [11/18/14]


Are You Taking a Tax Deduction for Mileage?

Make Sure to Get All the Tax Deduction You Deserve

CarThe tax expert at Ciuni & Panichi have another tip for your 2014 tax return.

You probably know that miles driven for business purposes can be deductible. But did you know that you might also be able to deduct miles driven for other purposes? The rates vary depending on the purpose and the year.

The following is a sample of what you can deduct:

  • Business: 56 cents (2014), 57.5 cents (2015)
  • Medical: 23.5 cents (2014), 23 cents (2015)
  • Moving: 23.5 cents (2014), 23 cents (2015)
  • Charitable: 14 cents (2014 and 2015)

However the rules surrounding the various mileage deductions are complex.  Some are subject to floors and some require you to meet specific tests in order to qualify. There are also substantiation requirements, which include tracking miles driven. And, in some cases, you might be better off deducting actual expenses rather than using the mileage rates.  So make sure to talk to an expert and get all the mileage you’re entitled to.

If you drove potentially eligible miles in 2014 but can’t deduct them because you didn’t track them, then start tracking your miles now so you can potentially take advantage of the deduction when you file your 2015 return next year.

Contact Jim Komos at 216.831.7171 or  He can help ensure you deduct all the mileage you’re entitled to on your 2014 tax return, but not more.  No one wants to risk back taxes and penalties later.

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© 2015

How your construction contracts can help strengthen cash flow

cash flowAll businesses experience the ebbs and tides of cash flow at some time or another. But it can be particularly hard if your construction company is experiencing hard times. Fortunately, the very document you sign when starting a job can help you turn that tide around.

Pinpointing payment terms
Payment terms have an enormous impact on cash flow. A contract that calls for payment on completion of specified phases of the project, for example, creates uncertainty — making cash flow forecasting difficult. A contract that requires payment in equal installments over the course of a project provides greater predictability but may not correspond to your expenditures on the job.

It’s not unusual for a construction project to involve significant upfront costs. If possible, negotiate a “front-loaded” billing schedule that reflects your greater cash needs in a project’s early stages. You might also ask for accelerated payment methods, such as wire transfers or electronic checks.

Before you even start a job, assess the financial strength and creditworthiness of the owner as well as other contractors, suppliers and vendors involved. Doing so can give you a better idea of whether the payment terms are realistic.

In addition, many contractors find it helpful to prepare project-specific cash flow forecasts to get a better idea of how the payment terms will affect their overall financial positions going forward.

Negotiating retainage
A 5% or 10% retainage can easily defer your entire gross profit on a job until after completion. To reduce the impact on your cash flow, try to negotiate a lower percentage or ask for retainage to be phased out over the course of the project. For example, the contract might provide for 10% retainage, reduced to 5% when the job is 50% complete and eliminated when it’s 75% complete.

Clarifying change orders
Change orders are an inevitable part of most construction jobs. It’s critical that your contracts establish clear terms and procedures for approving and paying them. Train your staff to identify changes in the scope of work and to promptly prepare and document change orders in accordance with contract terms.

Avoiding disasters
Contracts often disallow requisitions for materials until the materials have been installed. To avoid cash flow disasters, try to negotiate requisition terms that allow you to request payment once materials have been delivered to the job site.

Remember that cash flows in two directions, and outflow is just as important as inflow. If feasible, don’t make payments to contractors, suppliers or vendors earlier than required unless you’re entitled to a discount for doing so. Try to negotiate payment terms that, to the extent possible, match your cash outlays with your receipts from the owner or general contractor.

Reading the fine print
When entering into a contract, it’s essential that you read every word, especially the fine print,  and clarify any ambiguous terms. Your financial advisor can help you apply these and other ways to ensure your contracts strengthen, rather than weaken, your cash flow.

The construction experts at Ciuni & Panichi have a number of ways to help with your cash flow.  Contact John Troyer at 216.831.7171 or for more information.

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© 2013

Use These Three Tax Credits on Your 2014 Return

Tax extenders for businesses

calcThe Tax Increase Prevention Act of 2014 (TIPA) extended through Dec. 31, 2014, a wide variety of tax breaks, including many tax credits which are particularly valuable because they reduce taxes dollar-for-dollar.  Here are three credits that your business may benefit from when you file your 2014 returns:

  1. 1. The research credit. This credit (also commonly referred to as the “research and development” or “research and experimentation” credit) rewards businesses that increase their investments in research. The credit, generally equal to a portion of qualified research expenses, can be complicated to calculate, but the tax savings also can be substantial.
  2. The Work Opportunity credit. This credit is available if you have hired from certain disadvantaged groups, such as food stamp recipients, ex-felons and veterans who’ve been unemployed for four weeks or more. The maximum credit ranges from $2,400 for most groups to $9,600 for disabled veterans who’ve been unemployed for six months or more.  This can lead to big savings on your tax bill.
  3. The Sec. 45L energy-efficient new home credit. An eligible construction contractor can claim a credit for each qualified new energy efficient home that the contractor built and that was acquired by a person from the contractor for use as a residence during 2014. The credit equals either $1,000 or $2,000 per unit depending on the projected level of fuel consumption.

Wondering if you qualify for any of these tax credits? Or what other breaks extended by TIPA could reduce your 2014 tax bill? Contact Jim Komos at 216.831.7171 or for more information.

The tax experts at Ciuni & Panichi have been assisting organizations like yours for over 40 years, and we look forward to helping your company in the future.

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© 2015

Fraud and Your Employees’ Expectation of Privacy

Prevent Fraud – Write it Down

lockerEmployers can effectively reduce their potential fraud liability for violations involving workplace searches by lowering employees’ expectation of privacy in the workplace.  The best method that employers can use to lower this expectation of privacy is to adopt a written privacy policy that puts all employees on notice that the workplace is not private and require all employees to sign it.

Courts have generally ruled that when there is a written policy that usage of employee communications devices is subject to monitoring at work, employees have no (or a very low) expectation of privacy, and their devices may be subject to search.  This can, however, turn on a number of factors, such as whether or not the policy has been enforced in the past.
A written fraud prevention and privacy policy should be posted in a prominent place in the workplace and contain the following information:

  • Provide that, in order to maintain the security of the employers operations, management may gain access to and search all work areas and personal belongings, including desks, file cabinets, lockers, briefcases, handbags, pockets, and personal effects.
  • State that workplace areas are subject to surveillance and business phone calls may be monitored.
  • Make it clear to employees that the employer reserves the right to physically and digitally search any devices with storage or memory capabilities that they might bring to work and to make copies of any files found therein.
  • Notify employees that computer systems are solely for business use, and that the Company reserves the absolute right to review, audit, monitor, and disclose all matters sent over the system or placed in storage.  Computer systems specified in the policy should include Company email, internet, hardware, and software files.

In addition to a written fraud prevention and privacy policy, employers can use the following measures to limit their potential liabilities for violations involving workplace searches:

  • Requiring employees to provide keys to all personal locks
  • Retaining a key to all desks, lockers, file cabinets, etc.
  • Obtaining consent to search workplace areas.

As always, if there is a question of whether or not you’re allowed to perform a search of your employee’s possessions in the workplace, it’s best to consult with an experienced employment attorney first.

Reggie Novak is a Senior Manager in the Audit and Accounting Services Group.  As a Certified Fraud Examiner, Mr. Novak can assist you with prevention services including recommending internal controls and other measures to be implemented to prevent theft or misappropriation.  If fraud is suspected he can investigate and present his findings and recommendations.  Contact Reggie Novak at 216.831.7171 or for more information.

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© 2015