Smartphones: The Next Fraud Frontier

Fraud and Your Phone

Touchscreen smartphone with Earth globeSmartphones quickly have become a standard part of life for much of the population, even our kids. Not surprisingly, they’ve also now become a standard target for hackers and other individuals with fraud-related intent. Understanding the risks associated with smartphones is the first step in staying secure.

Smartphone risks
According to the U.S. Department of Homeland Security’s United States Computer Emergency Readiness Team (US-CERT), smartphone security hasn’t kept pace with traditional computer security. These devices rarely contain technical security measures, such as firewalls and antivirus protections, and mobile operating systems aren’t updated as frequently as those on personal computers (PCs).

Yet users routinely store a wide range of sensitive information — including calendars, contact information, emails, text messages, passwords and user identification numbers — on their smartphones. Geolocation software can track where smartphones are at any time. In addition, apps can record personally identifiable information.

Even users who have little sensitive information on their smartphones are at risk. A hacker can target a phone and use it to trick its owner, or the owner’s contacts, into revealing confidential information. They also use targeted smartphones to attack others. Using malicious software, an attacker can control a phone by adding its number to a network of devices (called a “botnet”). And smartphones can spread viruses to PCs, which can be a big problem for companies with bring your own device (BYOD) policies.

Access points
An attacker can gain access to a smartphone through a variety of avenues. Sometimes an attacker obtains physical access, as when a phone is lost or stolen. More frequently, a hacker achieves virtual access by, for example, sending a phishing email that coaxes the recipient into clicking a link that installs malicious software.

Another way an attacker can gain access to a smartphone is text message spam.  Studies show that people are three times more likely to respond to spam received by cellphone than when using a desktop or laptop computer. These texts often lead you to shady websites that install malware on your phone or otherwise seek to steal sensitive details utilized for identity theft.

Apps can be dangerous, too. A user might install an app that turns out to be malicious or a legitimate app with weaknesses an attacker can exploit. A user could unleash such an attack simply by running the app.

Protective measures
Experts suggest that individual smartphone users, as well as those charged with managing an organization’s smartphones or administering a company’s BYOD policy, take several steps to reduce the odds of damaging attacks. Encryption is probably the most highly recommended precaution. When data is encrypted, it’s “scrambled” and unreadable to anyone who can’t provide a unique “key” to open it.

Two-step authentication, such as that offered by Gmail, is advisable when available. This approach adds a layer of authentication by calling the phone or sending a password via text message before allowing the user to log in. Of course, if the fraud perpetrator has obtained the phone illicitly, these authentication services put him or her one step closer to accessing the owner’s accounts.

Many users fail to enable all of their phones’ security features. If available, an owner should always activate remote find-and-wipe capabilities, the ability to delete known malicious apps remotely, PINs or passwords, and other options such as touch ID and fingerprint sensors if available. Conversely, users should disable interfaces such as Bluetooth and Wi-Fi when not in use. They also should set Bluetooth-enabled devices to be nondiscoverable, which prevents devices from being listed during a Bluetooth device search process.

Can you hear me now?
Just as smartphone technologies are evolving rapidly, so are the threats to their security. Users and managers need to stay on top of the risks and take the necessary precautions to protect these valuable but vulnerable devices. If you have a “bring your own device” policy or are thinking about creating one, we can help make sure the right security is in place for your company. To learn more, contact Reggie Novak, CPA, CFE, at 216-831-7171 or rnovak@cp-advisors.com.

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The Trump Tax Plan

Tax Plan

AMTThe Trump Administration served its opening volley on tax reform.  Although short on details and sure to be extensively debated and modified by Congress, it does offer us some insights on where the debate may be headed.  Of special importance is the omission of some key campaign proposals.  These include the border tax, potential limitations of mortgage interest, and charitable donation.

The Ciuni & Panichi team continues to watch the developing details of tax reform, keeping our clients in mind.  We will keep you abreast of major changes in proposals that will affect you and your businesses.

Summary of Trump’s Tax Plan

  • The business tax rate is reduced to 15 percent.  This includes all businesses even partnerships, S Corporations, and sole proprietors.
  • The number of income tax brackets will be cut from seven to three, with a top rate of 35 percent and lower rates of 25 percent and 10 percent. It is not clear what income ranges will fall under those brackets.  It would double the standard deduction.
  • It would eliminate most tax deductions. The mortgage interest and charitable contribution deductions would be retained.
  • Estate tax, otherwise known as the “death tax” will be eliminated.
  • There will be a “one-time tax” on the trillions of dollars held by corporations overseas.
  • The U.S. would go to a “territorial” tax system. Such systems typically exclude most or all of the income that businesses earn overseas. Most developed countries use this model.
  • Repeal of the alternative minimum tax and 3.8 percent Obamacare taxes.

Contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com for more information.

 

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 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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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.

 

Tax Calendar Update

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

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

April 18

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

May 1

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

May 10

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

June 15

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

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

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© 2017

2016 IRA Contributions — It’s Not Too Late!

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

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

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

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

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

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

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

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© 2017

Safe Harbor Deduction

safe harborTangible property safe harbors help maximize deductions

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

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

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

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

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

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

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

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

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

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© 2017

What if You Find a Mistake in Your Retirement Plan?

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

Provided by Dane A. Wilson, Wealth Management Advisor

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

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

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

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

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

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

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

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

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

Dane A. Wilson may be reached at 216-831-7171 or dwilson@cp-advisors.com.
www.cp-advisors.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
 
  Securities offered through 1st Global Capital Corp., Member FINRA/SIPC

Investment returns fluctuate and there is no assurance that a single rate of return will be sustained over an extended period of time. Investments are subject to market risks including the potential loss of principal invested
    
Citations.
1 – plansponsor.com/Plan-Sponsors-Should-Be-Aware-of-Common-Errors/ [6/1/15]
2 – irs.gov/retirement-plans/plan-sponsor/fixing-common-plan-mistakes [9/15/16]
3 – thefiscaltimes.com/Articles/2014/01/08/How-Convince-Your-Employer-Fix-Your-401k [1/8/14]
4 – marketwatch.com/story/what-happens-when-theres-a-mistake-in-your-401k-2016-10-24 [10/24/16]

 

Elderly Parent as a Tax Deduction

When an elderly parent might qualify as your dependent

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

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

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

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

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

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

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

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

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© 2017

Don’t Lose Revenue to Fraud

Getting employees to join the fight against fraud

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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When to File a Gift Tax Return

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

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

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

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

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

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

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

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

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

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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 jtroyer@cp-advisors.com, for business and management advice.

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Sales Tax and Your 2016 Tax Return

Ohio taxpayers can deduct sales tax on their 2016 tax return

David Reape HighRes-08Ohio is one of the states where taxpayers can take an itemized deduction for state and local sales taxes in lieu of state and local income taxes. This break can be valuable to residents who purchased major items in 2016, such as a car or boat. But it’s one or the other, so it pays to figure out what’s the best benefit for you.

How do you determine whether you can save more by deducting sales tax on your 2016 return? Compare your potential deduction for state and local income tax to your potential deduction for state and local sales tax.

Don’t worry — you don’t have to have receipts documenting all of the sales tax you actually paid during the year to take full advantage of the deduction. Your deduction can be determined by using an IRS sales tax calculator that will base the deduction on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases (for which you will need substantiation).

2017 and beyond
If you’re considering making a large purchase in 2017, you shouldn’t necessarily count on the sales tax deduction being available on your 2017 return. When the PATH Act made the break “permanent” in late 2015, that just meant that there’s no scheduled expiration date for it. Congress could pass legislation to eliminate the break (or reduce its benefit) at any time.

Recent Republican proposals have included elimination of many itemized deductions, and the new President has proposed putting a cap on itemized deductions. Which proposals will make it into tax legislation in 2017 and when various provisions will be signed into law and go into effect is still uncertain.

Questions about the sales tax deduction or other breaks that might help you save taxes on your 2016 tax return? Or about the impact of possible tax law changes on your 2017 tax planning? Contact Ciuni & Panichi, Inc.‘s David Reape, CPA, at 216-831-7171 or dreape@cp-advisors.com. He can help you maximize your 2016 savings and effectively plan for 2017.

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Need to sell real property? Try an installment sale.

Is an installment sale right for you?

TJCIf you or your company owns real property, you may not always be able to dispose of it as quickly as you’d like. One avenue for perhaps finding a buyer a little sooner is by financing it yourself through an installment sale.

Benefits and risks
An installment sale occurs when you transfer property in exchange for a promissory note and receive at least one payment after the tax year of the sale. Doing so allows you to receive interest on the full amount of the promissory note, often at a higher rate than you could earn from other investments.  The installment sale rules allow the seller to defer the recognition of gain on the sale of the property in a manner that mirrors the receipt of the installment payments.

This deferral can be a very favorable tax benefit for sellers, but there may be some risks as well. For instance, the buyer may default on the loan, and you may have to deal with foreclosure.

Methodology
You generally must report an installment sale on your tax return under the “installment method.” Each installment payment typically consists of interest income, return of your adjusted basis in the property and gain on the sale. For every taxable year in which you receive an installment payment, you must report as income the interest and gain components.

Calculating taxable gain involves multiplying the amount of payments, excluding interest, received in the taxable year by the gross profit ratio for the sale. The gross profit ratio is equal to the gross profit (the selling price less your adjusted basis) divided by the total contract price (the selling price less any qualifying indebtedness — mortgages, debts and other liabilities assumed or taken by the buyer — that doesn’t exceed your basis).

Facts:
Proceeds  $1,000,000
Basis   $650,000
Realized Gain  $350,000

Year 1 Principal $68,000
Year 1 Interest  $54,000

Gain Calculation:
Year 1 Principal $68,000
X Gross Profit Ratio 35%
Year 1 Gain   $23,800

The selling price includes the money and the fair market value of any other property you received for the sale of the property, selling expenses paid by the buyer and existing debt encumbering the property (regardless of whether the buyer assumes personal liability for it).

You may be considered to have received a taxable payment even if the buyer doesn’t pay you directly. If the buyer assumes or pays any of your debts or expenses, it could be deemed a payment in the year of the sale. In many cases, though, the buyer’s assumption of your debt is treated as a recovery of your basis, rather than a payment.

See the example below for how recognized gain is calculated.

Facts:
Proceeds  $1,000,000
Basis   $650,000
Realized Gain  $350,000

Year 1 Principal $68,000
Year 1 Interest  $54,000

Gain Calculation:
Year 1 Principal $68,000
X Gross Profit Ratio 35%
Year 1 Gain   $23,800

It is important to note that items that are required to be recaptured at a different rate on the sale still need to be recognized.  For example, Section 1245 or Unrecapture Section 1250 gain need to be recognized in the year of the sale.

Complex rules
The rules of installment sales are complex. The best advice we can offer is:  “Don’t go it alone.” The Ciuni & Panichi, Inc. team has over 40 years of experience helping business owners and individuals make sound business and financial decisions. For real estate and construction advice and/or accounting services, contact Tony Constantine, CPA, Partner, at 216-831-7171 or tconstantine@cp-advisors.com

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© 2017

How to Detect and Prevent Expense Reimbursement Fraud

Sweat the small stuff and Prevent Fraud

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

ReggieNovakReimbursement fraud is often overlooked by management with the thought that their employees are trustworthy and the loss is small and not worth the time and effort to track. In reality, expense reimbursement schemes account for nearly 14 percent of all occupational frauds and result in a median loss of $30,000 per year, according to the Association of Certified Fraud Examiners (ACFE). And if your employees think management is “looking the other way,” dishonest employees may take advantage of their good natured managers.

Keeping your organization safe from thieving employees demands strong controls, tough actions against perpetrators and management leading by example. Whether you’re a multinational corporation employing sales representatives traveling throughout the world or a small not-for-profit organization, you can fall victim to expense reimbursement fraud.  Forensic accounting experts can help companies implement measures to detect and prevent expense reimbursement fraud.

Most common methods
According to the ACFE, expense reimbursement schemes generally fall into one of these four categories:

  1. Mischaracterized expenses. This involves requesting reimbursement for a personal expense by claiming that it’s business-related. For example, an employee takes a family vacation and requests reimbursement for meal and hotel expenses by submitting actual receipts and a false expense report.
  2. Overstated expenses. Overstating expenses involves inflating the cost of actual business expenses — for example, by altering receipts or obtaining a refund for a portion of the expense. A common scheme is to buy a first- or business-class airline ticket with a personal credit card, submit the expense for reimbursement, and then return the ticket and replace it with a coach ticket.
  3. Fictitious expenses. Obtaining reimbursement for nonexistent expenses by submitting false expense reports and fake receipts or other documentation would fall under the category of fictitious expenses. A common technique is to obtain a stockpile of blank receipts from taxicab companies or other vendors and submit them over time.
  4. Multiple reimbursements. This scam involves requesting reimbursement for the same expense several times — typically by submitting photocopied receipts or different forms of supporting documentation (for example, receipts, email confirmations, canceled checks, tickets and invoices).

These schemes tend to continue for long periods of time before they’re detected. The ACFE reports that the median duration of employee reimbursement frauds is 24 months.

Detection methods
Forensic accountants use a variety of techniques to detect employee reimbursement fraud. For example, they might review reimbursement documentation to look for photocopies, duplicates or fakes; compare employees’ expense reports and supporting documentation to check for multiple claims for the same expenses; and compare the times and dates of claimed expenses to work schedules and calendars to look for inconsistencies, such as expenses claimed during vacations.

Forensic experts also search for red flags that may signal fraudulent activity or warrant further investigation. For example, they might look for employees who:

  • Claim disproportionately larger reimbursements than other employees in comparable positions,
  • Pay large expenses in cash despite access to a company credit card,
  • Submit consecutively numbered receipts over long periods of time, and
  • Consistently submit expenses at or just under the company’s reimbursement limit for undocumented claims.

Another technique is to look for employees whose expense patterns violate Benford’s Law — a statistical analysis tool that can reveal fabricated numbers.

An ounce of prevention
In addition to detecting expense reimbursement fraud, forensic accounting experts can help companies implement preventive measures. These include written expense reimbursement policies and procedures requiring detailed expense reports that set forth amounts, times, places, people in attendance and specific business purposes. Employees also should be asked to use company credit cards, submit original, detailed receipts (no photocopies), and provide boarding passes for air travel. Periodic audits of travel and entertainment expense accounts can also have a powerful deterrent effect.

The best advice we can offer is, “don’t go it alone.” Contact Reggie Novak, CPA, CFE, Senior Manager, at Ciuni & Panichi, Inc. at 216-831-7171 or rnovak@cp-advisors.com to learn how you can protect your business from reimbursement fraud.

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Changed Deadlines for Tax Forms 1099-MISC, W-3, & W-2

Deadline change for 2016 Tax Form 1099-MISC

tax-formThe new filing deadline for 2016 Form 1099-MISC with amounts in Box 7 (non-employee compensation) is now January 31, 2017 with the 2016 Form 1096.  There is a new box to check on the 2016 Form 1096 when 1099-MISC with amounts in Box 7 are attached to the 1096. This deadline is nearly a month earlier than the previous February 28 date.

Recipient copies of 1099′s are to be provided to recipients by January 31. (No change for 2017.)

Deadline change for 2016 Form W-3 and Form W-2′s
The new filing deadline for 2016 Form W-3 and Form W-2′s (Copy A) with the Social Security Administration is now January 31, 2017, also nearly a month earlier than the previous February 28 deadline.

Employee copies of W-2′s are to be provided to recipients by January 31.  (No change for 2017.)

The due date changes for filing 2016 W-3′s and certain 2016 1096′s is intended to give the IRS more time to process employer - business provided data in order to coordinate with the issuance of tax refunds and reduce fraudulent tax filing and identity theft issues.

Potential for Penalties
Not providing a correct statement (intentional disregard) carries a penalty of $530 per 1099.  Late filing of mandatory 1099′s could lead to penalties ranging from $50 to $260 per 1099 based on when the correct information return is filed.  This may become an issue for clients with the changes to due dates and as the IRS steps up its 1099 compliance.

What clients can do now to alleviate compliance issues in January 2017
Review your records now to see who will need a 1099 for 2016 and verify they have all the information needed (FEI#, name, current address, and federal tax classification) to file accurate returns. This would include sub-contractors, attorneys, etc.  A Form W-9 can be found on the IRS website and provided to potential 1099 recipients to get the necessary information so returns can be processed in a timely manner.  This would be particularly helpful for recipients who will receive a 2016 1099-MISC with non-employee compensation since they will be affected by the change in filing deadlines.

The best advice we can offer is: “Don’t go it alone.” Ciuni & Panichi is here to help you make the right financial decisions for yourself and your employees.   For more information and if you have questions, contact Sue Latine at 216.831.7171 or slatine@cp-advisors.com.

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