Company Culture

Executive Pay and Fringe Benefits: Is Your Compensation Plan Triggering an Audit?

by

Executive compensation has evolved dramatically in recent years, in terms of creativity, complexity and dollar value. For example, stock options, deferred compensation, fringe benefits and other “non-cash” alternative forms of payment are becoming increasingly popular at business types of all sizes, making up a larger portion of executives’ overall compensation packages.

But creativity isn’t fooling Uncle Sam. The IRS is well aware that executives often receive extraordinary (and potentially taxable) fringe benefits that are not provided to other employees.  And executive perks that are not properly reported can land both you and your company in hot water.

Under the IRS’s watchful eye

If your organization does get audited, here’s what you might expect as the IRS examines your executive compensation and fringe benefits:

  • Assessment of corporate executives and officers to identify the highly compensated employees and determine who is responsible for approving and processing their payments.
  • Review of meeting minutes concerning executive compensation. In this case, auditors are looking for decisions and instructions about the treatment of fringe benefits.
  • Inspection of employment contracts and severance agreements to identify salaries and benefits.
  • Examination of loan agreements between the corporation and executives and officers. 
  • Evaluation of monthly expense reports submitted by executives.
  • A search of accounts payable records for the names, titles and Social Security numbers of executives to establish if payments made to them were included on their Forms W-2 or 1099.
  • Examination of any documents filed with the Securities and Exchange Commission, such as Form 10-K, to identify compensation issues.
  • Scrutinizing of payroll codes or other accounting codes which might be used for executive expenses to detect payments which may be taxable.
  • Analysis of certain items on tax returns to see if fringe benefits have been claimed.

Getting ahead of an audit

When it comes to executive compensation, getting the details right and staying in compliance can be a daunting task. Reach out to the CPAs at Magone & Company to ensure your company’s executive compensation plans are in line with IRS regulations.

Workers Back On-site? That’s a Green Light for Transportation Benefits

by

If all or part of your workforce is once again commuting to the office, they may be looking to save on mass transit expenses. In the past, certain transportation costs were tax-free to employees and deductible by employers, within certain monthly limits — until the Tax Cuts and Jobs Act (TCJA) eliminated the deduction for employers and established other special rules for tax-exempt organizations.

But your company may continue to offer this perk — clearly a plus to incentivize those who’ve been working from home during the pandemic — if you follow the new rules.

Transportation benefits may be provided tax-free, as long as they don’t exceed the current IRS limit of $280 per month. Check out the three main types of transportation benefits that apply:

  1. Mass transit passes. According to the IRS, this includes any pass, token, fare card, voucher or similar item. The pass must entitle someone to ride free of charge or at a reduced rate on mass transit or in a professionally driven vehicle seating at least six adult passengers. Mass transit may be operated publicly or privately by bus, rail or ferry.
  2.  Commuter highway vehicle expenses. A commuter highway vehicle seats at least six adult passengers. At least 80% of the vehicle mileage should be for transporting employees between their home and workplace, and employees must occupy at least 50% of the vehicle’s seats. A tax-free arrangement may also involve several forms of vanpooling. For example, your company might purchase or lease vans so employees can commute together to work. Or you might contract with a third party to provide the vehicles and pay some or all of the operating costs.
  3. Qualified parking fees. This benefit allows employer-provided parking for employees on or near the business premises. It also covers fees for parking on or near the location from which employees commute to work using mass transit, commuter highway vehicles or carpools (for example, at the parking lot of a train station). However, the benefit doesn’t extend to parking at or near an employee’s home.

Put the pedal to the metal

Aside from the three main transportation benefits, employers may offer reimbursements to employees who commute via bicycle. Under the TCJA, you can continue to deduct reimbursements of qualified bicycle expenses as business expenses, but the tax exclusion for employees has been eliminated.

 Check in with the tax experts

Whether you’ve been offering transportation benefits for years, or are just now introducing them, be sure to consider both the tax and non-tax implications they entail. Be sure to consult with your tax or benefits advisor for advice specific to your company’s needs and circumstances.

Don’t have an advisor? Reach out to the NJ CPAs at Magone & Co — we’re here to help.

Hiring Your Spouse in Your Small Business: 6 Tax Reasons to Say “I Do”

by

Many businesses are having trouble recruiting and retaining qualified workers. According to a recent report conducted by the Society for Human Resource Management (SHRM), nearly 90% of employers reported difficulty filling open positions; 73% have seen a decrease in applications for hard-to-fill positions, and only 6% expect labor shortages to diminish any time soon.

If your small business is understaffed with no strong prospects in sight, have you considered hiring your spouse?

If he or she is already familiar with the job, hiring your spouse as an official employee can have many benefits — including various tax-savings opportunities. Here are six ways hiring a spouse may help chip in to lower your taxes.

1. Retirement savings. If certain requirements are met, an employer can deduct contributions made to a qualified retirement plan on behalf of its employees, including your spouse.

For example, if your company has a 401(k) plan in place, your spouse can elect to defer up to $20,500 ($27,000 if age 50 or older) for the year, in addition to any matching contributions by the company. This is a great way for your spouse to save for retirement independently.

2. Business travel expenses. Normally, you can’t deduct travel expenses attributable to a spouse when he or she accompanies you on a business trip. It’s considered a nondeductible personal expense.

But the tax outcome changes if your spouse is a bona fide employee of the company and travels with you for business reasons. As a result, your company may be able to write off your spouse’s business-related travel expenses, such as airfare or other transportation, lodging and 50% of the cost of meals. Plus, the benefit is tax-free to your spouse. The same basic rules apply if your spouse goes on a business trip alone.

3. Health insurance premiums. If you’re currently paying to cover your spouse under the company’s health insurance plan, you may be able to shift more of the cost to the company if your spouse is an employee.

The company can deduct all the health insurance premiums it pays on behalf of your spouse — just like it can for other employees. Similarly, you can deduct 100% of the cost if you operate a self-employed business.

4. Additional health-related breaks. If you operate a C corporation or you’re self-employed, a Health Reimbursement Arrangement (HRA) for your employees can offer even more tax savings if your spouse participates. If certain requirements are met, the company may reimburse your spouse for out-of-pocket medical expenses and health insurance premiums, while the costs are deductible by the company. This is a win-win situation.

Likewise, if your spouse is covered by a qualified high-deductible health plan, he or she can contribute pretax income to an employer-sponsored Health Savings Account (HSA) or make deductible contributions above the line to the HSA. Your business can also contribute to your spouse’s HSA. Alternatively, your spouse can redirect pretax income to an employer-sponsored Flexible Spending Account (FSA).

5. Vehicles. Although you may derive tax benefits for your vehicle’s business use, your spouse’s expenses are purely personal and nondeductible. But as an employee, he or she may be entitled to business deductions under a complex set of rules, including limits on so-called “luxury car” write-offs.

6. Group-term life insurance. An owner’s spouse is entitled to the same group-term life insurance coverage as other company employees (typically, equal to three or four times the individual’s salary).

Under long-standing tax rules, the first $50,000 of employer-paid group-term life insurance coverage is tax-free to the employee. Plus, any additional coverage is taxable at relatively low rates. Thus, having your spouse work for the company provides more insurance protection for your family.

A match made in heaven?

Before you hire your spouse, meet with a professional tax advisor to discuss whether this strategy would be beneficial for your business and your tax circumstances. The CPAs at Magone & Company can help you make the most tax-efficient decisions. Give us a call today at (973) 301-2300 to learn more.

 The above information is provided for general education purposes and should not be considered financial or tax advice. Please consult your accountant or financial advisor for advice specific to your business or tax situation.

The Skillset of the Modern CFO: 4 Essential Qualities for Success

by

Today’s CFOs find themselves asking…

Am I analyzing the best metrics for profitability?

Do I understand the resources available to me now?

Is my organization primed to adapt to the continued financial uncertainly from the pandemic?

Amidst the rapidly changing business climate, corporate finance leaders need to stay a step ahead. Strategic decision making has never been more critical. The explosion of technology, data and analytics has offered CFOs the ability to better forecast, plan and budget.

If that’s you, you better be on board with the changing times and ready to expand your role. Here are four qualities that are now an essential part of a CFO’s skillset:

  1. Strong technological capabilities. The latest technology is a huge asset, especially when it comes to financial decision-making. Those who can master automation, analytics and process mining tools can respond faster to change, drive better performance and expand your capability as a strategic thinker. The best CFOs leverage new technologies to gain insights and make them actionable.
  2. Advanced listening skills. Listening is an important skill for any business leader, but today’s CFO are tasked with empowering teams, giving advice and counsel, and providing a voice of reason. Think of it this way: You’re not responding to requests for solutions, but working together to uncover the reasons behind the issues.
  3. An agile approach to forecasting. “Bigger picture” thinking is needed across the board to help ensure organizational longevity. Business can change overnight — as we’ve seen since the onset of the pandemic. Adopt a more responsive approach that steers away from structured forecasting, and instead continuously ask questions and formulate scenarios that anticipate change.
  4. Top-notch collaboration skills. Modern CFOs look beyond finance and keep up with the challenges across other areas of business by teams at every level. This offers increased visibility into how finance can partner with different units and better understand what your organization really needs to succeed.

An opportunity for reinvention

Consider the skills, qualities and personality that your organization needs in a CFO, as the role grows beyond its traditional functions. Having the right financial leader at the helm will better position your organization for challenges that lie ahead.

Don’t have a CFO on board yet? At Magone & Co, we offer outsourced CFO services that align with your organization’s mission and goals. For more information, reach out to us today at 973-301-2300 to request a free consultation.

 

Return to the Office: Managing Employee Pushback on In-person Work

by

The pandemic fueled a massive work-from-home trend that many non-essential businesses have maintained for the past 18 months or more. But despite the current surge in COVID-19 cases, more and more employers are asking employees to return — causing a fair share of anxiety and fear, especially among the unvaccinated. As employers receive pushback from their teams, what can be done to ease employee comfort and peace of mind around colleagues, customers and clients after an extended hiatus?

A heavy-handed request?

With the FDA fully approving the vaccine beyond emergency use, employers may increasingly be making vaccination a requirement for returning to the office.

As an employer, you have options up to and including termination (in some circumstances) if employees refuse to return to the office or get vaccinated. But will on-site work directly impact or negate your success?

Here are some potential reasons to reconsider a blanket return-or-quit policy.

  • Employees may be genuinely reluctant for legitimate health reasons.
  • It may cause more stress for employees whose lives have already been turned upside down by COVID-19.
  • You risk damaging morale across the workforce.
  • You may have wrongly assessed the legal risks of doing so.
  • It might be harder than expected to recruit replacements for terminated employees.

The first step in formulating a return-to-work strategy is uncovering why your employees are reluctant to stop working from home. Consider conducting a survey, but avoid giving the impression that simply preferring to work at home is a compelling enough reason to allow it.

Coaxing tips

Reassuring employees of your commitment to maintaining a safe environment may help alleviate concerns. Here are some tips to help them get on board:

  • Give a generous heads up. Set the onsite work deadline a month or two into the future to give employees time to adjust and plan head.
  • Have a conversation. If feasible, have one-on-one conversations with employees who express worry about returning to work. They’re more likely to come around if they know you respect their concerns and want to understand them. A reasonable compromise might emerge.
  • Educate, educate, educate. Inform employees about the Centers for Disease Control and Prevention (CDC) workplace safety standards and the scientific basis for those practices, as well as your compliance practices.
  • Enact a policy phase-in period. Instead of setting an all-or-nothing date of return, allow employees to slowly acclimate. You may ask them to return for one or two days a week initially, adding more days over time.
  • Be flexible and fair. Cutting deals with individual employees may create resentment from others. While doing your best to accommodate individual needs, it’s important to ensure that your practices are reasonable for everyone.

Help from Uncle Sam

If you’re considering a mandatory vaccination policy to accompany your return-to-work policy, you may consider incentivizing hesitant employees to get their jab.

One possible solution is to offer paid time off for COVID-19 vaccine appointments. Some employers take this a step further, offering a financial bonus on top of regular pay.

A little compassion goes a long way

No matter how you approach the task at hand, be aware of the many health conditions that may make people more vulnerable to contracting or having an acute case of COVID-19. The CDC’s list includes cancer, chronic kidney disease, COPD, heart conditions, obesity, pregnancy, smoking and diabetes. And some employees with these conditions might worry about COVID-19-related health risks at the workplace, even if they’ve been vaccinated.

In all cases, be sure to review how federal, state and local statutes may impact the approaches you can take.

A Global Mindset Inspires Success in the C-suite

by

In Part 1 of our C-suite series, we discussed some of the necessary skills by title as well as across-the-board attributes of successful executives. Part 2 touched upon the importance of communication and collaboration. To wrap up the discussion, we’re looking at the need to develop a global mindset in the C-suite.

Even if you don’t plan on expanding into international markets today, a global mindset is still necessary for your organization to achieve maximum potential,  as noted by the Harvard Business Review.

Keeping an eye on the larger picture allows you to examine trends (whether in supply chain innovations, successful employee retention efforts or novel technology applications, for example), spot opportunities others may overlook and avoid cross-cultural mishaps with strategic partners, new hires and other key relationships.

C-level executives who develop global mindsets have the ability to see and understand different perspectives. They are able to develop trust. And, most importantly, they recognize opportunities for effective collaboration.

Global mindset traits of successful C-suite executives
The Lausanne, Switzerland-based International Institute for Management Development suggests that executives who achieve success working across cultures demonstrate qualities such as:

  • Using cross-cultural knowledge to cultivate context-specific actions
  • Bridging cultural gaps by managing differences among people and cultures
  • Leveraging differences and integrating them into effective strategies
  • Playing more of a coordinating than a controlling role and encouraging cooperation among various elements of a team

Steps to developing a global mindset
How do you begin to develop a broader mindset as you enter the C-suite? Various sources suggest these actions to get started:

  • Value ongoing learning. Get out of your comfort zone by recognizing your own cultural values and biases and actively building strong intercultural relationships. Developing self-awareness fosters a non-judgmental perspective on differences.
  • Expand your circle of influence. Instead of surrounding yourself with people who look, think and act like you, seek out global networking opportunities to connect with C-level executives who face similar challenges. This provides the chance to openly discuss cultural differences with global colleagues to build trust and develop strategies for mutual success.
  • Commit to diversity at all ranks of your organization. This requires far more than communicating a statement of support about a social cause; you need to commit to meaningful goals and complete the actions that will fulfill those goals. Focus not only on hiring and retention efforts, but also helping diverse talent move up the ranks into leadership roles.

If you’re a CEO, consider endorsing global mindset as an official corporate value. By fostering “bigger picture” thinking across the board, you’re helping to ensure organizational longevity  as well as a steady stream of diverse thinkers and leaders who’ll be ready for the C-suite sooner rather than later.