Tax reform 2018: What you need to know now

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Congress has ushered through the biggest tax reform law since 1986, when President Reagan signed major legislation for corporations and individuals. The new law will affect the way you, your family and your business calculate your federal income tax bill — and the amount of federal tax you will pay.

As we prepare for the changes in 2018, here are a few highlights of the new law to keep in mind:

  • Lower tax rates are coming. The Tax Cuts and Jobs Act will reduce tax rates for many taxpayers. Additionally, many businesses, including those operated as pass-through, such as partnerships, may see cuts in their tax bill.
  • Seven tax brackets for individuals will remain, but rates will change. Rates will be lowered to: 10%, 12%, 22%, 24%, 32%, 35% and 37%, respectively.
  • The child tax credit has nearly doubled. Parents will receive $2,000 for each child under 17, and the entire credit can be claimed by single parents who make up to $200,000 or married couples who make up to $400,000.
  • There’s a new tax credit for non-child dependents. Taxpayers may now claim a $500 temporary credit for non-child dependents, such as children over age 17, elderly parents or adult children with a disability.
  • Expect disappearing or reduced deductions, and a larger standard deduction. Beginning next year, the Tax Cuts and Jobs Act will also suspend or reduce many popular tax deductions in exchange for a larger standard deduction.
  • The itemized deduction for charitable contributions will remain. But because most other itemized deductions will be eliminated in exchange for a larger standard deduction, charitable contributions may not yield a significant tax benefit.
  • The new law temporarily boosts itemized deductions for medical expenses. For 2017 and 2018 these expenses can be claimed as itemized deductions to the extent they exceed a floor equal to 7.5% of your adjusted gross income (AGI). However, next year many individuals will have to claim the standard deduction because many itemized deductions have been eliminated.
  • The standard deduction has nearly doubled. For single filers, the standard deduction has increased from $6,350 to $12,000; for married couples filing jointly, it’s jumped from $12,700 to $24,000.

This is a general summary of the new law and should not be considered tax advice. Be sure to consult with your CPA or tax advisor for advice specific to your situation.

The best places to “park” excess company cash

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Business owners face a constant balancing act when it comes to deciding how much cash to keep in their everyday checking account.

On one hand, the money in these accounts is available in case of an emergency or unexpected business opportunity. However, federal law prohibits banks from paying interest on business accounts. Congress often discusses changing the law, but in the meantime, you have to get creative to earn a decent rate of return on your temporary excess cash.

Certificates of Deposit
CD are normally single-deposit investments with maturity options ranging from seven days to several years. They can pay a set or variable interest rate, which is usually higher than other bank deposit investments. The reason is simple: The bank feels comfortable that the funds will stay in your account until the maturity date.

The drawback is that withdrawals from a CD before maturity generally result in a penalty. Therefore, look for promotions with no early withdrawal penalties. In some cases, this no-penalty option can be exercised after a certain length of time — sometimes as brief as two weeks. In other cases, you can withdraw money periodically over the term of the CD.

It’s smart to stagger maturity dates on several CDs, rather than having one deposit make up a single CD. That way, you get access to your cash on a rolling basis if you need it. In any event, keep in mind that interest rates may be negotiable based on the strength of your banking relationship.

Money Market Accounts
Money Markets pay interest and give you some access to your funds. With these accounts, you can write checks and make deposits whenever additional funds become available. However, you can usually make only a limited number of transactions during a given period.

That limitation means money market accounts aren’t designed to handle all of your checks or withdrawals. But with basic cash management, they can be an easy way to earn interest and have access to funds on a limited basis.

Sweep Accounts
These are essentially checking accounts in which you give the bank permission to invest or “sweep” funds into an interest-bearing account on a day-to-day basis. These accounts aren’t always promoted by banks, so you may have to ask if they’re available.

Here’s an example of how they work: Let’s say your company routinely keeps large amounts of cash on deposit for short periods. With a sweep account, you instruct the bank to transfer any amounts exceeding, for example, $25,000 into investments such as overnight paper or repurchase agreements. In essence, you transformed a no-interest account into one that pays you interest.

A word of caution: Sweep accounts may not be federally insured. This happens when your excess funds are swept from an insured bank or credit union account to an investment that isn’t covered by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). If the financial institution fails, you may lose some of your money. With a traditional account, federal insurance generally only covers the first $250,000 on deposit at each institution.

Before making any moves, ask your accountant or financial advisor which of these short-term solutions for excess cash might be wise for your business.

Tax reform opportunities to consider as 2017 winds down

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Congress is enacting the biggest tax reform law in 30 years — one that will fundamentally change the way your federal income tax bill is calculated. Since most of the changes will go into effect next year, there’s still a narrow window before year-end to soften or avoid the impact and best position yourself for the tax breaks that may be heading your way.

Here are 7 last-minute moves to consider as 2017 comes to a close:

  1. If you’re about to convert a regular IRA to a Roth IRA, postpone the conversion until next year. That way, you’ll defer income from the conversion until next year and have it taxed at lower rates.
  2. If you’re not subject to the Alternative Minimum Tax (AMT), pay the last installment of your 2017 estimated state and local taxes no later than December 31, 2017, rather than on the 2018 due date.
  3. Charitable contributions after 2017 may not yield a tax benefit because you won’t be able to itemize deductions, so consider accelerating some charitable giving into 2017.
  4. Consider accelerating “discretionary” medical expenses into this year. For example, get new glasses or contacts, or see if you can squeeze in expensive dental work such as an implant.
  5. If a higher alternative minimum tax (AMT) exemption in 2018 means you won’t be subject to the 2018 AMT, it may be worthwhile to push such deductions into next year, such as exercising an incentive stock option (ISO).
  6. Under the new law, alimony payments aren’t deductible by the payor or includible in the income of the payee, generally effective for any divorce decree or separation agreement executed after 2017. So if you’re in the middle of a divorce or separation agreement and anticipate winding up on the paying end, it would be to your advantage to wrap things up before year end. On the other hand, if you’ll likely wind up on the receiving end, it would be worth your while to wrap things up next year.
  7. The new law suspends the deduction for moving expenses after 2017 (except for certain members of the Armed Forces), as well as the tax-free reimbursement of employment-related moving expenses. So if you’re in the middle of a job-related move, try to incur your deductible moving expenses before year-end. Or, if the move is connected with a new job and you’re getting reimbursed by your new employer, press for reimbursement before year-end.

These are just some of the general year-end moves that should be considered in light of the new tax law. As always, this should not be considered tax advice. Be sure to consult with your CPA or tax advisor for advice specific to your situation.

6 ways to prevent tuition reimbursement fraud

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Every company’s been stepping up its benefits game to attract great hires. Tuition reimbursement pays you back two ways — it’s a high-value perk for job seekers, and investing in employee educationand training is crucial to your organization’s long-term success. However, these programs can also pose a fraud risk in ways that might surprise you. For example, in one recent case, four employees submitted more than $400,000 in fraudulent expense requests for college classes they never even enrolled in.

To avoid having tuition reimbursement benefits become more a liability than a benefit, consider the following steps:

1. Request original documentation. Most educational institutions provide a transcript and receipt for fees paid as well as a diploma if the employee earns a degree or certification. To help prevent the submission of fraudulent documentation, as well as multiple claims for the same expense, consider requiring original transcripts and receipts for fees paid. In addition, some employers request copies of canceled checks or credit card statements to verify that the payment for which the employee is seeking reimbursement was actually made.

2. Help managers with a structured approval process. To keep employees happy, managers may be tempted to “rubber stamp” approvals. Although the majority of tuition reimbursement requests are legitimate, failure to scrutinize claims can result in fraud. Managers should be given a checklist of documents to be submitted with each request, and have a contact person to go to with questions or concerns.

3. Allocate tuition reimbursement to department budgets. To increase accountability and encourage managers to closely review reimbursement requests, consider allocating education expenses to individual department budgets. The level of due diligence that managers perform tends to increase significantly if their departments are charged with the expense. However, you don’t want managers to discourage employees from taking advantage of training opportunities, so make sure the final decision to approve or deny a request rests with someone other than the department manager.

4. Pay the school directly if possible. Depending on the size of your organization and the number of employees who pursue further education each year, it may be a good idea to pay the learning institution directly. That way, your company won’t have to rely exclusively on the documents submitted by employees. In addition, you might be able to negotiate a discount for bulk payments. Paying an institution directly not only reduces the chances of employee fraud; it may also reduce your administrative costs as it involves less paperwork.

5. Reimburse expenses only for accredited schools. Unfortunately, the number of “diploma mills” has exploded in recent years. Establishing a policy to only reimburse for accredited schools can help eradicate tuition fraud as well as potentially increase the quality of education your employees receive.

6. Implement an employee hotline. When employees commit tuition reimbursement fraud, they may be tempted to share their success with co-workers. A hotline can provide employees with an anonymous method to share the information that can stop tuition reimbursement before losses mount.

Tuition reimbursement fraud is relatively easy to detect and prevent. And given the importance of educating and retaining motivated employees, preventing reimbursement fraud should be a priority for every organization.

Client Accounting Services 101: The secret to working ON your business rather than IN your business

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You’re probably familiar with the business-owning wisdom of author Michael Gerber — that entrepreneurs build enterprises while technicians build jobs. And most fail because they spend too much time working in the business rather than on it.

The day-to-day operation of a business is a handful, especially if you’re hands-on doing the grunt work or supervising a junior staff member. If you’re like most business owners, financial and accounting responsibilities tend to end up at the bottom of the list of things to do.

Millennial business owners get it. They want to focus on high-value tasks, not mundane work. They understand the value of strategic outsourcing, like Client Accounting Services (CAS), which give business owners more time to focus on business-developing sales and growth strategies.

CAS provide real-time data and accounting solutions to aid business owners in keeping their finances up-to-date while allowing them the time and flexibility to continue to run their business. CAS is convenient and can be customized to meet your business’s specific needs. In today’s fast moving environment. Our cloud-based solutions provide business owners accessibility from wherever they desire. Depending on the service level selected, our services provide for strategic solutions based on what the business owner needs to grow or maintain their business.

From bookkeeping to accounting to payroll to CFO-level services, we help entrepreneurs meet the daily demands of running the business. Using our financial flash reports and dashboards, data is available to you with a click of a button. Best of all, you don’t have to deal with the headaches of training, hiring and supervision.

Magone & Company changed how we provide services to our clients with the advent and progression of cloud solutions. Our CAS was created to take advantage of what the cloud has to offer so we can streamline the accounting and finance accounting for your business and help you operate efficiently. It allows us to collaborate and have interactions with our clients. Your problems are addressed right away, and you no longer have to rely on outdated financial statements.

Some of the examples of how CAS allows Magone & Company to build better relationships are: flash reports and dashboards to see how the business is performing; cash flow analysis for growth; and regular check-ins to address tax and strategic concerns throughout the year.

Advantages of CAS (depending on the service desired):

  • 24/7 access, giving you more visibility into your financials
  • Mobile friendly
  • Designated skilled accounting team member
  • Bill payment, payroll, general ledger maintenance and bank/credit card reconciliation
  • Cash and cash flow management
  • Financial statements
  • Close monitoring and analyzing of Key Performance Indicators (KPIs)
  • Preparation of custom reports
  • Electronic document delivery; less paper to file
  • Easy to read and painless year-end reporting
  • Keeps costs down
  • Enhances profitability and productivity
  • Freedom to work the way you want

CAS changed our business. Want to see how it could change yours?

New lease accounting standards: Planning ahead to protect your organization

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The Financial Accounting Standards Board (FASB) is gearing up to align U.S. standards with global accounting standards, increasing transparency in financial reporting and altering the way companies account for their leases.

The mandate will become effective for most businesses in January 2019 — a date that might seem far into the future, but preparing to comply might take more time and resources than you think. In fact, 31% of executives feel their organizations are unprepared, according to a recent Journal of Accountancy article.

What’s so complicated about new lease accounting standards?

Under the new rules, you’ll be required to report your leases as both assets and liabilities on your balance sheet. This applies to real estate, vehicles and equipment. What’s more, the rent obligations that your leases reflect are essentially recognized as debt — which could pose a danger to your credit and bottom line.

Current lease accounting treats leases as either capital or operating leases, and there are specific rules as to their classification. But under the new law, the FASB has mandated all leases whether Type A (financing or capital) or Type B (operating) be capitalized on the balance sheet, including the related lease liability.

For example, consider your debt covenants with banks. Many loan documents include various debt covenants, such as debt to equity ratio or debt service coverage ratio as well as prohibitions against incurring new debt. But operating leases, which are currently included only in footnote disclosure, are nowhere to be found on the typical balance sheet.

FASB standards will also require Type B leases to be recorded as an available-for-use asset with a corresponding lease payable. What does that do to your bank covenants, or better yet, for nonprofit organizations? How do you explain the rent in your current grants being reflected as interest?

There’s no better time than the present

Companies will have to take a closer look at what they classify — or fail to classify — as lease agreements. Keep in mind, this includes options to lease for future expansion, which you’ll be required to treat as if they’re reflected on the books right away. It may even motivate tenants to purchase their buildings outright since they’ll be handled the same way as renting — another obligation on the balance sheet.

By preparing now, you’ll gain a clearer idea of what to expect in the coming months, and ultimately, save money and gain peace of mind without the last-minute scramble as the deadline nears. If you haven’t already, set up a meeting with bankers and funding sources and begin a dialogue regarding the possible effects of the new accounting standard on your grant funding and loan covenants. Act now and avoid any surprises from your accountant or auditor in 2020.