New tax credit rewards businesses for hiring veterans

Uncle Sam has made it easier for businesses to hire returning veterans by providing a maximum $9,600 tax credit (to the business) for each qualified hire. The credit applies to certain veterans who have joined payrolls since Nov. 22, 2011, and to those who will be hired through Dec. 31, 2012.

This expansion of the Work Opportunity Tax Credit was contained in the VOW to Hire Heroes Act of 2011.

The credit can be as high as $9,600 per veteran for for-profit employers, or up to $6,240 for tax-exempt organizations. For tax-exempt organizations, the tax credit is offset against the employer’s share of the Social Security tax.

The amount of the credit depends on a number of factors, including:

• The length of the veteran's unemployment before hire;
• Hours a veteran works; and
• The amount of first-year wages paid.

The Internal Revenue Service has issued guidelines for employers who have hired, or plan to hire, qualified veterans, and as usual, there’s some paperwork involved.

Employers must prove that each hire qualifies under the VOW to Hire Heroes Act of 2011 by submitting a pre-screening certification form within 28 days after the individual is hired. For any hires that have occurred since the law took effect, employers may submit the form by June 19, 2012.

The form must be submitted to the state’s workforce agency, which in Massachusetts is the Department of Labor and Workforce Development.

For further details on the VOW to Hire Heroes Act of 2011, including pre-screening forms and instructions on how to claim the tax credit, read more here.

Financial Fraud Literacy Quiz: How much do you know?

No one wants to think their employees or senior managers are stealing from their business. Consequently, small businesses and nonprofit organizations often overlook the warning signs of employee fraud, especially by senior managers. Management and board members need to recognize the red flags and act early to stop fraud.

According to the Association of Fraud Examiners 2010 Report to the Nations on Occupational Fraud and Abuse, the typical organization loses 5 percent of its annual revenues to fraud, and individual incidents of fraud last a median of 18 months before being detected.

The report found that frauds committed by senior executives or owners were more than three times as costly as frauds committed by managers, and more than nine times as costly as employee frauds. Executive-level frauds also took much longer to detect.

Signs of fraud can include:

• Shrinking inventories
• Bank deposits that don't match cash records
• Checks made payable to an employee, an unknown person, an unapproved vendor or "cash"
• Payroll fluctuations or poorly documented employees on the payroll
• Changes or unusual patterns in employees' expenses

Would you know how to put in place effective policies and procedures to minimize the risk of financial fraud in your organization?

Take the Financial Executives International Fraud Literacy Quiz and find out how much you know – and how much you need to learn.

If you would like to discuss an Internal Controls Review to determine your organization’s risk for financial fraud, please contact Tony Smeriglio, CPA, or submit the Contact Us form on this page. We are happy to help.

Retirement plan levels increase for 2012

After remaining constant for the past two years, the IRS announced an increase in the dollar limits on contributions and benefits for 2012. In announcing the increases, the IRS noted that the increase in the cost-of-living index exceeded the statutory thresholds, triggering the increased levels.

Will individuals be able to take advantage of these increased limits or will the unstable economy hold them back from reducing their disposable income? Only time will tell.

The levels for 2012 limits are as follows:

• Salary deferrals under a 401(k), 403(b) or 457(b) plans increase by $500 to $17,000 while the age 50 catch-up contributions remain unchanged at $5,500.
• Salary deferrals under a SIMPLE plan and age 50 catch-up contributions remain unchanged at $11,500 and $2,500, respectively.
• Annual compensation limit increases by $500 to $250,000.
• The defined contribution and defined benefits limits increase to $50,000 and $200,000, an increase of $1,000 and $5,000, respectively.
• Social Security taxable wage base rises to $110,100, an increase of $3,300.

If you have any questions about retirement plans, please email Frank Ardito, CPA, or Linda Kramer, CPA, or give us a call at 617-696-8900.

How to create a meaningful corporate philanthropy program

An interview with Randal Rucker, Chief Executive Officer, Family Service of Greater Boston

As the head of a leading Boston nonprofit organization, who also serves on the boards of private companies, Randal Rucker understands what it takes to build meaningful corporate philanthropy programs. A strong believer in corporate-nonprofit partnerships, Rucker discussed with us recently the factors that make a solid corporate philanthropy program.

Even in these tough times, Rucker says companies can make a meaningful impact with minimal resources.

Q. We hear a lot about the charitable programs of large corporations. How can a smaller company start a charitable program that won’t break the bank?

A. There are strategies a company should employ to help focus their program and make it effective and meaningful, even with small dollars:

• The company owner or board of directors needs to start out with a long-term commitment.
• They should set aside a specific amount of dollars for this effort.
• They need to involve the entire organization, from entry level all the way to the board. The company should survey its employees as to the top three to five issues they care about – education, healthcare, the environment, immigration, hunger and homelessness, for example.
• Once the areas of social concern are identified, the company should assemble a strong committee, including representatives of all levels, to perform due diligence on how their dollars can have an impact. Let’s say there’s a particular school the company wants to support. This committee should learn everything about the school, meet with its principal and staff to ascertain their needs. A small-scale effort of one company may not have a broad impact, but it will have a meaningful impact.
• When a relationship with a beneficiary organization is established, the company should commit to it for at least two to three years to have a lasting impact.

Read more in our full interview with Randal Rucker.

IRS offers employee misclassification ‘amnesty’

Under an “amnesty” program announced this week by the IRS, employers may reclassify independent contractors as employees and limit the resulting federal payroll taxes for their most recent tax year, plus avoid related penalties and interest for prior years.

The IRS outlined its new Voluntary Classification Settlement Program (VCSP), which allows eligible taxpayers to voluntarily enter into an agreement with the IRS. Participation is open only to employers that are not currently under audit by the IRS, the U.S. Department of Labor or any state agency for worker misclassification.

Generally, if an employer has the right to direct and control how a worker performs services for the employer, that worker is properly classified as an employee and the employer must withhold FICA and income taxes from wages and pay the employer’s share of FICA tax.

Proper classification of workers has been a perennial concern for employers, employees and the government.

To get a handle on the issue, the IRS last year sent thousands of audit letters to employers. Additionally, the IRS and the U.S. Department of Labor recently agreed to share information to reduce misclassification.

To participate in the VCSP, employers must submit an application and agree to prospectively treat workers or groups of workers as employees for federal employment tax purposes in the future, among other measures.

In return, employers will pay 10% of the employment tax liability otherwise due for the most recent tax year, which will not be subject to interest or penalties. In addition, the IRS will not conduct an employment tax audit with respect to the employer’s worker classification for prior years.

Visit the IRS web site for further details about how to participate in the VCSP.

If you would like help with employee classification or other employment issues, please contact Carol Magyar, CPA, MST, or give us a call at 617.696-8900.

 

Is it time for your private company to have a board of advisors?

By Anthony P. Smeriglio, CPA
President and Managing Director

You founded your company and you’ve grown it to its current level of success. So why would you want to turn to a board of independent advisors for guidance - especially when they might recommend a course of action that you aren’t comfortable with?

If your answer is “I wouldn’t - I know my business better than anyone,” you have a lot of company. Only about 5% of private companies have boards comprised of independent advisors or directors. The term “independent” means someone who is neither related to the owner nor has a vested interest in the company. In other words, someone who is objective but knowledgeable about the company’s capabilities and marketplace.

For many private companies, forming a board of advisors is a first step toward establishing the more formalized board of directors. As an interim step, it enables owner-founders to become accustomed to an added layer of accountability. However, a board of advisors usually does not have the formal authority that a legally-constituted board of directors has -- so the ability to say “no” to the board remains intact.

Is it time for a board of advisors?

As the economic and competitive landscape gets increasingly challenging, forming a board of advisors -- or the more formal board of directors -- is a move many company owners should consider.

Some of the benefits of having outside advisors include:

• Objective advice from people who know your business
• Varied expertise (i.e. legal, financial, operational) that can help you with trouble spots
• The ability to recognize problems early that are not apparent to management
• A layer of accountability for the owner and management, even if the board has no formal authority
• Potential for greater borrowing capacity when bankers know that you’re seeking and taking advice from outside advisors

How do you decide who should be on your board?

Think of people who care about your business and have expertise that would give them a valuable perspective, in areas such as technology, sales and marketing, and operations.

Board members should be willing to speak up and be the conscience of your business.

See our full report “Is It Time for Your Private Company to Have a Board of Advisors?” And please email or call us at 617-696-8900 if you would like to discuss the prospect of creating a board of advisors for your company.

Driving for business? IRS raises standard mileage rate

Bowing to pressure from Congress and recognizing that gas prices have increased dramatically since the first of the year, the IRS has announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of driving their personal cars for business and other purposes.

The rate will increase to 55.5 cents a mile for all business miles driven from July 1 through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of the year.

Because the rates for the first and second halves of the year will be different, taxpayers must be diligent about keeping good mileage records, including the dates of travel.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The mid-year increase is unusual, as the IRS normally updates the mileage rates once a year in the fall for the next calendar year.

"This year's increased gas prices are having a major impact on individual Americans," said IRS Commissioner Doug Shulman. "We are taking this step so the reimbursement rate will be fair to taxpayers."

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Mileage Rate Changes

G.T. Reilly Manufacturing Survey 2011

Small and mid-sized U.S. manufacturers are confident that 2011 will be a good year, with a solid majority expecting better results and more hiring this year despite concern over rising costs.

In a recent survey by Prime Advantage, a Chicago-based buying consortium for manufacturers:

• 72% of small and mid-sized manufacturers reported that their companies expect revenue increases in 2011.
• The top three cost pressures for 2011 are: the cost of raw materials (with 96% including it in the top three concerns), followed by inflation (52%) and healthcare (37%).
• 65% plan capital expenditures for manufacturing equipment and tools in 2011, greatly triggered by souped-up tax benefits allowing companies to expense 100% of certain equipment placed into service this year.
• More than 80% said their companies were developing more sustainable products, largely driven by customer requirements and compliance regulations.
• While 40% of respondents who source products from off-shore vendors are planning to bring sourcing back to North America, indicating a rebalancing in sourcing strategy, another 60% are planning to add more off-shore vendors.
• Almost half of surveyed companies believe there will be an increase in hiring over the next six months, and 49% expect employment to remain at 2010 levels.

If your company is a manufacturer, what’s your outlook for 2011? Take our quick G.T. Reilly Manufacturing Survey 2011 and let us know how you envision the rest of 2011. We’ll share the results with you by email after June 15. (Results depend on sufficient responses.)

We invite you to share this blog post and survey link with your manufacturing colleagues and vendors.

Got money in a foreign account? It’s time to tell the IRS

If you had money in a foreign bank account during the 2010 calendar year – either personal or business funds – it’s time to share that information with the government.

Any U.S. individual or entity (corporation, partnership, trust, etc.) who has a financial interest in or signature authority over a foreign financial account must file a Foreign Bank Account Report with the IRS if the aggregate value of all foreign financial accounts exceeds $10,000 during the calendar year.

The FBAR is due June 30, 2011, for the 2010 calendar year (ending December 31, 2010).

If a U.S. company has a foreign bank account and an individual at that company has signature authority over the account, then both the company and the individual need to file the FBAR forms.

The Treasury Department has initiated a new voluntary disclosure initiative whereby taxpayers who have foreign financial accounts that have gone unreported in prior years can file the delinquent reports. All reports from 2003 to 2010 must be filed, and delinquent reports must be filed no later than August 31, 2011. If there is unreported income due that was omitted from a taxpayer’s return(s), then amended or original tax returns need to be prepared to report the income and the additional tax that needs to be paid. Penalties will apply if there is any unreported taxable income.

If there is no unreported taxable income, then only the delinquent FBAR forms need to be filed along with an explanation as to why they are being filed late. No penalties will apply.

For further information on filing the FBAR, call us at 617-696-8900 or contact us here. More information from the IRS on the FBAR is available here.

401(k) or 403(b) plan? Nonprofits have a choice

Linda J. Kramer, CPA
Manager, Employee Benefit Services

Certain nonprofit organizations have a choice that corporations don’t have in selecting retirement plans for their employees. But there are pluses and minuses to both types of plans, and management and employees alike should be aware of what they are getting.

Until 1996, nonprofit 501(c)(3) organizations could only offer 403(b) plans to their employees. Similar to the more well-known 401(k) plan, the 403(b) offers employees the ability to save for retirement through payroll deductions that are sometimes matched by their employers.

In 1996, the law changed allowing nonprofit organizations to choose either the 403(b) or 401(k) plan for their employees.
Here are some key differences between the two types of plans:

• Unlike 401(k) plans, 403(b) plans are not subject to nondiscrimination testing requirement for salary deferrals. The rules that apply to 401(k) plans sometimes require salary contributions to be returned to highly-compensated participants due to the results of nondiscrimination testing. This cannot happen with 403(b) plans.
• Annual limits are the same for both a 403(b) plan and a 401(k) plan, except that the 403(b) plan may elect an additional form of catch-up contribution, giving participants more flexibility.
• 403(b) plans must follow the “universal availability” rule for eligibility to defer salary, meaning that if an employer permits one employee to defer salary into a 403(b) plan, they must extend this offer to all employees. However, some employees may be excluded, including:

1. Employees who will contribute $200 annually or less
   Employees who participate in a 401(k) or 457 plan, or in another 403(b) plan
2. Non-resident aliens
3. Employees who normally work less than 20 hours per week
4. Students who work for a school where they are pursuing study and are, therefore, exempt from FICA withholding

• In organizations with 403(b) plans, for the most part, participants are allowed to defer salary immediately upon hire and regardless of age, whereas 401(k) plans typically have a waiting period and age requirement.
• All plans must have written plan documents. 403(b) plans do not have the option to use pre-approved prototype documents that 401(k) plans may use; however, the IRS has hinted that this may change in the near future.
• 401(k) plans have a wide-range of investment options. 403(b) plans are restricted to custodial accounts invested in mutual funds or annuity contracts issued by insurance companies.

Until the 2009 plan year, ERISA 403(b) plans were not subject to the annual audit requirement that 401(k) plans were subject to. This provided a strong incentive for nonprofit organizations to stick with 403(b) plans. However, ERISA 403(b) plans with 100 or more participants are now subject to the audit requirement.

Some nonprofit organizations have established 401(k) plans in recent years, as the 401(k) is more well-known to their employees.

If your organization is looking to switch from a 403(b) plan to a 401(k) plan, here are some considerations to keep in mind:

• If your ERISA 403(b) plan has 100 or more participants, the audit requirement still stands for the plan until all participants have transitioned to the 401(k), or the participant count at the beginning of the plan year is reduced below 100.
• Some 403(b) plans cannot be terminated due to legal requirements. If your organization is determined to offer a 401(k) plan, it may have to maintain and administer both plans in order to fulfill its legal obligation to the 403(b) participants.

Please call Linda Kramer, CPA, or Frank Ardito, CPA, at 617-696-8900 with any questions about retirement plan services, or visit our web site for a detailed list of our retirement plan services.