KKAJ Blog Posts in Community

February 22, 2017

Manage Assets for Smooth Operations

As manufacturers look for every opportunity to cut costs, one important area to address is equipment downtime. A breakdown, even for just an hour, reverberates through the manufacturing process. It can slow or halt production, leave employees idle and play havoc with just-in-time delivery schedules.

If you're like some manufacturers, your approach to equipment maintenance and repairs is reactive: "If it ain't broke, don't fix it." In contrast, top manufacturers use enterprise asset management and perform predictive maintenance 70 percent of the time on average. In return, they average 96 percent machine availability. 
Basic asset management involves electronic gathering and interpreting of data for the purpose of keeping plants humming. It includes making an inventory of all property and equipment, monitoring its use, logging and analyzing maintenance and repairs, setting up maintenance schedules to prevent breakdowns, forecasting when to replace parts and keeping contracts, warranties and service agreements. 
Having a sound asset management system is like having a crystal ball. You'll know a machine's performance well enough to predict when to schedule maintenance. By doing so, you can prevent a breakdown or detect signs that parts are wearing out before they actually go. 
Unfortunately, that crystal ball has been out of reach for many manufacturers, primarily due to the heavy initial investment of capital and labor required. Another deterrent has been the difficulty of building an integrated system out of a smorgasbord of specialized software products from multiple providers. It is nearly impossible to find a provider that offers a total package. 
These issues are being addressed by software manufacturers, which should make asset management more accessible. For example, at least one vendor of plant automation software is offering modular, scalable systems so that you can begin modestly by monitoring one critical piece of equipment and add modules as your budget allows. In addition, the system is based on an open standard, which gives you flexibility to add compatible products from other software providers
January 24, 2017

Tax Fraud Awareness: How to Protect Your Identity and Assets

The IRS, taxpayers and tax preparers share a common enemy: identity thieves. We all have a part to play in the fight against tax-related identity theft. Your role starts by learning the mechanics and warning signs. From there, taxpayers can take proactive steps to protect their data online and at home.

Understand How Tax Fraud Happens

Dishonest individuals may steal taxpayers' personal and financial information from sources outside the IRS, such as social media accounts where people tend to share too many details or bogus phishing emails that appear to come from the IRS or a bank. Once they obtain an unsuspecting taxpayer's data, thieves may use it to file fraudulent federal and state income tax returns, claiming significant refunds. 

Paperless e-filing facilitates these scams: Thieves submit returns electronically, based on falsified earnings, and receive refunds via mail or direct deposit. Sure, the IRS maintains records of wages and other types of taxable income reported by employers, but they don't usually match these records to the information submitted electronically before issuing refund checks. By the time the IRS notifies a victim that it's received another tax return in his or her name, the thief is long gone and has already cashed the refund check. 
In addition to refund fraud, thieves may use stolen personal information to access existing bank accounts and withdraw funds — or open new ones without the taxpayer's knowledge. Criminals are becoming increasingly sophisticated and their ploys more complex, making identity theft harder to detect. 
Recognize the Warning Signs
Taxpayers are the first line of defense against these scams. The IRS lists the following warning signs of tax-related identity theft:
Your electronic tax return is rejected. When the IRS rejects your tax return, it could mean that someone else has filed a fraudulent return using your Social Security number. Before jumping to conclusions, first check that the information entered on the tax return is correct. Were any numbers transposed? Did your college-age dependent claim a personal exemption on his or her tax return? 
You're asked to verify information on your tax return. The IRS holds suspicious tax returns and then sends letters to those taxpayers, asking them to verify certain information. This is especially likely to happen if you claim the Earned Income tax credit or the Additional Child tax credit, both of which have been targeted in refund frauds in previous tax years. If you didn't file the tax return in question, it could mean that someone else has filed a fraudulent return using your Social Security number. 
You receive tax forms from an unknown employer. Watch out if you receive income information, such as a W-2 or 1099 form, from a company that you didn't do work for in 2016. Someone else may be using the phony forms to claim a fraudulent refund. 
You receive a tax refund or transcript that you didn't ask for. Identity thieves may test the validity of stolen personal information by sending paper refunds to your address, direct depositing refunds to your bank or requesting a transcript from the IRS. If these tests work, they may file a fraudulent return with your stolen data in the future.
You receive a mysterious prepaid debit card. Identity thieves sometimes use your name and address to create an account for a reloadable prepaid debit card that they later use to collect a fraudulent electronic refund.
If you suspect foul play, contact your tax preparer immediately. He or she can help determine whether you're a victim of tax-related identity theft and identify steps to remedy the situation. 
Take Preventive Measures
You may wonder how many taxpayers file electronic vs. paper returns. "There are 150 million households that file federal and state tax returns involving trillions of dollars…. More than 90% of these tax returns are prepared on a laptop, desktop or even a smartphone — whether they're done by an individual or a tax preparer. This is a massive amount of sensitive data that identity thieves would love to get access to.… With 150 million households, someone right now is clicking on an email link they shouldn't, or skipping an important computer security update, leaving them vulnerable to hackers," said IRS Commissioner John Koskinen in a recent statement about the Security Summit Group. (See "IRS Creates Security Summit Group" above.)
How can you actively safeguard your personal data online and at home? Here are four simple ways to thwart tax-related identity theft:
1. Keep your computer secure. Simple, cost-effective security measures add up. For example, use updated security software that offers firewalls, virus and malware protection and file encryption. Be stingy with personal information, giving it out only over encrypted websites with "https" in the web address. Also back up computer files regularly and use strong passwords (with a combination of capital and lowercase letters, numbers and symbols).
2. Avoid phishing and malware scams. Be leery of emails you receive from unknown sources. Never open attachments unless you trust the sender and know what's being sent. Don't install software from unfamiliar websites or disable pop-up blockers.
3. Protect personal information. Treat personal information like cash. Don't carry around your Social Security card in your wallet or purse. Be careful what you share on social media — identity thieves can exploit information about new car or home purchases, past addresses, vacations and even your children and grandchildren. Keep old tax returns in a safe location and shred them before trashing. 
4. Watch out for scammers who impersonate IRS agents. IRS impersonators typically demand payment and threaten to arrest victims who fail to ante up. The Federal Trade Commission recently issued an alert about police raids on illegal telemarketing operations in India that led to the indictment of dozens of IRS impersonators. Remember: The IRS will never call to demand immediate payment, nor will they call about taxes you owe without first mailing you a bill.
Another simple way to prevent someone from filing a fraudulent return is simply to file your return as soon as possible. The IRS begins processing tax returns on January 23. If you file a tax return before would-be fraudsters do, their refund claims are more likely to be rejected for filing under a duplicate Social Security number. 
Join the Fight 
The deadline for filing your 2016 return is fast approaching. The IRS expects more than 70% of taxpayers to receive a refund for 2016, and it's on high alert for refund fraud and other tax-related identity theft schemes. You can help the IRS in its efforts to fight tax fraud by watching for these warning signs and safeguarding your personal and financial information.
IRS Creates Security Summit Group
In 2015, the IRS formed the Security Summit Group, a collaboration of federal and state tax agencies and tax practitioners to find new ways to protect taxpayers and safeguard the tax system. In 2016, Security Summit Group efforts led to a 50% reduction in the number of new reports of stolen identities on federal tax returns compared to 2015.
One example of the new-and-expanded safeguards for taxpayers is the introduction of a Form W-2 Verification Code. Starting this tax season, certain payroll service providers will have to supply this 16-digit code to help the IRS validate wage and tax withholding information. The code is expected to appear on approximately 50 million W-2s in 2017, up from 2 million forms in 2016.
If your W-2 contains the code and you file taxes electronically, make sure your tax preparer enters it on your 2016 tax return. The IRS will still accept your tax return without the code. But including it could help speed up your refund and reduce requests from the IRS to provide additional information to verify your identity.
June 24, 2016

When Not-for-Profit Organizations Join Hands

It doesn't happen often, but sometimes not-for-profit organizations merge or are incorporated into one another. For example, your not-for-profit may be contemplating an acquisition of a smaller organization or perhaps you may be merged into a larger organization. In either event, this represents a significant change for managers both personally and professionally. 
What causes not-for-profit organizations to join forces? After all, groups generally start off with a distinct mandate and a commitment from its supporters. Of course, the reasons vary according to actual circumstances, but most mergers and acquisitions in the not-for-profit world can be traced to one of these two reasons:
1. Duplication of effort - In these cases, both not-for-profits have essentially the same mission with the same basic objectives. Their collaboration is logical, especially when considering the economies involved. One may not be able to compete financially. Together, they can accomplish more at a lower overall cost. 
2. Image concerns - An organization that has been rocked by a highly-public scandal or some other event may find it difficult to recover. In this situation, a "white knight" may ride to the rescue in the form of another not-for-profit. Through acquisition, the organization can continue to grow and evolve.
At this point, it is worth noting that there are technical differences between a "merger" and "acquisition." Essentially, a merger occurs when one not-for-profit joins with another to create a separate entity. 
On the other hand, an acquisition is slightly more complicated. Typically, one not-for-profit will incorporate the other into its charter. If certain requirements are met, an acquisition may even involve a for-profit activity. 
The Financial Accounting Standards Board (FASB) issued proposed guidelines in this area (see right-hand box). Under the FASB guidelines, two not-for-profits may consolidate when one owns more than 50 percent of the other entity's outstanding voting stock or it controls a majority of the voting interests of the other governing board and has an economic interest in the entity. In this situation, an "economic interest" may be represented by a subsidiary organization set up to protect the nonprofit or when the entity's charter states that it will dissolve upon acquisition.
To effect a consolidation, the not-for-profit organization must remove from its balance sheet account balances, transactions and losses on assets remaining in the consolidated entity. For this purpose inter-organization investments and net assets of the subsidiary are not counted. If the organization does not completely own the other entity, it must report the minority interests.

Potential Risks of Joining Together

There are a number of risks that can arise in not-for-profit M&A transactions:
Inheriting financial problems. Many organizations that are looking to merge or be acquired are deteriorating. Financially viable not-for-profits aren't usually looking for these opportunities.
Culture clashes. Do the two organizations have similar philosophies and missions? Are their services complementary?
The fate of the executive director. Will he or she be forced to leave the organization? 
The composition of the board. Will the two boards combine or will a limited number from each organization be allowed on the new board?
This is just a general overview of the complexities involved in a not-for-profit merger or acquisition. If the possibility arises at your organization, consult with your accountant to help steer you down the right path. The due diligence process is critical so you can uncover the opportunities and liabilities involved in potential transactions.

Proposals for Not-for-Profit Mergers and Acquisitions

To help ensure consistency in mergers and acquisitions for not-for-profit organizations, the Financial Accounting Standards Board (FASB) proposes:
•Eliminating use of the pooling-of-interest methods of accounting.
•Recognizing identifiable assets acquired and liabilities assumed that are included in the merger or acquisition.
•Measuring assets and liabilities at their fair market value on the acquisition date.
•Realizing goodwill or gifts based on the value of acquired assets, liabilities assumed and any other consideration received.
•Fully disclosing information that will enable professionals to evaluate the nature and financial effects of mergers and acquisitions.
May 11, 2016

Made in America: The Pursuit of Life, Liberty and Global Opportunities

This election season, Republicans and Democrats don't seem to agree on much. But 95% of voters — regardless of which U.S. presidential candidate they favor — support American-made products. The vast majority of Americans also favor training programs, trade enforcement, tax incentives and a national strategy to support U.S. manufacturing, according to the Alliance for American Manufacturing. This organization is a not-for-profit, nonpartisan partnership of leading domestic manufacturers and the United Steelworkers labor union.
With the momentum that's building behind the Made-in-America label, it may be time for your business to rethink its supply chain partners and marketing strategy.
Assessing the Current State of U.S. Manufacturing
Manufacturing is by far the most important sector of the domestic economy in terms of total output and employment. It represents a significant portion of the total jobs in many southern and midwestern states, including:
•Mississippi, and
In turn, the manufacturing sector also impacts the demand for goods and services from other sectors, such as energy, construction, accounting, engineering, software, and temporary help firms. 
Over the last few decades, millions of manufacturing jobs have been lost in the United States. The primary culprit has been outsourcing to nations with lower wages and fewer regulations, such as China and Mexico. The United States has also been slow to recover from the recession that spanned from 2007 to 2009. Other reasons for manufacturing job loss include reduced spending on infrastructure by state and federal governments, as well as inadequate public policies on taxes, education and energy.
States that have lost more than 200,000 manufacturing jobs since 1998 include:
•North Carolina,
•New York,
•Pennsylvania, and
That trend may slowly be reversing, however. Negative publicity related to quality control issues, shipping delays caused by natural disasters, high international shipping costs and increasing foreign wage rates have led to resurgence in the reshoring movement. Additionally, outsourcing and the U.S. trade deficit are currently political hot buttons, especially in parts of the country dealing with significant manufacturing job loss. 
The Reshoring Initiative — a not-for-profit group committed to bringing back U.S. manufacturing jobs — reports that more than 249,000 jobs were reshored from 2010 to 2015. Last year was the second consecutive year that the number of jobs returning to the United States was slightly higher than the number of jobs leaving. (By comparison, our net loss of manufacturing jobs to offshore locales was about 220,000 per year from 2000 to 2007.) 
But there's a long way to go before we break even. The Reshoring Initiative estimates that there are currently 3 million to 4 million manufacturing jobs still offshore.
Retooling Your Strategy
Regardless of your political affiliation, you might want to jump on the reshoring bandwagon. Many U.S. consumers are willing to spend more for products that are made domestically to support the U.S. economy. So, the Made-in-America label can add value by creating goodwill and bolstering your company's perceived brand image.
According to the Reshoring Initiative's 2015 Data Report, there are many other benefits to bringing manufacturing operations back into the United States, including:
•Increased control over suppliers, 
•Fewer communication obstacles with local suppliers,
•Reduced risk of intellectual property theft, 
•Higher product quality, leading to fewer product liability concerns and recalls, 
•Closer IRS scrutiny of foreign sources of income,
•Closer proximity to customers, leading to lower shipping costs, 
•Fewer shipping delays, and
•Access to a more skilled, diverse labor pool.
The reshoring trend shows no sign of slowing as the reasons for doing business domestically continue to grow — and the financial incentives to seek greener pastures offshore continue to diminish. Many of these companies are choosing to reshore to southern states, which tend to offer comparatively low state tax rates and employer-friendly right-to-work laws, which reduce the bargaining power of unions.
Labeling for Success
Before you redesign your packaging to include the American flag or launch a Made-in-America advertising campaign, however, it's important to review relevant Federal Trade Commission (FTC) standards with your legal advisers. In a nutshell, you can't legally claim that a product is American-made unless final assembly takes place here and the majority of total manufacturing costs are spent on domestic parts and processing. This may require you to revise where your plant operates and which suppliers you use. 
Compliance with these rules is more complicated when a product's various components are manufactured in multiple locations. The FTC allows qualified claims when a product is made in several countries. For example, a company can spell out clearly the percentage of a product's content that's made in the United States. Or manufacturers can use qualified phrases such as an appliance that is "assembled in the USA from imported parts," or a pillow that is "made in China, filled in the USA."
A Made-in-America claim can also be implied. For example, images of an American flag or an outline of a U.S. map may convey domestic origin. The same may be true of a company ad in which a manager describes the "true American quality" of products that come from its factories.
Think It Through
For some businesses, using offshore manufacturing sites and suppliers continues to make sense financially or strategically, especially for businesses that rely primarily on less-skilled workers; offer low-tech, commoditized products; or sell to customers overseas. Deciding which countries to operate in is complex and involves numerous quantitative and qualitative factors. Relying on gut instinct or simply "following the industry leader" can be risky business.
Contact your legal, financial and tax advisers to help determine whether reshoring makes sense for your specific business. If so, your team of advisers can also explore state economic development incentives to find the most advantageous place for you to resume business in the United States.
Exporting to Reduce the U.S. Trade Deficit
"Reshoring" manufacturing jobs back to American communities from foreign soils isn't the only way to reduce our trade deficit. The U.S. economy can also expand by exporting more products to foreign consumers. More than 95% of the world's consumers live outside the United States, according to data published on the federal government's BusinessUSA website.
In February 2014, President Obama launched the "Made in Rural America" export and investment initiative. The purpose of this project is to provide federal resources to help rural businesses and community leaders take advantage of global exporting opportunities. Rural communities, including the Appalachian and Delta regions, have been hit especially hard by manufacturing job loss in recent years. This initiative is a joint effort of the U.S. Department of Agriculture, the U.S. Department of Commerce, the Small Business Administration, the Export-Import Bank, the Office of the U.S. Trade Representative and other federal agencies. 
Here are some of the resources the Made in Rural America initiative has provided over the last two years to further export opportunities:
Regional forums. These half-day workshops help teach rural business owners the basics of exporting, accessing federal support and participating in major trade events, trade shows and overseas trade missions. 
Export counseling. Trade specialists in over 100 domestic locations help rural businesses connect with foreign buyers through the Department of Commerce's U.S. Export Assistance Centers and in collaboration with field staff from the Department of Agriculture. 
BusinessUSA online platform. This website serves as a "one stop shop" that matches businesses to export and investment resources provided by the federal government.
For more information on exporting opportunities and public resources, rural business owners can sign up for email alerts or discuss matters with their financial and legal advisers.
December 2, 2015

Last-Minute Tax Savings: Hurry Before Time Runs Out

Another tax year is drawing to a close. But there's still time for individual taxpayers to trim their tax liabilities for 2015 and beyond, before the New Year begins. Here are 10 eleventh-hour moves that you can still make before the clock strikes midnight on January 1.
1. Increase Your 401(k) Deferral 
Consider increasing your 401(k) deferral for the last few paychecks of the year. Doing so can add to your retirement savings and lower your tax liability. Many taxpayers will have plenty of room to spare with an annual deferral limit of $18,000 in 2015 ($24,000 if you're age 50 or over). It's especially easy to do if you've exceeded the Social Security wage base of $118,500 in 2015 — if you just allocate the Social Security tax savings to your 401(k) account, you won't cut your take-home pay.
2. Assess Your AMT Situation
With the help of your tax adviser, you should have enough information in December to make a reasonable estimate of whether you'll be subject to alternative minimum tax (AMT) for 2015. Don't panic if it looks like you'll owe significant AMT in 2015 — there's still time to take steps to lower your income for AMT purposes. For instance, you may be able to postpone certain tax preference items (such as tax-exempt interest on certain private activity bonds). Also, consider deferring expenses that aren't deductible for the AMT (such as state and local taxes) to next year so you don't lose the benefit of the deduction. 
3. Take Your RMD
Generally, you need to take required minimum distributions (RMDs) from qualified retirement plans and traditional IRAs every year once you hit age 70½. Contact your tax adviser immediately if you've waited this long to arrange an RMD for 2015. The penalty for failing to take an RMD equals 50% of the amount that should have been withdrawn — and that's on top of the regular tax. The amount of your RMD in 2015 is based on IRS life expectancy tables and account balances on December 31, 2014.
4. Visit Your Doctor or Dentist
Unreimbursed medical and dental expenses are deductible only to the extent that the annual total exceeds 10% of your adjusted gross income (AGI) or 7.5% of AGI if you're age 65 or older. If you're close to this threshold (or you've exceeded it), additional elective expenses — such as a dental work or eyeglasses — can boost your deduction. If your medical and dental expenses are too low to be deductible, you might as well wait until next year to visit a health care professional for services that aren't covered by insurance (unless it's an emergency situation).
5. Convert to a Roth IRA
Invest in your future by converting all (or part) of a traditional IRA to a Roth IRA this year. Unlike distributions from traditional IRAs, which are fully subject to tax, qualified distributions from a Roth IRA — generally, those made after age 59½ — are 100% tax-free after five years. But you must pay tax in the year of the conversion. Typically, it makes sense to convert IRA funds over several years to lessen the tax bite in a given year and avoid being pushed into a higher tax bracket. This strategy generally makes more sense if you're in a lower tax bracket today than you expect to be in when you receive retirement distributions. Although a Roth conversion will actually increase your taxes in 2015, it might save significant tax in future tax years.
6. Support a College Graduate
If your child graduated from college this year and is under age 24, you may claim a dependency exemption for him or her as long as you provided more than half of the child's support in 2015. However, it might be difficult to clear that threshold, especially if the child has landed a job that pays well. Barring other extenuating tax circumstances (for example, a potentially high "kiddie" tax), consider making this holiday season extra-special by giving a generous cash gift that will help support your child — and put you over the support threshold for the tax year. 
7. Prepay Tuition for Next Semester
Parents of children enrolled in higher education programs may qualify for one or two higher education credits: the Lifetime Learning credit and the American Opportunity credit. If you pay next semester's tuition before January 1 — even for a semester beginning as late as March 2016 — some or all of the expense may reduce your tax liability dollar-for-dollar for 2015. Unfortunately, these credits are gradually phased out for higher-income parents. Other rules and limits apply, so be sure to contact your tax adviser before implementing this strategy.
8. Prepay Expenses on Real Property
Assuming you don't owe an AMT liability and don't expect to be in a higher tax bracket next year, it generally makes sense to accelerate deductible expenses into the current year to reduce your 2015 tax bill. Then you can worry about your 2016 tax bill next year end. 
Among the largest itemized deductions for most taxpayers are mortgage interest and property taxes on their personal residences and vacation homes. Homeowners can lower their 2015 taxes by prepaying mortgages and state and local property taxes in December 2015 that are due in early 2016. 
9. Sell Securities
Keep taxes in mind as you plan year-end stock transactions. Net long-term gain is taxed at a maximum rate of 20% for those in the top income tax bracket. If you expect to have a net capital gain, losses resulting from the sales of securities can offset the gain plus up to $3,000 of ordinary income. Alternatively, if you have a net loss, any capital gains from sales are tax-free up to the amount of the loss. If you want to claim a transaction for the 2015 tax year, the trade date must be on or before December 31.
10. Charge Your Donations
If you itemize expenses on your personal tax return, you can deduct charitable contributions made to a qualified organization in 2015 as long as they're charged before midnight on January 1 — even if you don't pay your credit card bill until 2016. Mailed checks must be postmarked on or before December 31 to be deducted on your 2015 tax return.
November 12, 2015

Tax Advice for Military Families and Veterans

Members of the U.S. Armed Forces and veterans are required to pay taxes on their income like everyone else. But special rules sometimes apply. Here's an overview of key tax benefits that the IRS provides to military personnel to thank them for risking their lives for our country.
Combat Zone Exemption
One of the most significant tax breaks for active military members is that they don't owe taxes on income earned while working in so-called "combat zones." A combat zone is essentially an area in which Armed Forces are or have been engaging in combat. These zones also include a number of locations where service members are stationed to support forces in a combat area. 
Currently, three areas are designated as combat zones:
1. Arabian Peninsula,
2. Kosovo, and
3. Afghanistan.
In addition, three parts of the former Yugoslavia — Bosnia and Herzegovina, Croatia, and Macedonia — have been designated as "qualified hazardous duty areas" that are treated as combat zones for federal tax purposes. Your tax adviser can provide a list of specific combat zones and areas used to support operations there. 
When it comes to excluding military pay earned in combat zones, there are some limits. Nontaxable income generally is capped at the highest enlisted pay level plus hostile fire or imminent danger pay. For 2015, the applicable amount is $8,119.50 per month. In addition, these exclusions are available only for those on active duty or hospitalized due to injuries sustained while serving in a combat zone. Bear in mind that the hospitalization needn't be in a combat zone.
Moving Expenses
Frequent relocations are a fact of life for most military families. Those in the military may claim qualifying unreimbursed moving expenses, such as travel, storage and moving service costs. If a military member is on active duty and moves because of a permanent change of station, he or she doesn't even have to meet the time and distance tests in order to claim moving costs.
A permanent change of station includes moves from: 
•Home to the member's first post of active duty,
•One permanent post of duty to another, and
•The last post of duty to home or to a nearer point in the United States.
 In general, military members also aren't required to include in gross income moving and storage costs reimbursed by the government when a change of station is permanent. If the reimbursed expenses are not included in income, they may not be claimed as an expense.
Special Itemized Deductions
Military members and reservists may be allowed to deduct unreimbursed expenses for the cost and upkeep of uniforms if regulations ban them from wearing the uniforms off duty. Qualifying expenses also may include articles that don't replace regular clothing, such as insignia of rank, corps devices, epaulets, aiguillettes and swords. 
In addition, military members may deduct qualifying unreimbursed professional dues and educational costs directly related to their positions in the Armed Forces.
Military Family Tax Relief Act
Military members may be entitled to other special tax breaks under the Military Family Tax Relief Act, such as:
•A tax-free $12,000 death benefit payable to survivors for deaths occurring after September 10, 2001. Previously, the death gratuity was $6,000 and only $3,000 was tax-free.
•Option to suspend the five-year ownership-and-use period before the sale of a residence for up to 10 years for taxpayers on qualified official extended duty.
•Unreimbursed overnight travel expenses (including gas, food and lodging) for National Guard members and reservists who are reporting for duty more than 100 miles away from their residence. This benefit is available even if a taxpayer doesn't itemize deductions and instead opts to take the standard deduction.
•Tax-free payments to offset the adverse effects on housing values of military base realignments or closures under the Department of Defense Homeowners Assistance Program.
•Tax-free dependent care assistance programs.
To learn more about the rules and exceptions, discuss these benefit programs with your tax adviser.
Special EITC Rules
Because military personnel can exclude income earned during service in combat zones, veterans' benefits, and other basic living allowances from gross income, they often have an easier time qualifying for the earned income tax credit (EITC). The amount of this credit varies depending on the number of children the taxpayer has and his or her taxable wages.
The refundable EITC generally helps lower to middle-class households and it's subject to certain income caps. In 2015, the caps range from $14,820 for a single taxpayer with no children to $53,267 for a married taxpayer who files jointly and has three or more children.
Until a taxpayer exceeds the income cap, the more earned income reported, the higher his or her EITC will be. The IRS permits Armed Service members the option of declaring certain nontaxable items (such as combat zone pay and basic allowance for housing and subsistence) as earned income when calculating the credit. 
Important note: If you make this election, you must include in earned income all nontaxable combat pay you received. If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election.
This election doesn't make sense for every taxpayer. So, it's important to calculate the credit with and without the election to determine which method provides the greater tax benefit.
Tax Deadlines and Extensions
Service members stationed abroad have until June 15, 2016, to file their 2015 income tax return. Members of the Armed Forces may be eligible for an additional 180-day extension if they:
•Serve in a combat zone,
•Serve outside of the U.S., away from their permanent duty station in a contingency operation,
•Spent time in a "missing status," such as missing in action or as a prisoner of war,
•Are support personnel (for example, Red Cross personnel), or
•Are spouses of service members serving active duty in combat zones or contingency operations.
Taxpayers who qualify for extensions must file their taxes 180 days after:
•The last day they're in the combat zone or serve in a contingency operation,
•The last day of any continuous qualified hospitalizations for injuries sustained during service in combat zones or during contingency operations.
The deadline is extended beyond these 180 days by the number of days remaining for an individual to take action with the IRS before he or she started duty in a combat zone or contingency operation.
Tax Benefits for Veterans
Favorable tax treatment for military personnel extends beyond the dates of their active service. Veterans who served at least 24 continuous months in active duty and aren't released with "dishonorable" status may be eligible for continuing benefits, including life insurance, health care, education and training programs, home loans, and disability compensation. 
Although veterans are required to pay taxes on retirement pay, qualifying disability pay isn't taxable and doesn't need to be reported. Pensions are also a tax-free benefit for veterans with little or no income who are 65 years of age or older or who are permanently disabled because of a service-related incident or cause.
In many cases, veterans' benefits extend to family members. For example, a veteran's surviving spouse may be entitled to tax-free monthly "dependency and indemnity compensation," including additional payments for dependent children, if the deceased military member died or became permanently disabled during active service or from a service-related incident or condition. Low-income surviving spouses and children may also receive a survivor's pension for a deceased veteran with wartime service. The government even offers tuition and education assistance to survivors and dependents of deceased or permanently disabled veterans.
Additionally, each state maintains its own Veterans Affairs office that provides benefits to veterans. If you're a veteran, ask your tax adviser for more details on what types of benefits you qualify for at the state and federal levels. 
Pass It On
Whether they're active or discharged from service, members of the Armed Forces have risked their lives to preserve and protect the American way of life. These tax breaks are a small token of appreciation offered by the government. Share these tips with the service men and women in your life this holiday season. 
July 14, 2015

Keep Your Company Running Smoothly With a Smart Strategy

In any company, making employees familiar with more than one job is critical to developing the business and dealing with the unexpected. A sure-fire strategy for coping with unforeseen circumstances is a cross training program. 

Learning more than one job gives team members a look at the whole operation and keeps them motivated. It also saves money and builds a solid succession plan. 
Above all, cross training makes your staff more valuable and helps ensure that your company will never be held hostage by employees who regard themselves as "indispensable." 
So train your filing clerk to fill in for the receptionist, train the receptionist to cover for a sales rep and train one department head to fill in for another. 
Here are seven cross training tips to keep your company in top condition: 
•Facilitate the buy-in. Present cross training as a learning opportunity for everyone. Ask staff members for suggestions and feedback. 
•Help them see the big picture. Written job descriptions are useful, but they shouldn't be carved in marble. Let descriptions cover secondary, overlapping duties. Employees get a better understanding of the whole process and a glimpse of opportunities in the company. 
•Start a lending program. Let one department borrow an employee from another department to play a role in a project. Let's say you want to put out an annual report. Allow a clerk in accounting to help out on that project. It may take only a few hours a week, but it gives the employee a sense of value, which is critical to job satisfaction and retention. It also helps avoid the problem of departments becoming too proprietary and seeing themselves as isolated instead of part of a process. 
•Set up a "honcho for a day" program. Give solid performers a one-day training session as a department head. Top managers and their assistants can cross-train in different positions. Another technique: When a manager is traveling or on vacation, let a top employee fill in, rather than automatically turning to another manager. Having the added perspective of being in charge even for a little while may help these employees to begin to think in terms of problem solving, rather than always turning to managers for solutions. It may also cause employees to have a new appreciation for what is involved in managing. 
•Shake things up. Cross training can revive poor performers. Temporarily moving to a different job or department can cause warning bells to go off. Often, the employees return to their usual jobs with a better attitude. 
•Rotate jobs. Put staff members in other positions for anywhere from one month to six months. Make them completely responsible for the jobs, rather than treat them as trainees. They may complain at first, but you can point out to them that knowing more than one job makes them more valuable. 
•Groom for the future. Start training successors for key positions while top managers are still on board. This prevents a succession crisis. Identify all the positions that are critical to a smooth operation, then train likely candidates to assume those jobs. After all, you could lose a key manager without warning, so it pays to be prepared. 
A well-planned cross training program can boost motivation, increase productivity, rejuvenate departments, and promote teamwork. If it's not a cure for what ails your company, it's certainly a good start. 
May 26, 2015

Don't Make These Financial Mistakes

If you're serious about achieving your financial goals, you need to make sure to avoid these financial mistakes:
Not planning.  Many people earn, spend, save, and invest without much thought or planning. With only vague goals, it's difficult to assess whether you are making much progress. Goals help set your financial priorities and provide motivation to reduce spending and save for the future. Quantify your ultimate goal as well as interim goals so you can track your progress.
Not saving and investing now.  Don't use the excuse that you don't have enough money to start saving for your financial goals. Even if you only start out with small amounts, you need to make saving a habit. Over the years, you can increase your rate of saving. 
Not communicating.  For many, financial matters are still difficult subjects to discuss, even with a spouse. It is important to discuss your views on a variety of financial issues, paying particular attention to potential sources of conflict. Understand each other's views about earning, spending, saving, investing, and borrowing.
Does one of you like to save money, while the other prefers to spend it? Does one feel comfortable with high debt levels, while the other can't stand the thought of paying interest? Different money issues will be more important at one stage of your marriage than at another. Thus, you may find you have no money disagreements for years, only to be faced with an issue you can't agree on.
Not diversifying your assets.  While you want to make sure your investment portfolio is adequately diversified, there are other aspects to consider. If you work for a company in a volatile industry, your spouse might want to seek employment at a more stable company. No matter where you work, don't purchase too much of your company's stock.
Also keep an eye on the outlook for your home's value, where the appreciation potential is often tied to the economic growth in your area. If your area is dominated by a certain industry, the prospects for that industry can impact your home's value. Thus, you may not want to own stocks in that same industry.
Not protecting yourself from financial catastrophes.  While no one likes to think that bad things can happen to them, the reality is that no one knows if a financial disaster is right around the corner. Set up an emergency cash reserve to deal with short-term setbacks, such as a temporary job loss, a short-term disability, a major home repair, or a large medical bill. Assess all your insurance needs, including life, health, disability, long-term care, homeowners, automobile, and personal liability.
Not seeking help.  The process of coordinating and organizing your finances can seem overwhelming. Don't make the mistake of thinking you have to take care of everything yourself.

May 12, 2015

Fight Back Against Internal Fraud

Internal fraud drains more than $3.7 trillion annually from global businesses, according to recent estimates, and not-for-profit organizations are not exempt. 
The median loss suffered by a not-for-profit group victimized by fraud was $90,000, according to the 2014 Report to the Nations by the Association of Certified Fraud Examiners (ACFE).Although organizations can experience pilferage from volunteers, vendors and other sources, employees account for the highest losses, when factoring in offenses such as fraudulent insurance claims, unauthorized time off and theft of proprietary information. Crimes can be as simple as stealing supplies or as complex as sophisticated financial statement fraud.
More specifically, fraud by managers and key executives generates the highest dollar losses because these employees are in a good position to falsify financial, credential, work-related or test-related documents for personal gain.
What can your organization do to prevent theft? The report by the ACFE found these measures are effective: 
Improve internal controls. For example, do not allow the same employee to keep books, collect funds, write checks and reconcile bank accounts. Arrange for monthly bank statements to be delivered unopened to the head of your organization, who should review them for unusual transactions, such as declining deposits and checks to unfamiliar parties.
Conduct background checks on new employees.
Arrange for fraud audits by the organization's outside accountants. CPAs can conduct regular independent reviews of cash accounts, bank statements and other items to detect criminal activity. "Surprise audits are often an effective, yet underutilized tool in the fight against fraud," according to the ACFE report.
Be willing to prosecute perpetrators. Most not-for-profit and for-profit organizations that are victimized by fraud report the cases to law enforcement. The main reasons some people took no legal action: They were afraid of bad publicity; reached a private settlement; wanted closure; or considered internal punishment sufficient. 
Provide ethics training for employees. Educate staff members about the possible sources of fraud and consequences, such as the loss of jobs, raises and profits. 
Institute anonymous fraud reporting mechanisms, such as hotlines. Fraud is commonly discovered through tips from employees, vendors, members or other sources. These people are frequently in a position to see violations of an organization's standards or excessive personal spending by a colleague.
Install workplace surveillance devices. For example, a video camera monitoring a place in your building where theft is suspected. 
Look for behavioral red flags including the perpetrator living beyond his or her means and having financial difficulties. They can also involve an unwillingness to share duties, a "wheeler-dealer" attitude, divorce or family issues, addiction problems, refusal to take vacations and an unusually close association with vendors or customers.
Take a zero tolerance stand on fraud. With a few basic procedures in place, internal theft can be significantly reduced -- or even eliminated -- so your not-for-profit organization can flourish.
- Male employees account for 66.8 percent of fraud losses, while women are responsible for 33.2 percent of losses. 
- Small organizations are the most vulnerable because of a lack of basic internal control measures. 
(Source: 2014 Report, Assn. of Certified Fraud Examiners)
March 17, 2015

Industries that Could Be Booming as the Baby Boomers Age

The Baby Boomer generation -- a population "boom" of nearly 80 million people born from 1946 to 1964 -- has been affecting consumer market trends for decades. Now they're ushering in a new wave of trends as they transition to the next stage of their lives as retirees, grandparents and mentors. But as consumers, their attitudes and buying habits are often unlike those of preceding generations.
On average, people in this generation will live longer than any previous generation, and they collectively control an estimated 70 percent of the nation's disposable income, according to consumer research firm Nielsen. A recent spotlight report, Booming: Industries Benefiting from the Aging Population, published by IBISWorld, provides examples of industries that are positioned to take advantage of this generation's spending habits. Even if your business doesn't operate in one of the industries mentioned in the IBISWorld report, focusing on how you might better serve the evolving needs and wants of Baby Boomers could reap a significant payoff. 
Here are six emerging market trends and some examples of the specialty niches that stand to profit from the aging baby boomer population:
1. Ready, Set, Retire
The youngest Baby Boomers turned 50 last year, and the oldest will turn 70 in 2016. Many employed Boomers expect to retire over the next decade, requiring their employers to find suitable, skilled replacements. This could worsen labor shortages in certain industries -- such as manufacturing and trucking -- that employ a significant number of Baby Boomers. 
On the other hand, self-employed Baby Boomers may hold assets or stock that they plan to sell to fund retirement. As these business owners plan their exit strategies, IBISWorld expects financial advisers, tax planners and business appraisers to experience a boom in revenue growth.
2. Bon Voyage
After they leave the workforce, many retirees will spend their savings on "bucket list" items while they're still healthy and mobile. As a result, upscale international tour and cruise companies offering trips to such places as Machu Picchu, the Great Wall of China, Ireland, Australia and the Greek Isles are likely to see revenue growth. 
In conjunction with this trend, IBISWorld also predicts an uptick in revenue for travel insurers who provide trip cancellation, delay protection, emergency medical and accidental death coverage. Baby Boomers with pre-existing conditions may be willing to pay higher premiums, contributing to the expected growth of travel insurers.
3. Good-Deed Doers 
With extra time on their hands, some retirees are expected to volunteer to help their favorite charities or mentor younger generations in business or life skills. This is good news for not-for-profit entities, such as churches, homeless shelters, animal adoption agencies and educational organizations. 
Baby Boomers are among the most generous demographics when it comes to donating cash, vehicles and other assets, according to the latest Giving USA study. But many Baby Boomers also want to be actively engaged in philanthropic activities to foster self-worth and give back to their communities during their retirement years.
4. Encore Entrepreneurs
Not every Baby Boomer plans to retire to a life of leisure after leaving corporate and other jobs, however. Some will decide to start their own businesses, especially middle managers who left involuntarily during the recession and have the requisite capital and experience to be self-employed. Rather than return to the "rat race," they may opt to pursue alternative careers, often based on a hobby or special interest that provides freedom and flexibility. The Small Business Administration calls these startups "Encore Entrepreneurs," and they are likely to further increase revenue for other types of businesses.
5. An Apple a Day 
Never call a Baby Boomer "old," although some might be retirees and grandparents. The average Boomer feels nine years younger than his or her chronological age, according to a report by Pew Research Center. As a result, this generation tends to be more active, adventurous and independent than previous generations. Specialty niches that are benefiting from these traits include manufacturers of cosmeceuticals (cosmetics with anti-aging additives), yoga and Pilates studios, chiropractors, orthopedic clinics and plastic surgeons.
Due in part to a focus on health, Medicare beneficiaries became eligible for "wellness" visits to their doctors in 2012, providing an increased focus on nutrition, supplements, sleep and exercise. Health food stores and nutritionists are also helping Boomers pursue preventive care to help keep chronic illness at bay. 
6. A Spoon Full of Sugar
IBISWorld predicts that Baby Boomers, when they do get sick, will demand more frequent and better quality medical care. Companies that are expected to thrive as the health of Baby Boomers deteriorates are those focused on minimizing medical costs and facilitating new treatments, such as:
Concierge doctors. These practices, also known as boutique or retainer-based providers, charge fixed fees and take on a limited number of patients. The upside for patients is enhanced, more personalized access to physicians and special services. The upside for the doctors is that they receive more money for seeing fewer patients and gain more control over the way they practice medicine.
Pharmacy benefits managers (PBMs). These third-party administrators help contain the cost of prescriptions by handling all aspects of benefit plans, including negotiations with pharmaceutical companies for discounts, retail networking and claims processing.
Medical marijuana stores. In states where it's legal, medical marijuana is prescribed for many of the ailments that affect people over 50, including cancer, glaucoma and Alzheimer's disease. IBISWorld expects the medical marijuana market to grow at an annualized rate of approximately 27 percent over the next five years.
What's Next?
The IBISWorld report and this article highlight just a few examples of current market trends caused by the aging Baby Boomer population. But creative business owners can brainstorm many other products and services that will appeal to this influential demographic. In doing so, it's important to look to the future. In another decade or two, the needs of Baby Boomers may start to include such offerings as home health care, independent living facilities and even funeral services. 
Alive and Well
In the meantime, who says Baby Boomers need to age gracefully? Barack Obama, Bill Gates, Holly Hunter, Johnny Depp and Madonna are just a few examples of iconic Baby Boomers who are redefining aging. As many people in this demographic near the traditional retirement age, they're revolutionizing consumer market trends. Businesses that capitalize on current trends and stay one step ahead of the demand curve stand to reap a healthy return on investment. 
How Baby Boomers Influence Housing Market Trends
One sector that has grown alongside baby boomers is residential construction. In the 1980s and 1990s, many Baby Boomers built large, two-story homes in which to raise their families that were located in high-paying job markets. Now empty nesters, many Boomers plan to downsize and relocate to cities with warmer weather and lower costs of living. 
In December 2014, the National Association of Realtors (NAR) named the following 10 U.S. markets those with highest appeal to Baby Boomers:
1. Albuquerque, New Mexico
2. Boise, Idaho
3. Denver, Colorado
4. Fort Myers, Florida
5. Greenville, South Carolina
6. Orlando, Florida
7. Phoenix, Arizona
8. Raleigh, North Carolina
9. Sarasota, Florida
10. Tucson, Arizona
NAR's list is alphabetical and was determined based on such factors as state and local taxes, job market conditions, migration patterns, cost of living and housing supply.
When shopping or renovating in these markets, Baby Boomers tend to prefer smaller ranch-style homes with minimal exterior maintenance, home offices, wider hallways and doors, and master bedrooms (and bathrooms) on the main level. Better lighting and bigger windows also attract baby boomers with faltering eyesight. 
Residential construction companies that customize their designs to meet these needs and plan new senior-friendly communities in these and other locales are positioned to thrive in the coming years.
March 3, 2015

Small Business Reprieve on Health Premium Reimbursement Plans

Historically, companies that wanted their employees to be protected with health coverage, but didn't want the hassle of having a company health plan, could simply give employees an amount of money sufficient to reimburse them for the cost of buying that coverage or some portion of it. As long as the individuals provided evidence that they used those funds for that purpose, the dollars were excludable from taxable income for the employees. 
Alternatively, companies could just pay the premiums directly to the insurance carrier. 
Back in November 2014, however, the Department of Labor (DOL) declared that companies reimbursing employees for medical care instead of offering a health care plan is equivalent to a health plan and is subject to the Affordable Care Act (ACA). And since those reimbursement arrangements failed to meet ACA requirements in two ways -- that is, the condition that group health plans have no annual limits on benefits, and also that no co-pay for certain preventive health services must be paid -- they were ruled to be noncompliant with the law. 
$36,500 Per Employee Penalty
This DOL ruling doubled down on a 2013 decree by the IRS saying essentially the same thing. The kicker was that, beginning in 2014, companies with such reimbursement arrangements in place would be subject to a $36,500 penalty per employee. 
The only remedy offered by the DOL was for companies to gross up those contributions (that is, add to them enough money to cover the tax liability employees would incur as a result of receiving the payments), plus make it clear to employees that they could do whatever they wanted with all of the money they received. In other words, they could not be required to use it to pay for health coverage. 
The IRS's latest ruling, Notice 2015-17, which the tax agency says is in sync with the most recent DOL policy on the matter, gives everyone time to catch their breath. 
Specifically, small businesses with reimbursement plans in place will not be penalized unless they maintain them beyond June 30 of this year. Small businesses are also off the hook for having to file Form 8928, which is the form that covers failures to satisfy group health plan requirements. Originally that form would have to have been filed with companies' 2014 tax returns. 
The reprieve also applies to plans that help retirees pick up the tab for Medicare Part B and D premiums. 
Employees with Subchapter S Corp Stock
Employees who own at least 2 percent of their employers' stock (if the company is a Subchapter S corp) might come in for different treatment. Such employees were required to report the premium reimbursement payments as income on their 1040s, even though the payments were not subject to payroll tax. But those same employees could also take a deduction equal to the amount of that income, leaving them tax-neutral.
In IRS Notice 2015-17, the tax agency warns that it and the DOL "are contemplating publication of additional guidance on the application of the market reforms to a 2 percent shareholder-employee healthcare arrangement." Until then, however, the companies are off the hook. So, too, are the employees who will continue to be allowed to deduct that income as self-employed health insurance premiums. 
The Notice reconciles the IRS with a position the DOL had taken earlier -- that is, declaring reimbursement plans as merely taxable payments to employees doesn't prevent them from being deemed health plans. That means the only way to help employees secure health coverage without having a bona fide health plan is to just give each employee a raise and hope they will use it to buy their own health coverage. (Keep in mind, small business with fewer than 50 employees and full-time equivalents are not required to provide health plans under the ACA.)
Notice 2015-17 also made it clear that the ACA's market reforms, as they pertain to this issue, don't extend to arrangements covering only a single employee (regardless of whether that employee is a 2 percent-or-more shareholder). That means if you own your company and aren't an employee, but have one employee and want to reimburse that person for the cost of buying individual coverage, you won't be subject to any penalties.
Monthly Health Allowances
Meanwhile, the entrepreneurial spirit of America is at work to help small businesses that just want to help employees pay for individual coverage, but don't want to run afoul of the IRS and DOL. One benefits company offers a web-based defined contribution arrangement it calls "Individual Health Reimbursement for Small Business," which gives employees access to a "monthly health allowance." However, companies considering such arrangements should consult legal counsel for an opinion as to whether the plan would pass muster with the IRS and DOL.
Changes to Small Business Health Care Tax Credit
Small businesses should be aware of changes to the small business health care tax credit for tax years beginning in 2014. Under the Affordable Care Act, this tax credit is available to eligible small employers that provide health care to their employees. Here's a summary of the recent changes that may affect your business:
  • For 2014, the credit percentage increased from 35 percent to 50 percent of employer-paid premiums. For tax-exempt employers, the percentage increased from 25 percent to 35 percent.
  • Small businesses may claim the credit for only two consecutive taxable years beginning in tax year 2014 and beyond.
  • For 2014, the credit is phased out beginning when average wages equal $25,400 and is fully phased out when average wages exceed $50,800. The average wage phase-out is adjusted annually for inflation.
  • Generally, small businesses are required to purchase a Qualified Health Plan from a Small Business Health Options Program Marketplace to be eligible to claim the credit. Transition relief from this requirement is available to certain small employers.
Small employers may still be eligible to claim the tax credit for tax years 2010 through 2013. Companies that were eligible to claim this credit for those prior years -- but did not do so -- may consider amending prior years' returns if they're eligible to do so in order to claim the credit. Contact your tax pro for more information about the small businesses health care tax credit or assistance with completing Form 8941, Credit for Small Employer Health Insurance Premiums.
January 20, 2015

Defending the Status of Independent Contractors

Many companies use independent contractors to slash payroll taxes and the high cost of fringe benefits. But using outside workers can result in other problems. It's no secret that Uncle Sam wages battle with businesses over freelancers. And the situation is getting worse.
In recent years, many workers have turned to a career of consulting. The IRS is on the lookout for companies that use these consultants improperly -- especially those that lay off workers and then hire them back as independent contractors to cut labor costs. 
Tactics like that don't go over well at the tax agency, so it published guidelines on how auditors should analyze consultants and independent contractors. Often, an audit of the worker means the companies that hire them are also scrutinized by the IRS.
If your independent contractors are legitimately independent, there's no problem. But if they're employees in disguise, the IRS can "reclassify" them as employees and you're slapped with hefty bills for back taxes, plus interest and penalties. And audits by state agencies are also common and frequently occur when freelancers apply for unemployment compensation. 
Your company's pension plan isn't immune either. As independent contractors, workers are generally excluded from retirement plan contributions. If the IRS reclassifies them, your company may be penalized and your qualified plan might be disqualified. 
To stay on the safe side, consult your tax adviser and make sure freelancers sign contracts that specify: 
They are not employees for federal income tax purposes and are responsible for paying their own Social Security and Medicare taxes. 
They are not entitled to employee benefits and are not covered by workers' compensation. 
Have your regular employees sign contracts, too. By varying the two types of documents, you can make the case that both categories of employees perform different tasks. 
Here are four more tips to safeguard your company: 
  1. Consistently treat all workers performing similar tasks as either independent contractors or employees. If contractors must wear ID badges or use company vehicles, make sure their contracts explain why. For example, the policy was instituted after customers expressed safety concerns about deliveries in unmarked cars.
  2. Give outside workers considerable discretion about how and when they perform their duties. In general, independent contractors must control the way they get the job done. 
  3. Send each contractor a Form 1099 showing non-employee income if you pay $600 or more in a calendar year. 
  4. Don't supply freelancers with services you give employees. Some companies have run into trouble with the IRS for providing contractors with office space, computers, cars and other perks. Independents generally furnish their own tools and materials. 

So what if you do rehire some laid-off employees as independent contractors? It's difficult -- but still possible -- to classify them as contractors. But don't let freelancers work in your office and give them new titles. For example, your retained employees might be staff representatives while your new workers are outside service agents.

There's nothing illegal about rehiring former workers as freelancers. You just have to make sure you structure the deals properly so you don't have the IRS breathing down your neck.

November 11, 2014

A Way to Increase Donor Confidence

Does your organization have "A Donor Bill of Rights?" This set of standards was created by the American Association of Fund-Raising Counsel (AAFRC), along with other philanthropic associations.* Many not-for-profit groups endorse these standards and state in their literature that they will adhere to them.
The purpose of the 10-point "Donor Bill of Rights" is to generate confidence among donors and to provide guidance for board members and your staff.
Donor Bill of Rights
1. To be informed of the organization's mission, of the way the organization intends to use donated resources, and of its capacity to use donations effectively for their intended purposes.
2. To be informed of the identity of those serving on the organization's governing board, and to expect the board to exercise prudent judgment in its stewardship responsibilities.
3. To be provided with access to the organization's most recent financial statements.
4. To be assured that gifts will be used for the purposes for which they were given.
5. To receive appropriate acknowledgment and recognition for contributions.
6. To be assured that information about donations is handled with respect and with confidentiality to the extent provided by law.
7. To expect that all relationships with individuals representing organizations of interest to the donor will be professional in nature.
8. To be informed whether those seeking donations are volunteers, employees of the organization or hired solicitors.
9. To have the opportunity for names to be deleted from mailing lists that the organization may intend to share.
To feel free to ask questions when making a donation and to receive prompt, truthful and forthright answers.

September 2, 2014

Evaluating Your Financial Situation

Now is a good time to evaluate your financial situation to determine if you are making progress toward your financial goals. To make this evaluation, prepare a net worth statement and analyze how your income is spent.

Net Worth Statement

A net worth statement lists all your assets and liabilities, with the excess representing your net worth. All assets should be included, such as vested balances in retirement plans and 401(k) plans, personal property, jewelry, and household items. Assets should be valued at the price you would obtain if you sold them now, not the amount you paid for them. Prepare a net worth statement at least annually so you can assess how much progress you made during the year. Ask yourself the following questions when reviewing the statement:

  • Has your net worth grown by more than the inflation rate? To make progress toward achieving your financial goals, your net worth should increase by more than the inflation rate. If your net worth is not growing, determine why. If stock investments are a major portion of your assets, then your net worth may have fluctuated over the past three or four years.
  • What is your ratio of assets to liabilities? A ratio of less than one indicates you have more liabilities than assets and a negative net worth. If that is the case, take active steps to reduce your liabilities. This ratio should increase over time, which indicates you are reducing debt.
  • What is the trend in your liabilities? Review the amounts and types of debt you have. Mortgages are typically used to purchase items appreciating in value and are generally considered "good" debt. Credit card balances and auto loans are used to finance items that typically don't appreciate in value and should be kept to a minimum.
  • What percentages of your assets are liquid and nonliquid? Nonliquid assets include items like your home, other real estate, jewelry, and works of art. Although they may increase in value over time, they can be difficult to sell quickly at full market value. Liquid assets, such as bank accounts and stocks, are more easily converted to cash. You want sufficient liquid assets to cover financial emergencies.
  • How have your investments performed? Now may also be a good time to thoroughly analyze your portfolio's performance over the past year. Measure the performance of each investment, comparing it to an appropriate benchmark. This can help you identify portions of your portfolio that may need to be changed. Also calculate your overall rate of return and compare it to your targeted return. If your actual return is lower than the return you targeted when designing your investment program, you may need to increase your savings, select more aggressive investments, or settle for less money in the future.

Spending Analysis

Even if you don't feel the need for a budget, analyze how you spend your income. This analysis can help you identify ways to reduce spending so you can increase saving.

First, prepare a cash flow statement that details your income for the past year and your expenditures by category, which will reveal your current spending patterns. Looking back over an annual period will help you identify normal monthly expenses as well as periodic expenses, such as insurance premiums, tuition, and gifts. Canceled checks, credit card receipts, and tax returns can provide much of the needed information. However, you might want to keep a journal of all expenditures for a month or so if you are unable to account for large sums of money.

Divide the expenditures among fixed and essential expenses (housing, insurance, taxes, saving, etc.), variable and essential expenses (food, medical care, utilities, etc.), and discretionary expenses (entertainment, clothing, travel, charitable contributions, etc.). Analyze the statement to find items you can cut back on, allocating those sums to savings.

Your budget should incorporate your financial goals and serve as a guide for future spending. Some points to consider when preparing a budget include:

  • Make conscious spending decisions. Don't just assume you'll spend the same amounts as last year.
  • Prepare a flexible budget. Unexpected expenditures are bound to happen and your budget should incorporate the possibility of them happening.
  • Budget for large, periodic expenditures, such as tuition or insurance premiums.
  • Don't try to be too exact. All members of the family should have a reasonable personal allowance that can be spent without accounting for it.
  • Periodically compare your actual expenditures to your budget to ensure you stay on track.
  • Your budget shouldn't be a dreaded exercise, but a tool to help you achieve your financial goals. So keep it short, simple, and easy to implement.

These two tools can help you evaluate where you currently stand financially. Prepared annually, they can also help you assess your progress and keep you on track toward achieving your financial goals.

March 25, 2013

SCVEDC Releases Q4 Economic Snapshot

The Santa Clarita Valley Economic Development Corporation recently released the Economic Snapshot for data through December 2012. As a member of the SCVEDC Board of Directors, I welcome the opportunity to discuss any of the information provided.

December 21, 2012

Oh, Holy Night

Wisemen gathered at the foot of the manger during a live nativity performance at the First Annual Christmas Nativity Festival in Burbank at the Church of Jesus Christ of Latter-day Saints earlier this month. The festival featured about 350 nativities and a live nativity. KKAJ staff accountant Daniel Holbrook, along with his wife and 3-month-old child, portrayed Joseph, Mary, and Baby Jesus. See more pictures on the Burbank Leader's website: http://www.burbankleader.com/photos/blr-1201-nativity-pg,0,6480160.photogallery

December 12, 2012

Imagining Peace

Bud Alleman, Noon Lions Club treasurer and KKAJ partner, helped congratulate winners of the Lions Club International “Imagine Peace” poster contest at an awards ceremony in November at the Burbank Central Library. The posters were designed to portray the participant’s idea of peace.

Congratulations to winners Margo Akopov, Micayla Siemon and Tanishka Nair. Each winner received $25 and certificates from the Lions Club, City of Burbank, and offices of Representative Adam Schiff, State Senator Carol Liu, Assemblyman Mike Gatto, and Supervisor Michael Antonovich.

This event was the first step in the judging process, and winners will go on to the next level. The top prize of the global contest can win $5,000 and a trip to New York to attend Lions United Nations Day.