KKAJ Blog Posts in Economic Development

March 28, 2017

Remember the New FBAR Filing Deadline

Do you have an interest in — or authority over — a foreign financial account? If so, the IRS wants you to provide information about the account by filing a form called the "Report of Foreign Bank and Financial Accounts" (FBAR). 
The annual deadline for filing FBARs has been changed. It now coincides with the tax filing deadlines for individuals, under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. So, for accounts held in 2016, you must generally file FBARs by April 18, 2017. (Formerly, the deadline was June 30, excluding weekends and holidays.)
Important note: If you fail to meet the annual FBAR due date, the Financial Crimes Enforcement Network (FinCEN) will grant an automatic extension to October 15. Accordingly, specific requests for this extension aren't required.
Reporting Requirements
FBARs are not filed with federal tax returns. Each year, citizens and resident aliens of the United States, as well as domestic partnerships, corporations, estates and trusts, must generally file an FBAR form electronically with the FinCEN if:
1. They have a direct or indirect financial interest in — or signature authority over — one or more accounts in a foreign country. This includes bank accounts, brokerage accounts, mutual funds, trusts or other types of foreign financial accounts, and
2. The total value of the foreign accounts exceeds $10,000 at any time during the calendar year.
An individual who jointly owns an account with a spouse may file a single FBAR report as an individual. FBARs may be required even if the foreign account doesn't produce any taxable income. 
Taxpayers also may be subject to FBAR compliance if they file an information return related to certain foreign corporations, foreign partnerships, foreign disregarded entities, or transactions with foreign trusts and receipt of certain foreign gifts. Some individuals are exempt, however.
Exceptions to the Rules
FBAR filing exceptions are available for the following U.S. taxpayers or foreign financial accounts:
•Certain foreign financial accounts jointly owned by spouses,
• United States persons included in a consolidated FBAR,
•Correspondent/nostro accounts,
•Foreign financial accounts owned by a governmental entity,
•Foreign financial accounts owned by an international financial institution,
•IRA owners and beneficiaries,
•Participants in and beneficiaries of tax-qualified retirement plans, 
•Certain individuals with signature authority over — but no financial interest in — a foreign financial account,
•Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust), and
•Foreign financial accounts maintained on a United States military banking facility.
Important note: Filers living abroad may coordinate FBAR filing with their tax return deadline (June 15, 2017).
Penalties for Noncompliance
Take the FBAR requirement seriously. Failing to file an FBAR can result in the following penalties if assessed after August 1, 2016, and associated violations occurred after November 2, 2015:
•An inflated-adjusted civil penalty of as much as $12,459 per violation, if the failure wasn't willful. This penalty may be waived if income from the account was properly reported on the income tax return and there was reasonable cause for not reporting it.
•A civil penalty equal to the greater of: 1) 50% of the account, or 2) $124,588 per violation, if the failure to report was willful.
•Criminal penalties and time in prison.
The IRS states that the FBAR "is a tool to help the U.S. government identify persons who may be using foreign financial accounts to circumvent U.S. law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad."
Beyond FBARs
Another initiative to combat tax fraud using offshore accounts is the Foreign Account Tax Compliance Act (FATCA). It led to the creation of Form 8938, "Statement of Specified Foreign Financial Assets." This form must be attached to your federal income tax return each year if your specified foreign financial assets exceed these reporting thresholds:
•For unmarried taxpayers living in the United States, the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
•For married taxpayers filing a joint income tax return and living in the United States, the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
•For married taxpayers filing separate income tax returns and living in the United States, the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
Different reporting rules and limits apply for taxpayers living abroad. Form 8938 covers an expanded list of foreign assets not covered by FBAR. And filing Form 8938 does not exempt you from having to file an FBAR.
The penalty for failing to file Form 8938 is $10,000, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to a transaction related to the nondisclosed assets can also be imposed.
For Assistance
Consult with a tax professional if you have an interest in — or authority over — a foreign account. Your tax advisor can ensure you meet the requirements for reporting foreign accounts and help avoid penalties for noncompliance.
February 15, 2017

10 Important Tax-Related Developments for 2016

Several significant tax developments happened last year that may affect federal income tax returns that individual and business taxpayers file in 2017. Here's a quick look at 10 key changes that you should be aware of during this tax season.

1. Stand-Alone HRAs

On December 13, 2016 — just over a month before leaving office — President Obama signed the 21st Century Cures Act into law. In addition to funding cutting-edge medical research, this new legislation allows an employer with fewer than 50 employees and no other group health insurance plan to establish Health Reimbursement Arrangements (HRAs) for its employees. 
These standalone HRAs aren't subject to certain penalties and restrictions imposed by the IRS under the Affordable Care Act (ACA). Plan ahead: The 21st Century Cures Act applies to plan years beginning after 2016.
2. ACA Reporting
Although the ACA might be repealed or modified in 2017, it's still in effect for 2016. Under the ACA, employers must file information returns with the IRS and provide information to employees and other responsible individuals. 
Recently, the IRS offered some consolation: It extended to March 2, 2017, the due date for furnishing to individuals 2016 Form 1095-B, "Health Coverage," and 2016 Form 1095-C, "Employer-Provided Health Insurance Offer and Coverage." This gives employers an extra 30 days to get their paperwork in order.
3. Premium Tax Credits
Taxpayers required to acquire health insurance under the ACA may qualify for premium tax credits to offset part of the cost. Although existing regulations include several favorable safe-harbor rules for determining eligibility, those rules don't apply where an individual, with reckless disregard of the facts, provides incorrect information to a health insurance exchange. 
New final regulations clarify that this provision for "reckless disregard of the facts" applies only to the conduct of the individual — not to information provided by any third parties.
4. Standard Mileage Rates
Each year, the IRS adjusts the standard mileage rates that taxpayers may use in lieu of tracking actual driving expenses. Due to lower gas prices, the rates have been reduced for 2017. The IRS recently announced that the flat rate for business driving is 53.5 cents per mile in 2017 (down from 54 cents per mile in 2016). Also, the rates for driving attributable to medical and moving purposes dropped to 17 cents per mile in 2017 (down from 19 cents per mile in 2016). Finally, the rate for charitable driving, which is set statutorily, remains at 14 cents per mile in 2017. In all cases, related tolls and parking fees can be added to the flat rate. 
5. Valuations for Vehicles
Employees are taxed on the fair market value (FMV) of their personal use of company-provided vehicles. For convenience, the IRS permits FMV accounting methods based on the cents-per-mile rule (see "Standard Mileage Rates" above), as well as a fleet average value for employers with 20 or more vehicles, with the maximums updated annually. 
Under a recent IRS Notice, the cents-per-mile thresholds in 2017 are $15,900 for automobiles (the same as in 2016) and $17,800 for trucks and vans (up from $17,700 for 2016). The thresholds for the fleet average rule in 2017 are $21,100 for a passenger auto (down from $21,200 for 2016) and $23,300 for a truck or van (up from $23,100 for 2016).
6. CPEOs
The IRS has now provided detailed requirements for certified professional employer organizations (CPEOs) — often called leasing companies — to remain certified. The IRS also has established procedures for suspending and revoking certification. Small businesses often contract with CPEOs to ensure compliance with workplace laws and regulations. 
Under the Tax Increase Prevention Act of 2014, a CPEO may be treated as the sole employer of employees for purposes of paying and withholding employment taxes. Professional employer organizations can be certified as CPEOs effective as of January 1, 2017.
7. Delayed Refunds
A new tax law change requires the IRS to hold refunds for tax returns claiming the Earned Income tax credit or the additional child credit until at least February 15, 2017. As a result, many early filers still won't have access to their refunds until the week of February 27 or even later. 
Under the new rules, the IRS must delay the entire refund, even the portion that isn't associated with the Earned Income tax credit or additional child credit. The IRS is advising taxpayers that the fastest way to get a refund is to file electronically and choose the direct deposit method.
8. ABLE Accounts
The Achieving a Better Life Experience (ABLE) Act of 2014 authorized special tax-favored savings accounts for individuals who are disabled before age 26. After the IRS issued regulations on this issue, individual states began rolling out ABLE accounts in 2016. 
With an ABLE account, contributions aren't tax deductible. But the amounts set aside in ABLE accounts are distributed tax-free to recipients if they're used to pay for qualified disability expenses. Contributions to ABLE accounts may be sheltered by the annual gift tax exclusion of $14,000 for 2017 (the same as in 2016). Note, however, that if the account balance exceeds $100,000 it will impact SSI (Supplemental Security Income) eligibility.
9. Self-Certified Rollover Waivers
In general, an individual has 60 days to complete a tax-free rollover of a distribution from an Individual Retirement Account (IRA) or workplace retirement plan to another eligible retirement program. If you inadvertently miss this deadline, the distribution is usually taxable unless you obtain a waiver from the IRS. Thanks to a new ruling from the IRS in 2016, a taxpayer can self-certify that mitigating circumstances caused the failure. 
For this purpose, a waiver may be allowed due to:
•A distribution check being misplaced and never cashed, 
•Severe damage to the taxpayer's home, 
•Death of a family member, 
•A serious illness of the taxpayer or a relative, 
•The taxpayer's incarceration, or 
•Restrictions imposed by a foreign country. 
The new rules went into effect on August 24, 2016. 
Important note: Don't forget that qualifying taxpayers may still make contributions, whether deductible or nondeductible, to a traditional IRA until the day taxes are due, without extension. They also have until Tax Day to make a nondeductible contribution to a Roth IRA for 2016. Put simply, the deadline for individuals to contribute to traditional or Roth IRAs for 2016 is April 18, 2017.
10. FBAR Reporting
Generally, a taxpayer who has over $10,000 in foreign bank accounts at any time during the year must file a Report of Financial Bank and Financial Accounts (FBAR). In the past, the filing deadline was June 30 of the following year. Now the FBAR due date has been moved to coincide with federal income tax filings. 
Accordingly, 2016 FBARs must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 18, 2017. Also, FinCEN will grant filers missing the April 18, 2017, deadline an automatic extension until October 16, 2017.
Just a Sampling
This brief article covered just a few noteworthy tax developments in 2016. The IRS made many other changes that could affect your tax obligations, depending on your personal situation. Contact your tax advisor if you have any questions.
Uncertain Fate of Tax Extenders
In 2016, Congress adjourned without addressing numerous temporary tax provisions that were set to expire at the end of the year. Congress generally renews these "tax extenders" when they expire, but there aren't any guarantees.
For example, Congress extended all 52 provisions that had expired after 2014 in the Protecting Americans from Tax Hikes (PATH) Act of 2015. Unlike previous tax extenders legislation, however, the PATH Act made a number of these provisions permanent. Several others were extended through 2019, while many provisions were temporarily extended for two years, through 2016. 
Stay tuned for additional information on the fate of the tax extenders currently in limbo, as well as details of tax reform measures under the Trump administration and the Republican majority in Congress

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.
September 15, 2016

Loan Applications: Put Your Best Foot Forward

Need a loan to start or expand your business? Nearly a decade after the financial crisis of 2008, many banks remain hesitant about loaning money to start-ups and small business owners. Stricter lending policies often make applying for financing a nerve-wracking and time-consuming process. Here are some ways to give your loan application a leg up on other applicants.

Think like a Lender

At the most basic level, a lender has these questions in mind:
• How much money do you want?
•How do you plan to use the loan proceeds?
• When do you need the funds?
• How soon can you repay the loan?
First, he or she wants to know basic background information. You'll need to explain your business and how it's been financed to date. This includes your personal cash infusions, forgone salaries and sweat equity, as well as any equity contributions from friends, family members and outside investors.
Banks generally offer two types of financing: lines of credit and asset-based loans. A line of credit is primarily used to meet working capital fluctuations. It's generally considered short-term, and banks may expect repayment within the next year. In practice, however, most businesses keep their revolving credit lines open for many years, occasionally drawing and repaying funds based on operating cash flow. 
Asset-based loans are for specific items. They usually fund equipment purchases or plant expansions. With asset-based loans, the length of the loan is usually tied to the life of the asset that's financed — and that asset is usually pledged as collateral for the loan. Banks generally don't allow business owners to finance 100% of an asset purchase. Instead, you'll probably be expected to contribute a reasonable down payment.

Remember the Three C's

Banks want to lower their risk, so the central theme of your loan application should be, "This is how you'll get your money back." Before approving a loan request or deciding on the loan terms, your lender will assess the three C's: 
Character. The strength of the management team — its skills, reputation, training and experience — is a key indicator of whether a business loan will be repaid. Banks also look at the company's track record with creditors. This includes business credit reports (see "Understanding Business Credit Scores" at right) and trade references from key suppliers. The latter tend to be submitted by businesses without established credit histories and those who deal with smaller suppliers that don't report to credit agencies.
Capacity. Underwriters want to know how you'll use the loan proceeds to increase cash flow enough to make loan payments by the maturity date. To determine your ability to repay the loan, lenders will evaluate past and projected financial statements, as well as your business plan.
Collateral. These are the assets pledged in the event that you don't generate enough incremental cash flow to repay the loan. It's a lender's back-up plan in case your financial projections fall short. Examples of collateral include real estate, savings, stock, inventory and equipment. 
Additionally, an owner's personal credit will be factored into the lending decision for the business, and the bank will likely require a personal guarantee from the owners. So, expect to share personal financial details and put your personal assets on the line to secure the debt, even if your business is incorporated. 

Be Prepared

When applying for a loan, lenders don't want you to "wing it." They want serious borrowers who are invested in their businesses and aware of their financial condition and performance. Here are five tips for putting your best foot forward:
1. Take time writing narratives and projecting future growth.
2. Ask someone else to proofread your writing to ensure that it's clear, concise, objective and accurate. 
3. Always double check your math when calculating ratios and building financial projections.
4. Be realistic about your strengths and market opportunities. 
5. Be honest about your weaknesses and potential threats to your growth. 
Lenders have seen all kinds of business plans and financial projections — and they know how to critically evaluate the underlying assumptions. Where possible, support your assumptions with market data and research.

Compile a Formal Package

Before meeting with your lender, put together a comprehensive loan package that includes:
•A narrative "statement of purpose,"
•Three years of business financial statements (including balance sheets, income statements and statements of cash flow), if available,
•Three years of business tax returns, if available,
•Personal financial statements and tax returns for all owners,
•Appraisals for assets pledged as collateral,
•Your business plan, and
•Prospective financial statements.
If your lender thinks you'll make a viable borrower, he or she will give your application to the bank's underwriting committee. Underwriters will have greater confidence in your historic and prospective financial statements if they're prepared by a CPA and conform to U.S. Generally Accepted Accounting Principles. 
Also, remember that this list is just a starting point. Lenders may ask for additional information, such as interim financial statements, lease agreements and marketing brochures. 

Afraid of Rejection?

Lenders don't approve every loan application. So, don't give up if one bank turns you down. Ask why the application was denied and fix the problem when making future loan requests.
To increase your chances of getting approved, consult with your professional financial advisors. They're familiar with the loan application process and can help you compile a comprehensive loan package, as well as preparing realistic business plans and prospective financial statements. 

Understanding Business Credit Scores

Business credit scores come from various reporting agencies, such as Experian, Equifax and Dun & Bradstreet. Each agency has its own algorithm for calculating credit scores. Like personal credit scores, higher business credit scores equate with lower risk (and vice versa). 
Credit agencies track your business by its employer identification number (EIN). They compile data from your EIN registration, including the company's address, phone number, owners' names and industry classification code. The agency may also search the Internet and public records for bankruptcies, judgments and tax liens. Suppliers, landlords, leasing companies and other creditors may also report payment experiences with the company to the credit agency. 
In addition to timely bill payment, business credit scores factor in:
Size. Higher net worth or annual revenues generally increase your credit score. 
Structure. Corporations and limited liability companies tend to receive higher scores than sole proprietorships and partnerships.
Industry. Some agencies keep track of the percentage of companies under the company's industry classification code that have filed for bankruptcy. Participation in high-risk industries tends to lower a business credit score.
Track record. Credit agencies also look at the length and frequency of your company's credit history. Once you establish credit, your business should periodically borrow additional money and then repay it on time to avoid the risk of being downgraded.
Business credit scores are important. They help lenders decide whether to approve your loan request, as well as the loan's interest rate, duration and other terms. 
Unfortunately, some small businesses and start-ups have no credit history. Don't let this happen to you. Build your company's credit history by applying for a company credit card and paying the balance off each month. Also put utilities and leases in your company's name, so the business is on the radar of the credit reporting agencies.
Disagree with your business credit score? Sometimes, credit agencies base their ratings on incomplete, false or outdated information. Monitor your credit score regularly and note any downgrades. In some cases, the agency may be willing to change your score if you contact them and successfully prove that a rating is inaccurate.

July 29, 2016

FAQs about Social Security Retirement Benefits

For years, people have questioned...

the long-term viability of the Social Security system. In June, the Social Security Board of Trustees released its annual report on the long-term financial status of the Social Security Trust Funds. It projects that the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds will become depleted in 2034. Additionally, the Disability Insurance Trust Fund will become depleted in 2023.
More generally, people approaching retirement age often have other questions about benefits they may be eligible to receive from the Social Security Administration (SSA). Here are the answers to several common inquiries.

How Soon Can I Start Collecting Retirement Benefits?

If you want to receive full retirement benefits from the SSA, you must wait until you reach the so-called full retirement age (FRA). But you may apply for benefits as early as age 62. Starting early will reduce your monthly benefits by as much as 30%, but, of course, you'll receive benefits for more years. Your tax adviser can help figure out the exact monthly benefit reduction and help you determine if you likely will be better off waiting until your FRA to start taking benefits.

What Is My FRA?

Your FRA depends on the year in which you were born. 
Year of Birth           Full Retirement Age
1937 or earlier         65
1938                        65 and 2 months
1939                        65 and 4 months
1940                        65 and 6 months
1941                        65 and 8 months
1942                        65 and 10 months
1943–1954              66
1955                        66 and 2 months
1956                        66 and 4 months
1957                        66 and 6 months
1958                        66 and 8 months
1959                        66 and 10 months
1960 and later         67
If you were born on January 1 of any year, refer to the previous year. If you were born on the first of the month, the SSA figures your benefit (and your FRA) as if your birthday were in the previous month.

How and When Do I Apply for Social Security Retirement Benefits?

Apply for retirement benefits three months before you want your payments to start. The SSA may request certain documents in order to pay benefits, including:
•Your original birth certificate or other proof of birth,
•A marriage certificate or divorce decree when applying for spousal benefits,
•Proof of U.S. citizenship or lawful alien status if you were not born in the United States,
•A copy of your U.S. military service paper(s) if you performed military service before 1968, and
•A copy of your W-2 Form(s) and/or self-employment tax return for the prior year.
For most retirees, the easiest way to apply for benefits is by using the online application.

What Happens if I Receive Social Security Retirement Benefits While Still Working?

If you're under FRA and earn more than the annual limit (subject to inflation indexing), your benefits will be reduced, as follows:
•If you're under FRA for the entire year, you forfeit $1 in benefits for every $2 earned above the annual limit. For 2016, the limit is $15,720.
•In the year in which you reach FRA, you forfeit $1 in benefits for every $3 earned above a separate limit, but only for earnings before the month you reach FRA. The limit in 2016 is $41,880.
Beginning with the month in which you reach FRA, you can receive your benefits without regard to your earnings.

Can I Collect More Benefits if I Retire After My FRA?

You can receive increased monthly benefits by applying for Social Security after reaching FRA. The benefits may increase by as much as 32% if you wait until age 70, but of course you'll receive benefits for fewer years. After age 70, there is no further increase. Your tax adviser can help calculate the payout for waiting to collect your retirement benefits and help you determine if you likely will be better off waiting beyond your FRA to start taking benefits.

Can I Manage Retirement Benefits for an Incapacitated Person?

If a Social Security recipient needs help managing his or her retirement benefits — perhaps an elderly parent — contact your local Social Security office. You must apply to become that person's representative payee in order to assume responsibility for using the funds for the recipient's benefit.

Do I Qualify for Social Security Survivors Benefits?

A spouse and children of a deceased person may be eligible for benefits based on the deceased's earnings record as follows: 
A widow or widower can receive benefits:
•At age 60 or older,
•At age 50 or older if disabled, or
•At any age if she or he takes care of a child of the deceased who is younger than age 16 or disabled.
A surviving ex-spouse might also be eligible for benefits under certain circumstances. In addition, unmarried children can receive benefits if they're: 
•Younger than age 18 (or up to age 19 if they are attending elementary or secondary school full-time), or
•Any age and were disabled before age 22 and remain disabled.
Under certain circumstances, benefits also can be paid to stepchildren, grandchildren, stepgrandchildren or adopted children. In addition, dependent parents age 62 or older who received at least one-half support from the deceased may be eligible to receive benefits.
A one-time payment of $255 may be made only to a spouse or child if he or she meets certain requirements. Survivors must apply for this payment within two years of the date of death.

Are Social Security Benefits Subject to Income Tax?

You'll be taxed on Social Security benefits if your provisional income (PI) exceeds the thresholds within a two-tier system. 
PI between $32,000 and $44,000 ($25,000 and $34,000 for single filers). Recipients in this range are taxed on the lesser of 1) one-half of their benefits or 2) 50% of the amount by which PI exceeds $32,000 ($25,000 for single filers). 
PI above $44,000 ($34,000 for single filers). Recipients above this threshold are taxed on 85% of the amount by which PI exceeds $44,000 ($34,000 for single filers) plus the lesser of 1) the amount determined under the first tier or 2) $6,000 ($4,500 for single filers). 
PI equals the sum of 1) your adjusted gross income, 2) your tax-exempt interest income, and 3) one-half of the Social Security benefits received.
If you have additional questions about receiving Social Security retirement benefits, contact your financial adviser. He or she can help you navigate the application process and understand tax issues related to receiving retirement benefits.

Highlights of New Trustees Report

In its annual report to Congress, the Social Security Board of Trustees announced that the asset reserves of the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds increased by $23 billion in 2015. The combined trust fund reserves are still growing and will continue to do so through 2019.
Here are some other highlights from the report:
•Total income, including interest, to the combined OASDI Trust Funds amounted to $920 billion in 2015. 
•Total expenditures from the combined OASDI Trust Funds amounted to $897 billion in 2015.
•The SSA paid benefits of $886 billion in calendar year 2015. There were about 60 million beneficiaries at the end of the calendar year.
•During 2015, an estimated 169 million people had earnings covered by Social Security and paid payroll taxes.
•The combined Trust Fund asset reserves earned interest at an effective annual rate of 3.4% in 2015.
Even though the income exceeded expenses from the OASDI Trust Funds and asset reserves increased in 2015, the reserves are projected to be gradually depleted over the next 18 years. Unless Congress takes action to reverse the situation, the OASDI Trust Funds are expected to be insolvent by 2034. 
This underscores the importance of saving for retirement while you're working. Social Security benefits should be viewed only as a supplement to your other assets.

July 13, 2016

Avoid Costly Employer Mistakes

Running a business these days is increasingly complex. With employment-related claims and lawsuits on the rise, management must have a basic understanding of numerous federal, state and local laws. Here are three cases that illustrate some employer liability trends.
Case #1. Giving a positive reference could cost millions. This court case, involving reference checks about a drug-addicted physician, reminds employers of the risks of recommending former employees and associates.
Facts of the case: A licensed anesthesiologist was a shareholder in a medical practice, which exclusively provided anesthesia services to a local hospital. After an investigation, the doctor's partners found he was abusing the drug Demerol. Eventually, the hospital stopped allowing the physician to practice there and the medical practice partners fired him.
The termination letter the partners gave the doctor stated: "...you have reported to work in an impaired physical, mental, and emotional state. Your impaired condition has prevented you from properly performing your duties and puts our patients at significant risk..."
A few months later, the doctor applied for a job at a facility in another state. The facility initiated a background check, including examining referral letters provided from the medical practice and hospital where the doctor previously practiced. 
Letters from two former partners stated, according to court documents, that the doctor "was an excellent anesthesiologist" ... "recommend him highly" ... and that he is sure to be "an asset to [future employer's] anesthesia service."
The hospital's response to a questionnaire from the facility about the doctor was brief: "Our records indicate that (he) was on the Active Medical Staff ... in the field of Anesthesiology from March 04, 1997 through September 04, 2001."
The medical facility hired the doctor and a short time later, problems developed. In one incident, one of the doctor's patients was severely injured. The court noted the doctor later admitted to the facility's staff "that he had been diverting and using Demerol...and that he had become addicted ..." 
The injured patient's family sued the doctor and the facility in cases that were settled.
The facility and its insurer then filed suit against the doctor's former medical practice, partners, and the hospital charging "intentional misrepresentation, negligent misrepresentation, strict responsibility misrepresentation, and general negligence." A jury awarded the facility and the insurer $8.24 million.
In U.S. Appeals Court, a two-part decision was recently handed down. The court — based on state law — found the hospital was justified in providing a "name, rank, and serial number" reference letter. In other words, it gave limited factual information about employment. The court exonerated the hospital because it had no affirmative duty to disclose negative information about the doctor.
However, the court upheld the jury's decision against the medical practice because of the partners' misleading letters about the doctor, stating: "The defendants owed a duty to (the facility) to avoid affirmative misrepresentation in the referral letters. In the state, 'although a party may keep absolute silence and violate no rule of law or equity,...if he volunteers to speak and to convey information which may influence the conduct of another party, he is bound to [disclose] the whole truth." (Kadlec Medical Center v. Lakeview Anesthesia Associates and Lakeview Medical Center)
Lesson for Employers: Although this case involves Louisiana state law, its results are an alert to employers. It highlights the importance of knowing how state law and state court decisions treat the obligations and liabilities of providing information and references on former employees and associates.
Case #2. Hiring and promoting one gender over another is illegal. A Texas restaurant chain paid $1 million and furnished remedial relief to settle a sex discrimination lawsuit filed by the EEOC. The EEOC had charged the chain with discriminating against a class of male applicants and employees. 
The EEOC charged that the chain refused to hire or promote men to the position of bartender in its restaurants. The chain had a plan for an 80-20 ratio of women to men behind the bar, according to the EEOC. Men who worked as servers at the restaurants were generally denied promotion to bartender because of their gender. The few men who were promoted to bartender weren't allowed to work lucrative "girls-only" bartending events. The case was settled before going to trial. (EEOC v. Razzoo's, Civil Action No. 3:05-CV-0562-P, Northern District of Texas, Dallas Division).
Lesson for Employers: Explained Suzanne M. Anderson, EEOC supervisory trial attorney and lead counsel on the lawsuit: The chain's "decision to hire and promote by gender is a clear violation of federal law. A hiring ratio is illegal whether it is 80-20 whites to blacks or 80-20 women to men."
Case #3. Allowing any type of music to be played on the job can create a hostile work environment. A Silicon Valley manufacturer of semiconductor production equipment had to pay $168,000 to settle a racial harassment and retaliation lawsuit brought by the EEOC. 
The EEOC charged the company with subjecting an African American employee to racial harassment after a co-worker played and "rapped" out loud to music lyrics that included anti-black racial epithets. 
The employee complained several times to his supervisors that the language was offensive to him. The EEOC's lawsuit charged that delaying effective corrective action by more than half a year constitutes unlawful harassment, and that Cooke was fired in retaliation for his earlier complaints.
While the employer denied liability and admitted no wrongdoing, it agreed to incorporate a "Statement of Zero-Tolerance Policy and Equality Objectives" in employment policies. Additionally, the manufacturer agreed to amend its policies to refer specifically to harassment through the playing of music, and to include offensive musical lyrics in its examples of racial harassment. 
Lesson for Employers: The EEOC's attorney noted that employers must respond promptly after being put on notice of racially offensive language or conduct in the workplace. 
Acting EEOC District Director Michael Baldonado added that many employers face this kind of situation. "How do you manage the culture clash — across generations, race and ethnicity, you name it — in a workplace that gets more diverse every day? I think it's critical to try to put yourself into the shoes of the other person and take all complaints of discrimination seriously. Together we can try to defuse tensions and prevent situations from developing into discrimination and harassment." 
These three issues are just a sample of the challenges facing employers today. Consult with an experienced attorney to help protect your company from current and future risks.
What to Do When Asked About Former Employees?
Here are some steps for employers to consider in dealing with requests for information about former employees:
Get professional input. Confer with an attorney familiar with employment law in your state about how to respond to reference inquiries for former employees.
Check state law. Know if your state law shields employers from civil liability when providing factual, work-related information about former employees.
Obtain permission from former employees. Before releasing information about former employees, require the prospective new employer to provide a reference permission form, signed by an individual, giving your company and supervisors the person's permission to release work-related information about him or her. This form also releases former employers and supervisors from liability for providing factual work-related information to prospective new employers.
Ask departing employees for help. When employees leave employment, ask them to help write their job references. Have an exit interview with each departing employee. Show them a written summary of their performance. Inform employees that the summary serves as a job reference if two conditions are met: the employee gives written approval for the summary; and in the future, the employee mails the employer a signed statement releasing the summary to a prospective employer.
Stick to the facts. Don't share personal feelings and opinions about former employees. Provide prospective employers with only objective, factual work-related information such as: the individual's period of employment, including start and separation dates; positions and duties employed; hourly rates or salary at time of separation; and whether the individual would be re-employed in the future.
Avoid giving information over the phone. It's best is to ask prospective employers to request information in writing with specific questions. Respond in writing. Review responses with an attorney or a human resources professional. This way, your company and its managers take time to carefully consider the information, and there is a written document to support a defense in case of related future litigation.
To help reduce your organization's liability, do an audit of all the documents your employees get in writing. This includes your employee handbook, job applications, notes, memos, messages, etc. There are bound to be inconsistencies ... and those can be trouble spots. Make sure your employment policies are clear and don't conflict with one another.
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:
•Indiana,
•Wisconsin, 
•Michigan,
•Alabama,
•Arkansas,
•Ohio,
•Kentucky, 
•Mississippi, and
•Kansas.
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:
•California,
•Ohio,
•North Carolina,
•New York,
•Michigan,
•Illinois,
•Pennsylvania, and
•Texas.
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 17, 2015

Develop a Strong Hand to Negotiate Loan Covenants

If you are about to ask for a business loan, expect to deal with the issue of covenants -- constraints lenders impose on your company to keep it operating within specified financial ratios and to prevent it from taking certain actions.
These clauses are meant to help the lender mitigate risk and get its money back. But if you are not careful, they can put your company in a stranglehold. Under some very strict loan agreements, if your firm violates a covenant, it can automatically go into default and be forced to pay the loan in full immediately. Typical commercial-loan covenants can require your business to, among other things:
•Hold a minimum credit balance on deposit;
•Maintain specific capital or financial ratios, such as tangible net worth, working capital and debt servicing;
•Keep collateral property insured and in good repair;
•Provide periodic financial statements and tax returns;
•Avoid taking on additional debt or borrowings; and
•Keep the current management or ownership structure.
When considering a loan, you want to try to at least loosen, if not eliminate, the obligations that will be most difficult for your business to meet. Try to negotiate covenants that leave you the flexibility to run your business prudently. Some loan requirements set sound benchmark metrics that can help keep your company healthy. Others, however, could be too difficult to meet and result in disastrous consequences. 
Here are four important considerations before you officially ask for -- or agree to -- a commercial loan:
1. Take your lender's perspective. Your loan officer has to deal with internal policies and external regulators and, depending on the size of the loan, may have to persuade a formal loan committee that the loan presents no undue risk given the covenants involved. Gather up your business and strategic plans, financial projections and other relevant financial information and try to come up with a set of covenants you would expect the bank to require as well as a set your organization can live with. Keep in mind that the loan panel will be looking at how profitable the lending relationship will be for its company.
2. Run some critical calculations. Some financial covenants, such as debt service coverage ratios, liquidity and performance ratios, and current ratio/working capital, involve several financial statements. Take the time to run various scenarios through your company's most recent financial statements to determine which covenants would be the best and worst for your operation.
3. Ask "What If." Once you have analyzed your company's financials and have a grasp of how sensitive potential covenants will be to changes in your projections, start discussing matters with your lender. Keep the talks on the level of simply asking "what would happen if ..."   This is a chance for you and your banker to feel each other out and determine each other's expectations before drafting a formal agreement.
4. Avoid strict technical default clauses. This is critical. The default section of the loan agreement gives the lender the right to demand immediate repayment of the loan if your business does not live up to a covenant. You need to be sure that inadvertent or unintentional defaults will not be triggered without your business receiving prior notice and having a chance to take care of the problem.
For example, if you have a monthly fixed-rate loan, the bank could argue that your company's financial controls should make such notice unnecessary. You, on the other hand, could maintain that missed deadlines can sometimes result from computer malfunctions or business trips where executives with check-signing authority are out of town. This type of discussion could be sparked by each default provision. Some give and take is required to reach a compromise. For instance, you and your lender might agree to a limit on the number of late payment notices allowed before your business is in default. The goal is to make it easier for your company to avoid default while assuring the lender there are adequate mechanisms in place to protect its interests.
Although you have to expect to agree to certain covenants when you take out a commercial loan, get guidance from your accountant as well as your attorney on how to effectively negotiate fair and reasonable terms that you don't inadvertently violate. It could accelerate a premature demand for repayment and cause financial hardship for your company.  
More Tips to Bolster Your Company's Position 
When talking to lenders, make sure your enterprise's financial projections include a full financial model of income statement, balance sheet and statement of cash flows on a monthly basis. This will reflect any seasonal fluctuations in the business plan.
Develop early warning mechanisms to alert management if your company reaches a point where it may violate a covenant. Have a checklist of steps to monitor compliance with all provisions of the loan agreement.
Reassure your lenders that you are on top of the terms your company accepted. Explain the plan of action your business will take if it breaches any obligations. Lenders want to know that your organization's management is taking steps to protect their collateral and to ensure that the loan is repaid.

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. 
September 30, 2015

Guarding Intellectual Property

Your company probably has security systems in place to prevent theft of computers, machines and products, yet you may not be doing enough to safeguard your customer lists, new product designs and marketing strategies. Manufacturers rank second only to high-tech companies as targets of intellectual property theft. 
"American companies and the U.S. Government spend billions on research and development. The benefits reaped from these expenditures can easily come to nothing, however, if a competitor can simply steal the trade secret without expending the development costs."
- Senator Arlen Specter, upon passage of the Economic Espionage Act
Businesses need to make protection of trade secrets a high priority. The potential loss in terms of competitive advantage, market share and revenue can be staggering.
Intellectual property thieves can include employees, former employees, on-site contractors, vendors and foreign and domestic competitors. Hackers operating from remote locations are a threat, but the greater risk comes from people who know your business and are physically present on the premises -- especially employees who steal information and sell it to competitors, either while they're still working for you or after they leave their jobs.
In many environments, access to information can be ridiculously easy. For example, employees may have passwords taped under their keyboards or tacked on their bulletin boards. Others may divulge information to personable service technicians who come to repair office equipment. And perhaps no one questions a stranger who walks authoritatively into an empty conference room and plugs into a live Ethernet jack, gaining access to the company's network, and walks out with a stash of financial information. 
When intellectual property theft occurs, it may be months before your company discovers it. One company's nightmare started when a contract computer programmer not only stole their new product design, but also trashed computers in an attempt to sabotage development. The act set the company back a year and the information ended up in a competitor's hands.
Many people who steal trade secrets get away with it. Prior to 1996, it was difficult to prosecute such cases, but in that year, Congress passed the Economic Espionage Act. One provision (Section 1832) addresses the theft of a trade secret related to, or included in, a product. The punishment is harsh. A convicted individual can be fined up to $500,000, sentenced to up to 10 years in prison, or both.
Under the law, a trade secret is broadly defined. It includes all types of information that the owner has taken reasonable measures to keep secret and that has independent economic value. For example, financial, business, scientific, technical, economic, or engineering information; including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs or codes. 
Here are just a few tips for protecting intellectual property: 
•Perform a risk assessment for intellectual property, just as you would for real property. 
•Enlist the help of all employees to watch out for suspicious activity. Role-playing possible scenarios, such as someone plugging into an Ethernet jack, can be instructive. 
•Carefully screen new employees and contract workers, and require them to sign confidentiality agreements. 
•Require delivery people to show more than one form of identification -- for example, a company ID and a driver's license. 
•Encrypt files and folders so that only authorized people have the "keys" to unscramble the data. That way, if a thief steals a laptop computer, the information would be meaningless. 
•Establish levels of access to files and folders. For example, whoever handles the company's financials determines which people or work groups need access to that information, and can restrict their ability to modify or delete information. 
September 23, 2015

Debt Stress

American households hold an average debt of nearly $54,000, with 35% having debt in collections.¹ 
Little wonder that money worries are a major cause of stress. 
The Link between Stress and Health 
Humans have an innate response called "flight or fight." It is nature's way of launching our bodies into action; consider the physical responses we feel during moments of stress — faster heartbeat, accelerated breathing, tightening of muscles, and increase in sweating. 
These are response mechanisms that prepared our ancestors to run from, or confront,a dangerous situation. But they can be less useful in more modern times. 
In the short term, stress can manifest itself in physical symptoms, such as headaches, fatigue, difficulty sleeping or concentrating, an upset stomach, and general irritability. 
These brief episodes of stress usually do not cause lasting harm to personal health. 
However, debt—and the stress it causes — is typically a persistent problem. If your stress system stays activated over longer periods of time, it can lead to serious health problems, such as depression, high blood pressure, weight gain or loss, a change in sex drive, sleep deprivation, stomach complications, and even heart conditions.² 
Managing Stress and Debt 
If you are experiencing debt-related stress, you should consider attacking the root of the problem. Generally, it takes time to work down debt, but that doesn't mean you can't manage the stress during the interim period.³ 
The fact that you have a strategy to eliminate your debt is the first step to lowering stress since the sense of control that a strategy gives you might furnish you with hope and optimism. 
It's also important that you keep your debt worries in perspective. Remind yourself that debt may not permanently ruin your life. Writing in a journal can be helpful as an outlet to the worried thoughts that can cycle endlessly through your mind. Seek social support — knowing that family and friends are in your corner can be a great source of strength. 
Finally, find time for laughter and extending small kindnesses — each unleashes wonderfully positive chemical reactions that are good for the soul and the body. 
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 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.