December 30, 2014

Maximize Your Itemized Deductions With These Tips

Individual taxpayers in the United States are given the choice to take either the itemized deduction or the standard deduction. The standard deduction is a fixed amount determined by the IRS based upon filing status and adjusted for inflation each year. The itemized deduction allows taxpayers to combine and deduct various expenses from adjusted gross income to arrive at taxable income.

Eligible itemized expenses include certain medical and dental expenses, taxes paid, home mortgage points, charitable contributions, and an assortment of miscellaneous expenses. Some of the miscellaneous expenses include tax preparation fees, safe deposit box fees, investment fees, and job hunting expenses. For the entire list of deductible miscellaneous expenses refer to IRS Publication 529.

But here’s the catch! In order to itemize in some of these categories, certain thresholds must be met. For example, medical expenses must exceed 10% of AGI and miscellaneous expenses must exceed 2% of AGI. The solution to maximizing your deduction in any given year is to implement the bunching strategy. For instance, assume your adjusted gross income is $50,000 in the current year and will be the same in the following year. If your medical expenses total $5,000 year- to-date, you will not be eligible to claim any portion of your medical deduction because it does not exceed the 10% threshold. By either accelerating or deferring medical expenses, every dollar either accelerated or postponed will provide you with benefit. The goal is to bunch as much of your expenses into one year to push you over the threshold.

So let’s say you know you are going to need new glasses next year, buy them in December of this year. Assuming your new glasses cost $400, you have now accumulated total medical expenses of $5,400 which pushes you over the 10% threshold. By bunching these expenses into this year, you are now able to claim that $400 as a deduction. Deferring expenses works the opposite way. For example, if you have a big surgery scheduled next year, try to push your medical expenses into the following year. The same concept can be applied to other categories subject to threshold limitations. In conclusion, the bunching strategy allows taxpayers to maximize their itemized deductions and thus minimize taxable income.

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December 16, 2014

Mitigate Your Risk by Segregating Key Duties

Segregation of Duties is imperative for any business – no individual should have so much access to enable them to execute transactions across an entire business process without a good system of checks and balances. If you are struggling with this concept, you are not alone. Why does it seem so difficult to so many?

Sometimes it can be the complexity of the system, ownership and/or simply accountability. More frequently, it is just a matter of one or a couple of key employees who have taken on more and more duties over the years. Segregating their duties seems disloyal or unproductive. But it is essential for a quality internal controls system.

The good news is that companies don’t need to create complex role structures or completely overhaul systems to get a better handle on a segregation of duties system that works for you and enhances your internal controls.

Where to Start
A fundamental element of internal control is the segregation of certain key duties. The basic underlying element in segregation of duties is that no employee or group of employees should be in a position to commit and to conceal errors or fraud in the normal course of their duties. Although it is a basic premise, it ensures that errors or irregularities are prevented or detected on a timely basis by employees in the normal course of business. In general, the principal incompatible duties to be segregated are:

  1.  Custody of assets
  2. Authorization or approval of related transactions affection those assets
  3. Recording or reporting of related transaction

Traditional systems of internal control rely on assigning certain responsibilities to different individuals or segregating incompatible functions. In general, segregation of duties implies that:

  •  No single individual should have control over two or more phases of a transaction or operation
  • Management should assign responsibilities to ensure a crosscheck of duties

Failing to separate these duties creates opportunities to conceal inappropriate activity. Even trusted employees are not exempt from a proper internal control structure. It is important to review the duties assigned to your staff and ensure one individual does not have the ability to initiate, approve and record a transaction. It is imperative that someone else in the company has custody of the asset and reconciles the activities and resultant account balance.

For more information about segregation of duties and which transactions pose the greatest risk to your business, contact your accountant. By taking the appropriate steps, you can remedy and mitigate those areas where you are most vulnerable.

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December 9, 2014

Choosing Your Accounting Career

This time of year, many public accounting firms are focusing on hiring full-time employees, part-time employees, and interns for the upcoming “busy season.” The question many interns or straight-out-of-college candidates have to address is: How do I choose where I want my career to begin?

First, you must start by deciding if you want to work in the Public Accounting arena or the Private industry. What’s the difference? The primary difference is that in private accounting, you’re working with one specific company/industry (the company who hires you). In public accounting, you’re working on multiple jobs, many times in multiple industries, and depending on the firm, you may also be working in multiple niches (taxes, bookkeeping, and auditing) for different clients within these different industries.

Anders  is a public accounting firm, so this blog focuses on choosing between different public accounting firms. Let’s say, you’ve created the perfect resume, you’ve interviewed with several firms, and you’ve received multiple offers for a job or internship. How do you decide which to choose? Following are a couple tips to consider before accepting an offer:

  1. Location – Not only should you consider the city where the firm is located, but also consider the distance to your house.  In addition, if you have family outside of that city/state, and there’s a chance you might move in the future, consider whether the firm has other locations.  You may also consider the location in relation to restaurants for lunch or stores where you frequently run errands.
  2. Training – Being new in the workforce is a different world, so it’s important for firms to have a good training program in place to acclimate you to your new role.  Learn-as-you-go training is inevitable in the accounting field as jobs are typically a case-by-case basis.  You should, however, have some sort of training on the software used and have a good idea of your responsibilities in your position after you’ve been hired.  Ask if there is a mentoring program available for new hires to ask questions about any confusion about responsibilities, the client work, the firm procedures, etc.
  3. New Business Expectations – Does the firm require you to bring in a certain number of new clients per year, quarter, month, etc?  If so, are there resources available to help you do so?  Although not all firms require you to bring in a certain number of clients, most firms do prefer that you’re involved somehow in the community, through networking events, serving on a board, etc.  Ask what the firm does to help you get involved, and ask what the firm does as a whole to be involved in the community.
  4. CPA License – Is a CPA license required to move up in the firm?  It’s becoming more common for firms to offer some sort of reimbursement of fees for taking the exam or a bonus after the exam is passed.  This should appear in the benefits package or on the company website.
  5. Continuing Professional Education (CPE) – This is required once a CPA license is earned.  Are you a self-study learner, or would you rather learn in a classroom setting?  Determine what programs the firm utilizes to help employees maintain the CPE requirements.
  6. Technology – Public accounting is leaning more towards being a completely paperless operation.  Because of that, technology is crucial, not only to the firm, but to your advancement as well.  What software program is used for audit and tax clients?  How is the information secured?  If you’re planning to go into audit, what are the capabilities for working in the field?  Is there a working-at-home option?  How large is the IT staff to help fix issues or update programs?
  7. Finding a niche – Most CPA firms will eventually require you to choose a niche of either tax or audit.  From there, they might also encourage you to choose an industry niche.  If you already know whether you want to go tax or audit, ask about the industry focus of the firm.  If you are unsure whether you want to go to tax or audit, ask if there’s a stepping stone for you to try one or the other.  Typically an internship will help you decide the direction to go, but some firms will offer a generic position where full-time employees start before choosing the niche.
  8. Advancement – What are the typical steps to advance in your career?  Ask what the levels are (typically, staff, senior, supervisor, manager, partner, or some variation).  Also ask how many employees are in each level.  Look at the website – are there several older partners who might be retiring soon?  There might be room for expansion in that sort of firm.
  9. Busy season hours – Public accounting firms are extremely busy from approximately January – April each year due to most entities running on a calendar year-end of December 31.  This timeframe is called “busy season” for auditors or “tax season” for tax accountants.  During this time period, firms typically have a minimum hour requirement that is over the 40-hours required for full-time employees.  This requirement can range from 50 to 60 hours a week up to 90 or 100 hours per week, depending on the firm.  Be sure to have a good idea of what will be required of you during this time period.
  10. Compensation – By coming straight out of college, there’s not much opportunity to negotiate your salary as you really haven’t proven yourself in the workplace; however, do your research.  Know what the market looks like in that area.  The size of the firm and the location of the firm play a big factor in the starting salary of the market.  Your salary should reflect the market as well as the number of hours required during busy/tax season.  In addition, many firms offer a bonus during the year or at year-end, so take that into consideration as well.
  11. Benefits – From retirement plans to insurance, it’s important to know what the firm offers.  Does the employer have a match to the retirement plan?  What are the premiums and the deductible for the health insurance?  Is vision, dental, disability, or life insurance offered?  What about parking – does the firm pay for parking?  What is the vacation/paid-time-off policy?  How many holidays are offered each year?  Consider all benefits offered as this should reflect the base salary as well – if Firm A offers a lower base salary than Firm B, but Firm A offers more benefits than Firm B with the same hour-requirement during busy season, Firm A might be a better option despite the lower base salary.
  12. Culture – What’s the culture of the firm?  When you interviewed, did it seem to be an open-door policy?  Was everyone friendly?  Look at the website to determine what outside events in which the firm participates.  Do you like going to Cardinals games, Blues games, or a Fox show?  Maybe the firm has tickets available for employee use.  Culture can be very subjective decision, but you should have a “feel-good” feeling about the firm you choose.  If you don’t, the culture might not be right for you.

Overall, only you can decide where you fit in the best and what option is best for you. It’s good to have an idea of what you’re looking for ahead of time as you don’t want to feel overwhelmed or underchallenged before you even finish your first month at work.

To learn more about working at Anders, visit our career page.

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December 2, 2014

Partial Asset Disposition Election: A POWERFUL Tax Savings Tool

In our continued effort to educate our clients on the many nuances of the IRS Final Repair Regulations, this post focuses on what we see as a taxpayer friendly aspect of the regulations – the Partial Asset Disposition Election.

The partial asset disposition election, simply explained, allows a taxpayer the ability to dispose of part of an asset.  More specifically, this election allows taxpayers to claim a loss on the disposition of a structural component (or a portion of a structural component) of a building, or a component (or a portion thereof) of any other asset.

So, what does this mean, and how can your company benefit from this new rule?  The best way to explain this is by contrasting the partial disposition election to the prior rules.

Prior to the final repair regulations:

  • Companies could NOT take a loss for a retired component of a building or other asset.
  • SO, the new component would be capitalized and depreciated.
  • AND, the retired component would also continue to be depreciated.
  • For a large replacement, the tax deduction for the retired component (which the company is clearly not using or benefiting from any longer) would be spread out over the remaining tax life of the asset INSTEAD of getting an immediate deduction.

Now, under the final repair regulations, companies are able to claim an IMMEDIATE loss for the retired component which gives them an immediate tax deduction.

The best way to show the benefit is through an example:

As part of a building improvement, a company replaces the entire roof.  The original roof cost $100,000 and was part of the original building placed in service 10 years ago. The original building and roof are being depreciated over 39 years.

Under the old rules, the original roof, even though no longer of benefit to the company, would continue to be depreciated for the remaining life of the building.  This would spread the deduction over 29 years.  That’s over $74,000 in potential deductions left on the table to be spread out over time.

Now, under the partial disposition rules, the company can take an immediate deduction for the old roof accelerating the $74,000 into the current year.  That’s a HUGE tax benefit.

We have found that the partial disposition can be a very powerful tax savings tool not only for current and future years, but also for past years.  Recently released IRS guidance now allows taxpayers to claim losses for prior year partial asset dispositions on their 2014 tax return.  With a properly extended 2014 tax return, this gives taxpayers until September 15, 2015 to claim prior year losses for partial asset dispositions.

To prove the power of this opportunity, we will highlight a recent repair regulation study for one of our clients.  We focused in part on prior year partial asset dispositions.  The study resulted in an immediate tax deduction of over $700,000 for our client.  Your company can take advantage of the same type of study if you act before September 15, 2015.

HOWEVER, once the 2014 extended deadline is past, taxpayers can no longer go back in time to benefit from this election to write-off assets that are still being depreciated despite the fact they were replaced in prior tax years.  For 2015 and future tax returns, the partial asset disposition election will be available only in the year the asset is replaced.

The partial asset disposition election is a very POWERFUL tax savings tool.  The IRS has provided taxpayers a narrow window to take advantage of this rule for prior years.  The time to act to write-off prior year replaced assets is NOW.  For future years, taxpayers will be limited to writing-off replaced assets that occurred in that year only.  For more information on this topic, or to discuss a repair regulation study for your company, contact an Anders advisor today.

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