Power of attorney abuse: What you can do about it

A financial power of attorney — sometimes called a “power of attorney for property” or a “general power of attorney” — can be a valuable estate planning tool. The main disadvantage is that it’s susceptible to abuse by scam artists, dishonest caretakers or greedy relatives.

Help or harm

The most common type is the durable power of attorney, which allows someone (the agent) to act on behalf of another person (the principal) even if the person becomes mentally incompetent or otherwise incapacitated. It authorizes the agent to manage the principal’s investments, pay bills, file tax returns and handle other financial matters if the principal is unable to do so as a result of illness, advancing age or other circumstances.

A broadly written power of attorney gives an agent unfettered access to the principal’s bank and brokerage accounts, real estate and other assets. In the right hands, this can be a huge help in managing a person’s financial affairs when the person isn’t able to do so him- or herself. But in the wrong hands, it provides an ample opportunity for financial harm.

Take steps to prevent abuse

If you or a family member plans to execute a power of attorney, there are steps you can take to minimize the risk of abuse:

• Make sure the agent is someone you know and trust.

• Consider using a “springing” power of attorney, which doesn’t take effect until certain conditions are met.

• Use a “special” or “limited” power of attorney that details the agent’s specific powers.

• Appoint a “monitor” or other third party to review transactions executed by the agent, and require the monitor’s approval of transactions over a certain dollar amount.

• Provide that the appointment of a guardian automatically revokes the power of attorney.

Some state laws contain special requirements, such as a separate rider, to authorize an agent to make large gifts or conduct other major transactions.

Act now

If you have elderly parents who’ve signed powers of attorney, keep an eye on their agents’ activities. When dealing with powers of attorney, the sooner you act, the better. If you’re pursuing legal remedies against an agent, the sooner you proceed, the greater your chances of recovery. And if you wish to execute or revoke a power of attorney for yourself, you need to do so while you’re mentally competent. Contact us for additional details.

© 2018

What is job cost reporting?

Custom jobs require ongoing supervision to achieve the best financial results. Whether you’re a general contractor constructing a strip mall, a manufacturer building made-to-order parts or an architect drawing up blueprints, once a project is underway it’s easy to focus on getting the job done, rather than on the resources that are being consumed.

That’s why job cost reporting — the process of coding and allocating project expenses to track financial efficiency and profitability — is a mission-critical activity. Here are a few best practices to keep in mind.

Smart estimates

Proper job cost reporting begins with solid cost estimates. Start each job by arranging the estimates in the same cost categories that will be used to accumulate the actual job cost information. This will enable you to effectively manage contract activities. And you’ll be better able to compare the actual job costs to estimated costs.

The proper format often depends on how many job-costing levels were used in the estimate. For instance, larger jobs may require phase, activity or even unit costing. For smaller jobs, totals for, say, materials, labor and subcontracts are sufficient. If you perform service-type work, your cost information needs may include just job totals by labor, materials and other direct costs.

Information needs

What kinds of cost information do you need during and after the job? These requirements depend on the time span of that job and the nature of the work.

Jobs that will be completed over several months lend themselves to more-detailed reporting. The size and scope of the particular job, as well as the software and people available to process and monitor job cost information, also affect the amount of detail you can include.

Progress reports

Cost reporting during the job is critical to controlling costs. Monitoring actual progress to date compared with planned progress to date determines where the job is at a particular time.

Keep in mind that you can’t take corrective action until you know something is deviating from the plan. That’s why executing continuous job cost reporting from the estimate to completion is so important. But jobs completed within a few days or weeks may not benefit from detailed cost reporting because time constraints make it difficult to identify problems early enough to take effective corrective action.

Also remember, as experienced as you might be, gut feelings regarding how costs are running compared with how they were estimated are usually insufficient. You must obtain facts about the cost activities from jobs-in-process reports. Even if your “intuition” turns out to be correct, it may come too late for you to head off a major problem.

Worth the effort

Proper job cost reporting takes persistence and, ideally, a good software system. The truth is that better numbers will lead to better results in the form of less costly, more profitable projects. Need help designing an effective job cost system? Our accounting professionals can help you select software and implement a costing system that’s right for you.

© 2018

Tax credit for hiring from certain “target groups” can provide substantial tax savings

Many businesses hired in 2017, and more are planning to hire in 2018. If you’re among them and your hires include members of a “target group,” you may be eligible for the Work Opportunity tax credit (WOTC). If you made qualifying hires in 2017 and obtained proper certification, you can claim the WOTC on your 2017 tax return.

Whether or not you’re eligible for 2017, keep the WOTC in mind in your 2018 hiring plans. Despite its proposed elimination under the House’s version of the Tax Cuts and Jobs Act, the credit survived the final version that was signed into law in December, so it’s also available for 2018.

“Target groups,” defined

Target groups include:

• Qualified individuals who have been unemployed for 27 weeks or more,


• Designated community residents who live in Empowerment Zones or rural renewal counties,


• Long-term family assistance recipients,


• Qualified ex-felons,


• Qualified recipients of Temporary Assistance for Needy Families (TANF),


• Qualified veterans,


• Summer youth employees,


• Supplemental Nutrition Assistance Program (SNAP) recipients,


• Supplemental Security Income benefits recipients, and


• Vocational rehabilitation referrals for individuals who suffer from an employment handicap resulting from a physical or mental handicap.

Before you can claim the WOTC, you must obtain certification from a “designated local agency” (DLA) that the hired individual is indeed a target group member. You must submit IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” to the DLA no later than the 28th day after the individual begins work for you. Unfortunately, this means that, if you hired someone from a target group in 2017 but didn’t obtain the certification, you can’t claim the WOTC on your 2017 return.

A potentially valuable credit

Qualifying employers can claim the WOTC as a general business credit against their income tax. The amount of the credit depends on the:

• Target group of the individual hired,


• Wages paid to that individual, and


• Number of hours that individual worked during the first year of employment.

The maximum credit that can be earned for each member of a target group is generally $2,400 per employee. The credit can be as high as $9,600 for certain veterans.

Employers aren’t subject to a limit on the number of eligible individuals they can hire. In other words, if you hired 10 individuals from target groups that qualify for the $2,400 credit, your total credit would be $24,000.

Remember, credits reduce your tax bill dollar-for-dollar; they don’t just reduce the amount of income subject to tax like deductions do. So that’s $24,000 of actual tax savings.

Offset hiring costs

The WOTC can provide substantial tax savings when you hire qualified new employees, offsetting some of the cost. Contact us for more information.

© 2018

Families with college students may save tax on their 2017 returns with one of these breaks

Whether you had a child in college (or graduate school) last year or were a student yourself, you may be eligible for some valuable tax breaks on your 2017 return. One such break that had expired December 31, 2016, was just extended under the recently passed Bipartisan Budget Act of 2018: the tuition and fees deduction.

But a couple of tax credits are also available. Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that’s taxed.

Higher education breaks 101

While multiple higher-education breaks are available, a taxpayer isn’t allowed to claim all of them. In most cases you can take only one break per student, and, for some breaks, only one per tax return. So first you need to see which breaks you’re eligible for. Then you need to determine which one will provide the greatest benefit.

Also keep in mind that you generally can’t claim deductions or credits for expenses that were paid for with distributions from tax-advantaged accounts, such as 529 plans or Coverdell Education Savings Accounts.

Credits

Two credits are available for higher education expenses:

1. The American Opportunity credit — up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education.
2. The Lifetime Learning credit — up to $2,000 per tax return for postsecondary education expenses, even beyond the first four years.

But income-based phaseouts apply to these credits.

If you’re eligible for the American Opportunity credit, it will likely provide the most tax savings. If you’re not, consider claiming the Lifetime Learning credit. But first determine if the tuition and fees deduction might provide more tax savings.

Deductions

Despite the dollar-for-dollar tax savings credits offer, you might be better off deducting up to $4,000 of qualified higher education tuition and fees. Because it’s an above-the-line deduction, it reduces your adjusted gross income, which could provide additional tax benefits. But income-based limits also apply to the tuition and fees deduction.

Be aware that the tuition and fees deduction was extended only through December 31, 2017. So it won’t be available on your 2018 return unless Congress extends it again or makes it permanent.

Maximizing your savings

If you don’t qualify for breaks for your child’s higher education expenses because your income is too high, your child might. Many additional rules and limits apply to the credits and deduction, however. To learn which breaks your family might be eligible for on your 2017 tax returns — and which will provide the greatest tax savings — please contact us.

© 2018

If you made gifts last year, you may (or may not) need to file a gift tax return

Gifting assets to loved ones is one of the simplest ways of reducing your taxable estate. However, what may not be as simple is determining whether you need to file a gift tax return (Form 709). With the April 17 filing deadline approaching, now is the time to find out an answer.

Return required

A federal gift tax return (Form 709) is required if you:

• Made gifts of present interests — such as an outright gift of cash, marketable securities, real estate or payment of expenses other than qualifying educational or medical expenses (see below) — if the total of all gifts to any one person exceeded the $14,000 annual exclusion amount (for 2017),

• Made split gifts with your spouse,

• Made gifts of present interests to a noncitizen spouse who otherwise would qualify for the marital deduction, if the total exceeded the $149,000 noncitizen spouse annual exclusion amount (for 2017),

• Made gifts of future interests — such as certain gifts in trust and certain unmarketable securities — in any amount, or

• Contributed to a 529 plan and elected to accelerate future annual exclusion amounts (up to five years’ worth) into the current year.

Return not required


No gift tax return is required if you:

• Paid qualifying educational or medical expenses on behalf of someone else directly to an educational institution or health care provider,

• Made gifts of present interests that fell within the annual exclusion amount,

• Made outright gifts to a spouse who’s a U.S. citizen, in any amount, including gifts to marital trusts that meet certain requirements, or

• Made charitable gifts and aren’t otherwise required to file Form 709 — if a return is otherwise required, charitable gifts should also be reported.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

In some cases it’s even advisable to file Form 709 to report nongifts. For example, suppose you sold assets to a family member or a trust. Again, filing a return triggers the statute of limitations and prevents the IRS from claiming, more than three years after you file the return, that the assets were undervalued and, therefore, partially taxable.

Contact us if you made gifts last year and are unsure if you should file a gift tax return.

© 2018

Unlock hidden cash from your balance sheet

Need cash in a hurry? Here’s how business owners can look to their financial statements to improve cash flow.

Receivables

Many businesses turn first to their receivables when trying to drum up extra cash. For example, you could take a carrot-and-stick approach to your accounts receivable — offering early bird discounts to new or trustworthy customers while tightening credit policies or employing in-house collections staff to “talk money in the door.”

But be careful: Using too much stick could result in a loss of customers, which would obviously do more harm than good. So don’t rely on amped up collections alone for help. Also consider refining your collection process through measures such as electronic invoicing, requesting upfront payments from customers with questionable credit and using a bank lockbox to speed up cash deposits.

Inventory

The next place to find extra cash is inventory. Keep this account to a minimum to reduce storage, pilferage and security costs. This also helps you keep a closer, more analytical eye on what’s in stock.

Have you upgraded your inventory tracking and ordering systems recently? Newer ones can enable you to forecast demand and keep overstocking to a minimum. In appropriate cases, you can even share data with customers and suppliers to make supply and demand estimates more accurate.

Payables

With payables, the approach is generally the opposite of how to get cash from receivables. That is, you want to delay the payment process to keep yourself in the best possible cash position.

But there’s a possible downside to this strategy: Establishing a reputation as a slow payer can lead to unfavorable payment terms and a compromised credit standing. If this sounds familiar, see whether you need to rebuild your vendors’ trust. The goal is to, indeed, take advantage of deferred payments as a form of interest-free financing while still making those payments within an acceptable period.

Is your balance sheet lean?

Smooth day-to-day operations require a steady influx of cash. By cutting the “fat” from your working capital accounts, you can generate and deploy liquid cash to maintain your company’s competitive edge and keep it in good standing with stakeholders. For more ideas on how to manage balance sheet items more efficiently, contact us.

© 2018

THE TAX CUTS AND JOBS ACT - PARKING, ENTERTAINMENT AND MEALS

The Tax Cuts and Jobs Act (‘the Act”) was signed by President Trump on December 22, 2017. The Act makes sweeping changes to the U.S. tax code and impacts virtually every business and individual taxpayer. Some business expense changes that will impact many of our clients are parking, entertainment, and meals.

 

Under the past law, the employer was allowed to deduct parking as an expense while allowing employees to receive this tax-free benefit. Effective January 1, 2018, The Act continues to allow the employees to receive the tax-free benefit but the employer now has to consider parking as a nondeductible expense.   

 

Because so many of our clients depend on entertainment as part of their business strategy to promote their businesses, we wanted to update you on the change made to entertainment expenses. Until December 31, 2017, businesses were allowed to deduct 50% of their entertainment expenses. As of January 1, 2018, the Act disallows a deduction for (1) any activity generally considered to be entertainment, amusement, or recreation; (2) membership dues for any club organized for business, pleasure, recreation, or other social purposes; or (3) a facility or portion thereof used in connection with any of these items.

 

Another area where many of our clients will be impacted is meals. Under the Act, taxpayers are still generally able to deduct 50 percent of the food and beverage expenses associated with operating their business.  For amounts incurred and paid after December 31, 2017, the Act expands this 50% limitation to all meals, including on premise dining which was previously 100% deductible.

 

Until December 31, 2017, individuals who are not reimbursed by their employer for business promotion or travel, deducted travel, business meals, and entertainment under miscellaneous expenses on Schedule A. As of January 1, 2018, miscellaneous expenses are no longer deductible at all. 

 

These are just highlights of some of the changes and impact of the Tax Cuts and Jobs Act. There is much more to discuss than can be covered in this letter. Tax reform is further complicated because many of the changes are temporary, generally ending after 2025.  We are focused on both the immediate and long-term impact of the Act on your situation. Please call our office for guidance on all of the provisions that directly affect you.