Raising the Bottom Line

From “Eh” to “Awesome!” – How to Become a Great Nonprofit Board Chair

Posted by Richard Wolf on Mon, Mar 20, 2017 @ 08:05 AM

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Being the chair of a nonprofit board of directors comes with a laundry list of responsibilities. Not only are you responsible with overseeing the board as a whole, you’ve also got committees to keep track of, board members to keep focused and energized, a management team to work with – not to mention your fulltime job and personal life. 

The question is, what really takes a board chair from just okay to above and beyond? The truth is, the best nonprofit board chairs know the essential tasks they must routinely accomplish to remain a key asset to their organization. These tasks include:

1. Ensuring board members show up (and participate) in meetings

Participation is important. Really important. A big part of your role as board chair is making sure that your board members are actively participating on a regular basis.

If you’re having trouble getting members to meetings, remind your board that when they agreed to be a board member, they agreed to play a vital part of your organization’s decision making process. Further, it’s going to be tough for them to make decisions if they don’t have a clear idea of what’s going on in the organization at the most basic level.

As the board chair, you are responsible with ensuring your board members are present at meetings or, if anything, at least have the information needed to make informed decisions. If there is a member who is not participating, it’s your responsibility to make sure that member’s participation level increases or the person is removed from the board entirely.

2. Being knowledgeable about the organization

As board chair, you are 100% accountable for being knowledgeable about your nonprofit, its mission, operations and fundraising initiatives. You should be able to talk with donors, your colleagues and the community about the organization just as easily as you would if you were talking about your own company.

Get five essential action steps for building a better nonprofit board in this free on-demand webinar.

3. Evaluating current board composition

In order to ensure your organization has a strong and effective board, as board chair you must lead and work collectively with the rest of the board to evaluate the composition of the board on a regular basis. You might ask questions like:
  • Do we have enough members?
  • Is our board structure effective?
  • Do we have the right skill sets represented?

If the answer to any of these questions is no, you must work together as a board to correct these deficiencies. A good board chair must always be looking at the bigger picture, and if the board as a whole keeps hitting speed bumps, you will not be able to function effectively.

4. Keeping the rest of the board energized and accountable

Board rotation can be an important part of making sure your board stays energized and accountable. It is your responsibility to ensure that any board rotation policies are enforced or put into place. As a part of this, it is also typically the responsibility of the board and board chair to help recruit new board members and participate in the process of interviewing and selecting new board candidates.

When it comes to accountability, one sure way for a board to make little progress and de-energize is to select or accept poor board leadership. This means you must be on your A-game by meeting all your responsibilities and maintaining good relations with your organization’s management team. After all, the success of your board is dependent on your effectiveness as a leader.

It is also your responsibility as a board chair to make sure other board officers are doing their job effectively.

5. Assessing the organization’s executive director

While the executive director may give many performance reviews to staff members, it is likely that the board’s review is the only means the executive director has to get feedback on their performance. A good board chair must be able to provide opinions and advice to help hone the effectiveness of the organization’s executive director. A formal review of your nonprofit’s executive director is also an important way of ensuring the board and management team are on the same page.

6. Making hard decisions

When it comes to making tough calls, more often than not, the board is asked to weigh in. You must be able to work together with your board to make decisions with weighty or even public consequences for your organization. The best board chairs lead and contribute to votes and discussions, even when the results may be unfavorable

7. Leading with authenticity and tact

Your board should be representative of the goals and mission that your organization embodies. For example, if your nonprofit is focused on increasing diversity in the workforce, your board composition should reflect that mission. Good board chairs are conscious of big picture goals and must be diligent that the leadership of the board is authentic to the organization.

When it comes to tact, remember that how you act collectively as a board and individually as a board chair will impact public and internal perception of your organization. Like the rest of the board, you must willingly accept the responsibilities that are included in board membership and realize your actions and words, even outside of your organization, could have an impact on your nonprofit.

Chairing a board is a lot of responsibility

Being an effective and respected board chair requires a lot of time and energy. To be a good nonprofit board chair, you must be accountable for your duties and be willing and able to put in the time to honor the responsibilities required. For more information on board responsibilities and how to keep your board accountable, watch this free on-demand webinar.

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Tags: nonprofit, Richard Wolf

Baltimore CPA Offers Answers on President Trump’s Released Tax Return

Posted by David Goldner on Thu, Mar 16, 2017 @ 07:59 AM

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The mystery of President Trump’s unreleased tax returns has raised questions from both legislators and the electorate since the president’s earliest days on the campaign trail. On March 14, 2017, the first two pages of President Trump’s 2005 tax return were leaked to the media, prompting questions from news outlets and the public on the significance of the documents, and more importantly, what they do and don’t tell us about the president’s past finances.

To help, David Goldner, CPA, CFP®, CVA, answered a few questions being asked publically after the release of the return.

Why did President Trump release his return from 2005 in particular?

All we can do is speculate, but it could be that President Trump allowed his 2005 tax return to be released in order to prove he has paid substantial amounts of tax. There have been widespread rumors that the president has not paid any taxes in the past few years, which, to be honest, is not all that unusual for an active real estate investor. These investors typically are able to avoid paying taxes due to large depreciation tax deductions.

When are tax returns usually released by a president?

Tax returns have routinely been released shortly after filing for candidacy. This has been the case with every president since Jimmy Carter in 1977. Some presidents have released summaries of their returns, but most presidential candidates in today’s age release their complete tax returns during the campaign to demonstrate financial transparency.

Was the leak intentional? 

As I mentioned, there is speculation the release was intentional in order to dispute claims that President Trump has avoided paying substantial taxes in the past. The obvious question being asked now is, why not release more recent returns? Presumably, more current returns may not include tax liabilities of this magnitude.  

How much did President Trump pay in taxes in 2005?

President Trump paid $36 million in taxes in 2005, which is a large sum even to someone of his wealth. However, since we only have the first two pages of the returns, it is hard to tell what President Trump’s actual income was and the amount of tax shelter that might have been taken advantage of. Based on what I’ve been able to review, the implications related to his taxes show that President Trump paid a 15% tax rate on about $32 million of capital gains, about a $5 million liability. 

He paid about $31 million of taxes at the 28% alternative minimum tax rate on his W-2, interest, partnership and business income net of deductions. He paid this alternative minimum tax on ordinary income (income other than capital gains) of $110 million.  

He showed a loss of $103 million, probably a carryover net operating loss from prior years. This loss doesn’t look to have been deductible for alternative minimum tax purposes. This may be because it was used in prior years to reduce alternative minimum tax and eliminate taxes in earlier years.      

Overall, that loss of $103 million could indicate President Trump paid minimal amounts of taxes in years before 2005. The combination of these things could be why he proposed eliminating the alternative minimum tax as part of his proposed income tax changes.

Have more questions?

You can contact us online or by calling 410.685.5512.

About David Goldner

David Goldner, CPA, CFP®, CVA, is the managing partner at Gross, Mendelsohn & Associates. With more than 30 years of service at the firm, David provides integrated tax, investment, estate and financial planning services to high net worth families and individuals, among other financial services.

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Tags: tax, David Goldner

6 Resources Everyone in the Maryland Manufacturing Industry Should Know About

Posted by Edward Thompson on Tue, Mar 07, 2017 @ 07:02 AM

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As politics and policies continue to change under the new administration, it is more important than ever that Maryland manufacturers stay up to date on what is happening in the industry, take advantage of financial opportunities and keep an eye on new and existing tax credits.

Here are six resources Maryland manufacturers should know about:

1. The National Association of Manufacturers (NAM)

Though it is the largest manufacturing association in the United States, Maryland manufacturers may be interested in the free national manufacturing data NAM produces on a regular basis. NAM puts out resources like:

 2. The Regional Manufacturing Institute (RMI)

This Maryland-based nonprofit focuses on representing the interests of manufacturers across the state by providing programs, services and advocacy for manufacturers. RMI hosts a number of events throughout the year, including seminars, networking and honorary events, like the Champions of Maryland Manufacturing, for Maryland’s top manufacturers.

 3. Maryland Manufacturing Extension Partnership (Maryland MEP)

A long-time partner of RMI, Maryland MEP is focused on providing high quality solutions and programs to improve Maryland manufacturing operations, spark innovation and increase growth. Through training and events, the group is committed to making Maryland a leader in manufacturing.

 4. Maryland Economic Adjustment Fund (MEAF)

As a state sponsored fund, MEAF helps small manufacturers:

  • Upgrade manufacturing operations
  • Develop commercial applications for technology
  • Enter into or compete in new economic markets

To be eligible for the funds, manufacturers must demonstrate credit worthiness, financial viability to repay the fund and an inability to qualify for financing through other lending channels.

 5. Maryland Business Tax Credits

Maryland manufacturers may be eligible for state tax credits. The Comptroller of Maryland keeps a running list of current credits available, including details on eligibility requirements. In particular, the Maryland Commuter Tax Credit and Job Creation Tax Credit are good credits for Maryland manufacturers to keep in mind.

 6. Gross Mendelsohn's Manufacturing Blog

Instead of spending time checking multiple websites and news outlets for updates relevant to the Mid-Atlantic manufacturing industry, subscribe to our manufacturing blog and you’ll get manufacturing related articles delivered straight to your inbox. Blog topics include: inventory best practices, new regulations that may affect your business, accounting and tax issues specific to Mid-Atlantic manufacturers, fraud prevention and more.

Need Help?

If you have any questions on your manufacturing business, feel free to contact us online at 800.899.4623.

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Tags: Manufacturing & Distribution, tax, Ed Thompson, tax planning, manufacturing

Increase Your Tax Savings with These Tax Credits for Maryland Manufacturers

Posted by Scott Handwerger on Thu, Feb 16, 2017 @ 07:10 AM

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Manufacturers, like most businesses, are always looking for ways to minimize expenditures, yet many fail to realize they are leaving money on the table every year when they file their taxes. The following are just a few federal and state credits that Maryland manufacturers should know about:

There’s a Difference Between a Tax Deduction and Credit

Before we jump in, it’s important to note that tax credits and deductions are two different financial tools:

  • A deduction reduces the total dollar amount you are responsible for before your tax liability is calculated. This means if you have a $10,000 deduction and made $50,000 in revenue last year, you will deduct $10,000 from your revenue so when you file your taxes, your tax liability is determined based on a revenue of $40,000 instead of $50,000.
  • A tax credit is a dollar-for-dollar reduction in taxes that your business owes. This means if you have a $10,000 tax credit, you will deduct $10,000 from your overall tax liability. So, if you owe $10,000 in taxes, you will end up paying $0 that year.
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1. The R&D Tax Credit

The R&D Tax Credit (or more formally known as the IRC Section 41 Research and Experimentation Tax Credit) is commonly missed by manufacturers for several reasons:

  1. They aren’t aware the credit exists
  2. They are aware the credit exists but don’t know what the rules of the credit are
  3. They are aware the credit exists, know the rules of the credit but don’t think the credit applies to them

The R&D Tax Credit is a dollar-for-dollar reduction in tax liability that can be passed forward for up to 20 years. For Maryland manufacturers that qualify for the credit, there is also a credit against regular state tax for businesses that incur qualified research expenses within the state. 

To be clear, the R&D Tax Credit involves more than research and includes things like: the development of new processes, and techniques, formulas and design of new projects. For example, if a manufacturer creates a new process to increase the efficiency and improve the manner in which something is manufactured, they may qualify for the credit.

The total amount of credits depends on the amount of eligible expenses incurred, with a limit of $4.5 million for all Maryland businesses that apply. To claim the credit, a manufacturer must attach Business Tax Credits Form 500CR to the Corporate Income Tax Return Form 500. For some tips from the IRS for how manufacturers can qualify for the R&D Credit, visit the IRS website.

2. Maryland Enterprise Zone Tax Credit

In order to stimulate business in economically distressed communities throughout Maryland, manufacturers located in “enterprise zones” are eligible for income tax credits. There are currently 31 enterprise zones in Maryland (get the complete list of enterprise zones), with a highlighted focus in Baltimore City and Prince George’s County.

To qualify for the credit, manufacturers must be located in an eligible enterprise zone and employ “qualified” employees, meaning the employee must:

  • Work at least 35 hours per week
  • Have been employed for a six-month period before or during the taxable year in which the credit is claimed
  • Be a new employee or an employee that was rehired after being laid off for more than a year
  • Make at least 150 percent of the federal minimum wage

Maryland manufacturers located in an enterprise zone may claim credit of $1,000 per new worker. For economically disadvantaged employees, the credit increases to a total of $3,000 per worker for the first year. Business entities are allowed an enhanced tax credit for focus area employees of up to $1,500 or up to $4,500 for economically disadvantaged individuals. For more information on the enterprise zone tax credit, visit the Maryland Department of Commerce’s website.

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3. Maryland Bio-Heating Oil Credit

This tax credit can be earned for the purchase of bio-heating oil equal to three cents per gallon and not to exceed $500. The bio-heating oil must be used for the purpose of space and water heating. To qualify, a business must apply to the Maryland Energy Administration and file a Form 500CR with their tax return. To learn more about the credit, visit the Maryland Energy Administration website.

4. Maryland Commuter Tax Credit

Maryland businesses that provide commuter benefits in the form of transit passes, transportation to work, or reimbursements for carpooling expenses to in-state employees, are eligible for a tax credit up to 50 percent of the cost of the benefits limited to $100 per month per employee. To learn more about how to qualify for this credit, check out our quick guide on how to qualify for the Maryland Commuter Tax Credit.

Maryland-commuter-tax-credit5. Maryland Long-Term Care Insurance Credit

Maryland businesses that provide long-term care insurance as part of an employee benefits package are eligible for a tax credit equal to 5 percent of the costs and is limited to the lesser of $5,000 or $100 for each employee covered under the plan. To claim the credit, the business must attach Business Tax Credits Form 500CR to the Corporate Income Tax Return Form 500. For more details on the credit, visit the Comptroller of Maryland website.

6. Maryland Neighborhood and Community Assistance Program

Maryland businesses that make a donation of money, goods or real estate property of at least $500 in value to the Neighborhood and Community Assistance Program are eligible for a tax credit equal to 50 percent of their donation limited to the lesser of $250,000 or the taxpayer’s liability for the year of donation, with any unused credit being allowed to be carried forward for five years.

Businesses must receive approval from the Department of Economic Competitiveness and Commerce prior to claiming the credit. To learn more, visit the Comptroller of Maryland website.

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7. Maryland Heritage Structure Rehabilitation Tax Credit

Owners of income-producing properties in Maryland have the opportunity to earn a state income tax credit for renovating historic buildings under the Maryland Heritage Structure Rehabilitation Tax Credit. To learn more about how to qualify, visit the Maryland Historical Trust website.

8. Maryland Small Commercial Tax Credit

Under Maryland’s Small Commercial Tax Credit, small commercial rehabilitations, defined as projects that do not exceed $500,000 in expenses and are not used for more than 75 percent residential rental purpose, may receive a credit up to $50,000 in a 24-month period. The program is capped at $4 million worth of credits a year. To learn more about the credit, visit the Maryland Historical Trust website.

9. Maryland Competitive Commercial Tax Credit

Under Maryland’s Competitive Commercial Tax Credit, larger, income-producing, “commercial” rehab projects are potentially eligible to earn a state income tax credit that is equal to 20 percent of eligible rehabilitation expenses. The program is capped at $9 million worth of credits a year. To learn more about how to qualify, visit the Maryland Historical Trust website.

Need Help?

Call Scott Handwerger, CPA, at 800.899.4623 or contact us online if you have questions. Scott, a partner in Gross Mendelsohn’s tax department, specializes in tax issues specific to manufacturers.

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Tags: Manufacturing & Distribution, tax, Scott Handwerger, manufacturing, tax deduction, tax credits

What Government Contractors Can Expect from the New Attorney General

Posted by Taylor Dean on Mon, Feb 13, 2017 @ 09:30 AM

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There’s a new attorney general in town and he’s not messing around. If you’re a federal government contractor, listen up.

During his January 2017 confirmation hearings on his nomination for U.S. attorney general, then Senator Jeff Sessions remarked, “… this government must improve its ability to protect the United States Treasury from waste, fraud, and abuse. This is a federal responsibility. We cannot afford to lose a single dollar to corruption and you can be sure that if I am confirmed, I will make it a high priority of the department to root out and prosecute fraud in federal programs and to recover any monies lost due to fraud or false claims.”

Make no mistake. Attorney General Sessions is serious about fighting fraud and abuse against the federal government. With federal government contractors receiving more than $500 billion – that’s billion with a B – annually from the federal budget, Sessions, a former prosecutor and fiscally conservative U.S. Senator, could very well have his eye on government contractors.

The False Claims Act, designed to combat fraud against the federal government, will continue to be the DOJ’s top weapon when it comes to fighting fraud. In 2016 alone, the Department of Justice recouped more than $4.7 billion from federal government contractors who defrauded the government under the Federal False Claims Act. Could that number go up? It sure could. Could federal government contractors see increased scrutiny? They sure could.

Compliance Systems to See More Scrutiny

accounting system compliance checkup We expect to see greater emphasis on enforcing the False Claims Act with Attorney General Sessions at the helm of the DOJ. This focus most likely means that federal government contractors’ compliance systems will be scrutinized more than ever before.

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Now is the time to do a checkup of your company’s compliance program with the goal of minimizing your risk of a False Claims Act allegation.

What Should Government Contractors Do to Prepare for Increased Scrutiny?

There are steps government contractors should take now to prepare for a crackdown. Your accounting system is one element of your compliance system that should absolutely get a checkup.

Need Help?

To make sure your I’s are dotted and T’s are crossed when it comes to your accounting system’s compliance, sign up for a free accounting system compliance checkup. Or, contact Taylor Dean, CPA, GGMA, at 703.537.0576 or online.

Tags: compliance, government contractors, Taylor Dean

5 Lessons to Learn From a Nonprofit That Lost $160K+ in Employee Fraud

Posted by Richard Wolf on Thu, Feb 09, 2017 @ 07:46 AM

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There is always a lesson to be learned in the experience of another nonprofit, especially when it comes to fraud. Nonprofits frequently lack the strong controls and policies to ensure their organization is fully protected against employee fraud, making them vulnerable when they put too much power in the wrong employee’s hands.

Below is the real-life story (names withheld) of a nonprofit organization whose lack of internal controls and policies lost them more than $160,000 from employee fraud, and the lessons learned that could stop the same thing from happening to your organization.

Setting the stage

ABC Nonprofit, a mid-size nonprofit with an annual operating budget of about $2.5 million, hired their new director of finance, John Smith, seven months ago. While the organization believed him to be an honest, qualified employee, the truth was John begun stealing from the nonprofit from the very beginning of his employment. Over the course of seven months, John perpetuated multiple acts of fraud, including:

Discovering the truth

Most nonprofits would like to believe this unprecedented level of fraud at their own organization would have been discovered and stopped quickly. And for all intents and purposes, John’s fraudulent activities were uncovered in seven months, a relatively short amount of time given some fraud goes on for years. Then again, most nonprofits aren’t alerted to an employee’s prior fraud thanks to a tip from the FBI…

When they’d hired John, ABC Nonprofit had called his listed references, but they hadn’t done a thorough background check. If they had done a complete check of John’s criminal history, they would have discovered that John was under investigation for fraud at his prior place of employment, a fact that was relayed to the organization’s executive director seven months after John’s start date in a call from the FBI.

You can start watching our FREE on-demand webinar, “Fraud Prevention for Nonprofits: Avoiding Fraud Schemes and Fraudsters,” now.

This prompted ABC Nonprofit to start digging into John’s activities over the past seven months, a search that uncovered John had already embezzled over $160,000 from the organization. As a result of this discovery, the organization spent much of the next few months tied up in a fraud investigation while trying to keep their operations on track, paying legal and forensic accounting fees, and most importantly – trying to minimize the mark the investigation would make on their organization’s reputation.

In the end, John plead guilty to the fraud and was sentenced to three years of prison and ordered to pay restitution in the total of $1.3 million to ABC Nonprofit and three other organizations he’d stolen from.

Lessons to learn

While ABC Nonprofit was lucky to recover most of the money stolen through their insurance policy, the true monetary hit would come from the effect of the organization’s damaged reputation on future donations and grant funds.

Your nonprofit should be constantly working to keep your internal controls and policies up-to-date to prevent acts of fraud. ABC Nonprofit’s story serves as a reminder that:

  1. Calling a candidate’s references is never enough. You hope that everyone who applies for a job at your organization is honest and good-intentioned, but the truth is, unless you have a prior relationship with a person’s reference, you never really know if the person on the other end of the line is who they say they are. Doing a thorough background check is an important part of vetting a candidate. After all, would you rather uncover an applicant’s history of criminal activity before or after you give them the power to steal from you?
  1. Your organization needs strong internal controls – period. Putting all the power in the hands of one person, especially when it comes to money, is a recipe for disaster. Not only does segregation of duties help ensure honest mistakes aren’t being made, but strong internal controls make it that much more difficult for wrong-doers to cash-in on your organization. It was because John Smith had all-access to ABC Nonprofit’s financial processes, including salary information and payroll, that he was able to increase his own salary without approval from anyone else in the organization. on-demand-nonprofit-fraud-webinar
  1. Review your bank reconciliations on a regular basis. The regular review of your bank reconciliations is not only part of fraud prevention but simply good business. If ABC Nonprofit had been reviewing the bank reconciliations that John Smith prepared, they most likely would have caught him in a month rather than seven.
  1. Fidelity bond coverage is important. Like any form of insurance, you do everything you can to hope you never need to use your coverage, but if and when the time comes when a fraudster manages to slip through your organization’s control system, you’ll be happy you have a safety net. In the case of ABC Nonprofit, their fidelity bond insurance helped them recover over 90% of the funds John Smith had embezzled.
  1. Don’t put all of your trust in one person. All of us want to believe everyone we hire is trustworthy, but the truth is, fraudsters are hired at businesses each and every day. Remember, not only do strong fraud prevention policies and controls prevent fraud, these systems also prevent genuine mistakes by requiring multiple levels of review. We need to protect ourselves and our organizations by making sure we implement smart and preventative policies rather place the power of our organization’s future in the hands of one individual.

What if I suspect fraud in my organization?

If you suspect fraud in your organization, you’ll want to sit down with a fraud expert as soon as possible. When it comes to suspected fraud, you want a seasoned investigator who has the expertise and knowledge to spot a fraudster and, if needed, help prosecute them.

To identify different types of fraud, you can utilize free resources like whitepapers and blog posts to beef up your knowledge of common fraud schemes hitting nonprofits and prevention strategies to stop fraudsters from targeting your organization. 

Tags: fraud, nonprofit, Richard Wolf, fraud prevention

Beware of Scams Targeting Unwary Taxpayers

Posted by Leonard Rus on Mon, Feb 06, 2017 @ 02:22 PM

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Tax season is here and the scammers are at it again. Taxpayers have lost millions of dollars and sensitive personal information to a variety of tax scams in recent years.

Scammers continually change their tactics as they prey on taxpayers from year to year. It’s important to know what to watch out for so you don’t become a victim.

Some of the newer scam tactics used by IRS impersonators include:

What’s the Deal with Emails from the IRS?

The most important thing to know is that the IRS does NOT initiate contact with taxpayers via email. Scammers, however, are using fake emails more than ever to steal personal information.

Here’s how it works: A con artist sends you an email that looks like it’s from the IRS. You open the email, which asks you to update your “IRS e-file immediately.” The email might mention USA.gov or IRSgov. You click on a link, which takes you to a website asking for personal information such as your Social Security number. You enter your personal information, which leads to a criminal filing a false tax return under your name.

Clicking on a link in these scam emails can also lead to malware being downloaded onto your computer without your knowledge. Malware can infect your computer and worse, allow criminals to access the personal information stored on your computer.

Be extremely judicious about what you click in the emails you receive from unknown senders. You should treat attachments with the same level of caution.

This one-minute video from the IRS explains how email scams work.

How Do I Know If I’ve Been Scammed?

There’s no doubt that scammers are sneaky. Scammers target anyone and everyone, from businesses to individuals to nonprofits.

The most important thing to understand is that the IRS does not initiate contact with taxpayers by email, text messages or social media. If you receive communication through one of these channels that looks like it’s from the IRS, or if you receive a threatening phone call demanding payment, you’ve most likely just been scammed.

According to the IRS website, the IRS will NOT:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail you a bill if you owe any taxes.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Ask for credit or debit card numbers over the phone.

For an overview of the many scams targeting taxpayers, it’s worth spending a few minutes reading this summary of tax scams on the IRS website.

What Should I Do If I’ve Been Scammed?

If you’ve been a victim of an IRS scam, report the incident here to the Treasury Inspector General for Tax Administration. You can always contact us online or call us at 800.899.4623 for guidance.

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Tags: IRS, Leonard Rus, taxpayers, tax, scam

3 Signs Manufacturers Should Be Increasing Capital Spending in 2017

Posted by Will Sasser on Mon, Jan 30, 2017 @ 02:02 PM

money-new-factory

As we settle into another new year, manufacturers across the country are betting big that 2017 is going to be a big improvement over years prior. With the combination of a changing political climate and the advantageous financial opportunities currently available, manufacturers will risk missing out if they do not take the opportunity to increase their capital spending in 2017.

But why is now, more than ever, such a huge opportunity to increase your manufacturing business’ capital spending?

1. Political Changes Ahead

President Donald Trump’s tax plan is focused on cutting taxes for corporations and individuals as well as incentivizing investments in an effort to stimulate the domestic economy. In fact, Trump’s plan specifically states, “Firms engaged in manufacturing in the US may elect to expense capital investment…”

In the past, a corporation’s ability to expense purchases of property, plant and equipment was subject to a bright line of dollar and income limitations. However, under Trump’s new plan, the full cost of capital spending in 2017 can be used to offset and decrease taxable income. This is an opportunity for manufacturers to increase spending on machinery and equipment, which can increase efficiency and decrease tax liability.

2. Rock Bottom Interest Rates

Since the 2008 Recession, the Federal Reserve (FED) has, for the most part, stood by its decision to keep the interest rates, or the Federal Reserve Rate, low. The ability to lower interest rates is a tool used by FED to incentivize businesses to increase expenditures on capital and investments. The lower the rate, the lower the cost will be to borrow money for purchases of expensive property, plant or equipment.

For seven years, FED voted to maintain the Federal Reserve Rate at 0.0-.25 basis points. However, in December 2015, there was an increase in the target rate to .25-.50 basis points, followed by another .25 basis point increase in December 2016, where the rate still remains today.

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In FED’s most recent meeting, the group said, “Expectations are that economic conditions will evolve in a manner that will warrant only gradual increases to the Federal Funds Rate.” That means the door is still officially open for future rate hikes. As a result, manufacturers who remain hesitant to fund capital expenditures through borrowing may end up spending more by waiting to borrow.

3. Lean Manufacturing

According to the National Association of Manufacturing (NAM), output per hour for all workers in the manufacturing sector has more than doubled since 1987. Part of this growth is attributable to the growing idea of lean manufacturing,” a management philosophy focused on identification and elimination of “wastes” to increase production efficiencies and workflows.

While some practical applications of this philosophy are done through evaluations, discussions and quality controls, staying lean is also dependent on the machines and tools available for use. Older equipment has the tendency to break down, and have idol times and output defects, creating waste. To eliminate these inefficiencies, manufacturers can increase expenditures on new capital and machinery, allowing for more refined processes, monitoring and just-in-time output.  

Where Do I Start?

When investing in new capital, you want to first make sure your existing financial house is in order. For advice on capital spending, contact our Manufacturing Group online or call 800.899.4623.

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Tags: Manufacturing & Distribution, R&D Tax Credit, tax, tax planning, manufacturing, tax credits

Nonprofits, 6 Things to Look for When You Hire a Strategic Planning Facilitator

Posted by Ernie Paszkiewicz on Thu, Jan 26, 2017 @ 09:44 AM

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It’s a good day. You, your team and board just made the decision to develop a much-needed strategic plan for your nonprofit. It’s time to jump in and get started … or is it?

When funds are limited you might be tempted to go it alone and handle your organization’s strategic planning process internally. After all, you know your organization better than anyone right? Well, maybe. The best person to lead your organization’s strategic planning process, though, is someone who doesn’t know your organization as intimately as you do.

Before you search for an outside facilitator, consider what to look for. Here are six critical qualities of a skilled strategic planning facilitator:

1. They offer fresh insight and an outside perspective

One of the best words to describe a good facilitator is “unbiased.” While it is helpful for your outside facilitator to know how nonprofits work and what your nonprofit is all about, they will bring fresh insight and an outside perspective to your organization’s plan.

2. They engage everyone

A skilled facilitator is able to get everyone to participate – even Negative Nancy and the shy bookkeeper who usually keeps opinions to herself. 

Ready to take on your next strategic plan? Check out this on-demand webinar to learn tips and best practices of nonprofit strategic planning.

3. They keep the process on track

An experienced outside facilitator will set the right tone for your strategic planning process and keep things on track. Specifically, they are able to maintain order in meetings that sometimes get heated. They can help prevent issues from getting personal and deal with any conflict that arises.

4. They challenge the status quo

A seasoned facilitator encourages your team to abandon the mindset of “that’s how we’ve always done things so that’s how we’ll keep doing them.” Skilled facilitators know when – and how – to be brutally honest with your organization’s leaders. They are able to have difficult conversations that help your organization move forward in accomplishing its mission.

5. They are enthusiastic Start watching this on-demand strategic planning webinar for nonprofits

A passionate and enthusiastic facilitator will get better results for your nonprofit’s strategic planning process. Period.

6. They have proven facilitation experience

While strategic planning often conjures up a touchy-feely process, it’s important that your facilitator is experienced in using tried-and-true facilitation techniques and strategic planning models. Professional facilitators are far more than note takers, documenters and agenda followers. They are five-star listeners who understand group dynamics and nuances. They know when to step back and let conversations take place in a free-flow fashion, and when to step in and change direction.

The Cost of Not Hiring an Outside Facilitator

While having a staff member facilitate your nonprofit’s strategic planning process can save some up-front costs, ask yourself the cost of not hiring an outside facilitator. For example, if a member of your team is tasked with heading up the process, that staff member will spend significant time preparing for meetings, documenting decisions, debriefing participants, reporting back to management and writing the strategic plan. These time consuming duties – which he may or may not be equipped to handle – will take your staff member away from his critical job at the nonprofit. And, most importantly, as we already discussed, a professional outside facilitator can help you develop a sound strategic plan that’s based on fresh ideas and a tried and true process.

Need Help?

If you’re ready to get started with your nonprofit’s strategic planning process, schedule time to speak with an experienced strategic planning facilitator.

Not quite ready to talk? Learn more about strategic planning by reading some blog posts or watching a webinar.

Tags: Ernie Paszkiewicz, nonprofit, strategic planning

Valuing Goodwill in a Divorce: Personal vs. Enterprise Goodwill

Posted by Richard Wolf on Tue, Jan 24, 2017 @ 08:52 AM

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When valuing a business as part of a divorce proceeding, it’s critical to understand the distinction between personal and enterprise goodwill. Knowing how to distinguish between the two could have a significant impact on the financial outcome of the case.

An increasing number of states operate under the principle that while enterprise goodwill is part of the marital estate, personal goodwill is not a marital asset subject to distribution. Instead, personal goodwill is the future earning potential associated with an individual’s personal attributes and is excluded from the marital estate.

Goodwill can be defined in multiple ways. For example, under generally accepted accounting principles (“GAAP”) goodwill is defined as “an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.”

A common resource in the valuation community, Shannon Pratt and Alina Niculita’s Valuing a Business: The Analysis and Appraisal of Closely Held Companies, defines goodwill as “an intangible asset category usually composed of elements such as name or franchise reputation, customer patronage, location, products, and similar factors.”

Distinguishing Between Personal and Enterprise Goodwill

Let’s take a closer look at the two types of goodwill.

Goodwill can be separated into two buckets: personal goodwill and enterprise goodwill. Personal goodwill, also called professional, individual or celebrity goodwill, relates to an individual person. It is the part of goodwill attributable to an individual as opposed to an entity. Enterprise goodwill, on the other hand, is associated with the subject. It is the part of goodwill attributable to the entity as opposed to the individual.

Some characteristics of personal goodwill include:

  • Personal relationships with customers, suppliers, employees, or even competitors that enhance the earning power of a company. For example, if an attorney leaves a law firm, will key clients leave as well, regardless of the quality of service and work they would receive if she stayed? Do employees stay at a company due to the personal charisma of its CEO?

  • Skill. Skills can be physical (as in the case of a surgeon), intellectual (such as a wealth advisor), or a combination of both.

  • Knowledge. Similar to skill, this can be defined as the unique possession of information or the ability to analyze information.

  • Reputation. The reputation of a company may be derived in whole or in part from personal goodwill. For example, how much of Berkshire Hathaway’s value is based on the reputation of Warren Buffet?

A non-compete agreement can be a good indicator of the existence of personal goodwill, because the entity believes that there is some value in restricting competition if a key employee leaves.

Finally, since personal goodwill is often defined as goodwill that attaches to the personal efforts of an individual, it is generally considered to be nontransferable. If it is transferable, then it must be enterprise in nature.

The courts in both Maryland and Virginia treat enterprise goodwill as marital property, while personal goodwill is excluded from the marital estate.

Goodwill in Maryland

In Prahinski v. Prahinski, 1990, the Maryland courts addressed the definition of goodwill and distinguished it between a business asset and an individual’s good reputation. The court indicated that “for professional goodwill to be marital property, it must be a business asset having a value independent of the continued presence or reputation of any particular individual.” Accordingly, in order for it to be distributable in Maryland, goodwill must be shown to be an asset distinct from, and not dependent on, the reputation or continued presence of the individual professional.

Goodwill in Virginia

The Virginia courts have rejected a “fair market value” standard of value for divorce. Instead, Virginia’s courts look to the concept of “intrinsic value” when determining the value of a business. As discussed in Howell v. Howell, 2000, the Virginia Court of Appeals stated that “professional goodwill is attributable to the individual and is categorized as separate property in a divorce action.” Further, in Hoebelheinrich v. Hoebelheinrich, 2004, the Virginia courts indicated that as a matter of law, “goodwill attributable to personal characteristics is considered separate property and goodwill attributable to the business entity is considered marital property.”

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Personal Goodwill Has a Huge Impact on the Marital Estate

The importance of personal goodwill to the marital estate can be shown in the following hypothetical divorce between Robert and Sarah Jones. We’ll look at two scenarios to illustrate the impact that personal goodwill has on the marital estate.

Robert started RJ Company, Inc. shortly after marrying Sarah. Robert owns 100% of RJ Company, Inc. and Sarah worked outside of the business. They live in an equitable distribution state where any marital assets are split 50/50. A business valuation was conducted to value RJ Company, Inc. for the purposes of the divorce proceedings. The value of RJ Company, Inc. was determined to be $4 million.

In scenario #1, we assume that Robert does not possess any unique skills and/or business relationships that couldn’t be transferred. As a result, we assume that there is no personal goodwill attributable to Robert. In this case, the entire $4 million would be considered part of the marital estate.

Under scenario #2, Robert has significant relationships with some of RJ Company’s major customers, who only trust Robert to handle their accounts. In addition, Robert’s created a unique business process that is sought after in the industry. In this case, we might assume that a significant amount of personal goodwill is attributable to Robert. If the valuation analyst determined that the value of the personal goodwill was $1 million, then $3 million would be considered part of the marital estate.

Both Robert and Sarah’s portion of the marital estate related to RJ Company under scenario #1 would be $2 million. Under scenario #2, however, Sarah’s portion drops to $1.5 million and Robert’s portion would be $2.5 million.

As you can see, it’s quite important to understand the differences between personal and enterprise goodwill as it could have a significant impact on the marital estate to be distributed.

Need a Valuation Analyst?

Our Forensics & Litigation Support Group can help. Richard Wolf, CPA, CGMA, CFE, CVA, specializes in valuation and forensic accounting. Contact him online or call 800.899.4623.

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Tags: business valuation, divorce, litigation support, attorneys, Richard Wolf