Raising the Bottom Line

Quick Guide: Special Accounting Considerations for Religious Organizations

Posted by Ernie Paszkiewicz on Thu, Aug 16, 2018 @ 09:36 AM

Quick Guide Special Accounting Considerations for Religious Organizations

Religious organizations may technically be classified as nonprofit organizations, yet they are subject to a unique set of accounting rules. Anyone providing accounting services within a religious organization must be aware of special policies that can affect the organization’s compliance and tax status.

Here are just a few accounting considerations religious organizations should be aware of:

1. Oversight

Unlike the average nonprofit organization, religious organizations are often governed by the rules of a larger governing entity, like an archdiocese. This oversight body often sets its own rules as to when each organization needs an audit, review or compiled financial statement. This results in a large number of religious organizations with an improper level of financial reporting, which can affect their compliance.

2. Allowability

Generally Accepted Accounting Principles (GAAP) are the accounting standards issued by the Financial Accounting Standards Board (FASB) that are used by CPA firms if that organization’s financials need to be prepared with GAAP. However, many religious organizations elect to use the cash basis, modified cash basis or accrual basis of accounting, while choosing not to follow all GAAP requirements. This is often determined based on the requirements of the organization’s governing entity.

3. Payroll

Some religious organizations have special rules regarding payroll, like payroll for ministers. Generally, an organization is not required to withhold federal income taxes for ministers. In addition, certain payments for parsonage and housing allowances are not taxable to a minister.

4. Reimbursement of business expenses

Reimbursement of business expenses is sometimes handled incorrectly at religious organizations. If any employee is reimbursed for expenses incurred, and the employee accounts for those expenses with an expense report, those expenses are not taxable to the person. However, if the employee is given a type of expense allowance and no documentation of the expenses incurred is provided to the organization, those payments should be included in that person’s payroll.

5. Taxes

While religious organizations are generally exempt from taxes, that doesn’t mean every activity the organization undertakes is tax-free. There are activities that can cause an organization to be subject to unrelated business income taxes (UBIT) as well as tax compliance issues. Here are just a few examples of activities that could cause a religious organization to be liable for income tax:

6. Charitable contributions

Compliance issues often come up as a result of solicitation and recognition of charitable contributions. Any contribution a religious organization receives that exceeds $250 is supposed to be acknowledged in writing by the organization via receipt. The acknowledgement should have information regarding the donation as well as statements as to whether anything was received by the donor in return for the contribution.

Questions?

If you have any questions, please call Ernie Paszkiewicz, CPA, director of Gross Mendelsohn's Nonprofit Group, at 800.899.4623 or contact him online.

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Tags: Ernie Paszkiewicz, nonprofit

Profitability for Construction Contractors: Tips for a More Profitable Construction Company from Industry Experts

Posted by Steve Ball on Tue, Aug 14, 2018 @ 07:53 AM

Profitability for Construction Contracts

Construction contractors are getting worried about profitability. In our 2018 Maryland Construction Industry Survey, concerns about profitability jumped 11% in 2018, making it the second biggest concern contractors had for 2018.

This rising concern could be a result of increasing costs for materials and labor as business in the industry continues to pick up, but contractors are right to be concerned. Profitability can make or break a construction company, especially when finding work gets more competitive. Contractors who make profitability a priority are more likely to weather the storms of hard times by ensuring they are running their business efficiently.

To help, we asked two Maryland construction industry experts how construction contractors can improve their company’s profitability.

 


SKB Circle Image

Steve Ball, CPA, CCIFP, CVA
Director, Gross Mendelsohn’s Construction and Real Estate Group
34 years of experience in Maryland’s construction industry

“The #1 profitability tip I have for contractors is to be more diligent on accountability, especially when it comes to key business components like meeting job deadlines, documenting change orders as they occur, etc. Construction company owners and executives must also understand the business metrics that determine their company’s success and be accountable for those metrics. And, it’s not easy.

As a member of my firm’s executive committee, we force ourselves to make time for regular committee meetings, no matter how busy we get. If we don’t keep ourselves accountable as a leadership team, things fall through the cracks, and we become less efficient and profitable as a firm overall.”

How to put it in practice

  • Identify key business metrics and set measurable goals. For example, if you look at your company’s financial records from the last few years and see that X% of your revenue came from new business each year, set a goal to raise that number by X% in the next year.
  • Hold yourself and your team accountable to attending and having regular operational and management meetings, even when things get busy.
  • Make accountability a company-wide initiative. Communicating goals to staff (and better yet offering company-wide incentives if those goals are met) can help boost results.

 


Rob Circle 4

Robert Bertazon 
Founder, Maryland Construction Network
30+ years of experience in Maryland’s construction industry

“Don’t be afraid to ‘lose’ a job. In other words, stop giving your services away cheaply. If you are asked to competitively bid work, provide a single price you are willing to accept to complete the project and live with the results. This is true no matter who you are in the chain: design professionals, general contractors, subcontractors, suppliers, anybody.

Don’t let your services be ‘bid shopped.’ I know people won’t like this but, should you find you can’t win a job without negotiating your prices down, go work for one of the companies that can afford your prices.”

How to put it in practice

  • Do not accept jobs that won’t turn a reasonable profit, let alone lose money. It’s not unheard of for a construction company to lose it all on one bad bid or job.
  • Be able to justify your rates to prospective clients. If your company is asking for double the price as other local contractors, be able to explain what they are getting for the higher price.
  • New business is necessary, but if you have a bad feeling about a prospective client or job, it’s worth taking a second look. It’s okay to say no if things aren’t adding up.

 


Get more data on the Maryland construction industry

To learn what other Maryland construction contractors are saying about their company, the industry and more, download a free copy of the executive summary of the results of the 2018 Maryland Construction Industry Survey.

2018 Executive Summary

Tags: Steve Ball, construction, 2018 Maryland Construction Industry Survey

5 Signs Your Government Contracting Business Might Need a New CPA

Posted by Taylor Dean on Mon, Aug 06, 2018 @ 09:11 AM

new CPA for government contractor

If you are a government contractor, you likely already have a CPA helping you with accounting and taxes. But is the CPA you hired when you started your business still the right CPA for you?

There are a number of reasons why it might be time to consider a new CPA firm. Let’s take a look at a few of those triggers.

1. You’ve grown in size

We see it all the time. A one-person shop managing a single $500,000 contract suddenly lands a big fish – a $5 million contract. Almost overnight, that government contracting business grows exponentially in revenue and headcount. And almost overnight, that government contracting business outgrows its CPA.

Generally, when a contractor hits $5 million in revenue, they see the need to work with a CPA who does remediation of accounting and internal control systems, and who unequivocally understands indirect rates. As your compliance needs get more complex, your need for a sophisticated CPA increases.

An accountant who is well versed in all aspects of government contract compliance can help you identify potential issues before they become problems. That CPA can advise you how to meet the future obligations of your contracts, spot weak internal controls, and address HR issues like benefits and minimum wages and sick leave rules.

Likewise, if your new contracts result in hiring out of state employees, you’ll want a CPA who deals with multi-state taxation.

2. You’ve outgrown your accounting system 

As you grow, you might wonder if your current accounting system can handle your growth and larger contracts, while still being in in compliance.

Is your accounting system compliant? Schedule your free one-hour assessment to find out.

Many government contractors start out with QuickBooks but then outgrow it. However, we find some contractors think they’ve outgrown QuickBooks, but when we take a closer look, we find that it’s still a good fit, but they just don’t know how to get the most out of QuickBooks.

Regardless of which accounting system you use, your CPA should advise you on whether your system is in compliance and whether you are ready to self-certify. Self-certification can be risky for government contractors and therefore it’s critical that you get the right advice on your system’s compliance.

3. You move from a firm fixed price to a cost plus fixed fee contract

If you have a cost plus fixed fee contract, then you can expect an audit by the Defense Contract Audit Agency (DCAA). While an audit sounds ominous, it doesn’t have to be. The key is to work with a CPA who specializes in government contracting compliance, and who can manage the DCAA audit and address any findings.

4. You’re not sure whether you’re in compliance

This is a simple one. If you’re uncertain whether you’re in compliance, then you’re most likely not in compliance. Your CPA should be well versed in all aspects of government contract compliance, including FAR, DCAA, indirect costs, how to ensure that every transaction in your accounting system is compliant, and so much more.

Think of it this way: just when you think you’ve got a clear understanding of one contract’s compliance requirements, you get a new contract with an entirely different set of requirements. It’s hard to keep up. If you have contracts with the Department of Defense and the Department of Agriculture, for instance, your CPA should understand the different rules of both agencies and advise you on how to comply with those rules.

5. You’re not growing

While it might not be as obvious as the other signs you’ve outgrown your CPA, it might be time to move on if your business is stagnant or, worse, if you’re not profitable.

If your CPA doesn’t specialize in government contracting, for instance, they might not be advising you on indirect rates. Your CPA should help you calculate appropriate indirect rates (making sure that you’re bidding a competitive price, but will still make money) and negotiate those rates with government agencies. This, in turn, should help you grow and be profitable.

Are Government Contractors a Good Candidate for Outsourced Bookkeeping?

Yes! There are huge benefits of outsourcing some of your day-to-day tasks. Many CPA firms offer back office support so business owners can spend less time on bookkeeping, HR and QuickBooks, and more time on securing the next big contract.

Government contractors often grow faster than other types of businesses. Landing one big new contract can skyrocket your company’s growth in terms of revenue and employees almost overnight. Growing government contractors quickly discover why it makes sense to outsource their accounting function.

The firm you hire for outsourced accounting can:

  • Review internal controls and policies and procedures.

  • Ensure that costs are being recorded appropriately.

  • Generate reports – like indirect rate reports, project status reports and project costs reports – so you know where you are making and losing money.

  • Offer QuickBooks support.

The list goes on, but you get the idea.

Need Help?

Our Government Contractors Group can help you manage compliance and risk, and help you grow. Contact us online or call 800.899.4623 to discuss your government contracting business.

accounting system compliance checkup 

Tags: government contractors, FAR (Federal Acquisition Regulation), Taylor Dean

Employee Engagement: We Implemented a Staff Advisory Board

Posted by David Goldner on Thu, Aug 02, 2018 @ 10:57 AM

Gross Mendelsohns Staff Advisory Board

There’s a lot of talk about employee engagement these days. At Gross Mendelsohn, we have an unusually large number of career employees (i.e., individuals who stick with one company throughout the majority of their career). Despite this, most employers would agree that career employees are becoming less and less the norm.

In fact, employees hold more power in today’s marketplace than they ever have. Some of this comes from being able to find jobs all over the world via the internet, but the reality is, employees often leave companies to escape issues that management may not even know about. Even at exit interviews, these employees may omit information about the real reason they took a new job for fear of burning bridges.

At Gross Mendelsohn, we wanted to change the way our staff communicated with the firm’s partners. We wanted to give staff members a forum to freely voice their opinions, improve staff morale and maintain our firm’s high employee retention rate.

To facilitate this, we created the firm’s staff advisory board.

What is the staff advisory board?

The staff advisory board is a group of 12 employees from various departments of Gross Mendelsohn, who serve as representatives of the firm’s staff. These individuals have two-year term limits and were elected by their peers. The board meets on a monthly basis where they discuss issues that have been presented to them by their colleagues, as well as topics that have been passed down to them from the firm’s management team. After their meetings, the board presents any relevant information to the firm’s personnel committee.

The staff advisory board has been in place at Gross Mendelsohn for nearly two years.

What has the staff advisory board accomplished?

In short…a lot.

As a partner group, we learned a lot about the staff’s perception of the firm. The board identifies key areas that need attention and develops solutions to help solve those issues. This has resulted in some key changes at the firm, including:

  • An overhaul of our firm’s leadership development meetings, which now empower staff members to make presentations, participate on panels and lead discussions.
  • Implementation of formal peer-to-peer training sessions from the tax and audit departments, giving staff an opportunity to share their knowledge and tricks of the trade with their colleagues.
  • Creation and implementation of an “upward review” survey, an anonymous survey that gives staff an opportunity to provide feedback to their managers.
  • Changes to our tax season required hours and bonus plans to provide more personal flexibility and to provide additional rewards to more staff without impacting client service.
  • Implementation of ”fruit Mondays,” a program that allows employees to purchase fruit on behalf of the firm to share with colleagues to promote a healthier lifestyle (as compared to just junk food).

How has the board helped the firm?

Most employers will tell you the job market has gotten increasingly competitive when it comes to finding good employees. At Gross Mendelsohn, we pride ourselves on finding and retaining high quality staff, and we want to make sure our culture and policies facilitate an environment where our employees are happy to come to work every day.

The staff advisory board often reviews and discusses proposed changes and policies before the firm puts them into practice, which gives our management team an invaluable opportunity to hear opinions and concerns they might not have considered.

Also, as a management team, we would rather hear about issues, big or small, from the staff advisory board rather than at an employee’s exit interview. It’s inevitable that in any company, issues will crop up, whether they are related to employee morale, dress code or time off. The staff advisory board helps us uncover those issues before they become bigger problems and helps show our staff we are dedicated to creating a great workplace.

How can I implement a staff advisory board at my company?

Developing a staff advisory board is easy, but the feedback you get may not be easy to hear or address. Before implementing an advisory board, you should make sure your company is really ready and willing to consider making policy changes and incorporate the discussion of the board in your personnel decisions making process.

If you’re ready to form your company’s staff advisory board, consider how you can engage your employees in the process.  Our board was elected by the staff and our board has two representatives per department.  The board can then set up its governance including, how often the board should meet and electing a chair who will prepare meeting agendas and facilitate discussion. From there, your management team can review the discussion and proposals from the board and make decisions on changes to proposed policies or programs.

 

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Tags: Manufacturing & Distribution, David Goldner, healthcare, nonprofit, construction, business owners, leadership

5 Questions to Ask Before Hiring a New CFO for Your Nonprofit

Posted by Ernie Paszkiewicz on Tue, Jul 31, 2018 @ 12:25 PM

Questions to Ask Before Hiring a New CFO for Your Nonprofit

Hiring a chief financial officer (CFO) for your nonprofit and hiring the right CFO are two very different things. While some accountants get their start at for-profit businesses, nonprofits have specific accounting and tax needs that differ from how accounting is done at private businesses. This means nonprofit CFOs need special training and expertise outside of the standard for-profit accounting and tax environment.

When hiring a new CFO for your nonprofit consider the following:

1. Do they have the experience?

Carefully review the applicant’s employment history. Because nonprofit accounting has a number of nuances, you need a person who understands and can operate under these specific rules. The following are just a few things a nonprofit CFO candidate should know:

  • When to recognize contributions
  • Donor restrictions and how to account for them
  • Donor conditions and the impact on revenue recognition
  • Special event accounting
  • Proper nonprofit financial statement presentation and disclosures
  • Endowment fund accounting and reporting
  • Allocation of expenses for grant reporting
  • Impact of receipt of federal funds even if passed through from a non-federal entity

2. Do they know the software?

There are a number of specialized accounting software packages nonprofits use. These may be general accounting packages with nonprofit add-ins or more sophisticated industry software that has fundraising, retail store operation and grant accounting modules. The more experience a CFO has with specific nonprofit accounting software, the better the fit.

3. How often have they changed jobs?

Years ago, employees stayed with one company and rose through the ranks. However, today people change jobs and careers frequently. Changing jobs alone isn’t an issue, but when someone is changing jobs every two or three years, that can be a red flag.

In the commercial world, people change jobs for many reasons, like to advance their career or salary. However, in the nonprofit space, many employees work at a particular nonprofit due to their passion for the mission of that organization. When the passion is there it’s less likely that a person will change jobs as frequently. Typically, when nonprofits hire people with a history of changing jobs every few years, that person doesn’t stick around much longer than they have at past positions.

4. Can they wear multiple hats?

CFOs in the nonprofit world wear multiple hats out of necessity. While this does happen at for-profit companies, it’s much more common at nonprofits due to budgetary restrictions. For example, it’s not unheard of for a nonprofit CFO to also serve as the head of human resources or the chief operating officer (COO). Candidates must be prepared to handle a whole new set of responsibilities and the training and education required for those responsibilities.

5. What does their last employer have to say about them?

Do not hesitate to check references and do background checks on a candidate. Chances are that your ideal candidate will have a squeaky clean record, but a thorough reference check will uncover skeletons in the closet.

The last thing you want to do, for example, is bring in someone who has been suspected of fraud.

Doing a formal background check as well as calling a few of a candidate’s prior employers is imperative to making sure inappropriate financial behavior was not an issue at any prior position.

Questions?

If you have any questions, please call Ernie Paszkiewicz, CPA, director of Gross Mendelsohn's Nonprofit Group, at 800.899.4623 or contact him online.

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Tags: Ernie Paszkiewicz, nonprofit

Maryland Construction Contractors Should Know These 5 HR Trends for 2018

Posted by Steve Ball on Thu, Jul 26, 2018 @ 08:38 AM

As construction companies see booms in business, finding and holding onto good employees is only going to get tougher. Construction contractors must be prepared for even fiercer competition for quality staff.

Our 2018 Maryland Construction Industry Survey revealed several trends in personnel development, including why employees leave, common benefits being offered and more. We documented a few of these trends in the following infographic.

If you'd like to view a larger copy of the infographic, click here. For a free 11-page result summary from the 2018 Maryland Construction Industry Survey, click here to get your copy.

HR Trends for Construction Contractors

Get more data

For more data and insights from the 2018 Maryland Construction Industry Survey, download a free 11-page summary of the survey results.

 


2018 Executive Summary

Tags: Steve Ball, construction, 2018 Maryland Construction Industry Survey

Your Nonprofit Needs a Mission and Vision Statement

Posted by Richard Wolf on Wed, Jul 18, 2018 @ 11:46 AM

Nonprofit Mission and Vision Statement

Mission and vision statements are an essential element of running a successful and forward-thinking nonprofit. Not only do mission and vision statements serve as the foundation for all organizational programs, goals and activities, but these statements also serve as tools to better educate the public on who your organization is and what you do.

What is a mission statement?

A mission statement is a short, concise statement that explains the purpose of your organization. Your organization’s mission statement should be easily understandable. Avoid using technical verbiage or jargon that wouldn’t be understandable to the general public. Your mission statement should answer aim to address following questions:

  • Who are we as an organization?
  • Who do we serve?
  • What are the needs we are trying to address?
  • What is important to us?

Why do mission statements matter for nonprofits?

As attention spans shorten and people get busier, nonprofits need to be able to sum up who they are and what they do in a quick sentence. A concise mission statement allows the public, including future donors, a quick and easy opportunity to learn what your organization stands for. As a bonus, having a good mission statement can give your staff, board members and donors an easy message to refer back to when they are talking about your organization.

Mission statement examples

  • Alzheimer’s Association
    To eliminate Alzheimer’s disease through the advancement of research; to provide and enhance care and support for all affected; and to reduce the risk of dementia through the promotion of brain health.

  • Ronald McDonald House
    The mission of Ronald McDonald House Charities is to create, find and support programs that directly improve the health and wellbeing of children.  

  • Red Cross
    The American Red Cross prevents and alleviates human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors.

What is a vision statement?

Unlike a mission statement, vision statements are focused on the future of your organization. Vision statements address what your nonprofit’s future will look like as the organization fulfills its mission. The tone of a vision statement is inspirational, and emphasizes your organization’s mission, core values, goals, strategies and definition of success. 

Why do vision statements matter for nonprofits?

Sustainable nonprofits and businesses look ahead. Your organization’s decisions and goals should be made based on your nonprofit’s vision for the future. Trying to operate a nonprofit without having taken the time to discuss and develop a vision statement can be tricky, like trying to buy a gift for someone you barely know. Without a clear vision for the future, nonprofits often get stuck spinning their wheels.

Vision statement examplesStart watching this on-demand strategic planning webinar for nonprofits

  • Alzheimer’s Association
    A world without Alzheimer's disease

  • Ronald McDonald House
    A world where all children have access to medical care, and their families are supported and actively involved in their children's care.

  • Red Cross
    The American Red Cross, through its strong network of volunteers, donors and partners, is always there in times of need. We aspire to turn compassion into action so that...
    ...all people affected by disaster across the country and around the world receive care, shelter and hope;
    ...our communities are ready and prepared for disasters;
    ...everyone in our country has access to safe, lifesaving blood and blood products;
    ...all members of our armed services and their families find support and comfort whenever needed; and
    ...in an emergency, there are always trained individuals nearby, ready to use their Red Cross skills to save lives.

Need help?

Developing a mission and vision statement is a key component of strategic planning. Learn more about strategic planning and how it can help your organization by reading some blog postswatching a webinar, or better yet, sitting down with an expert who can help you figure out how and why a strategic plan will benefit your organization.

Tags: nonprofit, strategic planning, Richard Wolf

3 Traits To Look for When Hiring an Accountant for Your Government Contracting Business

Posted by Taylor Dean on Tue, Jul 17, 2018 @ 08:53 AM

accountant for government contractor

Not all accountants are created equal when it comes to understanding the ins and outs of government contracting. Understanding the compliance issues that encompass government contracts sounds easy enough: cross your T’s and dot your I’s, right? Wrong.

Government contract compliance is akin to learning Arabic. Learning a new language sounds fairly simple, but it’s not. With an entirely different alphabet and grammar rules to learn, it can take years of intense study for an English speaker to master Arabic.

The same goes for accountants who work with government contractors. It takes YEARS of immersion in the world of government contracts for a CPA to master the complex rules and compliance issues that can make or break a contractor. It is an understatement to say that your CPA should have an extremely specialized skill set. Only then can your CPA help you keep your government contracting business in compliance and successful.

Whether you’re looking for a new CPA for your established government contracting business, or you’re just starting out, there are a few key traits to focus on.

1. Expertise In FAR and Indirect Costs, and Knowledge of DCAA

Let’s start with Federal Acquisition Regulations (FAR), indirect costs and the Defense Contract Audit Agency (DCAA). At a minimum, the CPA you hire should:

  • Have a thorough understanding of FAR.

  • Understand what DCAA is and what the agency looks for in an audit.

  • Understand how bids and proposals for government contracts are prepared.

  • Know how to calculate indirect costs that impact your business proposals.

  • Know how to make sure the transactions in your computer system are in compliance with FAR and your contract.

  • Be up to date in understanding revenue recognition and lease accounting rules and how they impact government contracts.

  •  Help you understand the difference between allowable and unallowable costs related to your contracts.

2. Knowledge of Software for Government Contractors

Government contractors work with a variety of accounting systems, running the gamut from QuickBooks, which is a fairly simple low-cost system (and works perfectly well for many contractors), to Deltek and Microsoft Dynamics Navision, which are more robust and pricey and typically used by larger contractors.

The CPA you hire should be able to advise you on which accounting system is appropriate for you based on your size and current and future needs. It is critical that your CPA help ensure that your accounting system complies with all FAR requirements, as well as the requirements of your individual contracts.

Self-certification is where government contractors often put themselves at risk. Contractors must “self certify” that they have an “adequate” accounting system – and correct indirect rates – that are in compliance with FAR. If a contractor certifies incorrect rates, he or she can be criminally charged if they are willfully negligent in applying those rates to a contract. This is where the specialized skills of a CPA can keep you out of trouble (and jail).

Find out whether your accounting system is “adequate” as defined by DCAA.

Pro tip: many contractors are surprised to hear that QuickBooks Online is not a FAR-compliant accounting system. If you have a government contract or grant, your data must be hosted within the United States. That’s where QuickBooks Online falls short of compliance. While the FAR doesn’t explicitly state that this software is not compliant – and that’s why many contractors miss it – your accountant should know this.

3. Ability to See Beyond Compliance: Profitability Is Essential

While keeping your business in compliance is 100% critical, none of that matters if you aren’t profitable in the long term.

Your CPA should help you:

  • Find ways to minimize taxes through tax credits and incentives.

  • Assess internal controls to minimize the chance of employee fraud.

  • Generate reports that show your management team how your business is performing month-to-month and year-to-year.

  • Think strategically long term, since many contracts span a five-year period, and help you project costs when you preparing bid (so you don’t over or under bid).

  • Evaluate your banking and vendor relationships.

  • Understand fixed versus variable costs.

  • Use job costing to determine profitability for a specific component of a contract.

  • Understand the accounting behind indirect costs.

  • Avoid costly timekeeping and reporting mistakes.

Of course, it goes without saying that you want your CPA to return phone calls, emails and texts promptly, meet deadlines, and give solid business advice. But as you can see, specialization is the name of the game when it comes to hiring a CPA for your government contracting business.

What’s Next for You?

Before you hire a CPA, meet with several CPAs and ask for references. Ask those references what it’s like to be the CPA’s client. Also ask for specific examples of how the CPA has helped the client manage compliance challenges and grow.

We invite you to put our Government Contractors Group to the test. Contact us online or call 800.899.4623 to discuss your government contracting business, and explore what you’re looking for in a CPA firm.

accounting system compliance checkup

Tags: government contractors, FAR (Federal Acquisition Regulation), Taylor Dean

A Construction Contractor’s Guide to Recruiting Younger Employees

Posted by Steve Ball on Thu, Jul 12, 2018 @ 09:39 AM

recruiting young people to construction jobs

For the third consecutive year the #1 concern among contractors is recruiting and retaining employees, according to our 2018 Maryland Construction Industry Survey. Now that the economy has bounced back, the work is coming in but the competition for construction employees is fierce.

Given the industry’s aging workforce and an unprecedented number of retiring owners, contractors need to do everything possible to recruit young employees into the industry.

We polled local construction contractors to see what they think should be done to attract younger people to the profession. Here’s what they said …

  • Offer in-house training programs that show young employees a clear career path in the company
  • Construction companies should attend job fairs in high schools and trade schools
  • Inform educators about opportunities other than just attending college
  • Better promote vocational and technical schools
  • Break the perception that all students should go to college for a four-year degree
  • Integrate more current technology in the construction industry to get kids interested and engaged
  • Create a more positive perception of the construction industry
  • Help younger generations see that blue collar industries offer long-lasting career opportunities and good pay

Clearly, contractors aren’t feeling great about the future of the industry from a recruitment standpoint. In fact, nearly 60% of Maryland contractors say they aren’t satisfied with what’s being done to recruit younger generations to the construction industry.

recruiting young people to construction jobs

Get more data on the state of Maryland's construction industry.

Construction: An Overlooked Career Path

The truth is, construction is often an overlooked career path. In recent years construction jobs have been looked at as a temporary source of income for college students, or as last resort jobs when nothing else is available.

These days almost all high school students are expected and encouraged to attend college. If you have a school age child, when is the last time you recall a teacher suggesting that he or she consider a career in construction? [Cue the crickets.]

Rob Bertazon, founder of the Maryland Construction Network says, “Businesses in the construction industry must take an active and vocal stance against our education system and their insistence that every person needs a college degree. The biggest threat to construction recruiting comes from within the walls of our public school systems.”

If you’re like most construction companies, you need to build up your workforce. Even if you have enough employees at the moment, think about your company’s future leaders. Where will they come from?

What’s Important to Young Employees?

We think it makes sense to tap into the millennial generation (people born between 1981 and 1996) seeing that they make up a quarter of the U.S. population.

But if you’re going to recruit millennials – and keep them happy in your company – you need to understand what makes them tick.

Let’s take a look at what’s important to millennials. Hint: While salary and benefits are important to millennials, there’s much more to the story.

1. Opportunities for growth and advancement

Younger employees want to know about opportunities for advancement at your company. Lay out a career path for them. Even better, communicate clear objectives and time frames for taking specific steps toward growing within your company. 

Give feedback to your employees. A lot of feedback. Not only will it help you get better performance out of your employees from job to job and year to year, but giving frequent feedback will help your younger employees stay engaged and show them what they need to do to improve.

More than a third of contractors aren’t giving annual reviews to their employees according to our 2018 Maryland Construction Industry Survey. While conducting reviews takes time, it’s super important. Pro tip: using a short construction job employee evaluation form can make giving employee feedback less painful.

2. Training and mentoring

Young employees want training, and not just technical training. They want training on soft skills like leadership, communication, conflict resolution and team building.

Our survey found that only one out of ten construction companies say they are doing a “great job” when it comes to leadership development. This is unfortunate, considering that many owners of construction businesses are getting ready to retire and two-thirds (yikes!) of them haven’t yet identified their successor.

As you bring younger employees into your company, there is a goldmine of an opportunity to develop future leaders.

Groom future leaders by mentoring them. Have your best employees mentor younger employees to show them the ropes and demonstrate by example what it takes to succeed at your company.

3. Being part of something larger than a job

Millennials tend to be conscientious about social causes. While employees have a job to do, young employees in particular like to know they are making a difference.

You can accomplish this by giving them something to take ownership of within your business, like managing the company’s Facebook page, or training employees how to use a new timekeeping system.

Some companies make community service a part of their culture. We’ve done this at our own firm and have seen positive results in more ways than one. It’s turned into a nice leadership development program for our younger staff members, who take charge of organizing community service days and charitable initiatives at our firm. They are responsible for recruiting co-workers to participate and coordinating activities with local nonprofits.

4. Technology tools

Like it or not, millennials grew up with technology and it plays a huge role in how they live. It only makes sense that young people will look for companies that use and embrace technology.

They are tech-savvy and accustomed to having information available at their fingertips.

Bertazon, who has worked in Maryland’s construction industry for three decades, says “Younger people still wrongly perceive a career in construction means a lifetime of swinging a hammer or digging a ditch. We need to teach them it can also mean working with cutting edge technology.”

Young employees won’t want to fill out a paper timesheet by hand every day. They’ll expect to access emails and documents on a mobile device out in the field. They’ll want 24/7 access to what they need to do their job well.

There are technology tools every construction contractor should invest in. Ask yourself whether your company is using technology effectively, or better yet, ask a millennial.

How Do You Find Young Employees?

When we surveyed contractors, many indicated that there should be more of a push to change the perception of construction jobs. Several contractors told us more should be done to promote construction jobs to young school children.

We suggest working with your local construction trade associations to see if they have any school outreach programs. Consider attending job fairs and recruiting events to help educate kids, teachers and guidance counselors about careers in construction.

As you look to meet your immediate hiring needs, ask yourself whether you’re looking in the right place. When you’re ready to dive into online job searches, our Beginner’s Guide: How to Find New Construction Employees Online might be helpful. It covers where to post your job openings, how much it’ll cost, and how to write a good job online job description.

While we’re talking about looking for employees online, it’s a good time to consider your construction company’s online presence.

Some construction companies have unappealing websites, or worse, no website at all. This is unfortunate, because you can be guaranteed that anyone under the age of 40 who is considering applying for a job at your company will go online to check you out. They will look for a website and possibly a social media presence. If they see no online presence, or a website that looks like it’s from 2002, a young person will most likely get turned off and assume the company is either not successful or is antiquated. You don’t want that to be your company’s image, particularly not if you are trying to recruit younger employees to your business.

Focus On the Next Generation

Young employees are out there. It’s time to start recruiting them. Once you have them on board, use these seven common sense employee retention strategies for construction contractors to keep them with your company for the long haul.

If you have questions about how to recruit and retain employees in your construction business, contact us online or call 800.899.4623.

2018 Executive Summary

Tags: Steve Ball, construction, employee retention, 2018 Maryland Construction Industry Survey

Qualified Business Income Deduction: A Primer On the New Section 199A

Posted by Kevin Relf on Tue, Jul 10, 2018 @ 08:25 AM

Section 199A qualified business income deduction

There’s a provision in the new tax law that allows owners of sole proprietorships, S corporations and partnerships to deduct up to 20% of income earned by the business. It’s known as the Qualified Business Income (QBI) deduction, or more formally, Internal Revenue Code §199A.

The QBI deduction was introduced in the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, and represents the largest change to the tax system since 1986.

The intent of this new deduction is to give these business owners a level playing field to keep pace with the significant corporate tax cut, previously a top rate of 35%, reduced to a flat 21%.

As with any tax legislation, there are certain requirements, limitations and exceptions. In this article, we’ll discuss the general provisions of the QBI deduction, who qualifies, and how eligible taxpayers can benefit.

The points we discuss are important factors in determining whether your business should be structured as a pass-through entity – like a sole proprietorship, S corporation or partnership – or a C corporation.

Before we dig in, let’s take a quick look at the difference between how these types of entities are taxed.

Income earned by a C corporation is subject to double taxation, first at the entity level, and then a second time at the shareholder level when the corporation distributes its income as a dividend. In comparison, income earned by a pass-through business is subject to only a single level of tax. Generally, there is no tax at the pass-through entity level. Instead, owners of these businesses report their share of the business’s income directly on their tax return and pay the corresponding tax at ordinary rates. The top rate on ordinary income for individuals is 37%, so one can see the benefit this potential 20% deduction can provide to eligible business owners.

Qualified Business Income Deduction: An Overview

For tax years beginning after December 31, 2017, and before January 1, 2026, taxpayers other than corporations are entitled to a deduction of up to 20% of their “qualified business Income” (QBI) earned in a “qualified trade or business” (QTB). QBI is income earned from a sole proprietorship, S corporation, or partnership. However, it does not include wages earned as an employee.

Who Qualifies for the QBI Deduction?

A taxpayer must be engaged in a qualified trade or business in order to claim the deduction. A QTB is any trade or business other than the trade or business of performing services as an employee, and a Specified Service Trade or Business (SSTB).

An SSTB is any trade or business involving services performed in the fields of:

  • Health
  • Law
  • Accounting
  • Actuarial science
  • Performing arts
  • Consulting
  • Athletics
  • Financial services
  • Brokerage services

An SSTB can also be:

  • Any business that involves performing services that consist of investing and investment management, trading, or dealing in securities, partnership interests, or commodities
  • Any trade or business in which the principal asset is the reputation or skill of one or more of its employees or owners

The list of ineligible qualified trade or businesses is extensive. However, in a moment we’ll look at the income threshold exception to the denial of the deduction for a SSTB.

Determining the Amount of Eligible Deduction

Once it’s determined that a taxpayer has QBI from a QTB, absent any threshold limitations, the tax code allows eligible taxpayers to deduct 20% of their QBI from their taxable income. The taxpayer determines their deductible amount separately for each QTB, beginning by computing a tentative deduction equal to 20% of QBI.

Threshold limitations do not apply when the taxpayer claiming the deduction has taxable income for the year that is less than $315,000 (if married filing jointly; $157,500 for all other taxpayers). For taxpayers with taxable income in excess of one of those thresholds, the tentative deduction attributable to each separate QTB is limited to the greater of:

  • 50% of the W-2 wages with respect to the QTB; or
  • The sum of 25% of the W-2 wages with respect to the QTB, plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property.

The W-2 and qualified property limitations are phased in over the next $100,000 of taxable income (if married filing jointly; $50,000 for all other taxpayers). Once taxable income reaches $415,000 for a married taxpayer filing jointly ($207,500 for all other taxpayers), these limitations apply in full.

Recall that an SSTB is not a QTB for purposes of the deduction. However, there is an exception to this rule: the prohibition of claiming the deduction based on income earned from an SSTB does not apply if the taxpayer claiming the deduction has taxable income of less than $315,000 (if married filing jointly; $157,500 for all other taxpayers).

Because the previously mentioned W-2 limitations do not apply when taxable income is below these thresholds, a taxpayer in an SSTB with taxable income below the thresholds would simply deduct 20% of any QBI.

If a taxpayer is in a SSTB and taxable income is above the thresholds, the deduction is gradually reduced over the next $100,000 (if married filing jointly; $50,000 for all other taxpayers). The deduction is ultimately zero for a taxpayer in an SSTB with taxable income at or above $415,000 (if married filing jointly; $207,500 for all other taxpayers).

Real-life Examples that Illustrate the Nuances of the Deduction

Following are a few basic examples that help explain the nuances of the deduction.

Example 1 – Below Taxable Income Threshold – Wage Limitation Does Not Apply

Terry operates a business that generates $25,000 of QBI during the year and he pays $8,000 of W-2 wages during the year. Terry files a joint return with taxable income of $300,000. Terry’s deduction is $5,000 ($25,000 x 20%). Because his taxable income is less than the $315,000 threshold amount, the W-2 wage limitation does not apply to limit Terry’s deduction.

Example 2 – Above Taxable Income Threshold – Wage Limitation Phases In

Assume the same facts as Example 1, except that Terry’s taxable income for the year is $355,000. The W-2 wage limitation is phased in because his taxable income is between $315,000 and $415,000. The phase-in percentage is equal to 40% (($355,000 - $315,000)/$100,000). The amount of the deduction disallowed by the phased in limitation is $400 (($5,000 - $4,000) x 40%). Thus, Terry’s deduction is limited to $4,600 ($5,000 - $400).

Example 3 – Above Taxable Income Threshold – Wage Limitation Fully Applies

Assume the same facts as Example 1, except that Terry’s taxable income for the year is $420,000. The W-2 wage limitation fully applies to limit his deduction because his taxable income exceeds $415,000 ($315,000 threshold amount plus $100,000). The W-2 wage limitation is $4,000 ($8,000 W-2 wages x 50%). Thus, Terry’s deduction is limited to $4,000.

How Does the QBI Deduction Effect Your Tax Return?

The QBI deduction does not reduce a taxpayer’s adjusted gross income. The deduction is taken after adjusted gross income is determined, but it is not an itemized deduction. Therefore, the deduction is available to taxpayers who itemize deductions as well as taxpayers who claim the standard deduction.

There are no alternative minimum tax adjustments or preference items when computing QBI. As a result, the deduction is the same for both alternative minimum tax and regular tax purposes.

The deduction is allowed only for purposes of income taxes. Therefore, the deduction does not reduce a taxpayer’s self-employment income or net investment income, and is not allowed in determining a net operating loss deduction.

Questions?

This is only the tip of the iceberg when it comes to the QBI deduction. The deduction could provide a tremendous benefit to owners of sole proprietorships, S corporations and partnerships. The QBI deduction is complex and fortunately, the IRS plans to issue guidance (anticipated late July 2018) on this new statutory provision of the tax code.

In the meantime, we can help you determine whether you are eligible for the deduction, or if the structure of your business should be, or remain, a pass-through entity or a C corporation.

Contact our tax department online or call 800.899.4623 to discuss your options regarding the QBI deduction.

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Tags: tax, business tax planning, tax deduction, business owners, Kevin Relf