Raising the Bottom Line

Increase Your Tax Savings with These Tax Credits for Maryland Manufacturers

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

manufacturers-factory

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.
tax-credit-vs-deduction

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.

Maryland-neighborhood-community-assistance-program

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.”

Download our whitepaper, "From the Asset Files: Make Your Client's Divorce as Painless as Possible."

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

Quick Guide: Maryland Commuter Tax Credit

Posted by Todd Wilcom on Mon, Jan 16, 2017 @ 09:29 AM

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Maryland businesses (including nonprofits) who already provide or plan to start providing commuter or transportation benefits to their employees may be entitled to state income tax credits.

1. What Are the Credit Details?

The Maryland Commuter Tax Credit allows employers to claim half of eligible commuter expenses made by an employee as part of a workplace commute transportation benefit up to $50 per participating employee per month.

The credit can be applied to personal or corporate income tax or insurance premium tax. Credit can be applied up to the total of the tax liability ($50 per employee). If the credit is greater than the tax liability, the overage is not eligible to be applied to any other tax year.Employers may only claim employee transportation expenses if the expense meets one of the following eligibility requirements:

  • Transit instruments, including MTA passes, tickets, fare cards, or vouchers to ride publicly or privately owned transit systems not including taxi services
  • Expenses associated with a qualified company van pool program (learn what constitutes a “qualified” van pool), including van purchase/lease, fuel, insurance, maintenance, safety and equal access upgrades, and taxes and licenses
  • Company guaranteed ride home program, including expenses to provide to an employee currently commuting home by transit or vanpool transportation due to an unexpected circumstance
  • Company cash in lieu of parking program, including the expense of providing a taxable cash amount that is equivalent to what the cost of providing parking to the employee would be

 2. How Do I Know If My Businesses Is Eligible?

To be eligible for the credit, your Maryland business must fall under one of the following entity types:

  • Sole proprietorships
  • Corporations
  • Pass-through entities (e.g., partnerships, S corporations, limited liability companies and business trusts)

 3. How Do I Claim the Credit?

In order to claim the Maryland Commuter Tax credit, you must:

  1. Complete and submit the Maryland Commuter Tax Credit Registration Form to the MTA for each taxable period
  2. File your business’s Maryland income tax return electronically and complete Form 500CR (get instructions on how to fill out Form 500CR)

For insurance premium tax, documentation of the credit must be maintained by the taxpayer and available for review if requested by the Insurance Commissioner for three years after claiming the credit. Documentation includes: approval from the agency granting the credit and a list of the names and telephone numbers for the taxpayer's staff who are directly involved in granting the credits.

4. Can You Give Me an Example?

Let’s say you decide to offer commuter benefits at your business. One of your employees, Karen, has a monthly bus pass that costs her $68 each month.

You reimburse Karen for her commute costs and after deducting the Maryland Commuter Tax Credit, and federal and state regular business expenses, your business will end up paying $11.39 for Karen’s commute expenses each month. This provides Karen with a $816 yearly benefit at a cost of only $136.68 per year for your business.

Here are the numbers

Karen’s bus fare

    $68.00

Maryland Commuter Tax Credit (50%)          

    $34.00

Federal deduction as a regular business expense (25%)

    $17.00

Maryland deduction as a regular business expense (8.25%)

    $  5.61

Net cost to your business

    $11.39

Remember, if Karen’s monthly commute expenses were to exceed $100, your business would still only be permitted to claim a maximum of $50 as stipulated under the Maryland Commuter Tax Credit.  

If you have any questions about applying the credit, or if your business is eligible, contact us online or call 800.899.4623.

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Tags: income tax, tax, healthcare, nonprofit, construction, manufacturing, tax deduction, business owners, tax credits

2017 Payroll Update

Posted by Dawn Ebeling on Fri, Jan 13, 2017 @ 07:42 AM

payroll-money-business

This payroll update was compiled by the following members of Gross Mendelsohn's tax department: Dawn Ebeling, CPA; Carrie King, CPA; and Paul Wallace, CPA, CFP(R).

Social Security and Medicare tax

As of January 1, 2017, the maximum amount of annual earnings subject to the Social Security tax increases to $127,200 (from $118,500 in 2016). There is no limit on the amount of earnings subject to the Medicare tax.

The maximum Social Security tax to be deducted from an employee’s compensation during 2017 will be $7,886.40 (6.2% x $127,200).

The employer Social Security and Medicare tax rate will remain unchanged at 6.2% and 1.45%, respectively. The employee Medicare tax rate will remain at 1.45%, except for high wage earners.

High income taxpayers who have wages, compensation or self-employment income in excess of certain filing status thresholds ($250,000 if married filing jointly, $125,000 if married filing separately and $200,000 for all others), will be subject to an additional Medicare tax of .9%. For withholding purposes, wages in excess of $200,000, regardless of the filing status, will be taxed at a tax rate of 2.35% (1.45% + .9%). Only employees are subject to this additional Medicare tax.

Income Tax Withholding

Revised federal income tax withholding tables became effective as of January 1, 2017 for salaries and wages paid in 2017. There will be no change in the Maryland (MD), Delaware (DE), District of Columbia (DC), Pennsylvania (PA), or Virginia (VA) withholding tables.

MD’s maximum individual income tax rate remains at 5.75%. MD local county rates are unchanged except for Calvert, which increases from 2.80% to 3.00% and Somerset, which increases from 3.15% to 3.20%.

DE’s, DC’s and VA’s maximum individual income tax rates will remain at 6.6%, 8.95% and 5.75% respectively. PA’s individual income tax rate will remain at 3.07% for 2017.

An alternative flat federal withholding rate of 39.6% must be used on supplemental wages (e.g., bonus payments) exceeding $1 million during a calendar year. Accumulated supplemental wages of $1 million or less continue to be subject to a flat rate of 25%.

Unemployment Taxes

The federal unemployment tax (FUTA) deposit rate is .6% for 2017. The federal taxable wage base will remain at $7,000. PA taxable wage base will increase to $9,750 (from $9,500 in 2016). Unemployment taxes are paid by the employer. PA employees are responsible for an additional withholding of .07% of total wages.

State unemployment tax rates vary according to the employer’s experience and are sent to the employer. State 2017 wage bases and employer 2016 rates are as follows:

               Wage base         2016 rates

MD -      $  8,500                from .3% to 7.5%

DE -       $18,500                from .385% to 8.285%

DC -       $  9,000                from 1.8% to 7.2%

PA -       $  9,750                from 2.801% to 11.262%

VA -       $  8,000                from .17% to 6.27%

In the event you did not receive a 2017 MD unemployment insurance tax rate, it is available by calling 1-800-492-5524. Payment option plans are available for MD employers in economic hardship.

MD and PA require all employers to file quarterly contribution reports electronically.

The minimum threshold amount for quarterly FUTA tax deposits remains at $500.

Tax Deposits

All federal tax deposits (employment tax, excise tax, corporate income tax, etc.) must be made by electronic funds transfer (EFT). Generally, electronic funds transfers are made using the “Electronic Federal Tax Payment System” (EFTPS). Employers may arrange for their financial institutions to initiate a same-day tax wire payment on your behalf.

De Minimis deposit rules still apply for employment taxes of less than $2,500 for a return period. Those who fail to use EFTPS will be subject to a 10% penalty.

State EFT thresholds for tax payments are as follows: MD - $10,000 or more; DC - $5,000 or more; PA - $1,000 or more; DE and VA require EFT for payment of all state taxes. MD, DC, DE and PA allow online processing of returns. VA requires every employer to file all withholding tax returns and payments electronically.

DC employers can use the self-service portal to file unemployment insurance wage reports and pay taxes online.

Employers should receive notification from the IRS and state taxing authorities as to the frequency of their depository requirements. Semi-weekly depositors have three banking days to make a deposit. Monthly depositors’ due dates are the 15th day of the next month for DE, MD and PA, the 20th for DC and the 25th for VA. Quarterly depositors may remit accumulated tax with the quarterly tax returns, which are generally due the last day of the month following the end of each calendar quarter. MD and DC’s quarterly returns are due the 15th and 20th day of the following month, respectively. DE’s eighth-monthly depositors’ payments are due within three working days after the close of the eighth-monthly period. Eighth-monthly periods end on the 3rd, 7th, 11th, 15th, 19th, 22nd, 25th and the final day of every month.

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Employers can access the IRS CalendarConnector online through the IRS website to view deposit dates.

Accelerated deposit dates are required for federal accumulations of $100,000, which are due the next business day. VA employers must also remit state withholding within three days of the payroll pay date. MD employers who withheld $15,000 or more during 2016 and currently have accumulated $700 or more in withholding tax must make a deposit within three business days after the payroll pay date. Employers who are allowed to file federal withholding tax returns on a monthly basis may apply to MD for a waiver of the three-day rule described above. 

Wage Statements

Federal rules require employers filing 250 or more W-2 forms to file electronically. DE and PA follow the federal threshold. DC’s and MD’s requirements remain at 25 or more. MD and PA allow withholding statements on magnetic media or other machine-readable formats. VA requires e-filing for all employers.

Employers required to file at least 250 W-2 forms must report the aggregate cost of employer-sponsored health insurance coverage beginning with 2012 calendar year W-2 forms. The IRS has granted exemption to companies that file less than 50 W-2 forms until further notice. Employers with more than 50 full-time employees will have to file annual reports in regards to 2016 health coverage.

All Federal and State Form W-2s are now due to the taxing authorities by January 31, 2017. In previous years employers had until the end of February. January 12, 2017 is the first day the Social Security Administration will accept 2016 forms.

The 2017 Form W-2 will have a new Box 9 that contains a 16-digit alphanumeric verification code to reduce tax fraud and identity theft. This new box will appear on the 2016 Form W-2 but will not have any designation until 2017.

Information Return Penalties

Penalty amounts for failing to provide timely, complete and correct information returns (W-2 and Form 1099) range from $50 - $250 per return with a maximum of $1,500,000 ($500,000 for small businesses).

Additionally, payers are required to acknowledge their compliance with information return filings on their business income tax returns.

Minimum Wage

The federal minimum wage rate is $7.25 per hour for employees covered by the Federal Fair Labor Standards Act. PA and VA follow the federal law. DE rate remains at $8.25. Current and future hourly minimum wage rate for MD and DC are as follows:

 

7/1/16

7/1/17

MD

$8.75

$9.25

DC

$11.50

$12.50

Overtime Wages

On November 22, 2016, a federal district judge delayed the December 1, 2016 effective date for the new overtime regulations. The future of the new regulations is still unknown at this time.

Originally announced on May 18, 2016, the initial increase that was set to take effect December 1, 2016 increased the standard salary level for eligible overtime wages from $455 to $913 per week. The ruling also contained a provision that automatic updates to compensation thresholds would be required every three years beginning January 1, 2020.

New Hire Forms

On November 14, 2016, the United States Citizenship and Immigration Services (USCIS) released an updated version of the Form I-9 for Employment Eligibility Verification. Employers can continue using the previous version (with a revision date of 03/08/2013) up until January 21, 2017. Starting January 22, 2017 all employers are required to adopt to the new form and the previous version will become invalid.

Please contact us online or call 800.899.4623 if you have any questions.

 

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Tags: IRS, Paul Wallace, tax, payroll, Dawn Ebeling, social security

The #1 Secret to Nonprofit Fundraising Success

Posted by Vince Connelly on Wed, Jan 11, 2017 @ 02:44 PM

chocolate-cupcakes

I’ve been in fundraising for 30 plus years, and in that time, I’ve watched nonprofits struggle to figure out what they need to do to be successful in raising funds for their organization. A common mistake nonprofits make is believing fundraising is the “hard” part of running an organization, but in my experience that assumption can’t be further from the truth.

The fact is, the “hard” part of overseeing a nonprofit is developing and running an effective and well-respected organization that continually strives to meet its mission. The “hard” part is the time and effort that goes into the work you do. In retrospect, after all the blood, sweat and tears you’ve given to make your organization great, asking members of the community to provide financial support to continue the work you are already doing should be the “easy” part.

The Recipe for Success

Think of your fundraising efforts like a bake sale. The organization who puts in the work – who dusts off Grandma Sally’s 13-layer chocolate cake recipe and spends days getting the ganache filling just right – is going to have a much easier time soliciting money than an organization who peels open a pack of off-brand cookies and dumps them on a plate just before the doors open.

Document Your Progress

However, the work doesn’t end in the preparation. Even the organization selling Grandma Sally’s chocolate cake has to communicate to the public the work that went into the cake sitting before them – the time it took to perfect the cake, the story behind the recipe, etc.

Learn the secrets of fundraising success in this free on-demand webinar.

The end result of your hard work, whether it be a cake, the number of animals adopted from your shelter or students graduating from your leadership program, will never really tell the whole story. And if your organization doesn’t communicate the work it took to reach your end result, how will the public as donors know the difference in effort your organization devoted versus the efforts of another similar organization down the block or a national organization with more clout?

Your organization has to communicate the work you and your staff are doing day-by-day, week-by-week and year-by-year. The key to fundraising success is not having the sharpest logo or a team of charismatic networkers; it’s in making your hard work visible to the community. watch-nonprofit-fundraising-webinar

Back at our bake sale, the organization that prepared Grandma Sally’s cake will not be successful because their cake looks the best. The organization that will succeed is the one who communicates the struggle it took to get where they are and how a donor’s contribution will help the organization keep moving forward.

Let Them Eat Cake

After you’ve put in the work and told your story then you’ve reached the “easy” part of your fundraising efforts. This step, as simple and important as it is, is ironically the one thing many nonprofits fail to do and do well in their fundraising efforts.

So, what is the step? How do you convince people who you’ve already captivated with your hard work to donate to your organization – to buy the whole cake, if you will?

Well.

You ask them.

Back at our bake sale, team Grandma Sally has told shoppers the tale of their efforts. They’ve put in the work to make their cake the best, and people are crowded around the table, listening to the story, impressed by all of the effort the organization has put in.

One of the lead bakers steps forward, looks into the crowd and says, “Thank you so much for your compliments on our cakes! My team and I love being able to bake delicious treats for people, and we want to keep going and expand our operations to not just this bake sale but bake sales throughout the state. Would you please support our efforts by donating to our cause?”

Just like that, wallets start coming out of pockets and purses because of course the community surrounding you, already emotionally invested in your story and the work you are doing, wants to help support your organization.

After all the hard work you put in, all you had to do to get the community’s financial support was to ask.

But, Wait! There’s More

To learn more about how your organization can be successful in its fundraising efforts and techniques to get you there, check out my FREE on-demand webinar, “Secrets of Successful Nonprofit Fundraising.” To start watching the webinar now, click here.

About Vince Connelly

Vince Connelly Headshot.jpgVince Connelly is the president of Connelly & Assoc. Fundraising, LLC, a consulting firm specializing in feasibility studies, and major gift and capital campaign coordination. Vince has over 30 years of experience working with nonprofit organizations in Baltimore and throughout the Mid-Atlantic region. 

Tags: nonprofit, fundraising