Category: Accounting & Bookkeeping

Budgeting Basics: Part I
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Budgeting Basics: Part I | Sallie Mullins Thompson

Many small business owners seek resources and information for both business and personal budgets. I am pleased to share guidelines and best practices for both types of budgets. Below, I discuss the development of household/family budgets; in Part II, I will discuss business budgets. Why is it important to have a budget? Here are a few common reasons:

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Audits Are Down, But Don’t Get Your Hopes Up
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Audits Are Down, But Don’t Get Your Hopes Up | Nawrocki Smith

For six straight years, the number of audits conducted by the Internal Revenue Service has decreased. In 2016, the rate at which people were audited fell 16% from the previous year, with about 0.7% of all taxpayers facing higher scrutiny of their returns. Digging deeper into the statistics, one can see that the higher the taxpayer’s income, the greater the chance of being audited. For example, taxpayers earning over $200,000 per year were audited at a rate of 5.8%, meaning they were over eight times more likely to be audited than the population as a whole.

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Fraud and Employee Theft 101
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Fraud and Employee Theft 101 | Nawrocki Smith

What is fraud? In criminal law, fraud is intentional deception made for personal gain or to damage another individual. Fraud is a crime, but it is also a civil tort under common law. There are two main types of fraud:

1. Occupational Fraud - The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the organization’s resources or assets.

2. Consumer Fraud - Schemes devised to defraud individuals, like identity theft, Ponzi schemes, phishing schemes, and advanced-fee schemes.

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Insurance Policies Part 1: Personal
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Insurance Policies Part 1: Personal | Nadine Riley

{4:54 minutes to read} Oftentimes, the demands of everyday living make us forget about protecting our most valuable asset, ourselves. We protect our identity, our homes, vehicles, phones, appliances, etc. without thinking twice about it. Our day is filled with the to-dos of today, the plans for tomorrow and the regrets of yesterday, but when was the last time we slowed down to think about life’s what-ifs?

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Tax Court Finds That Doctor’s Cut of Surgery Center Income Not Subject to Self-Employment Tax
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Tax Court Finds That Doctor’s Cut of Surgery Center Income Not Subject to Self-Employment Tax | NawrockiSmith

In Hardy v. Commissioner, an important, recently decided tax case, the Tax Court found that the share of income received by a doctor due to his ownership in a surgery center may not be subject to the self-employment tax. Dr. Hardy was a plastic surgeon specializing in pediatric reconstructive surgery. He bought a minority interest in a surgery center run through an LLC. The opinion in the case held that he did not have self-employment income on his share of the center’s income. It found that Hardy had no meaningful non-surgery related service responsibilities with the surgery center and never managed it, having no day-to-day responsibilities there.

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Website Map for Sallie Mullins Thompson
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Website Map for Sallie Mullins Thompson | Sallie Mullins Thompson

In this announcement of my new website at www.smtcpapllc.com, I want to let you know what’s available and how to navigate! Please spend some time browsing through the new website, as I think you will find it to be a comprehensive resource for gaining knowledge about various aspects of your financial life.

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Do You Know Where Your Money Goes?
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Do You Know Where Your Money Goes? | Peter Gordon

{2 minutes to read} One of the most powerful tools we use to help our senior clients is a monthly cash flow report. This monthly report allows clients to see if there’s a surplus or deficit and and if there’s a need to transfer money from savings into checking. The contents of the report include:

  • All income sources—where their money is coming from;
  • Expense categories—where their money is going; and
  • How much money is left at the end of the month.

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The End of Offshore Deferral?
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The End of Offshore Deferral? | Neil Bass

Since the days of the Kennedy administration, U.S. multinational companies have been very successful in deferring taxation by shifting profits offshore. The Internal Revenue Code permits such deferral of taxation so long as you can legitimately take the position that a portion, or maybe even all, of your worldwide profits are earned outside of the U.S. So long as the cash remains outside of the U.S., the profits are not taxable in the U.S.

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Financial Mgmt Tools for Entrepreneurs and Small Businesses
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Financial Mgmt Tools for Entrepreneurs and Small Businesses | Nadine Riley

{4:36 minutes to read} Being a self-employed entrepreneur or small business owner can be exciting and frightening all at the same time. It is good to be the one who is calling the shots, but it is difficult to keep your fingers on all the necessary pulses so that you and/or your business thrive. One of the most essential and useful tools in any business toolbox for a small business is proper bookkeeping. Without it, how do you account for all the money that flows in and out of your company? Is it possible that your business is losing cash at an accelerated rate without you being aware of it? You say your business is profitable, but you still find yourself with cash-flow problems.

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So You Want to Be a Pot Dealer – What are the Tax Hurdles?
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So You Want to Be a Pot Dealer – What are the Tax Hurdles? | Neil Bass

Marijuana use is on the rise. About 20 million people in the U.S. use marijuana, up from 15 million users ten years ago. Legal for recreational use in four states and legal for medical use in 25 states, eventually, it’s anticipated that pot will be legal everywhere. But, there’s only one problem. It remains illegal for U.S. federal purposes. Marijuana is listed as a Schedule I controlled substance under Federal law, the most tightly restricted category for illegal drugs.

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Current Procedural Terminology Codes: The Language of Healthcare Billing in America
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Current Procedural Terminology Codes: The Language of Healthcare Billing in America | Nawrocki Smith LLP

Current Procedural Terminology (CPT) codes are numerical representations of procedures, pharmacological interventions, lab tests and any other service provided by a doctor or other healthcare provider. They are the uniform communicators of medical billing and practice analysis. The codes are broken down into ranges not unlike the Dewey decimal system:

  • Evaluation & Management (99201-99499)
  • Anesthesiology (00100-01999, 99100-99140)
  • Surgery (10021-69990)
  • Radiology (70010-79999)
  • Pathology & Lab (80048-89356)
  • Medicine (90281-99199, 99500-99602)
The codes are painstakingly specific, and as a result, it is possible to tell a lot about a physician’s occupation activity from them.

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Are You Living From Paycheck to Paycheck?
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Are You Living From Paycheck to Paycheck? | Nadine Riley

{4:36 minutes to read} Everyone is familiar with the expression “living from paycheck to paycheck.” And most of us know people who are actually living from paycheck to paycheck, including ourselves in some cases. What you may find surprising, however, is that it doesn’t really matter what your income is. Most believe this lifestyle is reserved for low- to medium-income families, but there are people with very high incomes who have the same problem.

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To Tax or Not to Tax? – Countries in the EU Face Dilemma
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To Tax or Not to Tax? – Countries in the EU Face Dilemma | Neil Bass

Taxes are necessary. Nations cannot function without tax revenue. Tax systems throughout the world differ widely. Some countries, like the U.S., tax corporations to the hilt. After all, the U.S. is arguably the best place to do business, so why not make corporations pay a higher tax for the privilege of doing business here? Other countries maintain low tax systems in the interest of attracting businesses and jobs.

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Brexit: Unprecedented, Unpredictable, Uncertain
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Brexit: Unprecedented, Unpredictable, Uncertain | Nawrocki Smith LLP

“Brexit,” though it might sound like some type of medieval disease, is a brand-new word in the English language. To some it may mean “opportunity,” to others “disaster,” yet its dictionary definition will always be “the British withdrawal from the European Union.” The European Union (EU) is basically a club with benefits among 28 (soon to be 27) European nations, based on four freedoms:

  1. The freedom to move goods
  2. The freedom to provide services
  3. The freedom of workers to move between the EU countries
  4. The freedom to move capital amongst those countries

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IRS Ups the Ante. Should Online Poker Players File FBARs?
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IRS Ups the Ante. Should Online Poker Players File FBARs? | Neil Bass

Online poker is taking off like wildfire. Real money games abound despite their questionable legality. Lots of real money poker sites are located offshore. So, if you’re a U.S. citizen and you fund an offshore poker site, are you maintaining a foreign bank account? Are you required to file a Foreign Bank and Financial Accounts Report (FBAR)? The IRS seems to think so.

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Is it Debt or is it Equity? Proposed Section 385 Regs Create Additional Tax Hurdles
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Is it Debt or is it Equity? Proposed Section 385 Regs Create Additional Tax Hurdles | Neil Bass

Intercompany transactions can be tricky. When a parent company transfers funds to a subsidiary, a variety of questions pop up. Is it an equity contribution? A loan? A combination of the two? For tax purposes, the underlying facts supporting the equity vs. loan position generally prevail. The determination of whether an intercompany transfer is debt or equity can have significant ramifications. Can the subsidiary deduct interest payments? Are the upstream transfers subject to withholding taxes?

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Why You Should Care About Keeping Good Books
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Why You Should Care About Keeping Good Books | Harlan Levine

{2:20 minutes to read} Keeping good books and records is a fundamental aspect of owning any business. Not only is it good practice, but it is required by law and often required by a company’s governing documents such as its bylaws, operating agreement or shareholder agreement. Yet the maintenance of company books is often neglected.

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The Tax Accounting Implications of Changing Your Mind – 338 Elections Not Made
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The Tax Accounting Implications of Changing Your Mind – 338 Elections Not Made | Neil Bass

Internal Revenue Code Section 338 provides a unique opportunity to treat a stock deal as an asset deal for income tax purposes. Taxpayers generally have 8 ½ months after a stock acquisition to file a “338 election” with the IRS to accomplish this treatment. The election typically results in a “step-up” in the tax basis of the acquired assets for the buyer, allowing for greater depreciation and amortization deductions for years to come.

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Easier Said Than Done
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Easier Said Than Done | Gary Shaffer

{2:54 minutes to read} I recently came across an Employee Handbook for a large metropolitan hospital. The handbook is relatively short, only 24 pages. It gives all sorts of information about benefits, professional development, direct deposit of paychecks, equal opportunity, employee health services, etc. There is also a brief, two-paragraph section on Grievance Procedures, where it says:

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The Long and Winding Road That Brought Me to You
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The Long and Winding Road That Brought Me to You | Sallie Mullins Thompson CPA PLLC

To many, it would seem like the watershed event that propelled me on the path to financial planning was actually at the end of my career—the first one that is. It was 1993, and I was an employee of IBM, which was in the process of downsizing. Many employees were being offered attractive early retirement packages. With 20 years of service behind me, I jumped at the chance to move my career in a different direction.

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Is Your Start-Up Conducting R & D? – Don’t Miss Out on Valuable Tax Credits
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Is Your Start-Up Conducting R & D? – Don’t Miss Out on Valuable Tax Credits | Neil Bass

In existence on and off since 1981, the research tax credit continues to act as an economic stimulus, encouraging investment within the U.S. The credit expired 8 times and has been extended 15 times since its inception in 1981. Finally, with the passage of the Protecting Americans from Tax Hikes of 2015 (the 2015 PATH Act), the research tax credit became permanent. In addition to its permanency, the 2015 PATH Act allows eligible small businesses with gross receipts of $50 million or less to use the credit against the alternative minimum tax (AMT) liability, and smaller “start-up” businesses may use the credit towards the employer’s Social Security portion of the employer’s payroll tax (FICA) liability.

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IRS Scams Continue to Pose Serious Threats
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IRS Scams Continue to Pose Serious Threats | Howard Lipset

The Internal Revenue Service has some advice for taxpayers this April Fool’s Day that may prevent them from being the victim of a tax scam: Don’t be fooled by scammers. Stay safe and be informed. Here are some of the most recent IRS-related scams to be on the lookout for: Telephone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remain an ongoing threat. The IRS has seen a surge of these phone scams in recent years as scam artists threaten taxpayers with police arrest, deportation, license revocation and more. These con artists often demand payment of back taxes on a prepaid debit card or by immediate wire transfer. Be alert to con artists impersonating IRS agents and demanding payment.

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Tax Impact of Reverse Earn-Outs
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Tax Impact of Reverse Earn-Outs | Neil Bass

In February 2016, we discussed the tax accounting impact of contingent consideration agreements, otherwise known as earn-outs. It is increasingly common for deals to include earn-out clauses. For example, if the target company performs well, the buyer will pay an additional sum of money at some future time. Sometimes deal-makers get creative, however, causing complications and headaches for the tax advisors involved.

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Is That an ISO or a Non-Qual? Tax Accounting for Stock Options Is Always Fun
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Is That an ISO or a Non-Qual? Tax Accounting for Stock Options Is Always Fun | Neil Bass

Stock options are commonly used to compensate employees and executives. U.S. GAAP requires that the value of the options must be amortized and recorded as an expense on the income statement over time. U.S. tax law generally disallows a tax deduction for this expense, and sometimes allows a tax deduction when the options are exercised. Whether an option is an incentive stock option (ISO) or a non-qualified stock option (NQSO) is important when determining the tax consequences of the exercise. The tax accounting for stock options is particularly complicated.

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DON’T BE A VICTIM TO A TAX SCAM
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DON’T BE A VICTIM TO A TAX SCAM | Howard Lipset

Each year, people fall prey to tax scams. Stay safe and be informed – don’t become a victim. If you get involved in illegal tax scams, you can lose money or face stiff penalties, interest, and even criminal prosecution. Remember, if it sounds too good to be true, it probably is. Be on the lookout for these scams: Telephone Scams Threatening phone calls by criminals impersonating IRS agents remain an ongoing threat. The IRS has seen a surge of these phone scams in recent years as scam artists threaten taxpayers with police arrest, deportation, license revocation, and more. These con artists often demand payment of back taxes on a prepaid debit card or by immediate wire transfer. Be alert to con artists impersonating IRS agents and demanding payment.

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Navigating the Tax Accounting Impact of Earn-Out Agreements
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Navigating the Tax Accounting Impact of Earn-Out Agreements | Neil Bass

Acquisitions often involve contingent consideration agreements (aka earn-outs or claw-backs) which are typically designed to bridge the valuation gap between buyer and seller. U.S. Generally Accepted Accounting Principles (GAAP) usually requires contingent consideration assets and liabilities to be recorded at fair value on the acquisition date and to be revalued at each subsequent reporting period until the final settlement of the obligation. Changes in the fair value of such contingencies are typically recognized as increases or decreases to income for financial reporting purposes. As complicated as book accounting may be, the tax accounting for such contingencies is often more complicated.

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SECURITY AND THE IRS
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SECURITY AND THE IRS | Stephen J. Ganns

{2:48 minutes to read} Last year, taxpayers experienced more identity theft than ever when filing their tax returns. This may not be an IRS fault so much as taxpayers having had their information stolen some other way and, subsequently, that information being used to get phony refunds with the IRS. I do not pretend in any way to be a security expert and, of course, we cannot prevent all theft, but just as we don't walk down the street with $100 bills hanging out of our pockets, there are some things that you can do to help prevent cyber-robbery.

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PROTECTING AMERICANS FROM TAX HIKES
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PROTECTING AMERICANS FROM TAX HIKES | Stephen J. Ganns

{2:30 minutes to read} On Friday, December 18, 2015, Congress passed the Protecting Americans from Tax Hikes (PATH) Act of 2015, which has some permanent effects for many taxpayers. Whether you are aware of it or not, for most of the last decade, a number of tax credits and deductions had to be reinstated every year. They were usually voted on in December, retroactive for that year, which sometimes made planning impossible. Congress has now made a lot of these credits and deductions permanent. Here is a list that applies to a large number of taxpayers:

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