ACCOUNTING AND TAX UPDATE Presented by Don Johnston
ACCOUNTING AND TAX UPDATE Presented by: Don Johnston, CPA, MST – Partner, Grossman Yanak & Ford LLP W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
OVERVIEW OF THE DAY § Accounting-Related Topics § Tax-Related Matters § Cheating the System § The Future of Tax Reform § Tax Ideas and General Business Thoughts § Pennsylvania Tax Issues W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
ACCOUNTING-RELATED TOPICS W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
KEEPING TRACK OF YOUR CLIENTS’ FINANCES § Understanding Your Client’s Financial Statements § Legal Structure of Business Entities § The Tax Man – When to be Concerned W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
WHAT YOU NEED TO PAY ATTENTION TO: § Read and understand the financial statements that are prepared by outside parties § Review the tax returns § Restrictions within your own document § Communicate with your client’s outside advisors § Be aware of cash distributions made (tax and non-tax) W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
WHAT YOU NEED TO PAY ATTENTION TO: § Ensure that the owner understands the tax consequences of the business § Review the deferred tax disclosures where relevant and ask if client is a pass-through entity § Be sure clients use reputable advisors who understand their business and can help with technical issues and planning (this includes payroll tax advisors) W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
IDENTIFYING CREATIVE ACCOUNTING ON THE BALANCE SHEET § The Top Ways Companies Cook the Books – Accelerating Revenues – Delaying Expenses – Reserves on the Books after an Acquisition W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
IDENTIFYING CREATIVE ACCOUNTING ON THE BALANCE SHEET § The Top Ways Companies Cook the Books – Other Income and Expenses – Pension Plans (be aware of defined benefit plans) – Off-balance Sheet Items – Overstating the Value of Inventory W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
TAX-RELATED TOPICS W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
THE BANKER’S GUIDE TO REVIEWING A TAX RETURN § Understand the carryovers § Review non-deductible meals and entertainment expenses § What are the book/tax differences? § What type of entity are you reviewing? (C corporation or pass-through) W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
THE BANKERS GUIDE TO REVIEWING A TAX RETURN § Basis of accounting? (cash or accrual) § Carefully review the attachments/schedules § Does cash reconcile? § Do you need to consider self-employment tax issues? W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
THE BANKERS GUIDE TO REVIEWING A TAX RETURN § Are there “mandatory” tax distributions? § Are you reviewing the owner’s returns? § Are the returns being filed and is the tax being paid? W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
TAX ISSUES AFFECTING ALL TAXPAYERS § As professional advisors, “tax” matters we should be aware of: • Identify theft/confidentiality issues • Dealing with the IRS and PA Department of Revenue • Tax notices received • Penalties assessed • Trust fund tax issues are present • Sales tax filings (collection-remittance) • Nexus issues/filing obligations W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
TAX ISSUES AFFECTING ALL TAXPAYERS § Problems at the IRS – Further changes to the ACA will continue to be a top priority and will have significant ramifications for the IRS – Reduced operating budgets and fewer personnel – Increased complexity in all areas – Potential tax reform W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
BUSINESS BLUNDERS § Tax mistakes that cost our clients money – Failing to understand how pass-through entities work – Failing to plan for current/future changes in the law – Giving payroll tax responsibilities to an unqualified person – Failing to have a long-term exit strategy – Using an inexperienced tax professional W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
INDIVIDUAL TAX PLANNING STRATEGIES § U. S. Tax Income is not a singular system but is multi-dimensional – Regular income tax system – State taxes – Alternative minimum system – Franchise taxes – Self-employment tax system – Sales taxes – Net investment tax system – Property taxes – “Pass-through” tax system – Local income taxes – Payroll taxes – Business privilege taxes W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
INDIVIDUAL TAX PLANNING STRATEGIES § Regular tax system – two basic precepts – Assumes that any and all sources of economic income and gain are taxable – Assumes there are no deductions allowed against any of the reported income unless specifically authorized and allowed by a provision of the IRC W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
INDIVIDUAL BLUNDERS § Tax mistakes that cost YOU money – Failing to understand the graduated tax rate system – Failing to properly plan and file for your children – Failing to use tax-free savings strategies (retirement, college) – Failing to understand the Alternative Minimum Tax (AMT) W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
INDIVIDUAL BLUNDERS § Tax mistakes that cost YOU money – Failing to think about your tax position during the current year – Failing to file returns on time and incurring penalties – Poor college planning (pre- and post-college) – Preparing your return yourself or using an inexperienced tax professional W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
MISSED INDIVIDUAL TAX DEDUCTIONS § Page 1 (Form 1040) – State and local tax refunds – Increased stock basis for reinvested dividends § Schedule C – All costs related to a Schedule C business – Depreciation on your home for home office – Salary you pay your kids W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
MISSED INDIVIDUAL TAX DEDUCTIONS § Page 1 (Form 1040) – Self-employed health insurance and Medicare – Self-employment taxes for self-employed persons – Student loan interest paid by Mom and Dad – IRA or retirement plan contributions – Moving expenses W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
MISSED INDIVIDUAL TAX DEDUCTIONS § Page 2 (Form 1040) – Child-Care credit – American Opportunity credit (education costs) – Foreign Tax credits W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
MISSED INDIVIDUAL TAX DEDUCTIONS § Schedule A – State sales tax – State income tax paid for prior year returns – Out-of-pocket charitable deductions – Noncash donations – Refinancing points W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
MISSED INDIVIDUAL TAX DEDUCTIONS § Schedule A (miscellaneous 2%) – Legal fees paid to secure alimony – Tax preparation and planning fees – Investment fees § Schedule A – Gambling losses W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
CHEATING THE SYSTEM W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
CHEATING THE SYSTEM § Where are Americans cheating the most? – Schedule C and small businesses – Meals and entertainment – Charitable deductions – Paying for childcare/Nanny W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
CHEATING THE SYSTEM § Speaking of tax cheats… W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
FUTURE OF TAX REFORM W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
FUTURE TAX POLICY IS UNCERTAIN § Some form of tax reform is likely to be achieved § Actual change will require cooperation with Congress § Tax reform will be tied to healthcare reform W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
CHALLENGES TO IRS ENFORCEMENT § IRS facing numerous issues – Increasing complexity of tax code – Administrative funding cuts – understaffed, low morale – Additional responsibilities of ACA and FATCA – Identity theft concerns – New tax laws coming as a result of the GOP takeover W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
HOW TAXPAYERS COPE WITH THESE ISSUES § Ongoing uncertainty makes it difficult to plan for the future § Taxpayers must pay attention to current rules but include flexibility in strategy to adapt to changes in the law W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
TAX IDEAS & GENERAL BUSINESS THOUGHTS W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
TAX IDEAS & GENERAL BUSINESS THOUGHTS § IRC Section 199 deduction § IC-DISC tax-saving opportunity § Educational Improvement Tax Credit “EITC” W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
WAYS TO ATTRACT AN IRS AUDIT § Red flags for IRS agents: – Unreported income – Net operating losses from pass-through entities – Rental loss reported in year with little or no rental income – Excess charitable donations – $0 compensation for S corporation shareholder-officers – Math errors and rounded numbers W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
FEDERAL AND STATE TAX NOTICES § General thoughts about addressing notices: – Be sure notice is legitimate, not fraud/identity theft – Review and recalculate tax, penalty and interest due – If correct, pay tax using certified mail – Take action to resolve problem from incorrect notice – All actions should be documented in writing and followed up with a phone call (ask for response in writing) – Keep good notes to avoid making same mistake again W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
PENNSYLVANIA TAX ISSUES W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
PENNSYLVANIA TAX AMNESTY PROGRAM § Incorrect Pennsylvania tax notices and adjustments W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
PENNSYLVANIA TAX AMNESTY PROGRAM § Created by PA Act 84 in July 2016 – Program runs from April 21, 2017 to June 19, 2017 – Covers tax filings/delinquencies through December 31, 2015 – Numerous types of taxes are eligible – Taxpayers that participated in 2010 Amnesty program are ineligible to participate in this program – Procedures to be finalized in the near future W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
PENNSYLVANIA TAX AMNESTY PROGRAM § Benefits of the program – PA DOR will waive penalties, fees and 50% of interest charged for late payments § Consequences of not participating – 5% non-participation penalty added to delinquent balance due – May also be subject to other enforcement actions W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
FINAL THOUGHTS W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
GROSSMAN YANAK & FORD LLP § How Can We Help You? – Audit/Assurance Services – Tax Services (businesses and individuals) – Business Valuation Services – ERP Solutions Services – Transaction-Related Issues – Mergers & Acquisitions W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
THANK YOU FOR YOUR ATTENTION! 412 -338 -9300 • WWW. GYF. COM W. P. A. S. G. L. Small Business Lending Conference April 20, 2017
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