Planning Ahead: 2017 Health Savings Account Limits

BY Chad Ryder

The Internal Revenue Service (IRS) has released the annual contribution limitations for health savings accounts (HSAs) and the minimum deductible amounts and maximum out-of-pocket expense amounts for high-deductible health plans. These limitations are updated annually to reflect cost-of-living adjustments. Business owners should inform employees of the HSA contribution limits increase for 2017.

Employers commonly offer employees HSA contributions as part of their healthcare benefit packages. HSAs are a popular option because of its dual purpose. Employees can utilize HSAs to save for the future or pay for qualified medical expenses tax free.

Under Sec. 223 of Rev. Proc. 2016-28, individuals who participate in a health plan with a high deductible are permitted a deduction for contributions to HSAs set up to help pay their medical expenses. To be eligible to contribute to an HSA you must participate in a high deductible health plan.

The following chart summarizes the contribution and out-of-pocket limits for HSAs and high-deductible health plans for 2017. There was only one minor change between 2016 and 2017.

  2016 2017 Change
HSA contribution limit Self: $3,350

Family: $6,750

Self: $3,400

Family: $6,750

Self: $50

Family: No Change

HSA catch up contribution (age 55+) $1,000 $1,000 No Change
HDHP minimum deductible Self: $1,300

Family: $2,600

Self: $1,300

Family: $2,600

No Change
HDHP maximum out of pocket Self: $6,550

Family: $13,100

Self: $6,550

Family: $13,100

No Change

Employers should remind employees who are contributing to or using their HSA:

  • They have until April 15, 2018 to make contributions for the 2017 tax year.
  • Withdrawing from their HSA for nonqualified purposes is subject to income tax.
  • Nonqualified withdrawals are also subject to a 20% tax penalty unless an exception applies.

The professionals in our office can clarify any questions you may have on HSAs. Call on us today.

Education Tax Credits: Two Benefits to Help You Pay for College

BY Justin Koppa

If you paid for college it can mean tax savings on your federal tax return. There are two education credits that can help you with the cost of higher education. These credits include the American Opportunity Credit and the Lifetime Learning Credit.  Here are some important facts you should know about these education tax credits.

The American Opportunity Tax Credit allows you to claim up to $2,500 per eligible student. Some tips to consider under this tax credit:

  • The credit only applies to the first four years at an eligible educational institution.
  • It reduces the amount of tax you owe. If the credit reduces your tax to less than zero, you may receive up to $1,000 as a refund.
  • It is available for students earning a degree or other recognized credentials.
  • The credit applies to students going to school at least half-time for at least one academic period that started during the tax year.
  • Costs that apply to the credit include the cost of tuition, books, required fees and supplies.

The Lifetime Learning Credit is limited to $2,000 per tax return, per year. Some tips to consider under this tax credit:

  • This credit is available for an unlimited number of years as it applies to all years of higher education at an eligible educational institution. This includes classes for learning or improving job skills.
  • The credit is limited to the amount of your taxes.
  • Costs that apply to the credit include cost of tuition, required fees, books, supplies and equipment.

2017 Standard Mileage Rates Announced for Business, Charitable, Medical and Moving Purposes

BY Justin Koppa

The Internal Revenue Service recently issued the 2017 optional standard mileage rates to be used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

As of January 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are:

  • 53.5 cents per mile for business miles driven (54 cents for 2016)
  • 14 cents per mile driven in service of charitable organizations (14 cents for 2016)
  • 17 cents per mile driven for medical or moving purposes (19 cents for 2016)

It is important to remember that a taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. For more information, please contact one of our professionals today.

New Form I-9 for Employment Eligibility Verification, Effective 1/22/2017

BY Bernie Hull

Congress passed the IRCA (Immigration Reform and Control Act) in 1986, which required the use of the Form I-9 to verify identity and employment authorization for all new employees, including U.S. citizens hired after November 6, 1986. New hires are required to complete this form within three (3) business days of the date of hire. Employers are required to retain the completed Forms I-9 for all employees, as long as the individuals work for the employer and until one year after the date the employment is terminated or three years after date of hire, whichever is later.

On November 14, 2016, USCIS (U.S. Citizenship and Immigration Services), published a revised version of the Form I-9. Employers must begin using the new version by January 22, 2017.  The form has been modified to make it easier to complete on a computer, including prompts to ensure information is entered correctly and drop down lists and other enhancements.

You may obtain a copy of the new form (paper version and fillable PDF version) and a copy of the Handbook for Employers—Guidance for Completing Form I-9 (publication M-274) at the official website www.uscis.gov/i-9.  There is no fee to obtain these forms via this website.

Penalty Eliminated for Employer Health Insurance Reimbursements

BY Brittany Gerth

Penalty Eliminated for Employer Health Insurance Reimbursements

Last year, the IRS began enforcing a penalty on employers who reimburse employees for the cost of health insurance premiums. The fine was up to $100 per day ($36,500 per year), per employee. On Wednesday, December 7th, legislation was passed eliminating that penalty. Employers can now reimburse employees for the cost of health insurance premiums without being penalized.

In order to qualify, small employers must set up a stand-alone health reimbursement arrangement.

Small Employers Able to Use Stand-Alone Health Reimbursement Arrangements

The legislation passed on December 7th allows employers to fund employee HRAs to pay for qualifying out-of-packet medical expenses and health insurance premiums (including plans purchased from the exchange). Reimbursements to the employee for medical expenses are tax-free only if the employee is enrolled in other health coverage that is minimum essential coverage. Employees that are covered by an HRA will not be eligible for subsidies for health insurance purchased on the exchange. The act takes effect for plan years beginning after December 31, 2016. To qualify for the funding of HRAs, the employer must have fewer than 50 full-time employees (or equivalents) and they must not sponsor a group health plan. The following are a list of additional requirements for the HRA’s:

  • The HRA’s must be funded solely by employer contributions
  • Must provide payment or reimbursement for medical care expenses or health insurance premiums. Employees must provide documentation/receipts for medical expenses or health insurance premiums paid.
  • The maximum reimbursement for health expenses through HRAs is $4,950 for single coverage and $10,000 for family coverage
  • If an employer chooses to offer HRA’s, they must be offered to all full-time employees, unless one of the following applies:
    • The employee has not yet completed 90 days of service
    • The employee is under 25 years old
    • The employee is covered by a collective bargaining agreement for accident/health benefits
    • The employee is a part-time or seasonal worker
  • An employer must make the same HRA contributions for all eligible employees, however the following items may cause the amount to vary:
    • Price of the insurance policy
    • Age of the employee/eligible family members
    • Number of family members covered

The professionals in our office can answer any questions you may have about the new legislation. Call us today.

 

 

Tips to Avoid Embezzlement

BY Bernie Hull

Why does something like this happen to good people—Trust. According to FBI profiles, an embezzler is typically an employee with 5-6 years of experience, often described as good-to-above average, highly desirable, reliable, bright, motivated, trustworthy, and an achiever with good self-control. The typical motive is the need for money caused by a specific problem.”

Potential warning signs:

  • Unusual behaviors—for example, making sure she always gets the mail, intercepts phone calls, never takes vacation—even when on vacation, etc.
  • Lack of timeliness in updating/reconciling the accounting records

Do you have to stop trusting people to avoid such a thing from happening to you? No, but you need to implement good internal controls to reduce the risks. In my opinion, an honest bookkeeper would welcome the fact that controls are put in place—if for no other reason than to avoid the risk of ever being accused of wrongdoing.

Tips to consider:

  • Hire smart—develop accurate job descriptions and MUST do reference checking. During reference checking, make sure you ask former employers, “Would you rehire this person?”
  • Evaluate your internal controls—either on your own, or with the help of your CPA. (IC questionnaire)
  • Remember that as a manager or small business owner you are ultimately responsible for the numbers—so get involved in the process
  • Receive all mail—consider having post office hold mail until you return from vacation, if office is closed in your absence.
  • Review statements from vendors. Many vendors have stopped sending statements, but they will send late notices. Make sure your business is in good standing with vendors. Long overdue invoices may be an indication that a check you thought was going to a vendor actually went in someone else’s pocket, or that an invoice had been overlooked.
  • Receive bank statements directly, unopened. Insist on cancelled checks or check copies. Review cancelled checks for reasonableness of date, payee, amount, authorized signature and endorsement on the back of the check.
  • Review the bank reconciliation every month. This step is particularly important if you have one person doing the bookkeeping, writing checks, posting entries, preparing financial statements. Look closely at any adjustments to the bank accounts. Are there any old outstanding checks/deposits listed on the bank rec.?
  • Scan the check register periodically (every 3-4 months) to verify all payees and amounts paid make sense. Multiple checks written around the same time to the same vendor could be an indication that funds are being diverted—or just an inefficient use of time to write and code multiple checks. Verify check number sequences.
  • Review all credit card statements—are all charges authorized? Look for unusual late fees and finance charges. Pay off credit card balances monthly to avoid late fees. (Financial management point—check into lining up a line of credit with your bank—before you need the money, to manage short term cash flow/seasonal issues—at a lower rate and fees than a credit card.)
  • Review all payroll tax reports—consult with your CPA to verify deadlines and make sure that all reports are filed on time. Consider asking for account transcripts from the IRS and contact WDR at least annually to verify that all taxes were paid on a timely basis and that there are no balances outstanding.
  • Review payroll registers – review frequency of paychecks and amounts paid for reasonableness. Hand out pay checks/ pay stubs.
  • Review your accounts receivable aging summary schedule on a regular basis. This is beneficial not only to determine if you have any slow paying customers. It may also disclose if any customer payments have been misapplied.
  • Evaluate controls over inventory. Establish records to properly and consistently track inventory. Do period physical inventory counts and compare to your perpetual inventory system. Are controls implemented to reduce risk of theft?
  • DON’T EVER pre-sign blank checks. Keep all blank checks in a secured location—with you controlling the key/combination. (Anyone can forge a check.)
  • Make sure employees who can handle cash are bonded. Do you have embezzlement/theft insurance in place? Is it adequate to cover a potential loss and professional fees to determine amounts taken?

Succeed at Succession by Building Your Internal Bench

BY Jay Grokowsky

Succession planning has fallen off the radar for many companies in the current competitive landscape where there is a steady demand driven by a demographic shift and healthy economy. Firms are concentrating their efforts on growing their businesses. Many business owners do not start their succession planning until the owners are ready to retire. By this time, it is too late to design and implement a plan to accomplish all of their goals in their retirement timeframe. Furthermore, depending on how you plan on transferring your company, there are a number of preliminary steps that you should take to ensure that your succession plan is executed as you would like it to be. This is especially true if you plan to transfer your company internally to existing or future employees. Below are four key considerations owners should be addressing when considering an internal succession plan.

  • Determine whether you need to look externally to strengthen your management team

Begin the succession process early. It will provide you with enough time to identify and groom the right candidate. Begin by identifying whether you have employees who have the skills or the potential to acquire the skills necessary to take over the company. Assess not only their technical skills, but also their leadership potential. This will help you decide whether you need to search for someone from the outside to strengthen your management team.

  • Training

Training is one of the most important ways that you can ensure a successful transition. Many owners do not know where to start, so they avoid it. Other owners have serious reservations about letting an employee in on the inner workings of the business too soon, sometimes out of fear of losing control and other times out of fear of losing their key employees and company secrets to a competitor. Both of these are legitimate fears; but by giving in to them and not training your employees to take over, you risk the future of your legacy and your retirement.

  • Training and Development

Once the individual or group of individuals is chosen, you need to begin to develop them into your future leaders. Begin by cross-training them in all aspects of the business. This helps them learn the inner workings of the company and become more well-rounded leaders and problem solvers. Beyond just the workings of the business, you need to train them in the soft skills and leadership skills that will make them successful. Invest in a program that will provide those skills to your future leaders. Once a transfer begins to get closer, some companies may even find benefit in bringing in an executive coach to continue to develop leadership skills for transferees.

  • Mentoring

One of the most important steps that you as an owner can take is to share as much knowledge as possible about the company to your successors. As the old adage goes, knowledge is power; and leaving a company without a good knowledge basis can spell its demise. Transferring knowledge can be one of the most difficult parts of the succession process, but it is also one of the most vital.

A mentorship program can produce great dividends. The program should offer young, future leaders access to the business owner – or other senior members of your leadership team – in order to ask questions and receive advice from a trusted source in the upper echelons of management.

Succession can certainly be a difficult bridge to cross, but the professionals at our firm can help you begin the journey. Call us today.

Creating Your Small Business Exit Strategy

BY Jay Grokowsky

Do you know what will happen to your business when you retire? By necessity, many busy small business owners spend all of their time thinking about the here and now, with little opportunity to focus on the future. But your company’s long-term survival -— and your own retirement security -— may depend on establishing a realistic and workable exit strategy.

Set a retirement date

Here is your first question: When do you plan to quit working? You may have a general idea of the age range when you would like to retire, but now is the time to set a precise date. That gives you a timeline to work with, which will make all your other planning easier.

Consider your options

The next essential question: Who do you expect will take over your business? Many companies make one of two choices: either someone buys the company from you or a family member or employee takes over as chief executive when you retire. It is important to consider which one is the most realistic option so that you can ensure a smooth transition down the road. Depending on your plans, there are different steps you should take now to ensure a smooth transition.

If you plan to sell

If you are going to sell your company to another business or individual, you will need an accurate idea of what it is worth. You should get a business appraisal when you are ready to sell; but it may be a good idea to get one now, even if there are many years until your planned retirement. An appraisal can help to spot your company’s strengths and weaknesses so you can analyze how those attributes impact its overall worth.

The information in the appraisal can be used to make changes that improve operations, sales and revenues and make you a more competitive player in the marketplace. Those steps will help increase your company’s value and its appeal to potential buyers at the time you decide to sell.

If you plan to promote from within

It is always a good idea to have a current idea of your company’s worth, but there are also other necessary factors to consider if you are hoping that someone within your company will one day take over the reins of leadership. The first question, of course, is who will that person be? Is there a very talented younger employee who you believe could one day take over? If so, begin grooming him or her now. This includes introducing the employee to key clients, increasing his or her level of responsibility and including the person in decision making whenever possible.

Even if you expect to sell your business, it is a good idea to have a promising future leader ready to take over the reins. In most cases, a potential buyer will be happy to see that there is someone in place to carry on.

There are many possible exit strategies available to small business owners. No matter which you choose, it will be a good idea to have an accurate sense of the company’s worth and to have a strong management team in place. Our firm’s professionals can help you develop a strategy to suit your business. Call us today.

A Story About Employee Embezzlement

BY Bernie Hull

(The names in this story have been changed to protect the innocent and allegedly guilty…)

On Saturday, May 17, 2008, I received a call from Jane Victim, a client and a friend. She said, “I need your help.” I just learned that my long-time office manager, Sally Sly, has been stealing from me. “ It was hard to believe—I mean, Sally, was the typical “girl next door”, Jane’s right-hand woman, and someone who was believed to be one of Jane’s best friends. (Heck, I would say that she is one of the nicest people you could ever meet.)

Jane had been contacted by an associate who shared the same office building as Jane. The associate told her that she had heard from their office staff that Sally had been acting strangely, and apparently had been hiding things from Jane. For example, did Jane know that an IRS agent had stopped by the office last December with the threat of a tax lien to be levied against Jane’s business assets? And did Jane know that her business trust account had been overdrawn at one point and that a letter had been received from the state with a warning?

Jane confronted Sally and asked her to tell her what had been happening and why Sally hadn’t told her. Sally started sobbing and saying, “I don’t want to go to jail.” Jane asked, “Why do you think you would go to jail?” Sally admitted, ”…because I stole money from you.”

“How did you do it?” Jane asked.

“You know those checks you would sign and leave with me when you went on vacation? I wrote those checks to myself,” Sally confessed.

“How long have you been doing this?” Jane asked.

“Just a few months in 2007,” Sally replied.

“Any in 2008?” Jane asked. “No.” “Any other year?” “No,” Sally repeated.

So, how much did she take, and how did she do it?

I began the investigation by looking at the accounting records, bank statements and cancelled check copies to look for checks issued to Sally. The more we looked, the more we found. (I was told that the rule of thumb for embezzlement is that you take the amount given by the embezzler and multiply it by 5 or 10 times the amount—that it ALWAYS turns out to be more than you would expect. Unfortunately the rule was on target…

The results of the testing indicated that:

* More than $85,000 was discovered to have been taken by Sally from 2001 to 2008.—via checks issued to Sally or her husband—some as extra paychecks, some as checks actually issued to her, but recorded as to another vendor, etc. Additional amounts could have been taken—potentially through petty cash, cash receipts from clients that were never deposited, etc. The ways that it was covered up was truly masterful, in my opinion—in a nauseating sort of way…

But Jane incurred more losses than the amount determined to have been taken by Sally:

  • Sally transferred money from the trust account to the operating account to fund the amounts she took—they were recorded in the accounting records as “income.” Jane needed to borrow more than $75,000 to cover the accumulated deficit in this account.
  • We discovered that a business charge card that Jane had thought had been cancelled, was still open and accumulating large finance charges and late fees of more than $8.000 from 2006-2008.
  • The accounting records showed that the payroll taxes were being paid in a timely manner. Because she didn’t file all payroll tax reports on time and stopped paying the payroll taxes for a while, interest and penalties had accrued to over $6,000 for 9/30/06 through 2007. (Sally had paid these amounts after the visit from the IRS agent, and coded the checks to “office expense.”)
  • And she lost a “trusted friend”…

So, why does something like this happen to good people—Trust. According to FBI profiles, an embezzler is typically an employee with 5-6 years of experience, often described as good-to-above average, highly desirable, reliable, bright, motivated, trustworthy, and an achiever with good self-control. The typical motive is the need for money caused by a specific problem.”

So, do you have to stop trusting people to avoid such a thing from happening to you? No, but you need to implement good internal controls to reduce the risks. In my opinion, an honest bookkeeper would welcome the fact that controls are put in place—if for no other reason than to avoid the risk of ever being accused of wrongdoing.

Tips to consider:

  • Hire smart—develop accurate job descriptions and MUST do reference checking
  • Evaluate your internal controls—either on your own, or with the help of your CPA
  • Remember that as a manager or small business owner you are ultimately responsible for the numbers—so get involved in the process
  • Receive bank statements directly, unopened. Insist on cancelled checks or check copies. Review cancelled checks for reasonableness of date, payee, amount, authorized signature and endorsement on the back of the check
  • Review all credit card statements—are all charges authorized? Look for unusual late fees and finance charges
  • Review all payroll tax reports—consult with your CPA to verify deadlines and make sure that all reports are filed on time
  • DON’T EVER pre-sign blank checks

There are many more tips, but not enough time to present them today.