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iAccountOn March Newsletter

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A Message from our CEO

Welcome to our Spring Edition of the iAccountOn Newsletter!  We are in the middle of busy season for our industry, so I hope you all are keeping up a good balance of work and play. Technology continues to change the way our industry does business, and 2016 looks to be a great year for small and medium sized practices, including freelancers. See this recent article on AccountingWeb.com here. Please check out our blog at http://www.iaccounton.com/blog/!  If you haven’t signed up as an advisor, sign-up today here.

Below you will find the latest in tax, finance and accounting news.  We also feature one of our members with each edition!  We are always looking for articles and postings from our members, so please forward any articles you’d like to post or ideas for content to blog@iaccounton.com.

If you are not yet a member company/individual, Sign-up today at www.iAccountOn.com.  Also, to learn more about iAccountOn check-out our How It Works @ https://www.iaccounton.com/how-it-works.


dreamstime_xl_19931664Customizing a Capitalization Policy for Your Needs

by Steve Barkmeier, CPA – Director of Tax at Whipplewood CPAs

The new IRS regulations allow a great deal of flexibility for companies to adopt capitalization policies. A capitalization policy can save overhead in tracking small assets. It can also reduce taxable income, but it will reduce book income by the same amount. With the flexibility the IRS provides, companies need to put more thought into what policy best meets their needs. It’s tempting to choose a policy strictly to minimize the tax bill. …More


Tax Tips dreamstime_xxl_27374051

Top Year-End IRA Reminders from IRS – If you have an IRA or plan to start one soon, there are a few key year-end rules that you should know. Here are the top year-end IRA reminders from the IRS …More

IRS Tax Tips for Deducting Gifts to Charity – The holiday season often prompts people to give money or property to charity. If you plan to give and want to claim a tax deduction, there are a few tips you should know before you give …More

Tax Tips After January 1, 2016 – TurboTax gives you ten tax saving tips for the new year. Find strategies to lower taxes, save money when preparing your tax return, and avoid tax penalties …More

Top Tax Issues for 2016 – Here are 11 things you and your clients will want to start thinking about for next tax season …More

6 Year-End Tax Tips to Prepare You for 2016 Filing Season –  Filing taxes last minute means you might miss out on opportunities for a better return. Get ready now for the 2016 tax filing season, and stop throwing money out the window …More


dreamstime_xxl_30433575Latest News in Accounting, Tax & Finance

 

Revenue Recognition: A View from the Trenches – Now that the FASB has finalized the effective date for the new revenue recognition …More

PATH Act Expands the R&D Tax Credit for U.S. Manufacturers – In December, Congress passed and the president signed into law the …More

Overnight Finance: Senate GOP delays budget action; Bloomberg won’t run – Enzi announced Monday that his committee will postpone possible action this month …More

Inside the Future of Wall Street – Ellevest CEO Sally Krawcheck and Deutsche Bank Global Head of Rates Research Dominic Konstam discuss …More

Tax Reform Looms as Key Post-Election Issue for Tax Directors – Though a lot could change between now and Novemeber, the second annual BDO USA Tax Outlook Survey indicates …More

For more news, check out our blog!


Featured Advisor – Meet David M. Flory, CPA David_Flory

Our Featured Advisor for the month of March is David Flory, CPA. Currently in Tampa, Florida, David received his M.B.A from Rutgers University. He now runs his own practice after previously working as a tax director for two publicly traded corporations for over ten years. David is a Tax/IT Crossover professional who seeks to bring database technology to the Tax Function through his experience in planning, executing and administering complex transactions, structures and processes. 

With his proven ability to seamlessly unite extensive tax knowledge with the design and implementation of custom database solutions, David will provide exceptional speed, accuracy and cost effectiveness to his clients. His specialties include, but are not limited to, Partnerships and Equity and Mortgage REITs, extracting and utilizing accounting and other information from ERP databases, partnership allocation systems, and large scale financial calculations. If you’re seeking precision, control, flexibility, and efficiency…David Flory is your guy! 

Find David’s profile on iAccountOn or go directly to his website!


 
dreamstime_xxl_50652855Upcoming Events & Conference

AICPA Employee Benefit Plans Conference, Las Vegas, NV, May 10-12,  View & Register

Avalara’s National Tax Compliance Automation Conference, New Orleans, LA, May 10-11, View & Register

AICPA Conference on Tax Strategies for the High-Income Individual, Bellagio Las Vegas, NV,  May 24-May 25, View & Register

2016 Financial Leadership Summit Conference, Colorado Springs, CO,  May 23- 24, View & Register


Webinars dreamstime_xl_38213409

Xero/Avalara Webinar: Sales Tax Tips You Never Knew Existed, on March 15, View & Register

Global Payroll: Are You Meeting Your Obligations?, on March 16, View & Register

Everything You Need To Know About Audits Of Estate And Gift Tax Returns, on March 16, View & Register

Avalara Thought Leader Webinar: 6 Most Common Sales Tax Return and Filing Errors, on March 22, View & Register

How Digital Innovation Is Reshaping The Future Of Finance, on March 23, View & Register

More. Webinars from CPA Academy, and Proformative, and Webinars for Tax Practitioners from the IRS.

dreamstime_xl_19497055Volunteer Opportunities

Volunteer with the IRS for tax season: www.irs.gov/Individuals/IRS-Tax-Volunteers

Volunteer with AICPA: www.aicpa.org/Volunteer/Pages/Volunteer.aspx

Volunteer for this Holiday Season in your community: Volunteermatch.org

Want to submit your own articles to the iAccountOn Blog? Send them to blog@iaccounton.com today!

www.iAccountOn.com  

IRS Raises Interest Rates for First Time Since 2010

AccountingToday | March 21, 2016

The Internal Revenue Service has raised interest rates for the calendar quarter beginning April 1, 2016, the first change to the interest rates since the fourth calendar quarter of 2010 when the federal short-term rate decreased from 1 percent to 0 percent.

Revenue Ruling 2016-06 spells out the new rates of interest. The rates will be:

• 4 percent for overpayments (3 percent in the case of a corporation);
• 1.5 percent for the portion of a corporate overpayment exceeding $10,000;
• 4 percent for underpayments; and
• 6 percent for large corporate underpayments.

Under the Tax Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. In recent years, the rates have remained mostly unchanged as the Federal Reserve has kept interest rates low and only last December voted to raise them (see Rates Hold for Q1 of 2016 and Fed Ends Zero-Rate Era; Signals 4 Quarter-Point 2016 Hikes).

 

Read the full article here. 

Customizing a Capitalization Policy for Your Needs

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By Steve Barkmeier, CPA
Director of Tax at Whipplewood CPAs

The new IRS regulations allow a great deal of flexibility for companies to adopt capitalization policies. A capitalization policy can save overhead in tracking small assets. It can also reduce taxable income, but it will reduce book income by the same amount. With the flexibility the IRS provides, companies need to put more thought into what policy best meets their needs. It’s tempting to choose a policy strictly to minimize the tax bill. The capitalization policy must be adopted in writing before the start of the tax year and must apply to the financial statements as well as the tax reporting. If a company is overly aggressive on its capitalization policy, the effects on its financial statements can cause large problems.

Background
The IRS has adopted regulations that allow companies to deduct expenditures of less than a capitalization limit, even though those expenditures are otherwise capitalizable as fixed assets. To deduct these expenditures, the company must follow a book accounting policy that expenses those items and is adopted before the beginning of the year. Many companies use these policies in order to reduce the administrative burden of tracking and depreciating all those small assets. Before the IRS adopted these regulations, most of those companies followed the same capitalization limits for tax purposes that they applied for book purposes. Now companies can adopt these policies with confidence that their policies will not create disputes with the IRS.

If a company’s only consideration in adopting a policy is minimizing taxable income, the decision to adopt the maximum limit allowed under the regulations is straightforward. However, many companies need to consider other factors in deciding on a capitalization limit.

Maximum Capitalization Limits Allowed by Safe Harbor
The maximum that the IRS allows a safe harbor is either $2,500 or $5,000 depending on whether or not the company has an applicable financial statement. For most companies a financial statement must be an audited financial statement in order to be treated as an applicable financial statement. However, some financial statements filed with regulatory agencies can also qualify. Under the IRS regulation, the capitalization limit can be applied at the line item detail level of the individual invoices.

It makes sense that the IRS would allow a higher limit for companies with applicable financial statements. If the company has audited financial statements, then an independent auditor has examined the capitalization policy and concluded that the policy does not cause a material misstatement of income. Thus, the IRS has some assurance that the company is not using an unreasonable limit.

Companies may be able to use policies that have a higher threshold than the IRS limit. However, those companies have the burden of proof to demonstrate that their policies do not significantly distort their income.

Capitalization Policy
Companies have a great deal of flexibility in designing their policies. The simplest policies provide for a strict dollar limit. If the expenditure is below that limit, it is expensed even if the expenditure would otherwise be capitalized as a fixed asset. The policy can also provide whether the limit is applied at an invoice level or at the level of each item that is separately stated on an invoice. This distinction can make a large difference in capitalization decisions. For example, a company with a $1,000 capitalization limit might purchase 20 new computers for its staff. If each of those computers cost $800, the total invoice would be for $16,000. If the limit is applied at the invoice level, those computers would be capitalized. If the limit is applied on an invoice item basis, the computers would be expensed.

Many companies include provisions that capitalize the expenditure if it is part of a larger project as long as that project meets a higher capitalization limit. For example, a company might have a $1,000 capitalization limit but require capitalization of all items that are part of a project if that project exceeds $5,000 in total cost. This type of provision can often help a company make sure that its capitalization policy doesn’t create other problems. This type of provision does not affect whether or not the policy meets the IRS safe harbor.

Another possibility is to choose based on the type of item how to apply the policy. For example, a company might specify that all computers be capitalized regardless of their cost.

Whipplewood CPAs has a sample capitalization policy that you can view under “Resources” on our website at whipplewoodcpas.com. This policy should be modified to meet the needs of the particular company.

Other Considerations
GAAP
If the company produces GAAP financial statements, it must consider whether the policy creates a material distortion of those financial statements. If the financial statements are reviewed or audited by a CPA, the company should consult with that CPA before adopting a policy to make sure the CPA agrees with the company’s conclusion.

Loan Covenants
Most loans agreements include covenants that the borrower must meet specific financial hurdles. Violating those covenants can have catastrophic effects to the company. For example, a bank might call a loan if a borrower is in violation of its loan covenants. If a company is considering adopting a new capitalization policy, it is imperative that it analyze the effect of the policy on each covenant. If the new policy would make it likely that the company might violate one of its covenants, that policy should be modified to eliminate that risk. For example, a loan covenant might require that the loan balance not exceed four times EBITDA. In this example, an expenditure that is capitalized does not directly impact that ratio. However, if the expenditure is expensed, it would lower the ratio. If that lower ratio puts the company at risk of violating its covenant, the company should modify the capitalization policy.

Franchise Requirements
At Whipplewood CPAs, we have a large number of franchisee casual dining clients. Those franchise agreements generally require the franchisee to maintain specific financial ratios. An overly aggressive capitalization policy can put a franchisee at risk of failing some of those ratios. The company should analyze both historical results and future plans to make sure that the new policy won’t put the company at risk. For example, a franchisee might recalculate the ratios for the last two years and conclude that it could easily meet its targets with a $1,000 capitalization policy applied at the invoice item level. However, if that franchisee is planning to refurbish its location, that refurbishment could easily cause it to fail its franchise requirements. If so, the franchisee could specifically require the capitalization of the refurbishment or include a provision to capitalize items if they are part of a larger project.

Other Agreements
Some companies may have other agreements that require them to meet performance standards. For example, a company may have provision in its shareholder agreement providing that control over the board of directors changes if certain performance metrics aren’t reached. Companies need to consider the effects of their capitalization policy on all performance metrics they might need to meet.

Property Tax Considerations
The capitalization policy does not affect how items are taxed for property tax purposes. Thus, the adoption of a capitalization policy creates a difficulty with property tax renditions. One simple solution is to create a specific expense account to track items that are expensed because of the policy. For the property tax renditions, the total of this account balance for the year can then be reported as a single line item for the location. Based on the type of property included, the company can then determine the appropriate time to show that line item as retired from the rendition. For example, if a company has expensed predominately computer equipment, it might be appropriate to retire the line item after five years.

Conclusion
Companies have the opportunity to reduce the administrative burden of tracking small assets by adopting a capitalization policy. These policies can also reduce taxable income by immediately deducting the cost of small items rather than depreciating them over a longer life. However, companies should make sure they fully understand all the effects of the new policy on important financial metrics. Meeting those metrics can be exceptionally important for many companies. If a new policy puts the company at risk of failing an important metric, the company should revise the policy to avoid that failure.

About the Author
Steve Barkmeier is the Director of Tax at Whipplewood CPAs.. WhippleWood CPAs redefines the CPA experience through our dynamic, exciting and fun approach to building ongoing relationships with clients and community partners. ColoradoBiz magazine has consistently ranked WhippleWood CPAs one of the top accounting firms in Colorado. We are a full service Denver area CPA firm.

Public Accounting: Advice to Young Women Professionals

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I grew up in a pretty unconventional household for the ‘70’s in that both of my parents worked full-time, each had college degrees and separate bank accounts, my father cooked most meals, and eventually my mom’s salary outpaced my father’s. My father was a CPA and loved tax. But in retrospect, my mother had a lot of influence on who I am today with her drive, independence and strong sense of dignity.

That drive and confidence definitely influenced my early goals to be a partner in a Big 4 accounting firm. However, as a new tax staff consultant at a large global accounting firm, I quickly learned that simply being smart was not enough. It also required something that they didn’t teach you in Intermediate Accounting, FBLA or Beta Alpha Psi. Work was not divided up evenly amongst staff nor was it always given to the person most fit for the project. It wasn’t just whether you were smart and talented but there was something more that seemed to be required.

I was laid off from my first Big 4 public accounting job, although I did spend 7 years with Big 4 firms. Throughout my journey in accounting, I learned quite a bit along the way in particular as a professional woman in the industry.  Here are few tips for young women professionals maneuvering the public accounting highway whether you aspire for partnership status or not.

The Obvious – Work hard, produce good work deliverables & connect with your managers and clients.   But also:

  • Take initiative – Be as aggressive as our male counterparts in seeking out challenging projects and asking for work. Ask seniors, managers or project leads if they need assistance during downtimes or as your project nears an end. Get to know as many of your colleagues and managers as possible. Keep your options open and try different clients, industries and specialties whenever possible.
  • Find a Sponsor – Find someone you like working with who appreciates your work and who will have your back. Actually, find more than one because if that person leaves, you need to have someone vouch for your work, commitment to the firm, and dedication to great client service. It’s especially important during review time: if no one knows who you are and what you do, when the RIF (reduction in force) comes you will likely be on the list. And believe me the RIF’s come all too often.
  • Show-up – Firm Sponsored Activities – Even if you’ve had a long tiresome day, week or busy season, show up at firm events like happy hours, golf tournaments and charity events. No, you don’t need to be at each and every event, but schedule those you can around other commitments and family obligations. Also, don’t just be physically present but get to know your colleagues at all levels. Relationships build, grow and solidify at these events.    Side Bar: Golf is a frequent activity in our industry so consider lessons and learn the game. It’s not important to be a golf pro by any means, but knowing the basics goes a long way with connecting with managers and clients. 
  • When One Door Closes, YOU Open Another – When I was laid off from my first public accounting job, I called the partner who gave me the “bad” news and asked for a recommendation for an opening at another firm office. Two weeks later, I had a new the job with the same firm that had just laid me off.  As a new manager, my “Sponsor” moved to another group, and a second “Sponsor” decided to retire.  I evaluated my options and took advantage of an opportunity.   I started my own company and provided services to a spin-off practice of the firm. . Risky? Yes. Paid-off at the end? Yes.

Moral of the story:  Don’t just lean in or knock on the door, turn the handle and walk thru it.  Don’t get me wrong, do I think there’s still a gender gap in public accounting industry? Yes, more so than I would have expected 15 years after I started my career. No way should we represent more than 50% of new hires, but only 20% in the partner ranks. But I hope the younger generation of women accountants can use these tips that I wish I’d known starting off…and Kick that Door Wide Open!

Welcome to iAccountOn

iAccountOn Blog Image

After years of  knowing that we accounting and finance professionals should have a unique online marketplace to showcase ourselves and our talents , iAccountOn has finally launched for accounting, finance and tax professionals to connect with businesses and indivduals looking for high-quality specialized services.

 

We want this blog to be an open forum for our advisors and our businesses/individuals to find and share knowledge.  We also look forward to this blog providing our members with opportunities to post insights, market their businesses, and post events.

 

We look forward to an exciting journey together!!

 

Joni Johnson-Powe, JD, CPA
Founder