The CPA Desk

A Thought Leader Production by PKFTexas

Boost Your 401(k) Contribution Rate Before 2017 Ends

One important step to both reducing taxes and saving for retirement is to contribute to a tax-advantaged retirement plan. If your employer offers a 401(k) plan, contributing to that is likely your best first step.

If you’re not already contributing the maximum allowed, consider increasing your contribution rate between now and year-end. Because of tax-deferred compounding (tax-free in the case of Roth accounts), boosting contributions sooner rather than later can have a significant impact on the size of your nest egg at retirement.

Traditional 401(k)

A traditional 401(k) offers many benefits:

  • Contributions are pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure to the 3.8% net investment income tax.
  • Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.
  • Your employer may match some or all of your contributions pretax.

For 2017, you can contribute up to $18,000. So if your current contribution rate will leave you short of the limit, try to increase your contribution rate through the end of the year to get as close to that limit as you can afford. Keep in mind that your paycheck will be reduced by less than the dollar amount of the contribution because the contributions are pre-tax so income tax isn’t withheld.

If you’ll be age 50 or older by December 31, you can also make “catch-up” contributions (up to $6,000 for 2017). So if you didn’t contribute much when you were younger, this may allow you to partially make up for lost time. Even if you did make significant contributions before age 50, catch-up contributions can still be beneficial, allowing you to further leverage the power of tax-deferred compounding.

Roth 401(k)

Employers can include a Roth option in their 401(k) plans. If your plan offers this, you can designate some or all of your contribution as Roth contributions. While such contributions don’t reduce your current MAGI, qualified distributions will be tax-free.

Roth 401(k) contributions may be especially beneficial for higher-income earners because they don’t have the option to contribute to a Roth IRA. On the other hand, if you expect your tax rate to be lower in retirement, you may be better off sticking with traditional 401(k) contributions.

Finally, keep in mind that any employer matches to Roth 401(k) contributions will be pretax and go into your traditional 401(k) account.

How much and which type

Have questions about how much to contribute or the best mix between traditional and Roth contributions? Contact us. We’d be pleased to discuss the tax and retirement-saving considerations with you.

Importance of Vendor Compliance in a Joint Venture

Russ: This is the PKF Texas Entrepreneur’s Playbook. I’m Russ Capper, this week’s guest host, and I’m here once again with Brian Baumler, a Senior Vice President with Joint Venture Strategic Advisors and an Audit Director with PKF Texas. Brian, welcome back to the Playbook.

Brian: Thank you very much, Russ. How are you doing today?

Russ: Doing great. So, when it comes to strategic advisor services, we talked about audit services, management services, what else is there?

Brian: Well, another facet of the business, which kind of makes sense when you have joint ventures, often times you’re bringing a number of vendors together and help to provide that service and to manage that joint venture.  Another subset of the service we provide is actually vendor compliance. Vendor compliance is very important because a lot of the components that cannot be done by the operator of those joint ventures have to be farmed out to vendors.

Russ: These are vendors that were brought in by both parties to the joint venture, right?

Brian: They can be.

Russ: And sometimes Party A brought theirs in but Party B doesn’t know about their vendor relationships and might need to know about them?

Brian: Well, a lot of times when the joint ventures come together everybody kind of jointly agrees on the moving components of those arrangements, and in some cases, that may be true but for the most part I think everybody agrees to those vendors and of course the terms of the arrangements that are actually coming together into those projects.

Russ: Do you all have an easy way to review all of that information and then come back and tell everyone what you have?

Brian: That’s a great question. We actually have a software that we use that has, it’s a database and it actually provides a lot of analytics and it looks for anomalies within the core terms of arrangements, looking for errors. It could be errors in billing. It’s also intended to be used to measure overbilling when things become outside the boundaries of AFE, which is the Authorization For Expenditure.

Russ: Really interesting. Ok, once again, I appreciate your kind of filling out the picture for joint ventures.

Brian: Thank you very much.

Russ: For more about joint ventures services visit This has been another Thought Leader Production, brought to you by PKF Texas Entrepreneur’s Playbook.

Getting a Company Market Ready

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m here with Chris Hatten, one of our audit directors on our Transaction Advisory Services team.  He’s also a Certified Mergers and Acquisitions Advisor.  Welcome back to the Playbook Chris.

Chris:  Appreciate it, Jen.

Jen:  Chris we’ve talked in a couple other videos about transaction advisory services, due diligence, there’s a lot of prep that goes into that; what does it mean to get a company market ready?

Chris:  Well I liken it to three main areas, one being the mental aspect, the administrative aspect, as well as the transactional aspect.  When I say mental a lot of times we have clients that are closely held businesses or still within the same family and for them to get to the point where they’re ready to sell the business there’s a lot of hurdles that they actually have to overcome.  I can’t relate to anything that they have to go through because as much as I like my business I haven’t been invested in it for 30+ years or sold it off to children or grandchildren at times.

And then from the administrative standpoint there’s a lot that goes into it and sometimes that’s an impediment to getting a deal done because you have to get your financial statement set up, you have to go and get all those old, historical records and start documenting processes and procedures that the company’s been doing for sometimes 20 or 30 years that they’ve never actually gone through and documented before.  And then from the transaction process, a lot of it is just the education.  There are multiple exit channels that they can go through whether it’s selling to private equity, a strategic buyer or sometimes it’s transacting within the family itself or to management.

Jen:  that sounds really interesting.  How long does a transaction usually take?  I’m sure there’s an ideal timeline for a transaction and I’m sure there’s a very hurried timeline; what’s kind of the average?

Chris:  Usually they enter some type of period of exclusivity so it’s within 60 days and then there’s usually some extensions that go in there, so ideally by the time they actually get the LOI executed it’s probably 60 to 90 days before it gets closed.

Jen:  And on the transaction side when should they start getting somebody like PKF Texas involved; a year, 2 years, 6 months?

Chris:  Obviously the more time we have the more we can do with them to transact at a higher value hopefully, so some would say 2 years because there’s a lot of levers that we can throw between now and then.  But even if it’s just 60 days in advance to help them get their books cleaned up and help get their records pulled together that will help.

Jen:  Perfect.  Well, that’s great, we’ll get you back to talk a little bit more about it.

Chris:  Definitely.

Jen:  Thanks.  To learn more about how we can assist you with potential transactions visit  This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook.  Tune in next week for another chapter.

Tax Due Diligence Explained

Jen:  This is the PKF Texas Entrepreneur’s Handbook.  I’m Jen Lemanski, this week’s guest host, and I’m here with Martin Euson, one of our tax directors on our Transaction Advisory Services Team.  Martin welcome back to the Playbook.

Martin:  Thank you, Jen, I’m happy to be here.

Jen:  So in a previous episode we talked about due diligence both from a tax and from an audit perspective and we only got very, very high level.  Can you drill down a little more in what tax due diligence is?

Martin:  We have clients come to us who are interested in making a business acquisition let’s say, and whether that involves buying the assets of another company or buying the stock outright of another company, tax due diligence is the process whereby we go in and do an examination or an investigation of that company looking at their historical tax filings and looking at their historical tax records to see if there’s any type of exposure in there or any type of risks that the buyer would assume in that type of acquisition.

In other words, let’s say that I’m interested in going out and buying a company.  We go through the process, I buy the company, I pay X amount for the company and then I find out a year later that this company owes $1 million to the IRS in back taxes.  As you can imagine, that’s a big problem.  So those are the types of things that tax due diligence helps uncover up front.  That kind of information, that critical information, goes into the decision-making process of whether you want to buy the company at all.

It certainly goes into the decision process of how much you’re willing to pay for the company.  So tax due diligence is about going through a process that uncovers that type of information to the extent that it’s there.  If it’s not there that’s fine, you have less to worry about.  If it’s there you want to know about it and you want to use that critical information to your advantage to be what I call an advantaged buyer versus going into it with your eyes closed.

Jen:  So at what point should you guys be brought in to start doing that due diligence?  Is it 6 months out, a year out?

Martin:  I think as soon as a potential buyer has their eye on a company, whether they’re in the process of submitting a letter of intent to a company, obviously the earlier the better.  The more time we have, the more advanced notice we have the more work we can do and the more effective we can be.

Jen:  Perfect.  Well, we’ll get you back to talk about some more transaction related information, sound good?

Martin:  Thank you, happy to be here.

Jen:  Perfect.  To learn more about how we can assist you with potential transactions visit  This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook.  Tune in next week for another chapter.

Harvey Relief and Donation Links

In the wake of Hurricane Harvey’s destruction in Houston and surrounding southeast Texas areas, we’ve had several nationwide clients and friends of the firm reach out and ask how they can assist. We are overwhelmed and humbled by their willingness to help our community. We want to suggest a few notable and trustworthy resources for Harvey relief, please consider donating to them using the links below.

Harvey Relief Fund –

Houston Food Bank –

Houston SPCA –

Thank you,

PKF Texas Team

Tips for Making “Tax Smart” Donations During Disaster Events

The generosity of spirit is never more prevalent than during a disaster event. The Texas Gulf Coast has experienced widespread devastation as a result of Hurricane Harvey. In its aftermath, there are now hundreds of relief funds being set up and promoted to aid those impacted by the storm.

You clearly want to help, so how do you ensure that your generous donation will not only benefit those in need but also be tax deductible?  Here are a few things to consider to ensure you make tax deductible donations.

  • Verify tax exempt status: ensure your recipient organizations have been granted 501(c )(3) tax exempt status by the Internal Revenue Service (IRS). These organizations have been established for charitable purposes and donations to them are tax deductible as allowed by law. You can confirm an organization’s exempt status by conducting a search on the IRS EO Select Check
  • Get a receipt: Organizations eligible to receive tax deductible donations are required to provide a receipt to donors for any gift of $250 or more. The receipt acknowledges the donation amount, date of donation, the organization’s tax exempt status and tax ID number. You should obtain and keep the receipt as additional support of your tax-deductible donation.
  • Be wary of crowdfunding: Crowdfunding sites such as GoFundMe or YouCaring are popular ways to raise money for various types of causes on social media. Since crowdfunding websites are open for use by anyone, many of the funding pages are not established by qualifying charitable organizations. Before giving through such sites, do your homework to ensure that your support is going to a charitable organization with qualifying tax-exempt status.
  • Appreciated securities: Consider donating appreciated stocks, bonds or mutual funds to a charity or donor advised fund. When you donate appreciated securities you are able to claim the fair market value of the security as a charitable contribution deduction. This also avoids capital gains tax since the appreciated security is being donated instead of sold.

When a qualifying tax deduction is expected, donors should exercise care when making gifts of cash or property to ensure the gift benefits those truly in need but also achieves the expected tax reduction impact.

As the Texas Gulf Coast moves forward in its recovery in the aftermath of Hurricane Harvey, we recommend donors keep these tips in mind.

Hurricane Harvey Recovery Information and Updates

The PKF Texas team is safe and accounted for and we appreciate those who checked in on us! We are closing our office for the remainder of the week and will plan to reopen after the Labor Day holiday weekend while we allow our team members to reconnect as they are able due to power outages and damages.

Here you will find important tax/accounting updates surrounding Hurricane Harvey. Please continue to check back. As we receive more information, we will update this page. Last updated: August 31, 2017.

IRS Gives Tax Relief to Victims of Hurricane Harvey – The IRS has issued IR-2017-135 on August 28, 2017, stating taxpayers and tax preparers affected by Hurricane Harvey will have until January 31, 2018, to file certain individual and business tax returns and make certain tax payments. This includes individual and business taxpayers with filing extensions until September 15, 2017, or October 16, 2017, as applicable. Posted on August 28, 2017. For more information or if you have questions, please contact Martin Euson, Tax Director, at

Tax Relief for Victims of Hurricane Harvey in Texas – In addition to the counties listed in the above link, the IRS has added 11 Texas counties to the list of affected counties where businesses can receive tax relief. Posted on August 30, 2017. For more information or if you have questions, please contact Martin Euson, Tax Director, at

Retirement Plans Can Make Loans, Hardship Distributions to Victims of Hurricane Harvey – The Internal Revenue Service today announced that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Harvey and members of their families. Posted on August 30, 2017. For more information or if you have questions, please contact Shelly Hayes, Audit Senior Manager, at

The Potential Tax Pitfalls of Donating Real Estate

Charitable giving allows you to help an organization you care about and, in most cases, enjoy a valuable income tax deduction. If you’re considering a large gift, a noncash donation such as appreciated real estate can provide additional benefits. For example, if you’ve held the property for more than one year, you generally will be able to deduct its full fair market value and avoid any capital gains tax you’d owe if you sold the property. There are, however, potential tax pitfalls you must watch out for:

Donation to a private foundation. While real estate donations to a public charity generally can be deducted at the property’s fair market value, your deduction for such a donation to a private foundation is limited to the lower of fair market value or your cost basis in the property.

Property subject to a mortgage. In this case, you may recognize taxable income for all or a portion of the loan’s value. And charities might not accept mortgaged property because it may trigger unrelated business income tax. For these reasons, it’s a good idea to pay off the mortgage before you donate the property or ask the lender to accept another property as collateral for the loan.

Failure to properly substantiate your donation. This can result in loss of the deduction and overvaluation penalties. Generally, real estate donations require a qualified appraisal. You’ll also need to complete Form 8283, “Noncash Charitable Contributions,” have your appraiser sign it and file it with your federal tax return. If the property is valued at more than $500,000, you’ll generally need to include the appraisal report as well.

Sale of the property within three years. The charity must report the sale to the IRS, and if the price is substantially less than the amount you claimed as a tax deduction, the IRS may challenge your deduction. To avoid this result, be sure your initial appraisal is accurate and well documented.

Sale of the property to someone related to you. If the charity sells the property you donated to your relative (or to someone with whom you negotiated a potential sale), the IRS may argue that the sale was prearranged and tax you on any capital gain.

If you’re considering a real estate donation, plan carefully and contact us for help ensuring that you avoid these pitfalls.

Three Audit Issues to Understand When Preparing Your Nonprofit’s Financial Statements

Annual financial statements that have been audited by a professional auditor can help assure funders and lenders that your not-for-profit is financially sound. Here are three critical audit issues to understand when preparing financial statements:

1. The auditor’s role

Auditors are responsible for expressing an opinion on financial statements. Beyond that, they’re responsible for obtaining reasonable assurance that financial statements are free of material misstatements — be it from error or fraud.

Your nonprofit and its advisors, on the other hand, are responsible for developing estimates adopting sound accounting policies and establishing, maintaining and monitoring internal controls. Although your auditor may make suggestions about these items, it isn’t his or her responsibility to institute them or to ensure they’re working properly. While management is strictly responsible for decision making, your auditor is required to evaluate whether internal controls, accounting policies, and estimates are adequate to prevent or detect errors or fraud that could result in material misstatements of the financial statements.

2. The board’s role

Sometimes a nonprofit board of directors’ role is overlooked in annual financial statement preparation, and that’s a mistake. Keep in mind that your board generally has a strategic and oversight role in the process, which is part of its overall fiduciary duty. Your board isn’t responsible for completing the job. However, board members can be a good resource for certain technical matters, depending on their professional background.

3. Financial analysis

Annual financial statements are designed to help you manage your organization. Financial statement metrics — such as debt ratios, program vs. administrative expense ratios and restricted vs. unrestricted resources — can be calculated to indicate how your organization is doing.

One of the best ways to see the big financial picture is to compare your budget, year-end internally generated financial statements and statements generated during the annual audit. This task can be completed more easily if the format of your audited statements is similar to that of your internal financial statements and budgets.

When reviewing internal vs. audited statements, look for large differences in individual accounts resulting from audit correcting adjustments. These can indicate an internal accounting deficiency. You’ll also be able to spot any significant discrepancies between what was budgeted for the year and the actual outcome.

Audited results demonstrate professionalism and provide assurance that your results are free from errors and fraud. For help preparing financial statements, contact us.

Different Components of a Joint Venture

Russ:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Russ Capper, this week’s guest host, and I’m here with Brian Baumler, Senior Vice President with Joint Ventures Strategic Advisors and an audit director with PKF Texas.  Welcome back to the Playbook Brian.

Brian:  It’s really great to be here.

Russ:  We’ve talked before about the services of your strategic advisor practice.  You mostly focus on audits which seem to be very important.

Brian:  That’s correct.

Russ:  Are there things you do outside of audits.

Brian:  Another piece of business that we do is actually joint venture management services.  And those are actually involved where we actually are representing management and providing some insights into the joint venture projects that they’re doing.  Certain components of those represent things like reviewing of the various vendor contracts that are in place; there are things like instruction contracts, there are gathering arrangements, there are transportation arrangements.  There are – especially in oil and gas – farm out arrangements, there are farm in arrangements.  There’s the joint venture operating agreements themselves.  So we just make sure that the company is properly representing themselves to their actual non-operating interest parties.

Russ:  Well I would assume the management services have to take place right up on the front end of a deal coming together, us that right?

Brian:  Yeah, absolutely.  Those types of things really need to be put in place on the front end of those joint venture arrangements just to make sure they’re not tripping up along the way while they’re providing the various operator services providing to the non operating partners.

Russ:  And when you’re talking about reviewing agreements and contracts are you talking about encouraging both sides to review the other side’s or are you talking about actually PKF reviewing them?  Or both?

Brian:  Well we represent management on behalf of the joint venture and we just make sure that the spirit of those agreements are being maintained for the benefits of both parties actually.

Russ:  Okay, I can imagine that’s pretty important because everybody doesn’t have enough time to have dotted all the I’s and crossed all the t’s.

Brian:  Well that too and I think what’s even more important is just because we bring so much experience to the table we have the benefits of seeing a lot of different arrangements and opportunities where things can go awry in those processes.

Russ:  Well Brian I really appreciate you sharing that perspective once again with us.

Brian:  Thank you very much Russ.

Russ:  You bet.  For more about the joint venture services visit  This had been another Thought Leader production brought to you by PKF Texas Entrepreneur’s Playbook.