The CPA Desk

A Thought Leader Production by PKFTexas

Turn Next Year’s Federal Income Tax Refund into Extra Cash Now

Each year, millions of taxpayers claim an income tax refund. Receiving a payment from the IRS for a few thousand dollars can be a pleasant influx of extra cash. But it means you were essentially giving the government an interest-free loan for close to a year, which isn’t the best use of your money.

Fortunately, there is a way to begin collecting your 2017 refund now: You can review the amounts you’re having withheld and/or what estimated tax payments you’re making, and adjust them to keep extra cash in your pocket during the year.

Reasons to modify amounts:

It’s particularly important to check your withholding and/or estimated tax payments if:

  • You received an especially large 2016 refund,
  • You’ve gotten married or divorced or added a dependent,
  • You’ve purchased a home,
  • You’ve started or lost a job, or
  • Your investment income has changed significantly.

Even if you haven’t encountered any major life changes during the past year, changes in the tax law may affect withholding levels, making it worthwhile to double-check your withholding or estimated tax payments.

Making a change:

You can modify your withholding at any time during the year, or even several times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. For estimated tax payments, you can make adjustments each time quarterly payments are due.

While reducing withholdings or estimated tax payments will, indeed, put more money in your pocket now, you also need to be careful that you don’t reduce them too much. If you don’t pay enough tax during the year, you could end up owing interest and penalties when you file your return, even if you pay your outstanding tax liability by the April 2018 deadline.

If you’d like help determining what your withholding or estimated tax payments should be for the rest of the year, please contact us.

Rob Ferguson Discusses Passion for Helping Family Businesses

Russ:  This is PKF Texas Entrepreneur’s Playbook. I’m Russ Capper, this week’s guest host, and I’m coming to you today from the Gulf Coast Regional Family Forum and my guest is Rob Ferguson of Ferguson Interests, LLC.  Rob is a business advisor for family and private equity owned businesses.  Rob welcome to the Playbook.

Rob:  Thank you, nice to be here Russ.

Continue Reading

Experience the Friendship Factor at the Trinity University Women and Girls’ Leadership Summit

You’ve seen them in Houston, now experience the Friendship Factor, presented by Karen Love and Leisa Holland-Nelson, in San Antonio for the first time. In this evergreen conversation, these best friends share real-life examples of how they built their networks to grow their companies and expand their personal brands.

The second annual Trinity University Women and Girls’ Leadership Summit happens this Friday, April 28 and Saturday, April 29. It is a truly exciting opportunity to connect with and empower talented women and girls in a unique setting and to engage with superstar women leaders. For more information, please visit www.trinitywomensleadership.com or view the event flyer below:

Summit17-SaveTheDate-Final

Dos and Don’ts of Not-for-Profit Program Development

Is your not-for-profit association offering enough (or the right) programs to keep members active and engaged? Program development requires time, effort and money. So when you commit to developing a new one, you want to get the biggest bang for your buck. Here are some simple dos and don’ts:

  • DO consult your members. Through focus groups, surveys and informal conversations, gather information about issues your membership is facing. Note gaps between your current program offerings and members’ wants and needs.
  • DON’T support foregone conclusions. Spinning member feedback to match what you think your organization needs is a big mistake.
  • DO target specific outcomes. Identify the intended outcomes of proposed program development and attach to them strategic, realistic and timely goals.
  • DON’T lose focus. Consider only program ideas that will directly contribute to your association’s mission, vision and overall goals.
  • DO protect your creation. If your new program is unique, protect it with appropriate trademarks, service marks, copyrights, and patents.
  • DON’T go it alone. Whenever possible, share expenses and resources by partnering with other organizations. Alliances can lend depth, breadth, and impact to programs.
  • DO keep your promises. Deliver new programs on time and on target for the greatest impact.
  • DON’T overspend. Come up with a reasonable budget and stick to it. Make adjustments only when absolutely necessary.
  • DO start small. Launch new programs slowly and thoughtfully — and then build on initial success.
  • DON’T worry about perfection. Take chances and try new strategies. The best ideas often are those most different from what you’ve done in the past.

For more tips on making the most of your association’s budget, please contact us.

Implications of a C Corporation’s Buy-Sell Agreement

Private companies with more than one owner should have a buy-sell agreement to spell out how ownership shares will change hands should an owner depart. For businesses structured as C corporations, the agreements also have significant tax implications that are important to understand.

Buy-sell basics

A buy-sell agreement sets up parameters for the transfer of ownership interests following stated “triggering events,” such as an owner’s death or long-term disability, loss of license or other legal incapacitation, retirement, bankruptcy, or divorce. The agreement typically will also specify how the purchase price for the departing owner’s shares will be determined, such as by stating the valuation method to be used.

Another key issue a buy-sell agreement addresses is funding. In many cases, business owners don’t have the cash readily available to buy out a departing owner. So insurance is commonly used to fund these agreements. And this is where different types of agreements — which can lead to tax issues for C corporations — come into play.

Under a cross-purchase agreement, each owner buys life or disability insurance (or both) that covers the other owners, and the owners use the proceeds to purchase the departing owner’s shares. Under a redemption agreement, the company buys the insurance and, when an owner exits the business, buys his or her shares.

Sometimes a hybrid agreement is used that combines aspects of both approaches. It may stipulate that the company gets the first opportunity to redeem ownership shares and that, if the company is unable to buy the shares, the remaining owners are then responsible for doing so. Alternatively, the owners may have the first opportunity to buy the shares.

C corp. tax consequences

A C corp. with a redemption agreement funded by life insurance can face adverse tax consequences. First, receipt of insurance proceeds could trigger the corporate alternative minimum tax.

Second, the value of the remaining owners’ shares will probably rise without increasing their basis. This, in turn, could drive up their tax liability if they later sell their shares.

Heightened liability for the corporate alternative minimum tax is generally unavoidable under these circumstances. But you may be able to manage the second problem by revising your buy-sell as a cross-purchase agreement. Under this approach, owners will buy additional shares themselves — increasing their basis.

Naturally, there are downsides. If owners are required to buy a departing owner’s shares, but the company redeems the shares instead, the IRS may characterize the purchase as a taxable dividend. Your business may be able to mitigate this risk by crafting a hybrid agreement that names the corporation as a party to the transaction and allows the remaining owners to buy back the shares without requiring them to do so.

For more information on the tax ramifications of buy-sell agreements, contact us. And if your business doesn’t have a buy-sell in place yet, we can help you figure out which type of funding method will best meet your needs while minimizing any negative tax consequences.

Crystal & Company Looks to a Bright Future Through Client Care and Relationship Building

Russ:  This is PKF Texas Entrepreneur’s Playbook, I’m Russ Capper, this week’s guest host and I’m here at the Gulf Coast Regional Family Forum and my guest is Jonathan Crystal with Crystal & Company; Jonathan, welcome to the Playbook.

Jonathan:  Thank you, Russ, for having me, I appreciate it.

Continue Reading

Expand Your Not-for-Profit’s Reach with Social Listening

Many not-for-profits are adopting a marketing tactic called “social listening” that for-profit companies have used successfully in the past. Social listening costs relatively little and can give you valuable insight into issues that resonate with your supporters. This allows you to better tailor your communications.

Identify and engage

Social listening starts with monitoring social media sites such as Facebook, Twitter, LinkedIn and Instagram for mentions of your organization and related keywords. But to take full advantage of this strategy, you also must identify and engage with topics that interest your supporters and interact with “influencers,” who can extend your message by sharing it with their audiences.

Influencers don’t have to be celebrities with millions of followers. Connecting with a group of influencers who each have only several hundred followers can expand your reach exponentially. For example, a conservation organization might follow and interact with a popular rock climber or other outdoor enthusiasts to reach that person’s followers.

Listen in

To use social listening, develop a list of key terms related to your organization and its mission, programs, and campaigns. You’ll want to treat this as a “living document,” updating it as you launch new initiatives. Then “listen” for these terms on social media. Several free online tools are available to perform this monitoring, including Google Alerts, Twazzup, and Social Mention.

When your supporters or influencers use the terms, you can send them a targeted email with a call to action, such as a petition, donation solicitation or event announcement. Your call to action could be as simple as asking them to share your content.

You can also use trending hashtags (a keyword or phrase that’s currently popular on social media, such as #BostonMarathon or #TaxDay) to keep your communications relevant and leverage current events on a real-time basis. You might be able to find creative ways to join the conversation while promoting your organization or campaign.

Be savvy

Savvy nonprofits know they need to embrace and make the most of their social media profiles. You can cost-effectively improve your engagement efforts with social listening. Contact us for more information on growing your supporter base.

Tax Deadlines to be Aware of for the Remainder of 2017

April 15 (April 18 this year) has passed, but that doesn’t mean you should put your taxes to the back of your mind until 2018. To help make sure you don’t miss any important 2017 deadlines, here’s a look at when some key tax-related forms, payments, and other actions are due. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you.

Please review the calendar and contact us if you have any questions about the deadlines or would like assistance in meeting them.

June 15

  • File a 2016 individual income tax return (Form 1040) or file for a four-month extension (Form 4868), and pay any tax and interest due, if you live outside the United States.
  • Pay the second installment of 2017 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

September 15

  • Pay the third installment of 2017 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

October 2

  • If you’re the trustee of a trust or the executor of an estate, file an income tax return for the 2016 calendar year (Form 1041) and pay any tax, interest, and penalties due, if an automatic five-and-a-half month extension was filed.

October 16

  • File a 2016 income tax return (Form 1040, Form 1040A or Form 1040EZ) and pay any tax, interest, and penalties due, if an automatic six-month extension was filed (or if an automatic four-month extension was filed by a taxpayer living outside the United States).
  • Make contributions for 2016 to certain retirement plans or establish a SEP for 2016, if an automatic six-month extension was filed.
  • File a 2016 gift tax return (Form 709) and pay any tax, interest, and penalties due, if an automatic six-month extension was filed.

December 31

  • Make 2017 contributions to certain employer-sponsored retirement plans.
  • Make 2017 annual exclusion gifts (up to $14,000 per recipient).
  • Incur various expenses that can be claimed as itemized deductions on your 2017 tax return. Examples include charitable donations, medical expenses, property tax payments and expenses eligible for the miscellaneous itemized deduction.

Three Tax Tips to Follow When Buying a Business

Jen: This is the PKF Texas Entrepreneur’s Playbook. 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.  Welcome to the Playbook, Martin.

Martin: Thank you very much, Jen. It’s a pleasure to be here.

Jen: So, when we talk transaction advisory services I know there are some considerations, tax considerations to make when you’re advising, you know, a business owner on potentially buying another business. What types of things do you tell them?

Martin: Jen, I would say first and foremost it is critically important for any buyer to really understand the form of the transaction, the substance of the transaction, and the structure of the transaction that they are proposing to undertake.  As you might imagine, when you’re thinking about that, you have the legal form and then you also have how the transaction is going to be treated for tax purposes, and they are not always the same. So, it’s really important for buyers to understand where those two roads diverge because all of the future decisions after that really are going to be driven by that distinction.

Jen: And so, what else do you tend to tell people when you’re advising them on things to know about the buy side?

Martin: I would say another important factor is for buyers to really be able to manage and limit their exposure, manage their risk and limit their exposure when we’re talking about the historical tax liabilities of the business that they’re proposing to buy.

Jen: So, what does that mean?

Martin: What that really means is that there is a concept that’s referred to a successor liability, and when a buyer buys another business, depending on how they buy it, they may be assuming any historical tax liabilities that that business may or may not have. If there’s unpaid taxes, in other words, the buyer may step into the shoes of that former owner and then become liable for those taxes.

Jen: Ok, so that’s when they would call us so that we can take a look at the contracts, take a look and give them the proper advice?

Martin: Exactly. That is really going to unfold through a process of tax due diligence. You’re going to have a purchase and sale agreement, you’re going to want to make sure that you have the maximum protection that you can have in that agreement, yes.

Jen: Perfect. Well, it sounds like we need to get you back to talk a little bit more to talk about what buyers need to know.  Can we get you back?

Martin: Absolutely.

Jen: Perfect. To learn more about how we can assist you with potential transactions, visit pkftexas.com/transactionadivosryservices/. And this has been another Thought Leader Production brought to you by the PKF Texas Entrepreneur’s Playbook.

Five Accounting Mistakes Not-for-Profits Should Avoid

To err is human, but your not-for-profit’s supporters, not to mention the IRS, may be less than forgiving if errors affect your financial books. Fortunately, if you attend to details, you can avoid these common accounting mistakes: 

1. Failing to follow accounting procedures. Even the smallest nonprofit should set formal, documented and detailed procedures for managing financial and bookkeeping chores. Your process should include all aspects of managing your organization’s money — how to accept, document and deposit donations, pay bills, and handle every step in between. Put these procedures in writing and make sure you follow each step, every time.

2. Making data entry errors. It’s easy to wreak havoc on your accounts by entering a $500 payment as $50 or transposing numbers. So check and double-check every entry every time. Reconcile accounts against bank statements immediately, and don’t overlook even the smallest discrepancy.

3. Working without a budget. You can’t control overspending or invest a surplus if you don’t know they exist. Budgets don’t have to be intricate to be useful; just look at a few months’ worth of bills and deposits to create a starting point. Then refine your plan as you go along. Include a “miscellaneous” category, but don’t allow it to account for the majority of your expenses.

4. Playing loose with petty cash. Small expenditures like picking up a few office supplies or buying a pizza for volunteers is much easier to do with a petty cash fund. Handle the cash with care, though. Lock it up, authorize only a few people to make disbursements and require receipts for all expenditures.

5. Neglecting to properly categorize. All money coming in and going out of your organization must be assigned to the appropriate category. This is particularly important if you accept donations earmarked for certain programs. To be successful at this, you need to properly set up the initial chart of accounts and define how items should be assigned.

Contact our not-for-profit team with any nonprofit financial questions or if you need help devising organization-wide policies.