How Being Politically Active Can Help Your Business

I went to a small liberal arts school in college and, as a result, I have a lot of friends that are very interested in politics.  When I scroll through my Twitter feed or my Facebook timeline, there is no shortage of opinions on everything from taxes to immigration to funding for the local library.  I have never been heavily active in politics, meaning I have done the bare minimum in keeping myself up to date from whatever Matt Lauer says in the first 10 minutes of the Today show in the mornings.  But, in my career both as a CPA advising clients and as a small business owner, I have found myself paying more attention not to what elected officials are saying, but to how new laws could affect businesses, both mine and my client's.  

I heard a speaker a few weeks ago tell a story about a state legislator here in Arkansas.  The legislator said that all it took was 10 people from his district to voice an opinion on a matter to cause him to vote one way or another.  Legislators are meant to be guided by the people that they represent, which is the exact reason why business owners should stay on top of legislative issues, both at the Federal level and in their local communities.  

At the Federal level, the biggest issue I have is the delay in extending tax law.  Because I serve many small business clients, I am a huge proponent of Section 179 and Bonus depreciation.  In 2014, they passed this extender in late December.  What was the business supposed to do?  I'm not a huge fan of saying "I don't know" to a client (unless I really don't know), but last October and November I had to say that a lot when clients asked if they should buy their new truck/x-ray machine/tractor.  I could not advise them one way or another because I did not know what the depreciation benefit would be.  

States also have a tricky way of garnering more tax revenue through a well known method called sales tax.  Here's a good example: the sales tax rate in Little Rock is a cumulative 9% (6.5% state, 1.5% city, 1% county).  The sales tax in Bryant, which is a whopping 10 miles down the road is 9.5% (6.5% state, 3% city, 0% county).  That means that buying a product in Bryant will cost 0.5% more than buying a product in Little Rock.  If you're a business owner trying to decide where to open your next store, isn't Little Rock the more attractive option?  

As a business owner, it is important to stay up to date on what your Federal and local legislators are up to.  A sudden change in Federal tax law or an incremental increase in a sales tax rate could have a big impact on the business's bottom line.  Keep up with changes that are in the works and write to your legislators.  They have a responsibility to vote with the voice of the people, so let your voice be heard.  

2015 filing season in review

Now that I have had a day to recharge after the April 15 deadline, it's always fun to look back at the last few months and analyze what went well and what didn't.  Although a lot of this will be more relatable for other tax practitioners, it does give an insight into the variety of issues CPAs deal with during the course of tax season.  

Health insurance

"I know I've never asked you this before, but you do have health insurance, right?"  I got so tired of that question.  But, it had to be asked to be in compliance with the new Affordable Care Act minimum required coverage rules.  This was a challenge because you not only had to make sure the coverage met minimum requirements, but if they received a 1095 then there were additional forms to complete.  Then, you had to hope the 1095 they received wasn't incorrect the first time.  

Late 1099's

I gained some respect for the big brokerage houses this year because they started printing "THIS IS NOT A FINAL 1099" on the 1099 they sent out at the end of February.  They also tried to identify the transactions that were not final, making it easier to get the return completed when the final 1099 was received.  Now, I'm not saying that made it less stressful to get an amended 1099 on April 14, but at least you could anticipate a change.  

The IRS

I'm not going to be too critical of the IRS because it is a busy time of year for them and they are, reportedly, heavily understaffed and underfunded.  But, it is very difficult to discuss anything with the IRS on the telephone.  Wait times are long and agents spend a lot of time encouraging the taxpayer to go to IRS.gov.  And, I think the IRS has a real problem on their hand with the identity theft issue.  The increase in electronic filing has created an opportunity for computer savvy criminals to get a hold of taxpayer money.  I hope the 6 digit pin numbers become mandatory in the near future.  

Financial aid

Thank you, financial aid forms, for asking of an estimate of the applicant's taxable income due by January 31.  This is a double-edged sword because it is difficult to meet those early deadlines, however the financial aid forms encourage clients to get their organized tax information in quickly, expediting the completion of the return.  

A Vote For the Tattletale

I recently read this story about a whistleblower that will be paid $30 million in connection with information they delivered about an ongoing fraud.  $30,000,000.  In comparison, Peyton Manning, QB of the Denver Broncos, will receive $15 million in guaranteed salary for 2014.  Is it fair that someone, a bonafide tattletale, should be compensated more for one instance of disclosure than one of the greatest NFL quarterbacks of all time?  (I'm not really a Broncos fan, but Peyton Manning is in the process of leading my fantasy football team to a third successful season in a row, so I'm his #1 fan right now).

Most enforcement agencies have whistleblower programs, like the IRS and SEC (Securities and Exchange Commission).  They all work in similar manners - if a civilian gives the agency information that is constructive enough to lead to the uncovering of a significant fraud, the whistleblower can be entitled to compensation for their efforts.  

This does not mean if you call the IRS and tell them you think your neighbor is cheating on their taxes, and they audit them and find $1,000 of unreported income, that the IRS will come to your door and hand you a fee.  The whistleblower programs are directed a much larger, nationwide and international frauds.    

For $30 million, is it worth being known as a tattletale?  Having been involved with financial statement audits for almost ten years, I seem to think that whistleblower programs are essential in our communities and especially in governments and large businesses.  During a financial statement audit, auditors perform a variety of procedures to detect material misstatements in the organization's financials.  Management takes responsibility for putting in place controls and protocols to prevent and/or detect fraud.  

In reality, rank and file employees take shortcuts and cut corners on a daily basis in order to get their job done.  And, if there is collusion between 2 or more employees with access to key financial components, it will be hard to detect by any auditor or semi-present manager.  However it might not be hard to detect by the shy, quiet employee in the corner that sees what's going on but is dismissed as a threat because of their lack of personality.  In the end, that employee has more potential to stop the fraud than anyone else involved.  

 $30 million is a lot of money, and is being rewarded to someone that helped uncover a mutli-billion dollar fraud.  It's a tough pill to swallow that a tattletale is being rewarded in that manner.  But whistelblowers are a key component of all organizations' fraud prevention and detection program.  

2013 year end planning

Over the next few weeks, this publication will address several topics related to year end tax planning. With Thanksgiving coming next week, it is time for business and individual taxpayers to get their financial houses in order for the end of the year. Topics to be addressed include the following:

• New tax rates for 2013, including new capital gains rates and the Medicare surtax
• Alternative minimum tax
• Incentive stock options
• Capital gains harvesting
• Retirement contributions and other year end expenditures
• Depreciation allowances for businesses
• Considerations for cash vs. accrual basis taxpayers

If you have other topics you would like see addressed, please comment on this post or contact me below.

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Corporate minutes scam

Over the past few weeks, several businesses in Arkansas have received solicitations in the mail requesting that the business pay a service to keep them in compliance with an "Annual Minutes Requirement Statement".  On November 5, Attorney General Dustin McDaniel released on his website information regarding the solicitations, confirming that it was a scam.  After a simple Google search, this same scam appears to be present in several states around the country. Arkansas law does require corporations to maintain minutes of the meetings of owners and board of directors.  But, as noted in the Attorney General's release, these minutes are not required to be filed with the State.

Best practice is for owners and directors to meet at least annually in order to satisfy their obligations as those charged with governance of the entity.  Topics to cover at such meetings can include (but are not limited to):

• Elect corporate officers
• Review and analyze financial results
• Approve corporate borrowing or debt financing
• Approve incentive compensation plans
• Review employer-sponsored retirement plans and performance
• Retain independent auditors, and approve audit reports or tax returns prepared by external CPA's
• Discuss status of pending or threatened litigation

Minutes should be signed by the Secretary and Chairman and evidence all members present, and the original signed minutes should be stored in a safe place with other corporate records.

Minutes are required to be kept by all corporations, whether they are $1 billion businesses with 20 board members, or a small S-corporation with one shareholder.  In the event of an IRS exam, one of the items the IRS will most likely request to review is the company's meeting minutes for the year under exam.

A copy of the Attorney General's announcement can be found on his webpage here.