Specialized Services Archives - Page 11 of 12

Are you ready for the 2021 gift tax return deadline?

Greencrest on February 22, 2022

If you made large gifts to your children, grandchildren or other heirs last year, it’s important to determine whether you’re required to file a 2021 gift tax return. And in some cases, even if it’s not required to file one, it may be beneficial to do so anyway.

Who must file?

The annual gift tax exclusion has increased in 2022 to $16,000 but was $15,000 for 2021. Generally, you must file a gift tax return for 2021 if, during the tax year, you made gifts:

That exceeded the $15,000-per-recipient gift tax annual exclusion for 2021 (other than to your U.S. citizen spouse),
That you wish to split with your spouse to take advantage of your combined $30,000 annual exclusion for 2021,
That exceeded the $159,000 annual exclusion in 2021 for gifts to a noncitizen spouse,
To a Section 529 college savings plan and wish to accelerate up to five years’ worth of annual exclusions ($75,000) into 2021,
Of future interests — such as remainder interests in a trust — regardless of the amount, or
Of jointly held or community property.

Keep in mind that you’ll owe gift tax only to the extent that an exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax exemption ($11.7 million for 2021). As you can see, some transfers require a return even if you don’t owe tax.

Why you might want to file

No gift tax return is required if your gifts for 2021 consisted solely of gifts that are tax-free because they qualify as:

Annual exclusion gifts,
Present interest gifts to a U.S. citizen spouse,
Educational or medical expenses paid directly to a school or health care provider, or
Political or charitable contributions.

But if you transferred hard-to-value property, such as artwork or interests in a family-owned business, you should consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

The deadline is April 18

The gift tax return deadline is the same as the income tax filing deadline. For 2021 returns, it’s April 18, 2022 — or October 17, 2022, if you file for an extension. But keep in mind that, if you owe gift tax, the payment deadline is April 18, regardless of whether you file for an extension. If you’re not sure whether you must (or should) file a 2021 gift tax return, contact us.

4 levels of audit opinions

Greencrest on February 18, 2022

The first page of audited financial statements is the auditor’s report. This is an important part of the financials that shouldn’t be overlooked. It contains the audit opinion, which indicates whether the financial statements are fairly presented in all material respects, compliant with Generally Accepted Accounting Principles (GAAP) and free from material misstatement.

In general, there are four types of audit opinions, ranked from most to least desirable.

1. Unqualified. A clean “unqualified” opinion is the most common (and desirable). Here, the auditor states that the company’s financial condition, position and operations are fairly presented in the financial statements.

2. Qualified. The auditor expresses a qualified opinion if the financial statements appear to contain a small deviation from GAAP but are otherwise fairly presented. To illustrate: An auditor will “qualify” his or her opinion if a borrower incorrectly estimates the reserve for a contingency, but the exception doesn’t affect the rest of the financial statements.

Qualified opinions are also given if the company’s management limits the scope of audit procedures. For example, a qualified opinion may have resulted if you denied the auditor access to year-end inventory counts due to safety concerns during the COVID-19 pandemic.

3. Adverse. When an auditor issues an adverse opinion, there are material exceptions to GAAP that affect the financial statements as a whole. Here, the auditor indicates that the financial statements aren’t presented fairly. Typically, an adverse opinion letter outlines these exceptions.

4. Disclaimer. Even more alarming to lenders and investors is a disclaimer opinion. Disclaimers occur when an auditor gives up in the middle of an audit. Reasons for disclaimers may include significant scope limitations, material doubt about the company’s going-concern status and uncertainties within the subject company itself. A disclaimer opinion letter briefly outlines the auditor’s reasons for throwing in the towel.

Beyond the opinion

Auditors’ reports for public companies also must include a discussion of so-called “critical audit matters” (CAMs). Essentially, these are the most complicated issues that arose during the audit. CAMs are specific to the engagement and the year of the audit. As a result, they’re expected to change from year to year.

This requirement represents a major change to the pass-fail audit opinions that have been in place for decades. It’s intended to give stakeholders greater insight into the company’s disclosures and the auditor’s work when issuing an unqualified opinion. Contact us for more information on audit opinions.

Office Managers Gone Wild

rlewis on May 30, 2013

Over the past several months, I have been working with small business owners who have been victimized by their office managers. The office manager was able to steal from them as the individual was trusted and given too much control and access. The office manager recognized this internal control weakness and exploited it.

So, how did many of these business owners end up needing my services? How did they become victims within their own organization?

Trust and a Lack of Segregation of Duties
Many small business owners develop a relationship with their office manager beyond the office. They trust their office manager and rely heavily on them day to day. The owner functions with blinders on. He or she cannot fathom being a victim and trusts the office manager, forgetting to structure the office hierarchy by implementing segregation of duties when at all possible.

Business owners should not allow one individual to have access to everything. The business owner must maintain part of the office administration to a degree. This course of action will create good checks and balances.

Pays Personal Expenses on Company Dime
Some office managers aren’t shy about putting their hand in the company cookie jar. They will blatantly pay their personal bills or write checks to themselves directly out of the business checking account. When at all possible, implement segregation of duties to deter this situation from occurring.

If an organization is too small to separate the check writing function, the signing of the checks and the bank reconciliation, I suggest that the owner ask the bank to mail the monthly statement with copies of the canceled checks to the owner’s home. The owner can then review the original bank statement and scrutinize the monthly disbursements. The owner should always inquire about a few checks per month so that the employee knows the owner is monitoring disbursements.

Credit Cards
Credit cards can be a bad thing for small businesses. Limit the number of employees who have credit cards. Company policy should stipulate that employees always maintain possession of the business credit card and never loan it to anyone. Furthermore, the policy should indicate that if an employee loans the company card to others or charges personal items on the company credit card, the individual will be terminated.

If an office manager has a company credit card, do not give him or her authorization to review the monthly statements and authorize the payment. To ensure the segregation of duties, the owner may have to take on this task in order to deter fraud from occurring.

Company policy should require detailed receipts to be maintained for accounting records of items charged on the credit card. With so many one-stop shopping stores, it is difficult to determine if purchases are legitimate business expenses without the detailed cash register receipt.

Payroll
When an organization uses an outside payroll company to process payroll, the owner often assumes that fraud can’t occur because the office manager doesn’t write the payroll checks. However, in most companies, the office manager has the authority to direct the payroll company and provides them payroll information every week. The office manager usually relays information about bonuses and pay increases. In most cases the payroll company has been authorized to deal with the office manager so the provider doesn’t follow up with the owner to confirm that the transmitted information is accurate and authorized. What’s to stop the office manager from giving himself or herself an extra bonus or a pay raise? Nothing. In small organizations, the owner should either call in the payroll or be available to the payroll company in order to verify that the information provided is accurate.

Theft of Cash Receipts
Cash is the most appealing asset to steal because unlike a check it doesn’t need to be converted. The office manager accepts the payment from a customer but doesn’t record the payment. He or she pockets the money instead. In order to deter this situation from occurring, all customers should be given receipts.

Larceny is another scheme office managers employ by stealing from the daily receipts before the money is deposited in the bank. I frequently see this in the medical industry where the organization has a stand-alone billing system. The billing system is never reconciled to the accounting system, thus making it easy for the office manger to steal from the daily deposit. If your business uses a stand-alone billing system, the billing and accounting systems need to be reconciled regularly.

Adequate Dishonest Employee Coverage
During our investigations, when we determine that the owner is a victim of fraud, it is not unusual to find that the insurance policy does not include dishonest employee coverage or that the coverage levels are inadequate. The insurance policy should be analyzed once a year to determine if the coverage levels are adequate.

Not all fraud can be prevented but there are ways to reduce the business losses. If you have additional questions or concerns regarding fraud, please contact me.

Quickbooks Tips – Exporting to Excel

rlewis on November 13, 2012

When you export from Quickbooks note that you have an “Advanced” tab. There are three items which are not checked automatically which can help you in Excel. They are as follows:

Send Header to screen in Excel – The header does not automatically show on the screen. It is hidden unless you print. This option will show it in the document.
Auto Outline (Allows collapsing / Expanding) – With this option, the data will be automatically subtotaled in Excel. You can expand and collapse as you see fit based on the subtotals. (Example: if you have four cash accounts, but want to see one, you can collapse the tree for the cash account. But, if you want to see all F/A accounts, you can leave that tree as it is).

NOTE: If you collapse the accounts and want to copy and paste ONLY what you see without bringing all the data with it – you can. You can copy, click the cell you want to paste into or start the range with and click the clipboard. This will paste only what you see without bringing the data along with it. If you just copy and paste using Control C and Control V, you will bring all the data hidden in the subtotals along with what you actually are seeing on the screen. This also works for any rows or cells which are hidden. You will only bring over what you see, not what is in the hidden ranges. Can’t see the clipboard? The shortcut to get to it is Control C and C again. This should show your clipboard. You have to click directly on the clipboard for this to work.

Auto Filtering (Allows Custom Data Filters): With this option, you will have filters across all columns and be able to select only what you want. For instance, if you have transactions from four cash accounts and only want to show two, you will have all four as an option on the filters. Just unclick “all” and select what you want. Then, you will only show transactions from the two accounts you want.

Workplace Fraud Threatens All Businesses

mnarog on June 13, 2012

If you think that fraud won’t occur at your workplace, you’re probably not being realistic. Fraud can occur anywhere, and the instances and level of sophistication of fraud are a growing concern of business owners and managers.

Chrissie Powers, co-owner of P.D. Eye Forensics, advised Whalen clients and banking executives about ways to deter fraud and how to minimize exposure to it at a special workshop held by the firm on June 5. Her presentation also covered the warning signs of workplace fraud and how to respond to suspicions of fraud.

Whalen & Company recently began partnering with P.D. Eye Forensics to offer specialized forensic and valuation services to the firm’s business and individual clients. The firm has expertise in fraud detection and deterrence, business valuations, damages and lost profits, bankruptcy services, marital relations and litigation support.

“Although the economy is improving slightly, the economic downturn will continue to have its effect on fraud in the workplace,” she told workshop participants. “It’s really been a perfect storm for fraud.”

According to Powers, as businesses have reduced the number of their employees or cut hours, there is often a reduction in internal controls and fewer proactive fraud prevention measures in place. In addition, the increased financial strain on employees during the economic hardship contributes to the likelihood of fraud.

Finally, bombardments of bad financial news cause mounting feelings of helplessness, pessimism and isolation, which allows employees to rationalize previously unthinkable acts. “Given enough financial pressure, someone in your organization is going to commit fraud,” Powers warned. “The pressure of financial strain is so strong that they don’t think there are other options.”

Research shows that 66 percent of employees will steal if they see others do so without consequence; 21 percent of employees are honest and will never steal from employer, and 13 percent of employees will steal regardless.

“Business owners need to ensure that proper fraud prevention procedures are in place,” Powers emphasized. “You can’t stop it, but you can slow it down and make it harder for fraudsters.” See box for ways to deter fraud.

Small businesses often don’t have enough employees to put segregation of duties in place or have sufficient internal controls. “Just because you have an audit doesn’t mean that you’re protected,” she said. “If it is immaterial to a financial statement, an auditor is not likely to catch it. An auditor’s job is not to find fraud.”

Asset misappropriation, involving payroll fraud, fraudulent invoicing or billing, or skimming revenues, is the most frequent fraud method, accounting for about 87 percent of the incidents. About one-third of the occurrences are due to corruption, where an individual uses his or her influence to obtain a benefit or kickback.

Fraudulent statements are the least frequent, but generally result in more loss to a company.

If you believe fraud has been committed, Powers recommends not confronting the suspect initially or calling the police. “You don’t want to give the employee time to destroy evidence, and the police don’t have enough time to investigate,” she explained.

She advises business owners to contact their lawyer, accountant and insurance agent. Generally, this will lead to a competent investigator.

To review Powers’ complete fraud presentation, click here, or visit the firm’s website at www.whalencpa.com.

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