Archive for April, 2012

AICPA Survey Reveals Americans’ Concerns about Finances and Saving

Monday, April 30th, 2012

To commemorate National Financial Literacy Month, a national telephone poll of 1,005 adults was conducted by Harris Interactive on behalf of the American Institute of CPAs (AICPA). The purpose of the survey was to find out what Americans would most likely forego in a financial pinch as well as their overall feelings about their finances.

Here is what the survey revealed:

  • 41 percent said they would cut back on eating out, making it the most popular money-saving action.
  • 21 percent said they would cut off cable TV.
  • 8 percent said they would end cell phone service.
  • 8 percent said they would stop downloading songs and digital products.

The survey also found, however, that Americans are still amazingly frugal and farsighted when it comes to planning for their financial futures. Only a small number would take actions that could hurt their long-term financial well-being:

  • 2 percent said they would stop contributions to retirement accounts.
  • 1 percent said they would skip utility payments.
  • 1 percent said they would put paying rent or mortgage payments.

“Financial success depends on setting clear goals and priorities and sticking with them in good times and bad,” said Jordan Amin, chair of the National CPA Financial Literacy Commission. “While it’s clear that Americans’ priorities are changing, these results suggest that in tight times, they won’t jeopardize tomorrow to deal with the financial challenges.”

Since 2007, the AICPA has conducted an annual survey of Americans to determine their top financial concerns and assess their financial well-being. In 2011, 29 percent of Americans said they were “worse off” than “better off,” compared to the prior year’s 16 percent. Today, 24 percent say they are better off, while 23 percent say they are worse off.

This year, 94 percent of survey participants said they have financial concerns of one sort or another. Interestingly, for the first time in three years, the price of gas – not retirement – is the top financial concern in America.

Addition survey findings include:

  • 41 percent said basic living expenses, including the cost of gas, uninsured medical expenses, and lack of emergency savings, as their top financial concern.
  • 27 percent said their main concerns are related to long-term goals, such as paying for education and saving for retirement.
  • 53 percent reported they are in the same financial position as they were the prior year.
  • 35 percent of those aged 18 to 44 say their financial situation has improved over the past year, compared with 13 percent of older adults.
  • 31 percent of college graduates say they are better off today, compared with 22 percent of those who have not completed college.

The CPA profession has a comprehensive financial literacy program – 360 Degrees of Financial Literacy – to help Americans achieve long-term financial success. The website is the centerpiece of the program, with tools, calculators, and advice to help Americans understand and manage their financial needs during the ten life stages, from childhood to retirement.

The site is a rich resource for small and mid-sized CPA firms, giving them tools and information to help explain key issues, not only to their clients, but to members of their communities and the media. The AICPA regularly hears stories from CPAs who find that their clients go on to use Feed the Pig.org, to educate their children about financial issues.

Harris Interactive conducted the telephone survey on behalf of the AICPA within the United States between March 8 and March 11, 2012, reaching a nationally representative sample of 1,005 adults eighteen and older by landline and mobile phone.

Full Article: http://www.accountingweb.com/topic/cfo/aicpa-survey-reveals-americans-concerns-about-finances-and-saving

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The JOBS Act: Economic Solution or Investor Nightmare?

Monday, April 23rd, 2012

In an effort to jump-start the US economy and create more jobs, both the House and Senate passed the Jumpstart Our Business Startups (JOBS) Act, and President Obama signed the act into law April 8, 2012. With bipartisan support, the bill is designed to make it easier for small businesses, start-ups, and entrepreneurs to raise capital by decreasing government oversight and federal regulations.

Now the intrigue begins. Many questions arise from this new legislation. What kind of impact will the JOBS Act have on small businesses, start-ups, and the economy in general? Will the JOBS Act open the door for new IPOs? Or will it provide more incentive for companies to stay private? What impact will the JOBS Act have on investors who rely on full disclosure when reviewing the filings of IPOs?

These open-ended questions have answers that vary depending on who you are asking – the opponents or proponents. Those in favor of the JOBS Act see it as an opportunity for growth; while those against it worry that loosened regulations may lead to investor fraud and abuse. Whether for or against the legislation, the JOBS Act will:

Create emerging growth companies. One provision of the JOBS Act essentially creates a new category of public companies. Businesses that have under $1 billion in annual revenue during its most recent fiscal year would qualify “emerging growth companies” (EGCs) and would not be required to comply with certain Securities and Exchange Commission (SEC) reporting regulations for up to five years; less than five years if the company reaches $1 billion in gross revenue, $700 million in public float, or issues more than $1 billion in non-convertible debt in the previous three years. Companies that complete or have completed an IPO after December 8, 2011, will be eligible to qualify as an EGC. Through this legislation, EGCs would be exempt for their first five years on the public market from the compliance burdens of Sarbanes-Oxley (SOX) Section 404(b), such as requiring an auditor’s attestation report on internal controls over financial reporting. The JOBS Act will also allow pre-IPO EGCs to confidentially submit a draft registration statement for SEC review. Other reporting requirements will be “phased in” over the initial five-year period. These relaxed regulations will allow smaller companies to go public sooner.

Allow equity-based “crowdfunding.” New businesses will be able to raise up to $1 million in equity capital from unaccredited investors. This provision facilitates the utilization of online trading portals, a mechanism used to solicit a large number of smaller investors. The Senate version of the JOBS Act created a number of restrictions aimed at protecting investors. Among those restrictions are limiting individual investments to (1) the greater of $2,000 or 5 percent of the investor’s annual income or net worth if either annual income or net worth is less than $100,000; and (2) 10 percent of the investor’s annual income or net worth, not to exceed $100,000, if annual income or net worth is greater than $100,000 and also requiring registration by intermediary platforms and issuers with the SEC. Federal law would preempt state regulations, meaning that issuers could raise funds from across the United States. The SEC will have 180 days after the bill’s enactment to publish rules for crowdfunding.

Remove prohibitions on general solicitation of Regulation D offerings. The JOBS Act allows for advertising of Regulation D 506 offerings, as long as advertisements are focused on accredited investors. Affluent individuals who provide capital for a business start-up, also known as “angels,” should especially note the McHenry Amendment, which clarifies that angel and incubator platforms that do not charge a fee connected to the purchase or sale of securities would be exempt from broker-dealer registration. This exemption from registration will be helpful for Internet platforms, such as AngelList or Gust and venture forums aimed at accredited investors, and also for some angel groups.

Increase the threshold for Regulation A “mini-public offerings.” Regulation A currently allows companies to go public and be exempted from SEC registration for offerings up to $5 million. The JOBS Act will increase the offering threshold for this little-used exemption to $50 million, perhaps making it a more useful option for angel-backed companies.

Raise the cap on private shareholders from 500 to 2,000. Many private companies are forced by regulations to file as a public company once they exceed 500 shareholders and $10 million in assets. The bill will increase the shareholder limit to 2,000 accredited investors or 500 unaccredited investors. The increased limit will give some flexibility to companies like Facebook in deciding whether to stay private or go public, and it could also benefit secondary market platforms that can offer a more robust market for the shares of private companies.

From the above analysis of the bill, it is clear how the JOBS Act will help small businesses, start-ups and entrepreneurs raise capital, but the question that remains is how will the bill create jobs? Here are a couple of thoughts: (1) the $1 billion ceiling on regulation will spur job growth since it will provide an incentive for companies to go public instead of selling, and (2) the cost savings for new IPOs will allow them to spend more money on growing their businesses and hiring personnel instead of regulatory compliance.

Despite the apparent benefits of the bill, the legislation still has its detractors. Critics fear that the JOBS Act will lead to massive fraud due to a lack of regulation and oversight. Investors will not see the “full picture” when making their investments. For example, the online coupon company, Groupon (that who went public in 2011 and had over $1 billion in revenue at the time), was faced with major SEC scrutiny over its accounting methods during its IPO. The company suffered a significant market capitalization reduction when going public due to reported questionable accounting methods and the loss of investor confidence. Had the JOBS Act been in effect prior to its IPO, Groupon could have gone public before it reached the $1 billion mark and not dealt with the intense scrutiny that resulted in its reduction in market capitalization. Conversely, the investing public would not have been aware of the apparent “red flags” had the reporting regulations been relaxed.

To address these concerns, the Senate attached an amendment to the bill, requiring the business to warn investors that there are risks when it comes to investments. The amended bill requires that a business “takes reasonable measures to reduce the risk of fraud with respect to such transactions” and gives the investor its company address and website, which must be kept up-to-date. The JOBs Act also requires the SEC to implement various actions on a tight time line from as little as 90 days after enactment of certain aspects of the law, while up to 270 days for other portions.

The President and Congress are hoping the JOBS Act will generate as much economic growth as it did bipartisan support. It originally passed the House by a vote of 390 to 23, and then passed the Senate 73 to 26. However, only time will tell.

Full Article: http://www.accountingweb.com/topic/accounting-auditing/jobs-act-economic-solution-or-investor-nightmare

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Five Good Reasons to Obtain a Filing Extension

Monday, April 16th, 2012

As you’re nearing the tax return finish line, you probably have some clients who are stragglers or haven’t “checked in” yet. Fortunately, you can still rely on the automatic tax filing extension to bail procrastinators out of a jam. Here’s some valuable information to pass along to your clients.

The due date for filing 2011 federal income tax returns is April 17, 2012, but that deadline isn’t etched in stone. You can buy yourself more time by filing Form 4868, Application for Automatic Extension of Time to File US Individual Income Tax Return, by April 17. This provides an automatic extension for filing your return for six months until October 15, 2012 – with absolutely no questions asked by the IRS!

Of course, an extension to file is NOT an extension to pay the tax that’s due. You still have to pay estimated tax in a timely manner to avoid penalties and interest charges.

If you don’t pay the requisite amount of tax by the April 17 deadline, the IRS will impose a penalty of one-half percent each month on the amount of tax owed. And, if you fail to file a return by the October 15 extension date, the IRS will ramp up the penalty to 5 percent per month, up to a maximum of 25 percent.
Why would you need a filing extension? Typically, it’s used by taxpayers who simply couldn’t get their act together in time. But here are few other common reasons for seeking an extension:

1. You don’t have all the information you need for your return or it’s been lost or misplaced. For instance, delays may be caused if you haven’t received a K-1 stating income received in 2011 from a pass-through business entity.

“Frequently, an extension is needed because the business or partnership hasn’t completed its own return,” says Chris Hesse, a partner in CliftonLarsonAllen’s federal tax resource group in Minneapolis, Minnesota. “This has become common because pass-throughs are being used to avoid the double taxation issue. The client must make a payment based on a reasonable estimate.”

2. Circumstances dictate a delay. Even if you fully intended to file your tax return by April 17, sometimes life gets in the way. If there’s been an unexpected illness or death in the family, you might not able to file on time. Similarly, a natural disaster can cause interruptions, although the IRS usually offers relief to those in harm’s way.

3. You don’t have the cash on hand for a retirement plan contribution. If you’re self-employed, you might be using a Keogh plan or SEP to save for retirement. The annual contributions reduce your tax liability, but only if the deposits are made on time, notes Hesse. He says that filing for an extension effectively gives you an extra six months to come up with the money.

4. Obtaining an extension might reduce your tax liability. For example, if you converted a traditional IRA to a Roth in 2011, you must pay tax on the entire account balance at the time of conversion. But the value of the account may have declined since then. By recharacterizing your Roth back into a traditional IRA before you file your tax return, you can avoid an unnecessary tax “overpayment.”

5. You’re concerned about tax audits. There’s a school of thought that filing for an extension reduces your chances of being audited. Here’s why: Normally, IRS auditors examine a certain percentage of returns to randomly check for tax cheats. If you obtain an extension, you might sidestep this auditing procedure entirely, thereby reducing your overall exposure to an audit.

In any event, if you don’t pay the requisite amount of tax by the April 17 deadline, the IRS will impose a penalty of one-half percent each month on the amount of tax owed. And, if you fail to file a return by the October 15 extension date, the IRS will ramp up the penalty to 5 percent per month, up to a maximum of 25 percent.

As with your regular tax return, you can e-file your filing extension request or send it by snail mail. If you’re going to a US Post Office, we recommend using certified mail so you can prove to the IRS that you requested the extension on time.

How do you know how much you have to pay with the filing extension application? It’s not an exact science. Hesse says that his firm refers to figures in prior returns to help arrive at a reasonable amount. Contact your CPA immediately for guidance.

Full Article: http://www.accountingweb.com/topic/tax/five-good-reasons-obtain-filing-extension

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Tax Tip: How Do You Spell Tax Relief? C-a-s-u-a-l-t-y Loss

Monday, April 9th, 2012

Last year was a violent year across the country due of a flurry of hurricanes, floods, earthquakes, and other natural disasters. If insurance proceeds didn’t make your clients whole, they may be entitled to a modicum of tax relief on their 2011 returns. And homeowners who suffered damage in a government-designated disaster area may be in line for a quick tax refund.

The basic premise is that you can deduct unreimbursed casualty and theft losses in excess of 10 percent of adjusted gross income (AGI) after subtracting $100 per event. For simplicity, let’s use the example of a couple with an AGI of $100,000 in 2011. Suppose that a storm caused extensive damage to their house costing them $9,000 after insurance reimbursements. Also, the couple paid $2,000 out-of-pocket for repairs due to a car accident. Due to the limits, they can deduct $800 ? not that much, but better than nothing.

Under a unique tax rule, a loss in a federal disaster area this year can be deducted on the 2011 tax return you’re about to file for the client, instead of waiting to file the 2012 return next year. If you’ve already filed the 2011 return, file an amended return claiming the loss.

Note that damage caused by a taxpayer’s own negligence may be deductible as well as losses that occur, even though they could have been foreseen or prevented. Furthermore, losses aren’t necessarily limited to damages to the home. However, clients aren’t entitled to any tax relief for damage occurring over a long period of time, such as withered landscaping caused by a severe drought.

Theft losses are grouped with casualty losses for this purpose. Again, each event must be reduced by $100 before the 10-percent-of-AGI limit is applied.

Under a unique tax rule, a taxpayer may claim a loss suffered in a federal disaster area on the tax return for the year preceding the year in which the casualty actually occurred. This can provide some much-needed relief in a pinch. For example, suppose a client’s vacation home was destroyed in a wildfire in a federal disaster area earlier this year. The loss can be deducted on the 2011 tax return you’re about to file for the client instead of waiting to file the 2012 return next year. If you’ve already filed the 2011 return, file an amended return claiming the loss.

The tax law limits only apply to personal losses claimed by a taxpayer on Schedule A of an individual return. There is no AGI limit or $100-per-event reduction for losses to business property.

Full Article: http://www.accountingweb.com/topic/tax/tax-tip-how-do-you-spell-tax-relief-c-s-u-l-t-y-loss

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Money Management Is Possible – Even in Today’s Economy

Monday, April 2nd, 2012

Most businesses these days are looking to cut spending. Accounting firms are in a unique position to not only help their small business clients trim the fat and manage their money, but to do the same for themselves.

Before any company can delve into strategic ways to save money, it must first set aside time to devote to money management. Even if a company is small, this step is crucial to a company’s success – no other advice is more important.

“You have to be focused enough to dedicate the necessary time weekly, if not more frequently,” said Robin Bell, CPA, member in Brown Smith Wallace (BSM) Tax Services group. “Bill frequently, collect often, and stay on top of billing and receivables. Pay attention to it.”

Set up a budget, then each month, compare the actual to the budget to see where improvements need to be made, suggests Patricia Schreiber, a New Orleans-based CPA.

And if you don’t have the time, delegate.

Look at what you need to have versus what you want to have when determining cash outflow, whether for your clients or your own firm. Once you have what you need, don’t pay more for it than is necessary to effectively operate your business.

“Segregation of duties: Learn it love it. Otherwise, stuff walks out the door,” says Chris Spivey, who has worked as a consultant to the accounting profession for several years.

If you’re an entrepreneur with tons of action items on your plate and collections isn’t your competency, refer it to someone else.

Bell’s longtime retail clients, who are used to bulk-buying seasonal products, have recently experienced difficulties managing their cash flow. Instead of stocking up on the “hot trends” for the season, Bell teaches its retail clients not to purchase more than they need. That way, they don’t have spend money to house products in a warehouse. However, when retail companies do this, they also must pay attention to what their customers might need in the near future. This ensures the retailers’ customers won’t have to wait too long if a product is out of stock.

According to Bell, some retail companies survey their clients to gauge what they’ll want to buy, or they beef up their marketing campaigns. This could put them at an advantage because most companies tend to trim their advertising and marketing dollars when times are tough. It’s not a matter of spending more, it’s just reallocating dollars to draw in more prospects, she said.

Do You Really Need That?

Look at what you need to have versus what you want to have when determining cash outflow, whether for your clients or your own firm, Bell said.

For example, look at telephone costs. If you’ve been using the same telephone provider for years, you might not think about changing vendors. But what about calling your provider to talk about your plan and whether it still makes sense given your current needs. You could also contact other providers to see what they offer.

Ask, “Do I have what I need, and am I paying for what I need versus paying more than what I need to operate my business,” Bell says.

Other potential areas to trim include:

Employee benefits. Can you save money without raising premiums if you have a group of employees who are healthy? “Especially in really small companies, it’s very easy to assess your pool and ask, ‘If I raise my deductible, how much can I save on my premium?’,” Bell said.

Mileage reimbursement. Encourage employees to travel less by visiting several clients on the same day who are based in the same area. Ask employees if they really need to fly nonstop or if they can fly on off hours or off days, Bell added.

While discussing money management is clearly a way to help your clients better manage their money, if they don’t ask you about it, how can you broach the subject?

BSW took a proactive approach by offering its clients a “health checkup,” which included a five-page questionnaire that asked some thought-provoking questions. It also provided BSW financial data that allowed the firm to see client trends and to learn what keeps business owners up at night, Bell said.

“Most clients were interested in seeing what we can do for them,” she said.

Clients want the help, so why not broach the subject?

Full Article: http://www.accountingweb.com/topic/accounting-auditing/money-management-possible-even-todays-economy

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