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DOL's Revised, Final Rule on Overtime Doubles Minimum Salary Level Starting December 1, 2016

Posted By Daniel Schenck, Clark Hill PLC, Wednesday, May 18, 2016

It Still Hurts - DOL's Revised, Final Rule on Overtime Doubles Minimum Salary Level Starting December 1, 2016

By: Paul A. Wilhelm

 

On May 18, 2016, the Department of Labor ("DOL") issued its long-awaited Final Rule for overtime exemptions, focusing on the "white collar" exemptions (executive, administrative, professional and certain computer employees). The Final Rule comes after the DOL processed 270,000 public comments on its proposed rule about which we wrote you, from late last summer. The Final Rule will take effect December 1, 2016 and will:

  1. Raise the minimum annual salary level required for "white collar" exemptions to $47,476 ($913 per week), up from the current $23,660 ($455 per week) - an increase of just over 100%. (Recall, the salary level test does not apply to doctors, lawyers, or teachers, and certain computer employees can be exempt if paid at least $27.63 per hour and meet applicable duties tests.) This final level is down slightly from the $50,440 annual figure proposed last June.
  2. For the first time, allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level (i.e., up to $91/week or $4,732 total annually), provided these payments are made on a quarterly or more frequent basis. The remaining 90% of the required, new salary level is $822/week, or $42,744 annually, totaling $47,476.
  3. Raise the minimum salary for those covered under the "highly compensated employee" exemption, from $100,000 in total compensation annually, to $134,004 - an increase of 34%. This final level is higher than the proposed rule, which had called for a new level of only $122,148 - an increase of 22%.
  4. Impose an escalator provision into the FLSA, automatically "updating" the above salary levels every three years, beginning on January 1, 2020, by tying the levels ad infinitum to certain economic measures. The proposed rule had called for annual "updates."
  5. Impose no changes to the duties tests. The DOL had sought comments on possible changes to the standard duties tests for these exemptions, but decided not to make any such changes.

Misclassification of salaried-exempt employees is among the fastest-growing civil actions in both federal and state courts. With the Final Rule, the incentive for employees (and/or the DOL) to claim misclassification has increased. We advise clients to begin assessing whether they wish to pay the higher salaries and/or take other measures. We also advise them to review the duties of their employees that are or may be classified as salaried-exempt to ensure they meet the various duties tests for the white collar exemptions.

 

Look for an announcement regarding the launch of Clark Hill's FLSA Compliance Toolkit through HR Advantage coming soon. If you have additional questions, contact Paul A. Wilhelm at (313) 309-4269 | pwilhelm@clarkhill.com, or another member of Clark Hill's Labor and Employment Practice Group.

Tags:  finance  legal  salary  small business 

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How To Save $100,000

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Wednesday, April 6, 2016

 

HOW TO SAVE $100,000

 

The American Institute of Certified Public Accountants publication Journal of Accountancy published today (April 6, 2015) contained an article on fraud.  As I read the article, as titled below, it occurred to me the article could have been titled “How to Save $100,000”. For example, specific operating ratios, employee guidelines, and company policy tailored to the unique characteristics of your company will deter fraud.

 

 

Antifraud controls cut significantly into losses

 

The presence of antifraud controls such as management reviews and telephone hotlines can greatly reduce the damage done by fraud schemes, and the use of such controls is slowly on the rise. Those are two of the trends identified in the 2016 Report to the Nations on Occupational Fraud and Abuse, released Wednesday by the Association of Certified Fraud Examiners.

 

The biennial report, based on thousands of fraud cases reported by fraud examiners worldwide, provides a detailed look of fraud, its perpetration, detection, and how battled and prevented in various industries and regions. Fraud takes a significant toll on organizations. The fraud examiners who participated in the survey estimated that the typical organization loses 5% of revenues to fraud in a given year. The fraud losses

in the study totaled more than $6.3 billion, an average loss of $2.7 million per case. The 23.3% of cases with losses of $1 million or more boosted that average significantly. The median loss was $150,000. Asset misappropriation (83%) caused the smallest median loss at $125,000. In contrast, financial statement fraud (10%) caused the biggest median loss at $975,000.

 

HOW TO SAVE $100,000

 

Antifraud controls limit damage. Organizations that implement antifraud controls inflict much smaller losses. Organizations that engage in proactive data monitoring and analysis, lose $92,000. Whereas organizations without that control lose double or $200,000. Organizations with fewer than 100 employees were the most likely to suffer from fraud in the study, representing about 30% of the cases reported.

 

FRAUD CONTROLS TO ADOPT

 

The study found proactive data monitoring, management reviews, and hotlines reduce loss by 50%. Fraud training for employees, anti-fraud policies, and codes of conduct in an employee manual are also deterrents to company fraud. We recommend a professional external overview of an organizations fraud control.

 

Tags:  fraud  management  small business 

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Is It Time to Separate Business Checking From Personal?

Posted By Julie Smith, Horizon Community Bank, Wednesday, April 6, 2016

When starting up a brand new business, it can be easy to fall into the habit of mingling funds – using your personal checking account to handle both household and business expenses.

Perhaps you’re careful to differentiate business from personal expenses and deposits when you enter line items on your checkbook register, but everything is funneled through a single account.

This might not be in your best interests, even in the short-term. Here’s why:

A BUSINESS CHECKING ACCOUNT CLEARLY SEPARATES A BUSINESS FROM A HOBBY.

Managing a business is no small thing—it’s a serious endeavor with the goal of profitability and growth, which the government supports through tax incentives and deductions.

In contrast, a hobby is typically done for entertainment purposes, even if a modest amount of sales helps the hobby support itself.

To qualify as a business and receive tax benefits, you must be able to show you are serious about your small business in a way that might impact the community or economy, and that it’s far more than a hobby.

The government wants businesses that fuel jobs and economic growth, and stabilize communities–not ones that just pays for the amethyst beads and sterling silver wire in someone’s craft room, or the expensive new computer used to create a website for a friend.

Mingling your business and personal funds can indicate a casual attitude about the business that comes back to hurt you later.

IT SIMPLIFIES DOING YOUR TAXES.

Mingled checking accounts significantly increases the amount of time spent on recordkeeping. You have to sort through them in great detail, rather than reviewing one streamlined record.

Even if you are very careful to indicate business versus personal in your checkbook register, and keep business receipts and deposit slips in a separate file, it can be a herculean task figuring things out later. You’ll have to review each individual item and it’s far easier to miss important details.

Not only that, sloppy recordkeeping skills or lack of attention to details can make this separation virtually impossible.

One other thing to consider is this: if you are paying an accountant or tax professional to help, figuring out blended accounts will significantly increase their time, which bumps up what you pay for their services. It also gives them access to your personal finances, which can make some people uncomfortable.

Keeping a separate business checking account streamlines this process, and gives you a leg up if you ever become audited. Clear, written records make the process go far more smoothly, providing a clean trail of bank statements that are easy for the auditor to follow.

BUSINESS CHECKS ARE MORE PROFESSIONAL AND PRIVATE.

If you write checks to pay business vendors for their products or services, using a personal check provides them with your home address. If a challenge with funding results in past due payments, this loss of privacy can become a problem.

Sending a personal check also looks less professional. Appearing as credible and professional as possible gives a vendor confidence in your success and ability to pay on time. It also allows others to write checks to the business, instead of you personally, which supports that credibility and impression of success.

SEPARATION PROVIDES ADDED LEGAL PROTECTION.

There is one last benefit of separate business checking accounts that few think of, unless they are sued.

If your business has been set up as an LLC or corporation, you’re provided a certain level of protection because the court system is required to consider legal liabilities of the business separate from that of the individuals involved. This ensures personal assets are likely to be safe, such as a home and savings accounts.

In fact, the very process of setting up your business through a legal entity requires a separate business account if it is a corporation, partnership or incorporated sole proprietorship.

But what if it’s an LLC or an early start-up that hasn’t filed yet? What if you are a freelancer or consultant who doesn’t see the need for setting up an LLC?

Separating your accounts is still important from a legal perspective.

If you mingle your finances, it can allow the court system to pursue your personal assets. The degree of separation between the financial activities of the owner and that of the business can influence whether or not the court finds you personally liable.

The negligible costs of having a business checking account are nothing, compared to the benefits it can provide.

If you’d like to discuss your business, learn more about business checking versus personal checking accounts, or discuss your financial goals, let us know. We’re here to help.

*This article is not intended to provide legal, accounting or tax advice. Please seek appropriate professional support to obtain answers specific to your own situation.

Tags:  business checking 

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Debt Cancellation is Taxable Income – Yes or No

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Tuesday, March 1, 2016

 

Debt Cancellation is Taxable Income – Yes or No 

The best advice you can get – “It Depends”.  Discuss your personal situation with your CPA or tax advisor.  The IRS published tax tip 2016-30, on March 1 titled Top 10 Tax Tips about Cancellation.  Usually debt cancellation is taxable income; however, an exclusion may apply to homeowners who had mortgage debt cancelled in 2015. Even if the debt is not for your home, there may be other means to escape the debt cancellation taxability.  Following are what I consider pertinent:

1. Main Home. Does the debt cancellation pertain to your main home?  Was it for purchase of your home, or for improvements to your home?  Does your main home secure the mortgage?  A movie, nominated for best picture, ‘The Big Short’, is based on the housing collapse of 2007 and 2008.  The collapse resulted in new legislation in 2009 that is still in effect for 2015 and 2016, but scheduled to expire on Dec. 31, 2016.

2. Loan modification.  Debt cancelled or modified on your main home could be excluded as taxable income under the Home Affordable Modification Program, or HAMP.

3. Refinanced Mortgage. Did you refinance your mortgage and use the additional funds (up to the amount of the original mortgage) to improve your main home?  The debt cancellation may qualify under HAMP.

4. Other Cancelled Debt.  Other types of cancelled debt, i.e. credit card debt, rental mortgage debt, car loans or foreclosures, normally do not qualify for special exclusion.  However, other programs might be available to exclude those cancelled debts from being taxable.

5. Form 1099-C.  This is the form used to report debt cancellation to the IRS – it is due by February 1.  Did you receive a 1099-C from your lender?

6. Form 982.  Provides a form to attach to your tax return for discharged debt.  Title 11, bankruptcy is one course; however, debt could be discharged and not taxable if you are destitute or have qualified farm, business or residence debt.

Note:  More individuals are filing their own tax returns this year and not using tax professionals.  Individuals filing their own tax returns are more susceptible to identity theft since they do not have the safeguards in place as do tax professionals.  The IRS (IR 2016-34 issued March 1, 2016) estimates there has been a 400% surge in phishing and malware incidents so far this tax season. 

Tags:  debt cancellation  phishing  Taxes 

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IRS - Tax Frauds - The Dirty Dozen

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Thursday, February 18, 2016

This is a reprint from the Feb. 17, 2016, issue of 'The Journal of Accountancy' published by the American Institute of Certified Public Accountants.

Every year, the IRS releases a list of what it calls the worst tax scams of the year. Beginning Feb. 1 and ending on Feb. 17, the IRS issued a news release each day highlighting a scam. These “dirty dozen” scams can be encountered at any time of year, but the IRS reports that they peak during tax season.

 

1. Identity theft

According to the IRS, the No. 1 scam this year is tax-related identity theft, which the IRS defines as when someone uses a taxpayer’s stolen Social Security number to file a tax return claiming a fraudulent refund (IR-2016-12). Although the IRS has introduced more effective screening and detection systems that are designed to detect identity theft before it issues a refund, the Service admitted that it is still a major problem. To fight the problem more effectively, over the past year, the IRS has participated in a Security Summit initiative in partnership with states and the tax-preparation industry to try to improve security for taxpayers. The participants share information of fraudulent schemes that have been detected this filing season to provide increased protection. More than 20 data elements are used, unknown to taxpayers, to verify tax return information.

 

In addition, the IRS urged taxpayers to protect their own information so it is harder for thieves to breach the IRS’s security systems. These efforts at taxpayer education include theTaxes. Security. Together. campaign to help taxpayers avoid the data breaches that make it easier for them to become victims.

 

2. Phone scams

The second scam this year is phone scams, in which criminals call, impersonating the IRS (IR-2016-14). Many times, they disguise the number they are calling from so it appears to be the IRS or another agency calling, and they may threaten arrest, deportation, or license revocation. The scammers sometimes use IRS titles and fake badge numbers to appear legitimate and use the victim’s name, address, and other personal information, which makes the call sound official.

To protect themselves, the IRS says, taxpayers should be aware the IRS will never call to demand immediate payment, call about taxes owed without first having mailed a bill, call to demand payment without the opportunity to question or appeal, require use of a specific payment method, such as a prepaid debit card or wire transfer, ask for credit or debit card numbers over the phone, or threaten to bring in local police or other law enforcement to arrest a taxpayer for not paying.

3. Phishing

Another scam that continues to appear high on the list is “phishing,” in which taxpayers get unsolicited emails seeking financial or personal information. A taxpayer who receives a suspicious email should send it tophishing@irs.gov. “The IRS won’t send you an email about a bill or refund out of the blue,” said IRS Commissioner John Koskinen (IR-2016-15). Scam emails can also infect a computer with malware without the taxpayer’s knowing it, often enabling the criminals to access sensitive files or track keyboard strokes, exposing login information.

4. Return preparer fraud

Return preparer fraud involves “dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers” (IR-2016-16). The IRS warned taxpayers to be wary of “unscrupulous preparers who prey on unsuspecting taxpayers with outlandish promises of overly large refunds,” which is why the IRS says this scam makes it onto the list every year.

“Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected,” Koskinen said. The IRS provides a number of tips for taxpayers to choose competent preparers, including checking what the preparer’s credentials are, making sure the preparer will be available after filing season, and ensuring that the taxpayer’s refund is deposited into the taxpayer’s account, not the preparer’s. The IRS recommends avoiding preparers who base their fees on a percentage of the refund or promise larger refunds than other preparers.

 

5. Hiding money or income offshore

Hiding money or income offshore, which is a major focus of IRS enforcement efforts, is the next tax scam the IRS addressed (IR-2016-17). “Our continued enforcement actions should discourage anyone from trying to illegally hide money and income offshore,” Koskinen said. As the IRS explained, there are legitimate reasons that taxpayers have foreign accounts, but these accounts trigger reporting requirements. The IRS offers a number of programs, including the Offshore Voluntary Disclosure Program, for taxpayers to come into compliance with these requirements. The IRS noted that the heightened reporting required under the Foreign Account Tax Compliance Act, which went into effect in 2015, makes it even harder for taxpayers to conceal assets overseas.

6. Inflated refund claims

Another scam that is closely related to return preparer fraud is inflated refund claims, in which unscrupulous preparers set up shop to lure unsuspecting taxpayers (IR-2016-18). “Be wary of tax preparers that tout outlandish refunds based on federal benefits or tax credits you’ve never heard of or weren’t eligible to claim in the past,” Koskinen said.

Inflated refund claims often involve claims for tax credits that taxpayers are not entitled to, such as education credits, the earned income tax credit (EITC), or the American opportunity tax credit. The IRS reminds taxpayers that they are responsible for what is on their return, even if someone else prepares it, and they can be assessed penalties and interest as well as additional tax.

7. Fake charities

Next on the list is fake charities. Taxpayers are cautioned to check the Exempt Organizations Select Check on the IRS’s website to determine whether a charity is bona fide and qualifies for deductible contributions (IR-2016-20). Legitimate charities should be willing to give donors their employer identification numbers, which can then be used to check whether the charities are qualified on the IRS website. Fake charities often use names similar to well-known organizations and may set up fake websites. They also can be used for identity theft purposes. When large-scale natural disasters occur, these fraudulent organizations tend to increase, the IRS reports, and it warns that taxpayers should not make any contributions without checking first.

8. Falsely padding deductions

No. 8 on the list is falsely padding deductions (IR-2016-21), which consists of deceitfully inflating deductions or expenses on the return to pay less tax or receive a bigger refund. This item is new to the dirty dozen list this year. The IRS warns taxpayers that they should “think twice” before overstating their charitable contribution expenses or padding their business expenses, as well as avoid claiming credits they are not entitled to, such as the EITC and the child tax credit. Taxpayers who do this may be subject to substantial penalties and may, in some cases, face criminal prosecution.

9. Excessive claims for business credits

The next item on the list, excessive claims for business credits, expands on last year’s “excessive claims for fuel credits” (IR-2016-22). This scam involves two specific false claims for credits: fraudulent claims for refunds of fuel excise tax and bogus claims for the research tax credit. The IRS says that its refund fraud filters are stopping a number of fraudulent fuel excise tax refunds this year.

10. Falsifying income to claim tax credits

Tenth on the list is falsifying income to claim tax credits (IR-2016-23). This usually involves falsely claiming higher earned income to qualify for the EITC, which is a refundable credit. Unscrupulous preparers often do this to get taxpayers larger refunds than they are entitled to. Even when taxpayers are unaware of these false claims, they are, as the IRS reminds again, responsible for what is on their tax return. They can be subject to significant penalties, interest, and possibly prosecution.

11. Abusive tax shelters

No. 11 is participating in abusive tax shelters (IR-2016-25). Abusive tax shelters are defined as schemes using multiple flowthrough entities to evade taxes. They often use limited liability companies, limited liability partnerships, international business companies, foreign financial accounts, offshore credit or debit cards, and multilayer transactions to conceal who owns the income or assets.

The IRS also mentions the misuse of trusts and captive insurance companies among the types of transactions taxpayers should avoid. As in some of the other scams, the IRS warns that participating in these transactions can result in significant penalties and interest and “possible criminal prosecution.” According to Koskinen, “These schemes can end up costing taxpayers more in back taxes, penalties, and interest than they saved in the first place.”

12. Frivolous tax arguments

The final “scam” is frivolous tax arguments, which the IRS warns taxpayers not to be talked into (IR-2016-27). Announcing the release today of the 2016 version of its webpage, “The Truth About Frivolous Tax Arguments,” the IRS explained how the courts and the IRS have treated these arguments, which involve claims such as that the only employees subject to income tax are employees of the federal government or that only foreign income is taxable. “Taxpayers should avoid unscrupulous promoters of false tax-avoidance arguments because taxpayers end up paying what they owe plus potential penalties and interest mandated by law,” Koskinen said. The IRS reminded taxpayers that they would automatically be subject to the $5,000 penalty for frivolous tax positions.

 

Tags:  FRAUD  TAX 

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