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Fairfield, NJ 8/8/18: Smolin Lupin is pleased to announce that Alison McKillop has been recognized as one of Leading Women Entrepreneurs (LWE), Top 25 Leading Women Brand Builders of 2018. Alison is a Marketing Manager at Smolin, Lupin & Co., LLC. She has 7 years’ experience in all mediums of marketing, specializing in brand strategy, and business development.

Cultivating her career over the past several years, Alison has sharpened her skills serving multiple industries including engineering, advertising, and currently the professional service sector.

Alison works closely with the Partners and industry leaders at her firm. She embraces technology and social media in an effort to shake the prevailing stigma that reigns over the accounting profession and many of its trusted professional resources. Her high energy, creativity and willingness to try a new approach, no matter the initiative, have been a key factor of her past and future success in new business development.

Linda Wellbrock, founder of LWE, says, “This year’s honorees are amazing role models representative of the increasing impact women are making in the world of business. It’s true that women have more external challenges to overcome than their male counterparts. Regardless of gender, the to-do list will always continue to grow longer, resulting in an overwhelming, constant grind, and the feeling that one’s goals are increasingly out of reach. The Top 25 Recognition events are a platform for showcasing leaders who excel in innovation and advocacy and who made it to the top regardless of the challenges.”

Alison volunteers her time to many young professional associations throughout NJ. She is a graduate of Johnson & Wales University with a concentration in writing and psychology. She manages all marketing efforts within the firm from all four office locations; Fairfield, NJ, Red Bank, NJ, New York, NY and Juno Beach, FL.

About Smolin Lupin

Since 1947, Smolin Lupin has dedicated itself to developing long-lasting client relationships. We provide professional financial and accounting services uniquely designed to meet the needs of each and every client. This personal attention and guidance has helped us become the successful and respected CPA firm that we are today. Smolin’s panel of forensic professionals includes Certified Public Accountants, Certified in Financial Forensics, Certified Fraud Examiners, Accredited Business Valuators, and Certified Valuation Analysts. These individuals have the experience, skills and knowledge to manage your Forensic needs. Smolin Lupin is an Independent Member of the BDO Alliance USA and is one of the NJBIZ Top 20 Public Accounting Firms in New Jersey.

For more information, please visit www.smolin.com

Alison McKillop, Manager of Marketing amckillop@smolin.com
Smolin, Lupin & Co., LLC, 165 Passaic Avenue, Fairfield, NJ 07004

Meal, vehicle and travel expenses are common deductions for businesses. But if you don’t properly document these expenses, you could find your deductions denied by the IRS.

A critical requirement

Subject to various rules and limits, business meal (generally 50%), vehicle and travel expenses may be deductible, whether you pay for the expenses directly or reimburse employees for them. Deductibility depends on a variety of factors, but generally the expenses must be “ordinary and necessary” and directly related to the business.

Proper documentation, however, is one of the most critical requirements. And all too often, when the IRS scrutinizes these deductions, taxpayers don’t have the necessary documentation.

What you need to do

Following some simple steps can help ensure you have documentation that will pass muster with the IRS:

Keep receipts or similar documentation. You generally must have receipts, canceled checks or bills that show amounts and dates of business expenses. If you’re deducting vehicle expenses using the standard mileage rate (54.5 cents for 2018), log business miles driven.

Track business purposes. Be sure to record the business purpose of each expense. This is especially important if on the surface an expense could appear to be a personal one. If the business purpose of an expense is clear from the surrounding circumstances, the IRS might not require a written explanation — but it’s probably better to err on the side of caution and document the business purpose anyway.

Require employees to comply. If you reimburse employees for expenses, make sure they provide you with proper documentation. Also be aware that the reimbursements will be treated as taxable compensation to the employee (and subject to income tax and FICA withholding) unless you make them via an “accountable plan.”

Don’t re-create expense logs at year end or when you receive an IRS deficiency notice. Take a moment to record the details in a log or diary at the time of the event or soon after. The IRS considers timely kept records more reliable, plus it’s easier to track expenses as you go than try to re-create a log later. For expense reimbursements, require employees to submit monthly expense reports (which is also generally a requirement for an accountable plan).

Addressing uncertainty

You’ve probably heard that, under the Tax Cuts and Jobs Act, entertainment expenses are no longer deductible. There’s some debate as to whether this includes business meals with actual or prospective clients. Until there’s more certainty on that issue, it’s a good idea to document these expenses. That way you’ll have what you need to deduct them if Congress or the IRS provides clarification that these expenses are indeed still deductible.

For more information about what meal, vehicle and travel expenses are and aren’t deductible — and how to properly document deductible expenses — please contact your trusted Smolin advisor.

A business owner first became suspicious when one of her managers bought an expensive boat that seemed beyond his pay grade. A closer look at the employee and his department revealed sloppy record keeping and financial discrepancies. Was he stealing from the company?

Forensic accountants can help answer such questions. One of the most effective techniques for finding hidden income sources or assets is lifestyle analysis. It involves developing a financial profile of the subject and then looking closely at any mismatches between known resources and lifestyle.

Expert techniques

Developing a financial profile can be challenging because many people with unreported income receive it in cash. Forensic accountants use the following methods to uncover it:

Bank deposit. The expert reconstructs the subject’s income by analyzing bank deposits, canceled checks and currency transactions, as well as accounts for cash payments from undeposited receipts and nonincome cash sources (such as gifts and insurance proceeds).

Expenditure. Here, the expert analyzes the subject’s personal income sources and uses of cash during a given time period. If the person is spending more than he or she is taking in, the excess likely is unreported income.

Asset. This method assumes that unsubstantiated increases in a subject’s net worth reflect unreported income. To estimate net worth, an expert reviews bank and brokerage statements, real estate records, and loan and credit card applications.

Proving dishonesty

Proving that a person has unreported income is one thing. Tracing that income to assets or accounts that can be used to support a legal claim or enforce a judgment is another story. To do this, forensic accountants may scrutinize the assets noted above, as well as:

• Insurance policies,
• Court filings,
• Employment applications,
• Credit reports, and
• Tax returns.

Tax returns can be particularly useful because people have strong incentives to prepare accurate returns. For example, they may fear being charged with tax evasion if they lie to the IRS. As a result, tax return entries often reveal clues about assets or income that someone is otherwise attempting to conceal. Another potentially fruitful strategy is to interview people with knowledge about the subject’s finances, such as accountants, real estate agents and business partners.

Improve the odds

When someone is actively attempting to conceal income and assets, you need the expertise of a forensic accountant. Contact us to improve the odds of a satisfactory litigation result.

Any additional questions or interest in a lifestyle analysis, please contact your trusted Smolin professional for further assistance.

When school lets out, kids participate in a wide variety of summer activities. If one of the activities your child is involved with is day camp, you might be eligible for a tax credit!

Dollar-for-dollar savings

Day camp (but not overnight camp) is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2018, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.

Remember that tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you’re in the 24% tax bracket, $1 of deduction saves you only $0.24 of taxes. So it’s important to take maximum advantage of the tax credits available to you.

Qualifying for the credit

A qualifying child is generally a dependent under age 13. (There’s no age limit if the dependent child is unable physically or mentally to care for him- or herself.) Special rules apply if the child’s parents are divorced or separated or if the parents live apart.

Eligible costs for care must be work-related. This means that the child care is needed so that you can work or, if you’re currently unemployed, look for work.

If you participate in an employer-sponsored child and dependent care Flexible Spending Account (FSA), also sometimes referred to as a Dependent Care Assistance Program, you can’t use expenses paid from or reimbursed by the FSA to claim the credit.

Determining eligibility

Additional rules apply to the child and dependent care credit. If you’re not sure whether you’re eligible, contact us. We can help you determine your eligibility for this credit and other tax breaks for parents.

Please contact your trusted Smolin professional for assistance in the interpretation of tax credits available for individuals with children in day camp. Smolin will assist you in any transitional aid that may be needed.

When you think about recent tax law changes and your business, you’re probably thinking about the new 20% pass-through deduction for qualified business income or the enhancements to depreciation-related breaks. Or you may be contemplating the reduction or elimination of certain business expense deductions. But there are also a couple of recent tax law changes that you need to be aware of if your business sponsors a 401(k) plan.

1. Plan loan repayment extension

The Tax Cuts and Jobs Act (TCJA) gives a break to 401(k) plan participants with outstanding loan balances when they leave their employers. While plan sponsors aren’t required to allow loans, many do.

Before 2018, if an employee with an outstanding plan loan left the company sponsoring the plan, he or she would have to repay the loan (or contribute the outstanding balance to an IRA or his or her new employer’s plan) within 60 days to avoid having the loan balance deemed a taxable distribution (and be subject to a 10% early distribution penalty if the employee was under age 59-1/2).

Under the TCJA, beginning in 2018, former employees in this situation have until their tax return filing due date — including extensions — to repay the loan (or contribute the outstanding balance to an IRA or qualified retirement plan) and avoid taxes and penalties.

2. Hardship withdrawal limit increase

Beginning in 2019, the Bipartisan Budget Act (BBA) eases restrictions on employee 401(k) hardship withdrawals. Most 401(k) plans permit hardship withdrawals, though plan sponsors aren’t required to allow them. Hardship withdrawals are subject to income tax and the 10% early distribution tax penalty.

Currently, hardship withdrawals are limited to the funds employees contributed to the accounts. (Such withdrawals are allowed only if the employee has first taken a loan from the same account.)

Under the BBA, the withdrawal limit will also include accumulated employer matching contributions plus earnings on contributions. If an employee has been participating in your 401(k) for several years, this modification could add substantially to the amount of funds available for withdrawal.

Nest egg harm

These changes might sound beneficial to employees, but in the long run they could actually hurt those who take advantage of them. Most Americans aren’t saving enough for retirement, and taking longer to pay back a plan loan (and thus missing out on potential tax-deferred growth during that time) or taking larger hardship withdrawals can result in a smaller, perhaps much smaller, nest egg at retirement.

So consider educating your employees on the importance of letting their 401(k) accounts grow undisturbed and the potential negative tax consequences of loans and early withdrawals. Please contact us if you have questions.

Please reach out to your trusted Smolin professional with any questions or concerns.

The bookkeeper is one of any company’s most trusted employees. Unfortunately, that trust isn’t always deserved. Bookkeepers — particularly those in small and midsize businesses — are ideally positioned to embezzle from their employers.

Less means more

When bookkeepers go bad, there are plenty of ways for them to steal without alerting owners to irregularities. One simple method is to include a “less cash” amount when depositing checks to the company account — an amount that goes directly into the bookkeeper’s wallet. Another tactic is to open a sham account in the company’s name with his or her name as signatory, and then deposit payments to the business in that account.

Outright forgery is also possible. Bookkeepers may forge an authorized signature on checks payable to themselves, or send fraudulent “letters of authority” to the company’s bank.

Signs of trouble

Given the right set of circumstances, anyone could be willing to commit fraud. Scrutinize your bookkeeper if he or she:

• Frequently takes work home or works late in the evening or on weekends, • Is reluctant to take vacation time, • Becomes defensive or resentful when questioned about records, • Keeps disorganized books, • Explains away tax delinquency notices as government errors, • Insists on picking up mail or liaising with financial contacts, or • Suggests that you get rid of your outside accounting firm to save money.
None of the above is proof of fraud. There may be reasonable explanations for these and other potentially suspicious activities. But if they occur, be sure to investigate further.

Stop before it starts

One of the best ways to guard against bookkeeper fraud is to segregate duties. Don’t let your bookkeeper authorize, sign, post and reconcile checks while also handling every deposit. If there’s no one else in your company to assume those duties, request that bank statements be mailed to your home so that you can review them first.

Also work with your bank to prevent “less cash” deposits or unauthorized new accounts, and to require verification of any letter of authority. And consider asking an outside financial advisor to review your company’s financial and bookkeeping records periodically.

Good to know

Bookkeepers occupy positions of trust in any company. If your bookkeeper no longer deserves your trust, it’s better to know now — before this employee causes serious financial losses. Contact us for help.

Please reach out to your trusted Smolin professional with any questions or concerns.

Today, it’s not unusual for a family to include children from prior marriages. These “blended” families can create estate planning complications that may lead to challenges in the courts after your death.

Fortunately, you can reduce the chances of family squabbles by using estate planning techniques designed to preserve wealth for your heirs in the manner you want, with a minimum of estate tax erosion, if any. Here are four examples:

1. Will. Your will generally determines who gets what, when, where and how. It may be combined with “inter vivos trusts” established during your lifetime or be used to create testamentary trusts, or both. While you can include a few tweaks for your blended family through a codicil to the will, if the intended changes are substantive — such as removing an ex-spouse and adding a new spouse — you should meet with your estate planning attorney to have a new will prepared.

2. Living trust. The problem with a will is that it has to pass through probate. In some states, this can be a costly and time-consuming process. Alternatively, you might transfer assets to a living trust and designate members of your blended family as beneficiaries. Unlike with a will, these assets are exempt from probate. With a revocable living trust, the most common version, you retain the right to change beneficiaries and distribution amounts. Typically, a living trust is viewed as a supplement to — not a replacement for — a basic will.

3. Prenuptial agreement. Generally, a “prenup” executed before marriage defines which assets are characterized as the separate property of one spouse or community property of both spouses upon divorce or death. As such, prenuptial agreements are often used to preserve wealth for the children of a first marriage before an individual enters into a second union. It may also include other directives, such as estate tax elections, that would occur if the marriage dissolved. Be sure to investigate state law concerning the validity of your prenup.

4. Marital trust. This type of a trust can be customized to meet the needs of blended families. It can provide income for the surviving spouse and preserve the principal for the deceased spouse’s designated beneficiaries, who may be the children of prior relationships. If certain tax elections are made, estate tax that is due at the first death can be postponed until the death of the surviving spouse.

These are just four estate planning strategies that could prove helpful for blended families. You might use others, or variations on these themes, for your personal situation. Consult with us to develop a comprehensive plan.

Please reach out to your trusted Smolin professional with any questions or concerns.

The attitudes and behaviors of your people managers play a critical role in your company’s success. When your managers are putting forth their best effort, the more likely it is that you’ll, in turn, get the best performances out of the rest of your employees. Here are three ways to supercharge your supervisors:

1. Transform them into teachers. Today’s people managers must be more than team leaders — they must also be teachers. Attentive managers look for situations that will help subordinates learn how to work smarter and more efficiently.

Typically, learning occurs most readily when rewards are applied as close to the intended behavior’s occurrence as possible. Thus, train managers to look for moments when employees are being successful and to immediately recognize those efforts. Managers should praise them in the presence of others and regularly. Low-cost rewards such as the occasional free lunch or gift card can also be highly motivational.

2. Turbo-boost their reaction times. Be sure people managers address problems right away. The operative word there is “address,” and its meaning may vary depending on the nature of the trouble.

For minor difficulties, just leaving a friendly voice mail or carefully worded email may do the trick. But for more serious conflicts or dilemmas, a thorough investigation is important, followed by face-to-face meetings documented in writing. In either case, it’s imperative not to let problems fester.

3. Turn off their micromanagement switch. While people managers need to keep an eye out for good and bad behavior, they shouldn’t micromanage. Those who perch atop employees’ shoulders, checking every detail of their work, are as bad for a business as rude customer service or defective products.

Why? Because the more people managers micromanage, the more they communicate the wrong message — that they don’t believe employees can get the job done. Micromanaging not only lowers morale, but also hinders efficiency, as the manager is basically spending valuable time doing the employee’s job rather than his or her own.

In the day-to-day grind of keeping a business running, people managers can understandably get worn down. If yours need a lift, consider reinforcing the points above in training sessions or during performance evaluations. For further information and other ideas, contact us.

Please reach out to your trusted Smolin professional with any questions or concerns.

Technology is tricky. Much of today’s software is engineered so well that it will perform adequately for years. But new and better features are being created all the time. And if you’re not getting as much out of your financial data as your competitors are, you could be at a disadvantage.

For these reasons, it can be hard to decide when to upgrade your company’s accounting software. Here are three keys to consider:

1. Your users are ready. When making a major change to your accounting software, the sophistication of the system needs to align with the technological savvy of its primary users. Sometimes companies buy expensive software only to have many of its features gather virtual dust because the employees who use it are resistant to change.

But if your users are well trained and adaptable, they may be able to extract added value from a more sophisticated accounting system. For instance, they could track key performance indicators to generate more meaningful financial reports.

2. The price is right. You’ll of course need to consider the costs involved. As holds true for any technology purchase, project leaders must set a budget and focus the search on products and vendors offering only the functions your company needs.

But don’t stop there. Explore add-on services such as free trials, initial training and ongoing support. You want to get the most value from the software, which goes beyond the new and improved features themselves.

3. You need to integrate. This is the concept of networking your accounting system with your other mission-critical systems such as sales, inventory and production.

For most companies today, integration is essential to maximizing the return on investment in accounting software. So, if you haven’t yet implemented this functionality, an upgrade may be highly advisable. Just be aware that a successful companywide integration will call for buy-in from every nook and cranny of your business.

Typically, if a company doesn’t need any major accounting process changes, it probably doesn’t need a major accounting software change either. But if upgrading both will help grow your business, it’s absolutely a step worth considering. We can provide further guidance and info.

Please reach out to your trusted Smolin professional with any questions or concerns.

Businesses often enter into so-called “collaborative arrangements” when they partner with another entity on a major project. Unfortunately, the current guidance for these types of arrangements under U.S. Generally Accepted Accounting Principles (GAAP) is somewhat vague.

Here are some questions that may arise as participants report shared costs and revenue on their income statements, along with details about a recent proposal that would clarify how to report collaborative arrangements.

What is a collaborative arrangement?

Accounting Standards Codification (ASC) Topic 808, Collaborative Arrangements, provides guidance for income statement presentation, classification and disclosures related to collaborative arrangements. It lists three requirements for collaborative arrangements:

1. They must involve at least two parties (or participants).
2. The parties involved must all be active participants in the activity.
3. All participants must be exposed to significant risks and rewards dependent on the commercial success of the activity.

Collaborative arrangements are a particularly common type of joint venture for film production and life science companies. For example, two pharmaceutical companies might agree to share research and development expenses to produce a new drug. Then, if the drug succeeds, the companies also would share the revenue from sales of the drug.

What qualifies as revenue?

Today’s guidance on collaborative agreements has led to inconsistent accounting practices. Why? Topic 808 doesn’t include guidance for determining what the appropriate unit of accounting is or when recognition criteria are met. Rather, it says to look to other areas of GAAP to account for a transaction. If there’s no formal guidance available, businesses typically apply an accounting policy or another accounting method by analogy. As a result, companies may label items as “revenue” when they belong elsewhere on the income statement.

To further complicate matters, the landmark revenue recognition standard goes into effect in 2018 for public companies and in 2019 for private ones. Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), limits application of the revenue standard to arrangements that involve a customer as one of the parties to a contract.

In April, the Financial Accounting Standards Board (FASB) proposed an update to clarify the scope of its standards for revenue and collaborative arrangements. If finalized, the proposal will help partners in a collaborative arrangement determine when a transaction should be treated as revenue. Public comments on the proposed changes are due in June.

Got more questions?

We’re atop the latest developments on reporting collaborative arrangements. Contact us with questions about the interaction of the standards for collaborative arrangements and revenue recognition. We can help you concurrently implement the latest rules and minimize the risk of restatement.

Please reach out to your trusted Smolin professional with any questions or concerns.