Improving your cash flow through effective tax planning

If you have an interest in real property as an owner or tenant, a cost segregation study may be one of the tools to increase your cash flow or help manage your tax liability.

“These studies have saved both businesses and individuals hundreds of thousands of dollars,” says Walter McGrail, Principal at Cendrowski Corporate Advisors LLC.

Smart Business spoke with McGrail about these studies to better understand how companies might best utilize them.

What is the focus of the analysis?
A cost segregation study identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which reduces current income tax obligations.

The primary goal of a cost segregation study is to identify all construction-related costs that can be depreciated over a shorter tax life than the building.

Generally speaking, personal property assets identified in a cost segregation study might include items that are affixed to the building, but do not relate to its overall operation and maintenance.

What are the phases of the study?
The process will usually begin with a meeting between management and the firm conducting the study.

During the next phase, or the scope phase, the engineering professionals and tax accountants walk through all areas of the property with a site representative to develop a general overview.

Engineers also examine the architectural renderings or blueprints to produce an in-depth analysis. In addition, a review will be done on any construction contracts, capital expenditure budgets and reconciliations.

Next, the tax accountants take the engineers’ work and put it in format acceptable to the IRS. A report with documentation supports how the cost recovery was arrived at and takes into account any stipulations on allocations.

How is the amount of benefits determined?
First, the benefit is dependent upon the income tax savings generated from depreciation deductions claimed for income tax reporting purposes.

The costs incurred by a taxpayer in any capital expenditure program or property acquisition are recoverable as deductions in arriving at federal and state taxable income. Costs attributable to depreciable assets generate annual depreciation deductions reducing taxable income.

Second, the tax savings occurs for both federal and state income taxes. Depreciation deductions generally result in tax savings of approximately 40 percent of the deduction claimed.

Third, cost segregation studies identify categories of costs that have a shorter cost recovery period for income tax.
The actual savings is the reduction in current tax payments with resulting increases in taxes payable in subsequent periods, i.e., the ‘time value of money’ attributable to a sound treasury cash management program.

As with any treasury cash management program, a businesses’ cost of capital is the appropriate discount rate to measure the ‘present value savings’ of deferring cash charges for income taxes.

The higher an entity’s cost of capital, the more significant the present value savings attributable to deferring such tax payments.

What are the benefits of this study?
These studies have helped maximize tax savings and increase cash flows on current, future or past property purchases by maximizing tax deferrals.

Put another way, the benefit is the ‘present value savings’ attributable to the deferral of income taxes achieved via the acceleration of depreciation deductions resulting from shorter cost recovery periods identified during the study.

Generally, the depreciable tax life of most commercial buildings is 39 years. Recovery periods for personal property and land improvements range from five or seven and 15 years.

A cost segregation study identifies items that can be classified properly into categories with shorter tax recovery lives, which allows individuals and businesses to save hundreds of thousands of dollars through effective tax planning and improve cash flow. ●

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC.

Tips for craft brewers

Today’s beer industry is undeniably shifting in favor of the emerging craft brew movement that has brought thousands of options to taps across the nation.

With ever-growing market presence and seemingly limitless business potential, it’s no wonder small-scale brewers are jumping at the opportunity to start their own brewery and get their beer to the market.

Smart Business spoke with Brandon Scripps, a senior audit manager at Sensiba San Filippo LLP, for insight on what critical financial factors lead to the success and failure of startup breweries.

Why would someone want to open a brewery?
As of 2015 there are more than 4,000 breweries in the U.S., that’s up from 3,500 in 2014. While the industry increased less than 1 percent last year, craft beer sales rose nearly 20 percent.

Craft beer has caused big breweries like Budweiser and Miller to decline by more than 25 percent in the last six years.

Craft beer’s growing presence in the $100 billion industry is resulting in a significant amount of acquisitions of craft breweries by some of these larger breweries, with huge associated valuations.

What are the main reasons why new breweries fail?
Failure usually stems from undercapitalization and lack of understanding of the operational aspects of the business. Having a successful brewery is more than the quality of beer you are selling.

It’s having the right financial understanding to keep it afloat. This includes implementing smart branding strategies, planning for distribution, expansion, and impeccable inventory and costs tracking.

Failure to understand these elements has been a major downfall of many breweries.

How can a brewery set themselves up for success?
A good, realistic business plan is critical. In order to make a profit you must know how much money goes into your beer and how much you get out.

Careful cost tracking will help you identify exactly what you need to sell in order to be profitable, which will in turn tell you which product is successful and if you need to raise prices, up production or reevaluate your vendor budget.

You must understand the key financial ratios, such as breakeven point, matching production runs with projected sales, and the costs and margins of different products.

Additionally, a good inventory tracker may be a hefty investment, but it’s a crucial expense if you plan on growing and keeping your label alive. Before starting, factor in extended time for licensing and permits since that could affect your market schedule.

What is the best advice you could offer someone opening a brewery?
Understanding the financial ratios of your business and looking at information in real time is a must.

There are three statements that are essential: your income statement, your balance sheet and your cash flow statement. Looking at only one of these will lead you to false assumptions or even a skewed idea of how well, or poorly, your business is doing.

Your income statement showcases your profit margin and ultimately shows efficiency over time. Because it shows income, owners often mistake this as the only piece of the puzzle they need to assess their success.

However, you need all three statements to gain a complete picture. The balance sheet is a snapshot of your business at a single moment in time and is important when looking at ratio calculators and key performance indicators.

Lastly and arguably most importantly, your cash flow statement shows how money flows in and out of the company, not only operationally, but also through investments and financing.

Monthly evaluation of these documents will help keep your brewery accountable for your financial goals while maintaining a healthy and accurate financial perspective while making critical decisions throughout the year. ●

Insights Accounting is brought to you by Sensiba San Filippo LLP

What has the PCC done for your business lately?

It’s tough being a midmarket business.

Accounting and reporting requirements can be a significant burden for companies without the vast human and financial resources of larger enterprises. One organization is hard at work to make things just a bit more manageable for these middle market companies: The Private Company Council (PCC).

Smart Business spoke with Karen Burns, assurance partner at Sensiba San Filippo LLP, about the PCC and the beneficial changes they are making that could impact your business.

What is the PCC?
Accounting standards are not intended to create difficulty for private companies. But with needs and profiles that differ from those of larger public companies, it can often feel that way to midmarket businesses as they struggle to meet onerous compliance responsibilities designed with public companies in mind.

In order to address this problem, the PCC was established in May 2012.

The PCC works with the Financial Accounting Standards Board (FASB) to determine when and whether to modify U.S. generally accepted accounting principles (GAAP) for private companies.

Based on advice from business leaders and financial professionals, the PCC proposes alternatives to particularly cumbersome GAAP standards, which become accepted practice after input from multiple stakeholders and final FASB approval.

The 10-member PCC seeks ongoing input from private company CFOs, CPAs and representatives of financial institutions across the country to gain a clear understanding of the accounting challenges these businesses face. This input can come in the form of solicitations to comment, or regional roundtables.

What changes has the PCC already made?
Since its inception, the PCC has achieved several notable changes that deliver welcomed alternatives to many private companies.

For example, last year the FASB approved a change that allows for alternative goodwill accounting. Under this option, goodwill can be amortized over 10 years — or less, if a shorter life is appropriate beginning in calendar year 2015.

This is important because the goodwill generated from private company transactions often does not extend beyond 10 years, yet companies previously had to complete a complex calculation annually to test for impairment of value.

Another significant accomplishment is an easing of the guidance regarding consolidation of variable interest entities (VIE) under common control leasing arrangements. Effective for calendar year 2015, this change allows entities to elect not to apply VIE guidance — i.e. not to consolidate — when all of the following are true:

■  Common control of the leasing entity exists.

■  Substantially all activity is limited to leasing.

■  The principal amount of obligation at inception does not exceed the value of the asset leased by the company from the lessor.

If elected, the alternative rules must apply to all leasing arrangements that meet the above conditions. Early adoption is also allowed.

What anticipated changes are in the PCC’s pipeline?
Recently, the PCC made additional recommendations to the FASB to ease the burden on midmarket business regarding:

■  Other comprehensive income.

■  Liabilities with characteristics of equity.

■  Cash flow classification.

■  Financial statement presentation.

The PCC presented these topics as immediate priorities, so it’s reasonable to hope for exposure drafts regarding alternative standards in the near future.

It’s easy for business leaders to regard those who set accounting standards as opponents because of their sometimes unnecessary complexity. While that’s understandable, the intent is for transparency to the users of the financial statements.

With the PCC’s ongoing work, aided by input from CPA firms that understand the private company sector, accounting for this market segment may continue to become increasingly user-friendly. ●

Insights Accounting is brought to you by Sensiba San Filippo LLP.

How to develop a forward-looking financial forecast for your business

Financial statements and tax returns are a rearview glance in the mirror at what has already happened at your organization. Instead of always looking back at your financial data, it’s important to develop a forward-looking forecast.

“It might sound simple, but it can be difficult for business owners because they are working at 100 miles an hour to run and grow their business. They feel like they don’t have an opportunity to step back and do some forward thinking,” says Dave Cain, CPA, a principal at Rea & Associates.

And then even if they do develop detailed budgets or forecasts, they often get put on a shelf and never checked again, he says.

Smart Business spoke with Cain about using forecasts to have a forward-looking mentality on your business.

What kind of forecasts should employers be putting together?

Ideally, you would have a long-term, middle-term and short-term strategy. You’d put together a five-year and three-year strategic plan, along with a 12-month forecast. Then you’d take that 12-month budget and break it down into 13-week cash flow budgets, which makes it more managed pieces that are still flexible to change. At the end of each week, you’d go out another week, so that you always have a forecast that projects out one quarter in advance.

The reality for many business owners is a five-year and/or three-year projection that just collects dust. They may have a one-year budget of financial data, but that may or may not be adjusted throughout the year.

In order for this to work, the forecasts have to be realistic. If there’s a little bit of stretch room, it still needs to be achievable.

You also need someone to be responsible for driving the process. That person needs to constantly review to make sure that your goals actually happen. If the CEO doesn’t have time, then delegate the project to another C-suite executive or your CPA, controller or banker.

From a technology standpoint, it’s never been easier to gather and project this kind of data. You just need to figure out who will read and analyze the information.

What are the biggest benefits of forecasts?

Forecasts give you more accurate data and reports to make management decisions. They help your redirect your dollars, so that you spend your money on things that actually will increase the value of your business without hurting your cash flow.

They increase efficiency because you see everything better. They help you deliberately think about where your money is going and how that connects to your strategic plan, vision plan, mission statement and the overall direction of your company.

For instance, if you think you need a new piece of equipment, take a step back before you make a purchase. Why are you buying it this quarter when you didn’t anticipate it? Is this a knee-jerk reaction? Is it the hottest thing on the market that you have to have, or were you actually strategically planning for that expenditure? Is this the right time in your business cycle to make this kind of purchase?

Where do you see employers hit obstacles with their forecasting? What best practices can help overcome these?

The barriers to forecasting are either time or not having the right internal expertise.

You need to set aside time every day — or at the very least once a week — to think about generating stronger cash flow or revenue. For example, first thing in the morning, grab a coffee, open your 13-week forecast and spend a few minutes looking at your goals and action steps. Make it a habit to think about it every day.

When you’re down in the weeds, sometimes it’s difficult to see the big picture. So, use your advisers accordingly. They aren’t stuck in the day-to-day and can help keep you focused. Are these things realistic, achievable and tied to your overall strategy and vision? What plans do you have to get it done?

If you don’t have action steps and timelines to make your goals happen, the forecast will just be numbers — and probably a waste of time. It’s just like putting together a household budget; nobody likes doing it, but after it’s done, you have to follow it if you want to see results.

And remember, it may take a while to see the outcomes, but it will make a huge difference in both your business strategy and the value of your company.

Insights Accounting is brought to you by Rea & Associates

What you and your business can do to protect against cyberattacks

With all the headlines about massive security breaches at the IRS, major retailers and social media sites, it is easy to think of cyberattacks as a problem solely impacting large organizations.

In reality, small organizations and even individuals can be the victims of an attack. While it is practically impossible to completely eliminate the risk of cybercrime, there are several simple actions you can take to reduce the risk.

Smart Business spoke with Jim Martin, Managing Director at Cendrowski Corporate Advisors LLC, about what you and your company can do to protect yourselves.

What can a person or small business do about the threat of cyberattack?
As cyberthreats evolve, the methods of protecting individuals and businesses need to evolve as well. Cybersecurity should be an ongoing cycle to identify risks, work to mitigate that risk, monitor for intrusions and new threats, and respond and recover from actual attacks.

This needs to be an ongoing process as new threats emerge, rather than a one-time review. The same principles can be applied to a cybersecurity program for an individual or small business.

It’s critical to remember that our home and business lives are increasingly interconnected. Even if you don’t do much more on your home computer than check email and shop, you might still be downloading and storing information inadvertently.

For example, if you check your work email on a home computer, and open attachments, you likely have a history of correspondences and copies of the attached documents, even if you didn’t save the files.

Similarly, if you use your work computer to enter your bank account information to check your balance, or use a credit card for online purchases, residual data may be saved.

Most internet browsers will offer to save passwords for websites you visit and these are also stored on your machine. When you start to think about your actual use, you will likely find that the computers you access contain all sorts of sensitive data.

What about a person’s smartphone?
Phones and mobile devices also store file and password data, and should be used cautiously and protected. Also, be aware of cloud backup and sharing platforms as they can propagate files across all the devices on the same cloud account.

Your work might have a Bring Your Own Device (BYOD) policy that describes the limits of data you can access with your device, which should be followed rigorously. Your mobile devices should be configured with a passcode or other ID to prevent others from accessing data if the device is lost.

If possible, your device should be encrypted to prevent more intrusive methods of accessing your data.

What are some warning signs that should be noted?
Monitoring is a big part of any effective cybersecurity plan. It’s important to be aware of changes in the way your devices operate.
If you notice popup windows (especially those asking for password information), redirection to strange websites while you are browsing, or extremely slow processing it might mean you have malware infections.

While many of these simply push advertising, they all have the potential to do a lot of harm — or install other malware that could do harm. Anti-virus and anti-spyware programs can remove these malware applications, or a specialty computer support company can help.

Registering your anti-virus program with your email account can be helpful for monitoring and anti-virus companies send out frequent alerts about new types of attacks. Professionals who operate in high risk environments should consult with a security firm for in-depth assistance as part of a personal risk assessment.

For example, attorneys involved in high-profile litigation, attorneys involved with law enforcement or those who frequently access confidential documents at home are at greater risk.

Basic awareness of the risk of cyberattack to personal computing devices can greatly reduce the risk of an attack, and the impact should an attack occur. It is every user’s responsibility to ensure the safety and security of the data they maintain on their personal devices. ●

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC

What Nevada’s new commerce tax means for your business

Nevada companies, or those that do business in the state, have new tax obligations in fiscal year 2016 based on Senate Bill 483. The bill’s accompanying commerce tax, which is expected to impact some 47,000 businesses and self-employed individuals, is part of a broadly applicable tax package that will contribute more than $1.4 billion to the state’s coffers in the first two years.

Many businesses will need to begin now to accurately assess their gross revenue and business category under the law’s complex provisions and determine the relevant deductions and exclusions so they can prepare to file initial reports next summer.

Smart Business spoke with Monic Ramirez, a tax partner at Sensiba San Filippo LLP, to learn more about the Nevada commercial tax and its impact on businesses.

Who is affected by the new law and who is protected from its reach?
The law applies not just to businesses located in Nevada, but also to those that do business in the state that generate more than $4 million in revenue. For out-of-state entities doing business in Nevada, gross revenue sourced to the state should be determined by:

■  Rents and royalties paid for real property located or used within the state.
■  Sales of real property in the state.
■  Rents and royalties for tangible personal property that are used or located within the state.
■  Sales of tangible personal property that are either shipped or delivered to a Nevada buyer.
■  Transportation services for which the origination and destination points are within the state.
■  Any services that result in the purchaser’s benefit occurring within the state.

Passive entities, credit unions, estates, grantor trusts, nonprofits, certain Real Estate Investment Trusts and any natural person not engaged in business are explicitly excluded from the tax. The law also includes an exemption for businesses generating less than $4 million in revenue.

A net loss for the year does not remove the responsibility to pay since the tax is calculated based on gross revenue. There are, however, ways to reduce the amount owed.

How does size and business structure play a role in the net effect of the tax?
Business category is a key data point since the commerce tax rates vary based on industry. Companies representing 26 different codes defined by the North American Industry Classification (NAIC) system are responsible for paying the new tax on gross revenue in excess of the exemption amount at rates between 0.051 percent and 0.331 percent.

Unclassified businesses or those that do not clearly fit into one of the specified codes will pay a rate of 0.128 percent.

Business entities that engage in multiple business categories will pay a single rate determined by the applicable category that creates the most Nevada revenue. The category that is reported on the initial commerce tax report will remain in effect until the entity has filed and received Department of Taxation approval for any requested change.

Separate entities within a parent-subsidiary group are not treated as a single unit under the provisions of the commerce tax.

These businesses will need to file a Commerce Tax Report for each entity subject to the tax. Companies that are currently structured in such a manner are strongly advised to review their arrangements to avoid paying more than necessary in combined Nevada payroll and commerce taxes.

What are the provisions that will mean increased cost for many businesses?
Additional amendments to the bill apply to a far broader swath of the business community.

Fortunately, the law contains multiple deductions and exclusions from the gross revenue taxable under the new plan, any business that may be affected should begin a careful examination of Nevada revenue, company structure and NAIC category and adjust accordingly to prepare for next year’s tax returns.

The earlier this assessment and adjustment is implemented, the more opportunity there may be to minimize the impact of increased state tax liability as a result of SB 483. ●

Insights Accounting is brought to you by Sensiba San Filippo LLP.

How to weigh the pros and cons of auditor rotation

Some organizations switch auditors regularly — that can mean going to a new firm or just getting a new lead auditor —  but there can be both advantages and disadvantages to this practice.

Although the Securities and Exchange Commission regulates how often public companies need to switch lead auditors, there’s no requirement for anyone else to do so. It’s individually determined by the organization.

“I don’t have any hard evidence, but my perception is that very few of our clients utilize audit rotation; most don’t bid it out periodically,” says Mark Van Benschoten, CPA, CGMA, a principal at Rea & Associates.

Smart Business spoke with Van Benschoten about best practices for auditor rotation, including the benefits and drawbacks.

Why do some companies rotate auditors?

Auditors are supposed to be independent of their clients, closely scrutinizing their operations. Some feel if they’re with the same auditor too long, the auditor may lose objectivity and won’t ask hard questions. They also may feel that if the auditor has always tested the accounts receivable this way, then he or she may continue to do so — even if it’s no longer the best method.

Another reason is price. Companies may keep bidding audit work out, believing that an audit firm provides a lower price for new clients in hopes of gaining additional work.

What are the drawbacks to audit rotation?

If an audit firm is familiar with an organization, it knows what reports to ask for and where to get them. It also learns the company’s terminology, which streamlines the audit process. Auditors can be more effective after they’ve gone through a couple of audit cycles because they have institutional knowledge.

Although switching to another firm may cost less upfront, in the long run, you might experience the indirect cost of your time — or, more specifically, the extra time you’ll have to spend training the new firm and familiarizing them with your operations. Or, it’s possible that the final bill is higher than anticipated because the auditor had to undertake additional work, like bookkeeping. There’s also a cost to a deficient audit. If the auditor missed something, such as an organizational weakness that encourages fraud, the company ends up paying more later.

How can employers determine if it’s time to rotate auditors or stay put?

You need to get a sense of how your audit relationship is going through some kind of auditor evaluation. Do you have a relationship with your auditor? Do you only see him or her once a year? You should have ongoing communication. Do you feel comfortable calling your auditor with a question? Is your auditor knowledgeable about your industry?

Talk to your staff about the audit itself. Was it done timely? Are the auditors pleasant to work with? Are they demanding? Did they respond to all questions? Are they always dealing with new audit staff?

You don’t want an audit to be such a laborious task that your people dread it. It should be a positive working relationship, where both parties are striving for effective and efficient audits. Financial information is most useful when it’s timely and accurate. If you sacrifice one for the other, you diminish the value.

Before you switch, think through what you’re trying to accomplish and what’s giving you angst. What do you want that you’re not getting now? You need to have some basis, so when you get proposals you have some measure to evaluate them by.

Don’t just implement auditor rotation because everyone does it. For example, if you want a fresh set of eyes, make sure that you’re really accomplishing that by changing auditors. You may decide to stick with the same firm for its institutional knowledge but just request a new partner to work with.

What else is important to know about the audit process?

There needs to be a relationship between the auditor and the board or audit committee, as well as several people in management. The auditor shouldn’t just deal with the CFO, for instance, because he or she might lead the auditor down a path that narrows the vision. If an auditor is talking to others it gives a broader perspective as to what’s going on.

Insights Accounting is brought to you by Rea & Associates

Top four tax saving incentives for Bay Area manufacturers

For leading Bay Area manufacturers, competition comes in all shapes and sizes, and from across the globe. Even in a market renowned for world-class innovation, competitive advantages are razor thin. Your success is driven by your ability to innovate and your innovation is dependent on many factors, not the least of which is your available capital.

Bay Area manufacturers are provided with many significant tax incentives that can help to mitigate tax liabilities, increase the bottom line and free up capital for ongoing investments.

Smart Business spoke with Linda Cook, senior tax manager at Sensiba San Filippo LLP, about opportunities for manufacturers that could fuel growth and profitability.

How can manufacturers leverage state and federal R&D tax credits?

Many manufacturers know that California and the federal government provide credits for conducting research and development.

What many don’t know is that federal and state tax codes define research and development much more broadly than most businesses. Far more qualifies for credits than just pure scientific research. Applied research such as new product development, process development and process improvement can also qualify for credits.

Unlike deductions, which lower taxable income, credits like the R&D credit actually provide dollar for dollar offsets to tax, making them extremely valuable.

What is the Domestic Production Activities Deduction (DPAD)?

The DPAD rewards qualified production activities with a deduction of up to 9 percent of net income, effectively reducing tax liability.

Like the tax definition of R&D, the definition of qualified production activities can go beyond traditional manufacturing to include software development, recordings and film production, and even the construction of real property. Understanding and applying these expanded definitions can lead to increased savings.

How can accelerated depreciation be helpful to manufacturers?

Depreciation deductions created by assets can actually lower tax bills and free up cash. Cost segregation allows for breaking large assets down into their component parts in order to speed up depreciation. A cost segregation study often produces significant catch up depreciation and a large break on upcoming tax filings.

Additionally, Section 179 and bonus depreciation can provide tremendous value at the time when qualifying assets are purchased and placed in service allowing for the immediate expensing of some assets and 50 percent bonus depreciation on others. While both Section 179 and bonus depreciation are currently expired, both appear to have a great chance of being extended.

What local, state and federal incentives should be considered?

Local, state and federal incentives are designed to attract businesses, reward expansion and job creation, and promote specific activities. Many manufacturers miss out on these opportunities because of the large number of incentives and the varying processes required to claim them.

At the federal level, the Empowerment Zone Employment Credit incentivizes hiring within designated areas while the Work Opportunity Tax Credit provides tax credits for hiring individuals within target groups. Both credits are currently expired, but they are likely to be renewed.

In California, three new incentives were recently introduced: a new sales tax exemption rewards targeted industries and activities; the California Competes program provides tax credits for businesses expanding or creating new jobs in the next five years; and the New Employment Credit provides credit opportunities for companies with net increases in jobs in designated areas.

When it comes to tax incentives, knowledge and action are the keys to opportunity. Identify the right opportunities and take the necessary steps to qualify or apply. Manufacturers should specifically discuss incentive opportunities with their tax adviser every year, matching opportunities with activities and proactively taking the steps necessary to realize savings.

Insights Accounting is brought to you by Sensiba San Filippo LLP

How best to open the door when the government comes knocking

Missteps in the days immediately following the launch of a governmental investigation can have costly and far-reaching consequences. Organizations need to plan ahead and be prepared.

Cooperate, be honest and forthcoming, have a complete and total understanding of your company and be sure to communicate with your employees. Firms need to have a set of proper procedures and processes in place early in order to avoid any scrambling.

Smart Business spoke with Theresa Mack, senior manager at Cendrowski Corporate Advisors, to discuss what your firm should do if it becomes subject to a government investigation.

If a company is facing a government investigation, what are the first steps?

A firm often learns it is going to be the subject of an investigation when an agent either serves a search warrant or requests an employee interview. There is no time to prepare for these, which is why your firm needs to have standard processes in place to handle these situations.

One of the most important steps after being informed of a governmental investigation is the preservation of documents. Once a firm has been notified of the investigation, its counsel should issue a written directive, a preservation memo, to everyone in the company telling them not to destroy any documents.

This written directive applies to all offices and branches of the company worldwide, not just the physical location where the investigation started. Do not destroy or delete anything that could be perceived as important to the investigation. If the investigation leads to a trial and the destruction of documents comes to light, there can be dire ramifications.

In these types of investigations, everything eventually comes to light. Firms must be especially careful about the inadvertent destruction of documents. Many servers automatically delete stale emails or documents housed in electronic storage areas. If any employees are leaving the company, their records should be maintained rather than deleted.

This will likely require informing a firm’s IT staff about the investigation to ensure none of the former employee files are deleted. Firms can go one step further and have IT staff back up everyone’s data, so even if people delete documents on their machines, a copy will be preserved elsewhere.

How do you know where your company stands during an investigation?

First and foremost, cooperate with the investigation. Your counsel should be in contact with the prosecutors. Be responsive and timely, and ask any questions you may have. Make sure you ask what your status is in the investigation, as all companies and individuals fall into one of three categories: witness, subject or target.

A witness is not yet under suspicion but may have information of interest. A subject is someone whose conduct is within the scope of the investigation, but it is uncertain that any crime has been committed. A target is someone whom the prosecutor has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a likely defendant.

Listen to the terms that the prosecutor or investigator is using and have your counsel inquire as to the status of the investigation where appropriate. Some prosecutors are more willing to discuss the investigation than others.

Some will provide ‘non-target’ or ‘non- subject’ letters to the individual upon request. This request is often made before someone will submit to an interview, assuming that he or she is not a target of the investigation. This letter, when obtained, provides a level of comfort to the interviewee and allows for a more cooperative and informative interview.

Should a company make a public statement if it is under investigation?

Some companies will want to send out a press release right away to show that they are on top of things, but firm executives and board members should first weigh their options. Will coming out to the public impact the company’s value and or stock? Are you sure that the investigation will not lead to charges?

Often an investigation ends with minimal evidence and the case is closed before it can go to court, so consider not speaking too soon. However, if you do decide to disclose the investigation, ensure everyone in the company is on the same page.

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC

What companies can do now to get ready for the 2016 tax season

It’s time to do your business tax planning and, just like a doctor’s check-up, if you decide to skip it, you may regret it.

You could face a larger tax bill because you weren’t in close enough contact with your advisers when you did a transaction, changed a policy or practice, or amended what you are doing with insurance. You may encounter wide swings in income and tax due from one year to the next if you don’t check in with your advisers.

“Fall is the best time for tax planning,” says Tracy Kaufman, CPA, a principal at Rea & Associates. “By now, the majority of the year has gone by, and you have a good feeling for what the rest of the year is going to be like. If you wait until after the year-end, it’s too late. It’s also a good time to explore additional ideas like profit sharing/retirement contributions, bonuses and review of insurance.”

Smart Business spoke with Kaufman and Joe Popp, JD, LLM, a tax manager at Rea & Associates, about some best practices that will help your company prepare for the upcoming tax season.

Are there certain tax law changes that companies need to plan for?

There are a number of tax provisions that are in flux each year, but unfortunately, Congress has not acted to extend them yet. Some programs like the Section 179, bonus depreciation, and Research and Experimentation Tax Credit are usually extended every year, but that hasn’t been confirmed yet for 2015.

We do know some changes related to the Affordable Care Act (ACA) and insurance in general. First, companies that extend coverage to spouses must now recognize and cover same-sex spouses, as well.

Second, employers with 50 or more full-time employees must file Form 1095-C, which is like a W2 for health care. If you need to do this reporting, you must determine who is collecting the data and populating the forms right now as many providers have stopped accepting new projects. Are you doing it internally, through your payroll company or CPA firm?

With this uncertainty, how can employers get ready now?

There’s a lot of planning that you can do already. Provide your accountant with your income so far and a projection for the rest of the year. Then, you’ll be able to see what actions to take to help your tax situation or changes to make to take advantage of a particular credit or program. You also can determine how much goes into the company retirement plan or what bonuses need to go out by the end of the year.

With an S corporation or partnership, it’s important to remember that your income trickles down to your individual return, so you need to be planning on both sides, and account for state taxes due.

As companies evolve, they often become more complex, which may mean that a different type of retirement or corporate structure will be more useful. If you’ve added employees, you also may have crossed a threshold that relates to the ACA.

Instead of trying to follow a cookie-cutter checklist, sit down with your professional advisers and discuss your unique situation and needs, as well as any significant changes.

What’s the biggest mistake you see employers make?

Business leaders make a change, and then ask an accountant or tax adviser about it. By then, it’s often too late. Your advisers’ hands are tied, and the available options are severely limited. You may face adverse tax consequences or not be able to utilize a more advantageous tax treatment.

For example, you might add another line of business or incorporate it into your organization without consulting your professional team, and it would have been better to be structured as a different type of entity.

If you’ve already negotiated a deal, it may not be practical to change it, even though you haven’t signed the final papers. This kind of thing happens all the time.

Tax planning is important, so as soon as you start talking about a potential change, call your CPA. An ounce of prevention today is worth a pound of cure tomorrow.

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