Regroup and Refocus to Save Taxes Before Year End

Cheer up tax procrastinators! November is not too late to regroup and refocus your tax planning efforts before year-end.

Start by examining your withholdings and estimated tax payments to make sure you are not heading toward a penalty. Remember to consider any life changes this year; a change in marital status, dependents, or job can put your withholdings out of whack. Are your gifts to charity or retirement plan contributions on track? If you’ve been putting these off, there may still be time to get back on schedule.

Once you know where you stand, there are several things you can do to refocus your tax-saving efforts. For one, zero in on your taxable portfolio. Taxpayers with capital gains this year should consider harvesting some capital losses to offset those gains. This is particularly important with the new Medicare surtax on net investment income, which is a tax of 3.8% on the lower of net investment income or excess modified adjusted gross income above $200,000 for singles and $250,000 for joint filers. Taxpayers with long-term appreciated stock might consider donating some to charity to score a tax deduction equal to the stock’s market value.

You can also help reduce taxable income by what you put into your portfolio. Tax-exempt municipal bonds pay interest that is excludable from taxable income and the Medicare surtax. Also be aware that many mutual funds pay their annual dividends in December, so before you purchase anything this time of the year, check to determine the impact on your taxes. Another strategy is to put some of your discretionary funds into your child’s education savings account or Section 529 account.

This time of the year it’s all about lowering taxable income and raising deductions. Taking some strategic steps now might pay big dividends come tax time.

Call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com

Your Small Business Should Establish Internal Controls

A lack of basic internal controls can leave your company vulnerable to pilferage, embezzlement, and other types of misappropriation.

Small firms generally can’t afford to hire internal auditors or set up separate divisions to break up duties. But even smaller companies can establish controls in certain high-risk areas, such as the following:

Cash disbursements. If at all possible, the owner/manager should sign checks. This control has a dual purpose: management sees how the company is spending its money, and the cash disbursement function is kept separate from bookkeeping or accounting. If the same person signs checks and enters disbursement transactions in the accounting records, embezzlement is harder to prevent. Requiring two signatures on checks above a certain amount also provides greater control.

Customer collections. Consider having the owner/manager open the mail, especially if customer collections are a regular part of your business. Alternatively, you might ask someone separate from the accounting function to open the mail and prepare the deposit slip. Of course, the practice of making daily deposits is also a good control.

Personnel practices. By taking care to perform background checks before hiring key employees, especially those who will be handling cash or other high-risk assets, you can prevent problems later on. Of course, financial pressures, addictions, and other factors can corrupt even good employees.

Perhaps a small business’s greatest control is the “tone at the top.” If management sets a high standard, employees generally follow. However, if a manager is perceived as lax – for example, he or she doesn’t respond quickly when evidence of misappropriation surfaces – employees might conclude that theft isn’t such a big deal.

Remember this: A company that fails to establish minimum controls is providing a golden opportunity for fraud. If you’d like help reviewing your firm’s controls, give us a call.

Call us at (219) 769-3616 with your questions, or email them to gward@swartz-retson.com.