Marriage and Taxes

Fall weddings are a lot more popular than they used to be. This time of year, friends, family, and colleagues are gathering to celebrate couples joining their lives in matrimony. Newlyweds have so much planning to do – a wedding, a honeymoon, where to live. It’s not very romantic, but married couples also need to plan for income tax changes after the wedding celebrations are over.

Many life events, including marriage, impact how income taxes are filed. Before marriage, taxes are filed under the “single” filing status. After marriage, the filing status changes to either married filing separately (MFS) or married filing jointly (MFJ), whichever results in the lower overall tax liability.

Couples who are newly married, or about to get married, should be aware of these five points before filing their next income tax return:


  • Taxpayers are required to file their income tax returns based on their marital status on December 31st, the last day of the tax year. Couples married on New Year’s Eve are considered married for the entire tax year.


  • Married couples can select the MFJ or MFS filing status, depending on which option results in a lower overall tax liability. Couples can assess their tax situation annually and select the lower filing status each year.


  • Tax rules apply differently to couples selecting the MFS option, such as the standard deduction, the capital loss limit, and some refundable and non-refundable tax credits.


  • Pass-through business owners with more than $315,000 of income using the MFJ filing status should consider whether the MFS filing status would result in a higher qualified business income deduction.


  • Couples can assess whether using the MFJ or MFS by filing status is more beneficial by referring to their prior year tax returns as a guide and referring to the IRS and state tax department websites.


Want to know more? Check out the IRS’ webpage about filing status and your state tax department site, or consult a qualified tax professional. That person can help clarify all of the information for you.


CFOs Care about Cybersecurity

IT professionals are usually in charge of an organization’s cybersecurity. They know all the technology and vulnerabilities that a cybercriminal would try to exploit. But what do they know about financial operations, and all the traditional ways that criminals have been trying to get your money since the dawn of time?

Fraud has existed for a long, long time. Technology just gives criminals new opportunities to perpetrate bigger frauds more quickly than ever before. Input from the CFO is absolutely required to thoroughly understand the vulnerabilities and fraud opportunities that can be controlled by technology.

CFOs care about cybersecurity as much as the IT chief. Ideally, the CFO and the head of IT will collaborate in these three areas to fight against cybercrime:

  • System Access

Preventing one person from having too much control over a financial transaction, called segregation of duties, is best accomplished by setting up system access controls. Each user’s unique system identification and password can be defined to restrict that user’s activities within the system. For example, the system can be set up to prevent a user from originating and approving the same transaction.

  • Automated Workflows

One traditional way to defraud an organization of its funds is to intercept and alter documents, such as invoices, contracts, and time sheets. By building an automated workflow within a system, information and documents images are only routed to an authorized person who is the intended recipient. System history files can provide an activity trail that reflects which actions were taken by each system user, and when.

  • Exception Reporting and Follow-up

Systems can be configured to identify and report any transaction or activity that is an exception to policy, standard procedures, or good business practices. Items that are considered “exceptions” must be defined, agreed upon, and built into the system. Reported exceptions should be routed in the system to the appropriate person to assess and take action on each reported item.

Cybersecurity efforts are usually led by the IT chief and her or his team. CFOs care about cybersecurity, too. Modern technology and traditional knowledge about the ways that criminals defraud organizations of their money can collaborate to build strong system controls that prevent and detect fraud.

Financial Skills Workshop for Artists

A couple of weeks ago, I had the pleasure of teaching a financial skills workshop for the Arts Enterprise Institute in Arlington, VA. The workshop objective was to bring awareness of managing business finances to artists who create beauty in many forms – sculpture, painting, and ceramics. One class participant was a make-up artist, who uses the human face as a canvas.

The ten professional artists in the class started their businesses to create art, not to keep financial records. They gave up a beautiful Saturday afternoon to learn tips and tools to get control over and understand their business finances, and to make informed decisions about pricing their work and assessing their profits and sustainability.

We covered a lot of ground in two hours. Here are a few highlights, based on the artists’ enthusiasm and questions during our time together:


  • Track Income and Expenses – Collecting the details of all funds that are coming in and going out is essential to understanding the financial health of your business. How do you know the status of your business finances without a complete and up-to-date report of where your money is? Many user-friendly tools are available to help you track and report financial information to manage your business.


  • Budget and Forecast – Planning your income and expenses provides a roadmap for your business. Start building your budget with the income and expense items that you know, like rent and fee contracts. Estimate other income and expenses based on your plans, knowing that you will have to make adjustments as you learn more information. Forecast your expected cash flows to ensure you have funds available when you need them.


  • Manage Your Cash – Use a separate a bank account and credit card for all business transactions. Having all of your business financial activity separate and in one place makes it easier to identify, understand and manage your business’ overall financial health. Reconciling your business bank account within a few days of receiving your bank account statement is very important for staying on top of your funds.


  • Pay Sales Tax – Selling a work of art is considered a “taxable product sale”. Your state and county want a share of your sales in the form of sales tax. Every location has its own rules. Here in Arlington, sales tax is collected by the business and remitted to Arlington County, which forwards the state portion on to the Virginia Department of Revenue in Richmond. The more tax you collect, the more frequently it has to be remitted.


The Arts Enterprise Institute Financial Skills Workshop was a valuable investment for the ten professional artists who gave up a beautiful Saturday afternoon to sit in a conference room learning about business finances. One of them sent me a lovely e-mail the next morning, “Thank you for a fun and informative workshop… I have clear next steps to professionalize and organize my painting career, and I am looking forward to getting everything in order.” Those kind words made it totally worth for me to be indoors on a beautiful Saturday, too.

When Does Your Business Need a CFO?

Bookkeeping is one of the first services that businesses outsource or hire for. Time running the business is too valuable to spend it recording transactions and running reports. A bookkeeper records your transactions, provides you with regular financial reports, etc., etc. All important tasks for running your day-to-day. Planning for growth or other long term business decisions requires analytical and management skills that focus on the broader view, not the day-to-day.

A Chief Financial Officer, or CFO, provides the analysis and financial direction that businesses need to get to the next level. Most small businesses can’t afford a fulltime CFO, but can afford to engage a CPA firm or financial consultant to perform the CFO role for a few hours a month. A part time CFO is a business investment in sustaining and growing your business.

Businesses need a CFO when:

  • Cash Flow Projections Aren’t Reliable

Knowing how much cash is available to run and invest in your business is crucial to keeping your doors open. Dire and expensive surprises happen to businesses that aren’t confident about their bank balances, revenues coming in, and payments going out. If monthly cash flow looks nothing like your cash projections, a CFO can establish a cash flow process that provides useful results based on reliable information.

  •  Budgeting is Ad Hoc or Doesn’t Happen

A budget articulates the financial resources needed to deliver your services or product, maintain your infrastructure, and invest in growth or improvements. It should be zero-based, or “built from scratch” to identify the cost of the resources needed for each budget category. For example, determine how many staff is needed to meet operational objectives and the “fully loaded” cost of each staff member. A CFO can help you build a budget that effectively addresses all applicable costs and revenues.

  • Prices Aren’t Covering Costs

Charging the same price as the competition might work for the other guy, but if it doesn’t cover your costs you won’t be in business for long. Pricing your service or product requires knowing your costs and understanding the value that distinguishes your business from that “other guy”. A CFO can examine your costs, identify the fixed, variable, direct and indirect cost components, and advise you on pricing and profit margins.

A CFO’s skill set and experience focus on the analysis, planning and management required to make higher-level financial decisions needed to get to the next level. Whether it’s growth, innovation, or sustainability, a CFO can provide insights and perspective to help achieve your financial and operational objectives. Getting a CFO is a business investment that pays you back over and over again, as your business launches to the next level.

Is Your Best Performer a Risk?

It’s happened again. Another news headline where you shake your head, wondering how the Board of a large organization could ignore reports that the CEO was sexually harassing and retaliating against female employees? The CBS debacle may be extreme, but it’s a clear example of leaders ignoring bad news about their best performer.

Les Moonvas was responsible for catapulting CBS from third to first in the network ratings and making a lot of money for shareholders. The argument against looking into allegations of his inappropriate, or even illegal, behavior seems compelling with so much money at stake. Could something similar be happening in your organization?

Ignoring that rules are being bent or broken, even by your best performer, costs your organization money and reputation. At the very least, it communicates to all your workers that inappropriate, or even illegal, behavior is tolerated and will not be stopped by leadership. That’s a very dangerous message to send. Some of your workers will take advantage of the situation. Others who cannot tolerate a lax ethical environment will leave.

Organizations have three weapons to avoid financial or reputational risk from unethical, inappropriate behavior:

  1. Codes of Ethics, Policies, and Procedures

People don’t do the right thing just because you have expectations written down in your policies, procedures and codes of ethics. But if expectations aren’t written down, people can’t be held accountable for knowing what they are. Monitoring and enforcement are essential for documented procedures to be effective. Above all, leadership must set an example and a tone that inappropriate behavior and acts will not be tolerated.

  1. Organizational Structures and Defined Roles and Responsibilities

Reporting relationships and defined oversight roles within your organization must be set up to ensure that independent reviews and approvals can be established. One person with too much unchecked control over a contract, transaction, or other financial decision could commit fraud by misdirecting funds or altering key information. Review and approval roles can be configured in systems, such as payments and payroll, to control the activity.

  1. Compensation and Other Incentive-Based Policies

Commissions and other performance-based pay programs are intended to reward workers for achieving specified goals. Those intentions can end up backfiring and giving workers the incentive to pad their numbers or reverse a transaction after the commission is paid. Designing policies that do not incent dishonest behavior and system controls that prevent or alert a manager about certain activities can safeguard your organization from fraud.

Don’t ignore the warning signs that a worker is a risk to your organization, even if that person is your best performer. Learn from the mistakes of others…use these three weapons to avoid the cost and reputational embarrassment that comes from ignoring allegations of inappropriate, or even illegal, behavior.


Small Business Retirement Options

The Trump Administration recently announced new rules so small businesses can work together to establish employee retirement plans. Sounds like a nice plan, but small businesses don’t need to wait for new rules for to save for retirement and reduce taxes.

What?! That’s right! Existing tax rules provide several retirement plan options for small businesses. Some of the plans are easy to set up and inexpensive to manage. Your existing bank, mutual fund service representative, or financial advisor can help you get started.

Three types of retirement plans that small businesses should consider:

  • SEP IRA (Simplified Employee Pension Individual Retirement Arrangement)

A business of any size, even self-employed individuals with no employees, can establish a SEP. A SEP IRA has no set-up or operating costs and does not require any annual filing. The employer (or self-employed person) contributes up to 25 percent of each employee’s pay to a separate SEP-IRA account established for each eligible worker. Participant loans are not allowed. The 2018 contribution limit is $55,000.

  • SIMPLE IRA (Savings Incentive Match PLan for Employees)

A SIMPLE IRA is also easy to set-up, has no start-up or operating costs, and no annual filing requirement. Any small business can set one up, but the employer cannot have any other retirement plan. The employee contribution limit is $12,500 in 2018. The employer is required to make annual contributions of 3% compensation match or 2% non-elective contribution for each eligible employee/self-employed person.

  • 401(k) Plan

Businesses other the self-employed (e.g., Sub S or partnership) can set up a 401(k) qualified profit-sharing plan, named for the Internal Revenue Code section. A 401(k) allows employees to contribute a percentage of wages to individual accounts using elective deductions from their paychecks/taxable income. Employers can also contribute. Administrative costs for a 401(k) are fairly significant due to the plan’s complexity.

Saving for retirement and lowering your tax bill at the same time knocks two important items from your “To Do” List. No need to wait for the White House and Congress to act. You can get started now.

These are only three of the many available retirement plan options, based on your business type. Want to know more? Check out “Help with Choosing a Retirement Plan” on the IRS website at

Two Ways to Avoid Vendor Fraud

As a business owner or non-profit leader, you can’t do everything and you usually don’t have the budget to hire employees with the right skills. Outsourcing to a vendor on an “as needed” basis is often the answer. Help is great but is has to be the right help. So how do you protect your organization from the wrong vendor, especially one who is unscrupulous, and can cost you time, money and reputation? Do your homework and pay attention.

The concept of “set it and forget it” might work sometimes for cooking, but it doesn’t work for outsourcing to vendors. Not paying attention to a vendor relationship once the agreement is signed signals that you might not be looking at his or her invoices or performance. Lack of oversight can be tempting for vendors who are experiencing financial or workforce stresses to cut corners (or pad expenses) on your account.
Getting fleeced when you need help is a double whammy. Technically, it’s vendor fraud. The two main ways that organizations can avoid vendor fraud are:

  1. Do Your Homework

Research the backgrounds of companies bidding on your work to verify ownership and qualifications, including key employees. References are great but don’t hesitate to dig in to learn for yourself. Request, obtain and review related documentation.
Conduct face-to-face meetings with the vendor to ensure they are valid, licensed, have real employees, etc. Also check your organization’s contracting procedures and vendor records to avoid engaging a vendor or his/her affiliate that did not perform well for your organization in the past.

  1. Pay Attention

Monitor vendor performance for quality, completeness, and timeliness of expected work and its documentation, based on your written agreement. Inspect or review work periodically and require interim progress reporting.

Verify invoices against the written agreement to avoid and detect duplicate, overbilled, and other fraudulent practices. Require support documentation to substantiate the invoice. Don’t overlook lower priced, repeating items. These small-dollar items are often dismissed as not worth the review time, which presents an opportunity for vendor fraud.
Doing your homework and paying attention cost time and money. But all that could be a lot less expensive than engaging an unscrupulous vendor who costs your organization its time, money and reputation. Even better, engaging the right vendor will meet your needs and expand your opportunities.

Is That New 1040 Really a Postcard?

I vividly recall my reaction after hearing House Speaker Paul Ryan say that, under the new tax law, most taxpayers would file their income tax returns using a post card. I laughed long and hard. Now that the new forms and guidance are coming out, the situation is not quite so funny.

A draft of the much-awaiting ‘simplified’ Form 1040 for the 2019 tax filing season is in the “comment period” before being published. Taxpayers and tax professionals alike have been wondering how the IRS defines “post card” and now we know.  The 1040 Post Card looks nothing like the little “Having a great time! Wish you were here!” we used to send back home from a vacation. The new Form 1040 is two-sided, and each side only covers about half of a letter-sized page.

Not exactly a post card.

Here are a few more items to look forward to when you see your 2018 federal tax forms next filing season:

  • No more Form 1040A or Form 1040EZ. The new Form 1040 replaces them both.
  • The IRS is using a ‘building block’ approach to preparing an income tax return. In other words, a series of schedules – both new and familiar – are used to determine the total income and deductions reported on Form 1040.
  • The new Form 1040 is shrinking from 79 lines down to either 23 or 24 lines. The final version has not been drafted yet.
  • Six new schedules, numbered 1 thru 6, have been developed to report income and deductions that are not addressed by the lines on Form 1040.
  • No changes are planned to the old, familiar Schedules A thru F, except for those required by the Tax Cuts and Jobs Act (TCJA).
  • Separate forms will still be required to report additional taxes and to claim refundable and nonrefundable tax credits.

Even though the new ‘simplified’ Form 1040 for the 2019 tax filing season is still a work in progress, we can easily see that it’s longer and more complicated than a post card. All the more reason to do your homework next season, or to get assistance from a qualified tax professional.