Patience and the New Tax Law

Around this time every year, there’s a lot of talk about taxes at home, at work, and on TV. Those tax talks have become more urgent with the December 2017, passing of the Tax Cuts and Jobs Act. The new tax law impacts every individual and business taxpayer. How it impacts you and your tax bill depends on many factors – family size and composition, income sources, and geographic location.


One thing is for sure, answers about how the new law will impact your tax bill are not quick or easy. Figuring it out will take some patience and time. A lack of patience and a rush to act may backfire on some taxpayers. How to interpret the new law is not entirely clear. Remember the lines to pre-pay real estate taxes in high-tax states? The IRS announced those payments would not be deductible without a tax bill in hand. Some tax experts disagree. Who is right?


Less than a month after passing a new law is too soon for all the details and unintended consequences to be fully explained. The Tax Courts are filled with cases where each party is interpreting the law differently. However, some tax projection calculators are available to help many taxpayers determine what their new income tax bill will look like. One issued recently by the Tax Policy Center appears to be easy to use –


An online tax calculator cannot address all possible scenarios and considerations. Taxpayers with more complex situations and decisions, such as business owners, should schedule a consultation with a qualified tax professional. For a tax professional to serve your needs, be prepared to discuss your current family, income, business, and investments. Also share information about impending or planned changes in your situation. Those details make a big difference in the tax advice that is right for your situation.


Your tax professional will use the information you provide to project, analyze, and identify tax planning opportunities based on your situation. Figuring it out takes patience and time. Yes, it’s still too early to know all the details about the Tax Cuts and Jobs Act. But being patient and investing time with a qualified tax professional will get you started on the right track.

Basic IT Controls Still Reduce Cyber Fraud

Last week’s Institute of Internal Auditors (IIA) cyber fraud webinar was a great reminder. Basic IT controls that we learned years ago are still valuable to follow. Sales reps may promise that their product is the “silver bullet” for preventing cyber fraud, but those apps don’t replace good old fashioned IT controls and training.


Fraud has existed for a long, long time. Technology gives criminals new opportunities to perpetrate bigger frauds more quickly than ever before. Many data breaches occur because basic IT controls are neglected, leaving systems vulnerable to hacks and malware. Purchasing advanced solutions doesn’t replace basic IT controls.


Four basic IT controls that reduce cyber fraud are:


  1. Update and Patch Management

Skipping system updates and patches create vulnerabilities, such as those that were exploited by hackers in some recent cyber fraud events (e.g., Equifax and Home Depot). Excuses for skipping updates and patches include lack of time and concern about impacts on other systems. Updates and patches are crucial — they protect systems with up-to-date security processes.


  1. Monitoring

System logs and periodic monitoring should be established to detect operating activities or conditions that should not occur. Anomalies, such as after-hours transaction volume spikes and data transmitted to an unauthorized IP address, should be monitored and acted on. Automated alerts and error reports require follow-up and action to be effective.


  1. Password Management

Passwords are the key to the front door of an organization’s systems. Sharing passwords and keeping factory-issued passwords are like hanging the keys on the door knob. One example is when a system administrator fails to change the manufacturer’s default password, leaving the door to that system wide open to unauthorized access.


  1. Fraud Risk Training

Traditional methods, like training and documentation, make people aware of cyber threats and vulnerabilities. Real life examples of the risks and costs of a data breach, and techniques used by hackers to manipulate people and data, help workers to recognize risks and how to avoid them.


Even after investing in silver bullet applications, organizations can still fall victim to cyber fraud due to a breakdown in basic IT controls. Following these four basic IT controls help organizations reduce their vulnerability to expensive cyber fraud.

Should You Pay that Invoice?

Organizations need to purchase products and services to operate. Invoices and credit card bills for those items arrive and get paid. But should every invoice that arrives get paid?


Maybe not. What if the invoice isn’t accurate, or if the invoiced product or service was not delivered as promised?


We all work hard for our money, so when we spend some of it, we expect to get what was promised. All organizations need to consider these three questions before paying any vendor invoice or credit card bill:


  1. Were the invoiced products or services received as promised?

Establish a process to verify that invoiced products and services were received. For products, that means matching the products received to the purchase order, and checking that no products are damaged. Services are often provided under an agreement that describes the tasks or results that the organization can verify were delivered.


  1. Is the invoiced price accurate?

Check the invoice price against the approved purchase order or service agreement. The payment review and approval process should include verifying that the price on the invoice matches what was quoted by the vendor. Performing this verification requires that the organization gets an understanding of the cost up-front, and gets it in writing.


  1. Has this invoice already been paid?

An invoice logging, tracking, and cancelling process helps ensure that all invoices are paid on time, and are only paid once. This process also helps ensure that vendor discounts are considered when scheduling payments. Unpaid vendor invoices should be maintained separately from paid invoices, either physically or electronically.


Nonprofit organizations have one more question to ask:


  1. Were taxes from which your organization is exempt included on the invoice?

Nonprofits don’t pay income tax on net revenue. Nonprofits may also be exempt from other federal, state and local taxes, such as sales and excise. Providing a tax-exempt letter or other applicable document to the vendor is one way to get the exemption honored. Federal fuel excise taxes could be exempted by using a qualified fuel card program.


Invoicing and payment mistakes can be made by the vendor or by someone in the organization. Reduce costly errors by implementing processes to verify that invoices and credit card bills before they are paid. Organizations work hard for the money. Make sure the vendor has kept her promises before paying that invoice or credit card bill.


Using your Vehicle for Business

If you are a business owner, you probably use your personal vehicle for business. The IRS allows you to deduct the business use of your vehicle on your tax return (medical and charity use, too – more about that below). Of course, the IRS has rules to follow in order to take that tax deduction. The beginning of the new tax year is a good time to review those rules and how to follow them.


Step One to deducting the business use of your vehicle is to keep a log of your business miles. Actually, you need to track all of your miles. Your tax return will need to include the total miles driven during the year, the total commuting miles and total business miles.


Step Two is to determine which of the two allowable vehicle deduction methods gives you the bigger tax benefit. You may have to track the information for both methods to figure out which is best for your situation.


The first method is the Standard Mileage Rate Method, which is adjusted annually based on the overall operating expense studies done by the IRS. The studies take into consideration the costs of maintenance, repairs, depreciation, registration, gasoline prices, etc. The standard mileage rate for business use of a vehicle will increase slightly in 2018 to 54.5 cents per mile (from 53.5 cents in 2017).


The second method is the Actual Expense Method. This method requires that the taxpayer not only maintain a log of total miles, business miles and commuting miles, but also report the details of the actual cost of operating the vehicle, including repairs, maintenance, gasoline, oil, registration, insurance, inspections, car washes, etc.


The total actual vehicle operating expenses are deducted at the percentage of business miles of the total miles driven during the year. For example, if you drove a total of 15,000 miles in 2017 with 3,000 for business (20%), and spent $4,500 to operate your vehicle, you could deduct $900, or 20%, of the vehicle operating costs on your taxes


Expenses for parking fees and tolls attributable to business use are deducted separately, whether you use the Standard Mileage Rate Method or Actual Expense Method.


Driving for medical or moving purposes may be deducted at 18 cents per mile for 2018, which is one cent higher than for 2017.The rate for service to a charity is unchanged, at 14 cents per mile.

What’s Your Nonprofit’s ROI?

The tough job of nonprofit fundraising just got tougher. The 2017 Tax Cuts and Jobs Act doubles the standard deduction for individual taxpayers. That change is anticipated to slash the number of taxpayers who itemize their deductions because the standard deduction will be higher for them. One itemized deduction those folks won’t be taking is the one for charitable contributions.


Not getting a tax incentive in the form of a deduction means that many taxpayers will donate less to charity. That will be quite a blow to nonprofits that depend on smaller individual gifts that add up to a significant portion of total income. Fundraisers will have to change their strategies.


With competition for contributions getter fiercer all the time, it’s more important than ever to make a convincing case that funds donated to your nonprofit will achieve results. Donating to a nonprofit is just like making an investment – return on investment (ROI) attracts investors. Nonprofits need to “market” their ROI, or program results, so donors are attracted to “invest”.


In a recent episode of With Good Reason on NPR, best-selling business writer Jim Collins discussed the special factors that make for the most successful organizations in the non-profit world. Those organizations are poised to get results. Listen to his reasoning here.


Collins posits that a commitment to excellence in nonprofits results in outcomes beyond measure. That starts with hiring qualified people who are working for more than their paycheck. No matter their role in the organization, they are passionate about the mission and the effective use of donations. It makes sense – professionals collaborating to serve the community within a clear mission and established practices are positioned to achieve a higher ROI.


If a high ROI on donations isn’t compelling enough, Collins presents his case in another very impactful way. He points out that when for-profit organizations have bad financial results or a product failure, they lose money. Sure, that’s bad; but the overall cost to society when nonprofits fall on hard times is immense – homeless citizens whose children do not have a childhood; formerly incarcerated men and women who cannot get re-entry services for support when they come home; working families who have no money for groceries the last week of each month.


We don’t know exactly what taxpayers will do after losing the income tax deduction for charitable contributions. But no matter what, it’s fair to say that nonprofits with a higher ROI on their program results will attract more contributions from taxpayers who keep donating to charity after the tax law change.