Are the Fringe Benefits Offered to Employees Taxable?

What are Fringe Benefits?

“Fringe benefits are benefits provided by an employer to an employee, independent contractor or partner, some of which are tax-exempt when certain conditions are met. Recipients of taxable fringe benefits have to include the fair market value of the benefit in their taxable income for the year.”

Fringe Benefit Taxation

Any fringe benefit offered to an employee is taxable, although there is a lengthy list of excluded fringe benefits listed in IRS Pub 15 B. There are a few on the list that are tax-free as long as the total value remains under the IRS limit. As with most IRS-related rules, the language can be somewhat confusing and can often raise more questions than not.

The fair market value of a fringe benefit needs to be included on the employee’s W-2 at year-end. The fair market value is what the benefit would have cost the employee if they had gone out and purchased it in an “arm’s-length” transaction. The fringe benefit valuation rules are lengthy and involved, and require careful studying to be sure they are applied correctly.

One of the things that are excluded from the taxation rules are “de minimis” benefits. De minimis benefits are those that are of a relatively insignificant value (overtime meal money, transportation fare, e.g.).

Withholding on Fringe Benefits

When employees are given fringe benefits, withholding must be taken out based on the fair market value and the IRS valuation rules. There is no requirement with choosing the frequency of the withholding, but it has to be done at least once per year by December 31st and sent to the employee in the W2 no later than January 31st of the following year.

From an employee point of view, it might be beneficial to take out the withholding on a per pay period basis, rather than waiting to lump it all into one pay statement. The good news here is that you don’t have to treat all employees the same in regard to the withholding period. You can also choose to change the withholding period at any time.

Whenever a complicated topic such as fringe benefit taxation is part of a company’s payroll profile, choosing a well-qualified and expert CPA firm to help is extremely important, not just in the day-to-day operations, but also in the planning aspect as well. Planning and execution are vital to financial success. Please contact us and let us show you how we can help you succeed.

Larceny and Skimming: 4 Tips to Prevent Fraud at Faith-Based Organizations

Faith-based organizations rely on their congregations and members to financially support them. Donations are often paid weekly, bi-weekly, or monthly to help pay towards the upkeep of the organization as well as to pay its’ employees. Members graciously donate a part of their income in hopes that it is going to help their organization or others in need. However, too often these donations get into the hands of the wrong people.

According to an article written by the AICPA, there are two types of theft that happen in faith-based organizations, larceny, and skimming. Larceny happens after donations have been counted and recorded by the organization. Skimming, on the other hand, occurs before the donations have been logged, skimming is often the most undetectable. Since thefts within faith-based organizations are so undetectable, it is more important that organizations work towards preventing the theft rather than taking action after a possible crime has been committed. The following are four tips to prevent donation fraud:

1. Have at least two people with the money at all times

Having two people with the donation plate at all times will help deter faith-based fraud. This rule must be followed strictly as money can disappear within seconds. Having one-person copy checks while another counts the bills, provides an opportunity for theft. Additionally, having one designated person deposit the money also gives an opportunity for money to be stolen. While having two people with the money at all times may seem like common sense, it is only effective the rule is followed completely.

2. Separation of duties

The majority of faith-based organizations are run by a select group of people. Because of this, the houses of worship are short on staff and rely on volunteers to collect, count, and record the donations. This tip can be the most beneficial for smaller organizations, who are more likely to fall short of staff. To prevent fraud, the organization can implement consistent procedures and processes, and provide safeguards both for the organization and for those responsible for the money. Accounting agencies are an essential safeguard for organizations and can have a huge impact on larceny theft. Accounting agencies provide services for nonprofit clients such as financial statement audits, internal control analysis, improvement suggestions, tax consulting, and policies/procedure development. These services not only provide extra protection in deterring fraud, but they also work to improve other defenses of fraud throughout the organization

3. All forms of donation should be protected

Faith-based organizations not only receive donations from collection plates. Donations are also given at church suppers, fundraisers, thrift stores, day schools, etc. Usually, these do not generate substantial amounts of money. Therefore, these donations typically generate the greatest amount of fraud. The lack of attention to money collected allows for skimming to happen prior to the counting and depositing of money. Treat all forms of donation the same, have two people with money at all times and still have procedures in place as a safeguard.

4. Online Giving

Online banking makes bill payments and donations much more convenient. Online banking does leave a paper trail; however, it does not always include effective controls. As with tip number 2 and 3, it is important to require a separation of duties when processing online donations. These donations should also be treated the same as all donations and should have outlined procedures to safeguard the contributions.

It is important to remember that people make donations to their house of worship out of the kindness of their hearts. As much as people fear credit card fraud, donors also worry that their contributions to faith-based organizations are ending up in the hands of the wrong people. Klein Hall CPAs is an accounting agency that can protect your organization from larceny and skimming. Contact us to see how we can help you!

Virtual CFO Services

You know your business needs a Chief Financial Officer, but when the average salary of a CFO in Chicagoland is over $100,000, many businesses are faced with tough decisions.

One option many small businesses are increasingly turning to is “Virtual CFO” services.

Under a virtual CFO model, rather than hiring a full-time employee to handle a company’s financial functions, a firm contracts with an accounting firm to provide services including:

  • Budgeting, cash-flow management and profitability analysis
  • Selection and implementation of financial accounting software, development and implementation of procedures and controls
  • Providing training and management for the in-house accounting staff
  • Strategic planning, forecasting and analysis to help keep the company on the right trajectory from a financial standpoint.

When a company hires a virtual CFO, not only are they saving money on what would have been spent on salary and benefits, they are also saving expenses associated with office space, computer equipment, training and supplies.

Besides cost savings, another benefit of virtual CFO services is the checks and balances that come with separating functions. It can be tough to provide effective internal controls with an in-house CFO in a small business; by outsourcing the CFO functions, there is an automatic separation.

“Virtual CFO services are the right choice for many companies,” says Scott Klein, Senior Partner. “Your virtual CFO stays on top of tax laws and financial management at a fraction of the cost of hiring a full-time CFO, freeing up valuable resources you can put back into your business.”

Contact Klein Hall CPAs, a Naperville and Aurora accounting firm, to learn more about how virtual CFO services could benefit your company.

5 Tips for Reading a Financial Report

A financial report is important for any business. With this document one is able to determine the financial strength of a company. Understanding the best ways to read your financial statement will allow you the ability to determine the best steps to take in the future.

The success of your business depends on the effort that you place into growing it and improving your strategies. Reviewing your financial report is something that can help you to accomplish these goals. When you are preparing to read this important document, be sure to rely on these tips for reading a financial report.

Tip 1: Understand the Dates

The first thing that you should do is to understand the time frame that the report covers. You should make sure that you are reviewing the most current version of the report.

Tip 2: Focus on the Balance Sheet

The balance sheet is an important part of the overall report. Here, you will be able to read more about the assets that your company has as well as the liabilities. Make sure you determine the current liabilities, which will be paid off in under a year, as well as the long-term ones.

Tip 3: Review the Income Statement

Another important portion of the financial statement is the income statement. This area will tell you more about the operating profit of your company as well as the expenses that may affect your financial status.

Tip 4: Cash Flow

This portion of the report will give you information about the cash that you have to operate with. Make sure that you review it carefully in order to determine how well you are handling the cash portion of your business.

Tip 5: Review any Notes

Sometimes, companies will post notes regarding the overall financial status of the company in the financial report. This is an important area to review and will help provide even more detail about your company’s future.

To learn more about the best way to review a financial report, be sure to contact us. With the assistance of Klein Hall, a Naperville accounting firm, you will be able to develop a strong opinion about your company so you are able to drive it in the right direction.

Understanding Tax-Related Identity Theft

Becoming the victim of identity theft is never something that is a pleasant experience. Along with the fear regarding the actual event, there is also the aftermath that must be considered and dealt with. It can sometimes take years to completely see the full effects of identity theft, but by learning more about the different types, it is much easier to get started making repairs.

Tax-Related Identity Theft
You can become a victim of tax-related identity theft when someone steals your social security number and files a tax return. Usually, this is something that will be discovered when you complete your annual tax forms. You are most likely to discover that a thief has stolen your social security number and filed a return before you had a chance to file yours.

If the IRS receives two tax returns for the same social security number, you will be notified that a return has already been filed. This is the first sign that you are a victim of tax-related identity theft. However, there are also other things that may indicate that you are a victim of this type of crime.

Other ways you can be a Victim
Another factor that indicates you are a victim of tax-related identity theft is when another person uses your social security number to obtain a job. This is also something that you are not likely to notice until you file your taxes for the year.

At this time, the IRS will likely inform you that you owe more taxes than you really are obligated to pay. Another scenario is that you will receive a penalty for not reporting wages earned for an employer that you are not employed with.

Steps to Take
The first thing that you must do when you have discovered that you are a victim of tax-related identity theft is to notify and file a report with law enforcement. You must then file a second report at www.ftc.gov or call 1-800-908-4490.

Along with this, you will need to contact all three of the major credit bureaus in order to place a fraud alert on your records. The bureaus that you will need to contact are; Equifax, Experian and TransUnion. You will also need to talk to your financial institution and look into closing accounts that have been opened under your name.
Responding to the IRS

One of the most difficult portions of this entire process is the steps that you must go through when responding to the IRS. This is something that can be very complicated and there are specific forms that you must fill out and provide to them.

You will also need to continue to file your taxes and pay the amount that is due. Sometimes, this will mean that you must file your taxes through a physical paper form rather than electronically. To help with this process, it is always best to rely on a reputable CPA firm like Klein Hall. With their assistance, you will be able to rest assured that everything is being handled properly.

Be sure to contact us to learn more about this process.

Overtime Changes for Salaried Employees

Would it surprise you to find out that your salaried employees may have a legal right to overtime pay?  According to the Fair Labor Standards Act (FLSA), a “white collar” exemption, which can protect a business from the liability of paying overtime for certain salaried positions, must meet reasonable criteria to be accepted by the Department of Labor (DOL).  There are 2 tests the DOL considers: 1) the salary basis test and 2) the jobs duties test.

As a result of June 30th proposal from the Department of Labor, overtime requirements under the FLSA are experiencing some significant changes.  To date, the salary requirement threshold was at $23,660 or $455 per week.  This means that if your employee earns less than $455 per week and is required to work more than 40 hours per week, the employee is entitled to overtime pay even if they are a salaried employee.  As a result of the recent proposition by the Department of Labor, this threshold will shift to $50,440 or $970 per week.  This means that (as early as January 2016) an employee earning less than this (new) proposed amount will be eligible for overtime pay.

Have questions about how this may impact you/your business?  Contact us today!

What Constitutes an Independent Contractor?

In mid-July, the Department of Labor set forth an Administrators Interpretation on the standard in the identification of employees who are misclassified as independent contractors. Essentially, this statement from the Department of Labor reinforces the redefinition of what a contract employee is (and is not). No longer does a contract agreement between an organization and an Independent Contractor or the (Contractors) Incorporation status define the relationship, instead the new standard is the level at which the Independent Contractor is economically dependent on the employer. This dependence is now determined through the application of the “Economic Realities Test”. The test considers several broad categories in the determination of the relationship between the two entities (whether employer/employee or employer/independent contractor). Consider these factors:

  1. What is the extent to which the employer/employee rely on one another for the business to run? If the entities are highly reliant on one another, the independent contractor status will be scrutinized.
  2. Does the worker have both opportunity for increased profit as well as risk of loss? An independent business owner is continually exposed to opportunities to profit and risk of loss based on productivity and efficiency.
  3. Does the independent contractor share in the investment/risk in the relationship? An independent business owner shares risk through investment in the business beyond any one project, whereas an employee shares little or no risk.
  4. Does the work performed require special skills and initiatives? A business owner has a special skill and takes the initiative to work with multiple entities to perform said skill.
  5. How permanent is the relationship? An independent business owner will avoid a permanent relationship with one employer but typically work project to project with multiple employers.
  6. How much control does the employer exercise over the contractor? An independent contractor generally works free from the control of the employer.

Have questions about the potential tax liability/risk to your business? We stand ready to help; give us a call today!

The Importance of Documenting Procedures

Documenting procedures is vital for increasing the value of your business and
preventing what’s known as tribal knowledge.

Why you need to document your procedures
Tribal knowledge refers to the unwritten knowledge of how things are run in your organization. Collectively, your employees hold a great deal of tribal knowledge, which can have a negative impact on your business because it becomes more difficult to hire and replace employees or sell your business if all of your day-to-day processes are in your employees’ heads. It also creates operational inefficiencies – for example, if one of your essential personnel has a sudden medical emergency and is out of the office for a week, a lack of documentation could cause you and your other employees to waste time scrambling and figuring out how to perform that employee’s job or even worse, could halt your business from functioning entirely. By documenting the key duties of each employee, you can eliminate the efficiencies caused by tribal knowledge and make your business more valuable.

What the purpose of documentation is and isn’t
When faced with the task of documenting their tasks, some employees may fear that “sharing their secrets” will lead to job elimination; after all, employees enjoy the feeling of being regarded as the “go-to” person for specific information, and they don’t want to feel as if their expertise is no longer needed. Job elimination is not the purpose of procedures documentation – rather, you are focusing on increasing efficiency and helping your employees perform at their best. By documenting everyone’s duties, you can narrow down the best practices and empower your employees with tools to make them more successful, which in turn makes your business more successful.

Why Managers Trust Their Books To Professional CPA Firms

You’ve probably heard that America is more divided than it’s ever been before. Yet there’s at least one thing that both sides of the partisan divide can still agree on – U.S. tax laws and regulations are way, way too complicated. Every year, U.S. citizens spend a staggering 7.6 billion hours preparing their taxes. And when all the numbers are in, those taxpayers will fork over about $140 billion to the taxman. Or, at least, some of them will. Of the Americans who expect to owe Uncle Sam money come tax season, up to 40% admit that they don’t know how they will pay their taxes when the time comes.

And if you run or manage a business, not-for-profit, or organization of any kind really, keeping track of your bookkeeping and tax preparation becomes exponentially more complicated. That’s why most elite companies trust a professional accountant or tax preparer to handle their books.

If you’re feeling overwhelmed trying to handle your bookkeeping, payroll services, tax preparation, and accounting on your own, then it’s only a matter of time before you make a mistake. And it’s easy for small errors to turn into major crises. So if you want to avoid an unexpected audit or any nasty surprises when tax season comes around, then there’s a simple solution to all your budgeting woes – hire a professional certified public accountant (CPA) firm to take that weight off your shoulders.

Not only can professional accounting firms save you from making costly mistakes, they can often help save money by providing budgeting assistance and cash flow analysis. And the less time you spend studying the fine print of the U.S. tax code looking up obscure IRS regulations, loopholes, exceptions, and requirements, the more time you can spend on your actual business.

Professional CPA firms provide everything from school district audits to accounting for start up businesses. So stop drowning in paperwork and receipts and contact us. We’re the most reputable, local accounting firm in Naperville and Aurora. We’ll throw you a life raft. Because believe it or not, the secret to tax preparation, is preparation.

Exchange Club of Naperville

Klein Hall CPAs proudly makes a difference in the community, offering our support by serving in director positions and supporting volunteer roles for a variety of local organizations impacting our community.  Klein Hall CPAs actively supports the great work of The Exchange Club of Naperville. Partner, Scott Duenser, has the privilege of currently serving on the board of directors as Treasurer for Naperville Exchange Club.  He also served as Finance Chair for the Exchange Club of Naperville’s Ribfest for the past two years.

Chartered in 1987, the Exchange Club of Naperville is dedicated to the elimination of child abuse and domestic violence.  The mission of The Exchange Club of Naperville focuses on people helping people and giving back to the community.   Their aim is to eliminate child abuse in all forms, to foster the health and growth of a strong family unit, to promote Americanism, to strengthen the education of our children and to give themselves in service to the community.

The Exchange Club of Naperville has provided millions of dollars in financial contributions to more than 50 local charities supporting their mission. They also established Project HELP, a non-profit organization offering home-based parent mentoring and community partnerships.

Each year over the July 4th holiday weekend, the Exchange Club of Naperville holds its annual fundraising event, Ribfest, featuring music, rides and outstanding ribs. All proceeds from the Ribfest festival are donated to local agencies providing assistance to families in need.  Find out more about Ribfest 2015 at www.ribfest.net.

For additional information about the Exchange Club of Naperville and the great work they do in our community, visit their website at www.exchangeclub.org