Sheehan & Company

If you own or manage a business, there’s a harsh tax penalty that you could be at risk for paying personally. The Trust Fund Recovery Penalty (TFRP) applies to any willful failure to collect and pay over Social Security and income taxes required to be withheld from employees’ wages. Taxes are considered government property and employers hold them in “trust” until they’re paid over to the IRS. The penalty is also sometimes called the “100% penalty” because the people found liable and responsible for the taxes will be penalized 100% of the taxes due. The IRS is aggressive in enforcing the TFRP and the amounts are usually substantial so never “borrow” from withheld taxes. Questions? Contact us.

Business vehicle and meal expenses are a magnet for IRS attention. If you claim deductions for them, it’s important to comply with the strict tax law substantiation requirements. Keep these DOs and DON’Ts in mind: DO keep detailed, accurate records. For each expense, record the amount, time, place, business purpose, and business relationship of anyone to whom you provided a meal. If you have employees who you reimburse for meals and auto expenses, DO make sure they’re complying with all the rules. DON’T reconstruct expense logs at year end or wait until you receive an IRS notice. Take a moment to record the details in a log or diary or on a receipt at the time of the event or soon after.

If you’re passionate about growing your career at a firm who really cares, email us your resume at [email protected] today!

Even if your nonprofit’s fundraising results have been lackluster recently, one high-net-worth donor can make this year a fundraising success. In 2020 alone, the wealthiest Americans donated $85 billion to charity, according to analytics company Wealth-X. How can you find high-net-worth individuals with philanthropic intentions? Build relationships with their advisors, including estate planners and financial professionals who work with private foundations, family offices and donor-advised funds (DAFs). These vehicles are growing fast among the wealthy, so be sure to address DAFs in your fundraising materials and reach out to their donors.

The IRS recently released audit statistics for fiscal year 2022 and few taxpayers had their returns examined. Overall, just 0.49% of individual returns were audited. Historically, this is very low. However, even though a small percentage of returns are being audited these days, that will be little consolation if yours is one of them. Plus, the Biden administration has made it a priority to go after high-income taxpayers who don’t pay what they owe. The best way to survive an IRS audit is to prepare. On an ongoing basis, maintain documentation (invoices, bills, canceled checks, receipts, etc.) for items reported on your returns. Contact us if you receive an IRS audit letter.

If one spouse in a married couple doesn’t earn compensation, the couple may not be able to save as much as they need for retirement. An IRA contribution is generally only allowed if you earn compensation. But an exception exists. A spousal IRA allows a contribution for a spouse who doesn’t earn compensation. For 2023, an eligible couple can contribute $6,500 to an IRA for each spouse ($7,500 if the spouse will be 50 by the end of the year). However, if the working spouse is an active participant in an employer retirement plan, a deductible contribution can be made to the nonparticipant spouse’s IRA only if the couple’s adjusted gross income doesn’t exceed a certain threshold.

In observanace of Independance Day our offices will be closed July 3 & July4.

Wishing you a safe and happy Holiday!

High-income taxpayers face a regular income tax rate of 35% or 37%. And they may also have to pay an additional 3.8% net investment income tax (NIIT). The NIIT applies only if modified adjusted gross income (MAGI) exceeds: $250,000 for married taxpayers filing jointly and surviving spouses; $125,000 for married taxpayers filing separately; and $200,000 for unmarried taxpayers and heads of household. The amount subject to the tax is the lesser of your net investment income or the amount by which your MAGI exceeds the threshold ($250,000, $200,000, or $125,000) that applies to you. Fortunately, there are some ways you may be able to reduce the impact of the NIIT. Contact us for strategies.

If you’ve been asked to serve as executor of the estate of a friend or family member, be sure you understand the responsibilities and potential risks before accepting the offer. Generally, an executor is responsible for arranging probate, identifying and taking custody of the deceased’s assets, making investment decisions, filing tax returns, handling creditors’ claims, paying the estate’s expenses, and distributing assets according to the will. Although you can seek help from professionals, such as attorneys, accountants and investment managers, it’s still a lot of work, sometimes for little or no compensation. Contact us if you have questions regarding becoming an executor.

If philanthropy is an important part of your legacy, consider taking steps to help ensure that your donations are used to fulfill your intended charitable purposes. Indeed, outright gifts can be risky, especially large donations that will benefit a charity over a long period of time. One way to help preserve your charitable legacy is to place restrictions on your gifts. For example, you might limit the use of your funds to assisting a specific constituency or funding research. These restrictions can be documented in your will or charitable trust or in a written gift or endowment fund agreement. If you’d like to incorporate charitable giving into your estate plan, please contact us.

Financial statements are historical records that depict a company’s financial position as of a certain point in time. To estimate where your business may end up in the future, you need to create either a forecast or a projection. What’s the difference? A forecast presents expected results based on an expected course of action. Alternatively, a projection estimates expected results based on one or more hypothetical situations. Bear in mind that few forecasts or projections are completely accurate. But one or the other can be of great help in financial planning. Contact us for assistance generating properly prepared financial statements as well as useful forecasts and projections.

Accrual-basis financial statements are considered by many to be the gold standard in financial reporting. But the increasing cost and complexity of today’s accounting rules is causing some private companies to switch to a special reporting framework, the most common of which is tax-basis reporting. This is popular among small businesses because they can use the same methods and principles as they do to file their federal income tax returns. However, an unexpected change could upset investors and lenders, who generally prefer accrual-basis statements. Contact us to help you choose the right accounting method based your company’s financial needs and accounting skills.

Is your profitable business having trouble paying its bills? This is a common problem when business owners mistakenly equate profits with cash flow. Key reasons these numbers might differ include: 1) fluctuations in working capital, 2) capital expenditures and financing transactions, and 3) capital contributions, dividends and stock repurchases. If your business is facing a cash crunch, contact us for help devising strategies to improve cash flow. We can help your business pay its bills on time and find resources to seize value-building opportunities.

After two weeks of rain 🌧️ outs, our Sheehan Sluggers 🥎 added two more wins to their record last night!

Our team was honored to participate in the ISF golf tournament ⛳️ yesterday to promote advocacy for the inclusion of sports and play for all children. We are proud of our partner with Cynthia Barry, who was recognized for her outstanding contributions to this important cause. Let's continue to work towards a more inclusive future for all!

We are thrilled to announce that our Partner Cynthia Barry is being honored at the upcoming Dublin Deck Summer Golf Classic. Cynthia has worked at Sheehan & Company since graduating from college in 1990.

This event is dedicated to supporting Inclusive Sports and Fitness (ISF), a nonprofit organization that provides skilled science-based fitness and habilitation training for individuals with special needs. The tournament will take place on June 19th at Bellport Country Club.

The Barry family has been avid supporters of ISF for years, with their twin sons, Colin and Jack, actively participating as an athlete and a mentor, respectively. We are incredibly proud of Cynthia and her husband Rob's dedication to making a positive impact in our community, and we hope you can join us in celebrating their achievements at the Dublin Deck Summer Golf Classic.

There are still sponsorship opportunities available for this event. By supporting this cause, you will be helping to raise funds to offer a free summer camp for 70 athletes with special needs and over 120 neuro-typical children as mentors.

If you would like to explore sponsorship opportunities or make a donation, please visit this link: https://isfkids.app.neoncrm.com/forms/golf-classic-sponsorships

Thank you!

Our team had a blast at the CF Cycle for Life 🚲 Event yesterday! We are proud to support the mission of the Cystic Fibrosis Foundation.

The American Institute of CPAs (AICPA) has requested guidance from the IRS on several provisions of the SECURE 2.0 Act. One provision noted in an AICPA letter to the IRS involves matching contributions on student loan payments. SECURE 2.0 aims to help employees who miss out on their employers’ matching retirement contributions because their student loan payments prevent them from making retirement contributions. The law allows them to receive matching contributions to retirement plans based on their qualified student loan payments. The AICPA asked whether the term “qualified student loan payment” includes loans paid for spouses and dependents. Read the AICPA letter: https://bit.ly/42YOSHK

Many businesses use independent contractors to help keep their costs down, especially in these times of staff shortages and inflationary pressures. If you’re among them, make sure workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be a costly error. Determining whether a worker is a contractor or an employee for income and employment tax purposes can be complex. The IRS and courts have generally ruled that individuals are employees if the businesses they work for have the right to control and direct them in the jobs. Otherwise, they’re generally contractors. Contact us if you’d like to discuss how the rules apply to your business.

Post-pandemic, many not-for-profits continue to keep staffers working from home or working in the office only part-time. This leaves a lot of empty workspace. You may be able to cut rent expenses by moving to a smaller space, subleasing part of your current office or making the space you currently have more efficient. Given high commercial vacancy rates, many property owners are receptive to striking deals with tenants. But before you make a move, review your existing lease, check out the occupancy rates in your area and consider all options. Contact us for help with reducing rent costs and other expenses.

Whether you’re operating a new company or an established business, losses can happen. The federal tax code may help soften the blow by allowing businesses to apply losses to offset taxable income in future years, subject to certain limitations. The net operating loss (NOL) deduction addresses the tax inequities that can exist between businesses with stable income and those with fluctuating income. It essentially lets the latter average out their income and losses over the years and pay tax accordingly. The tax rules regarding business losses are complex, especially when accounting for how NOLs can interact with other potential tax breaks. We can help you chart the best course forward.

If you’re the owner of an incorporated business, you know there’s a tax advantage to taking money out of a C corporation as compensation rather than as dividends. The reason: A corporation can deduct the salaries and bonuses that it pays, but not dividends. So if funds are paid as dividends, they’re taxed twice, once to the corporation and once to the recipient. Money paid as compensation is only taxed once to the employee receiving it. But there are limits to how much money you can take this way. Compensation can be deducted only to the extent that it’s “reasonable.” Unreasonable portions aren’t deductible and may be deemed dividends. Need help determining a reasonable salary? Contact us.

Have you inherited assets or are you planning your estate? You may not understand how tax “basis” works. Under the tax code “step-up” rules, an heir receives a basis in inherited property equal to its date-of-death value. For example, if your grandfather paid $500 for shares of an oil stock in 1940 and it’s worth $5 million at his death, the basis is stepped up to $5 million for your grandfather’s heirs. That means all that gain escapes federal income tax! If your grandfather instead made a gift of the stock during his life (rather than passing it on at death), the “step-up” in basis (from $500 to $5 million) would be lost. Contact us for tax guidance with estate planning or inheritances.

Seriously delinquent tax debt (SDTD) could put your passport at risk (unless an exception applies). In 2023, SDTD is an unpaid federal tax assessment exceeding $59,000, where a lien has been filed and other remedies have been exhausted. Under such conditions, the U.S. State Dept. can deny, revoke or limit a passport. In one case, the IRS assessed tax liabilities that exceeded the threshold against an individual. When the debt remained unpaid, a lien notice was issued. The man advanced various unfounded arguments and ignored inquiries. Therefore, the U.S. Tax Court ruled that the tax liabilities for the years at issue met the requirements for certification as SDTD. (TC Memo 2023-61)

This weekend we honor those who have made the ultimate sacrifice for our freedom 🇺🇸.

Our offices will close at 2pm today in honor of the Memorial Day holiday and reopen on Tuesday. Wishing everyone a safe and fun holiday weekend!

Are you getting ready to retire? If so, you’ll soon experience changes that may have tax implications. For example, if you sell your principal residence to downsize and you have a gain from the sale, you may be able to exclude up to $250,000 of the gain from your income ($500,000 if filing jointly). You may want to start a new business and you’ll have several tax-related decisions to make. You also may have to pay tax on your Social Security benefits, depending on your income from other sources. Plus, there are tax rules associated with taking withdrawals from retirement plans. These are just a few of the issues you may face. We can help maximize the tax breaks you can claim.

Estate planning can be complicated enough if you’re single. But things can get more difficult for married couples. Even if you and your spouse have agreed on most major issues in the past, you shouldn’t automatically assume that you’ll both be on the same page when it comes to making estate planning decisions. Thus, it’s critical that you and your spouse clearly communicate your estate planning goals. Begin with the basic premise that state law generally governs estate matters. Therefore, state law determines if your property is community property, separate property or tenancy by the entirety. Indeed, there’s no circumventing this law when planning for a joint estate.

We are proud to announce our corporate sponsorship at the CF Cycle for Life 🚴 event on Saturday, June 3, at the Jamesport Farm Brewery. The mission of the Cystic Fibrosis Foundation is to cure cystic fibrosis and provide all people with CF the opportunity to lead long, fulfilling lives by funding research and drug development.

We invite you to join us in supporting this important cause by making a donation on our team page https://fightcf.cff.org/site/TR/?team_id=129104&pg=team&fr_id=9821.

Thank you for considering a donation to this worthy cause. Together, we can make a difference in the lives of people with cystic fibrosis.

Two of our partners got some networking and sunshine in when they played ⛳️ in the NYS Society of CPAs Suffolk Chapter Golf Outing last week!

Not-for-profit youth sports leagues are unusually vulnerable to fraud. It’s easy to see why: Cash transactions are common, and coaches and board members usually are volunteers. So your club needs to take steps to prevent embezzlement and other criminal activity. Start by segregating duties. This means that no single individual receives, records and deposits funds coming in, pays bills and reconciles bank statements. Also require multiple signatures on checks, regularly rotate your league’s treasurer and use electronic payment systems, rather than cash or checks. Contact us for help implementing effective fraud controls.

If you’ve filed your 2022 tax return with the IRS, you may think you’re done with taxes for another year. But some questions may still crop up. 1) When will your refund arrive? Go to irs.gov and click on “Get Your Refund Status” to find out. 2) How long should you save tax records? In general, save them for three years after filing although you should keep the actual returns indefinitely. However, there are exceptions to this rule. 3) If you overlooked claiming something on your return, can you still claim a refund for it? You can generally file an amended return to claim a refund within three years after the date you filed the original return or two years from the date you paid the tax.

If you’ve received, or will soon receive, a significant inheritance, it may be tempting to view it as “found money” that can be spent freely. However, it’s in your best interest to not make any quick purchases or financial commitments. It’s recommended that you wait until you understand what your net proceeds from the estate will be. Once all fees and taxes are accounted for, the final settlement may be less than you expect. If you’re receiving your inheritance through a trust, talk with the trustee, familiarize yourself with the trust’s terms, and be sure you understand the timing and amount of distributions and any conditions that must be satisfied to receive them. Contact us for details.

In today’s uncertain markets, your business may decide to discontinue unprofitable product lines or business units. Are you up to speed on the accounting rules for reporting discontinued operations? Under guidance that went into effect in 2015, the disposal of a component is reported in discontinued operations only if it represents a “strategic shift” that has or will have a major effect on the company’s operations and financial results. The disclosure requirements were also expanded. Major strategic changes don’t happen often, and in-house personnel may be unfamiliar with the latest guidance when preparing your year-end financial statements. Contact us to help ensure you’re in compliance.

Two developments for crypto users and investors: 1) Taxpayers must now check a box on their returns indicating whether they received digital assets as payment for property or services or whether they sold, exchanged or transferred digital assets that were held as capital assets. If “yes” is checked, taxpayers must report income related to the transactions. 2) A 2021 law extended reporting rules, similar to those required by stockbrokers, to crypto exchanges, custodians and platforms and to digital assets. The new rules were scheduled to be effective for 2023 transactions. But the IRS has postponed the effective date until it issues final regs that provide instructions.

Businesses today are under increased pressure to address pay equity. This is the philosophy and practice of ensuring compensation is determined free of unjust biases historically related to demographic factors such as age, race, gender, disability, national origin and sexual orientation. There are various ways to prevent instances of inequitable pay. Use only initials or random ID numbers early in the hiring process. Refrain from asking candidates about their pay histories. Use transparent, objective criteria when recruiting, hiring, compensating and promoting employees. Train supervisors to understand pay equity and to be able to discuss it openly with staff. Contact us for help.

Working capital refers to the funds tied up in three key balance sheet accounts: 1) receivables, 2) payables and 3) inventory. As inflation and interest rates rise, efficient working capital management is critical. The amount your company needs depends on the costs of your sales cycle, upcoming operating expenses and current debt repayments. Essentially, you need enough working capital to finance the gap between payments to suppliers and creditors and payments from customers. There’s no magic formula for reducing working capital requirements. But we can help brainstorm ways to expedite collections, trim inventory, and postpone payables, without compromising supply chain relationships.

May is National Wildfire Awareness Month and it also includes National Hurricane Preparedness Week. To help individuals, businesses and organizations prepare in case they become victims of a natural disaster, the IRS has issued some helpful tips. Make extra copies of key documents, such as Social Security cards, birth certificates and deeds. Secure the originals in waterproof containers. Or scan and save the documents on an external hard drive. Create a video record (or take photos) of the contents of your home or business to support claims for insurance or tax benefits. For more IRS tips: https://bit.ly/452LptB