Absenteeism has typically been a thorn in the side of many companies. But there’s a flip side to employees failing to show up to work: “presenteeism.” This is when employees come in to work unwell or put in excessive overtime.

Now you probably appreciate and respect workers who are team players and go the extra mile. But employees who come to work when they aren’t operating at full physical or mental capacity may make mistakes, cause accidents, create confusion and ultimately hurt productivity. In other words, presenteeism can slowly and silently erode your bottom line unless you recognize and deal with it.

Address mental health

A common response to presenteeism is, “But we offer paid sick days.” Although paid sick days do generally help resolve incidences of a physical ailment or injury, they may not adequately address struggles with mental illness or extreme personal stress (such as a divorce or financial crisis). Some managers may raise an eyebrow at those taking a “mental health day,” so sufferers end up coming in to work when they really may need the day off.

How can you help? If you sponsor a health care plan, it likely offers coverage for mental health and substance use disorder services, including behavioral health treatment. Be sure employees are aware of this. Also, reinforce with employees that you’ll honor the sick-day provisions spelled out in your employee manual for all types of ailments (physical, mental and psychological). Train supervisors to support employees’ well-being and encourage those who need to take time off to do so if they need it.

Discourage excessive overtime

Another common cause of presenteeism is the perceived notion among many workers that they must work excessive overtime to prove themselves. Many companies still operate under an “old school” culture that says putting in extra overtime will make the boss happy and lead to quicker raises and promotions.

Generally, many managers assume that, if an employee is absent, his or her productivity must be suffering. Conversely, if that same employee is putting in extra time and skipping vacations, he or she must be highly productive. But these assumptions aren’t always true — they must be supported by a thorough, objective and analytical performance evaluation process.

You can prevent this type of presenteeism by strongly encouraging, if not strictly enforcing, vacation time. Communicate to employees your concerns about overworking and remind them to take advantage of the time off that they’ve earned. (Doing so can also deter fraud.)

Find the balance

Having a workforce full of dedicated, hard-working employees is still a goal that every business should strive for. But, at the same time, work-life balance is a concept that benefits both employers and employees. Our firm can help you analyze the numbers related to productivity that can help you make optimal decisions regarding staffing and workflow. Call us or email us today at 205-345-9898/ info@covenantcpa.com.

© 2019CovenantCPA

Do you want to save more for retirement on a tax-favored basis? If so, and if you qualify, you can make a deductible traditional IRA contribution for the 2018 tax year between now and the tax filing deadline and claim the write-off on your 2018 return. Or you can contribute to a Roth IRA and avoid paying taxes on future withdrawals.

You can potentially make a contribution of up to $5,500 (or $6,500 if you were age 50 or older as of December 31, 2018). If you’re married, your spouse can potentially do the same, thereby doubling your tax benefits.

The deadline for 2018 traditional and Roth contributions for most taxpayers is April 15, 2019 (April 17 for those in Maine and Massachusetts).

There are some ground rules. You must have enough 2018 earned income (from jobs, self-employment or alimony) to equal or exceed your IRA contributions for the tax year. If you’re married, either spouse can provide the necessary earned income. And you can’t make a deductible contribution to a traditional IRA if you were 70½ or older as of December 31, 2018. (But you can make one to a Roth IRA after that age.)

Finally, deductible IRA contributions are phased out (reduced or eliminated) if last year’s modified adjusted gross income (MAGI) is too high.

Types of contributions

If you haven’t already maxed out your 2018 IRA contribution limit, consider making one of these three types of contributions by the April deadline:

1. Deductible traditional. With traditional IRAs, account growth is tax-deferred and distributions are subject to income tax. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k), the contribution is fully deductible on your 2018 tax return. If you or your spouse doparticipate in an employer-sponsored plan, your deduction is subject to the following MAGI phaseout:

  • For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan: 
    • For a spouse who participated in 2018: $101,000–$121,000.
    • For a spouse who didn’t participate in 2018: $186,000–$196,000.
  • For single and head-of-household taxpayers participating in an employer-sponsored plan: $63,000–$73,000.

Taxpayers with MAGIs within the applicable range can deduct a partial contribution. But those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.

2. Roth. Roth IRA contributions aren’t deductible, but qualified distributions — including growth — are tax-free, if you satisfy certain requirements.

Your ability to contribute, however, is subject to a MAGI-based phaseout:

  • For married taxpayers filing jointly: $189,000–$199,000.
  • For single and head-of-household taxpayers: $120,000–$135,000.

You can make a partial contribution if your 2018 MAGI is within the applicable range, but no contribution if it exceeds the top of the range.

3. Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take qualified distributions, you’ll only be taxed on the growth.

Act fast

Traditional and Roth IRAs provide a powerful way to save for retirement on a tax-advantaged basis. Contact us to learn more about making 2018 contributions and making the most of IRAs in 2019 and beyond. 205-345-9898 or info@covenantcpa.com.

© 2019 CovenantCPA

Merger and acquisition activity has been brisk in recent years. If your business is considering merging with or acquiring another business, it’s important to understand how the transaction will be taxed under current law.

Stocks vs. assets

From a tax standpoint, a transaction can basically be structured in two ways:

1. Stock (or ownership interest). A buyer can directly purchase a seller’s ownership interest if the target business is operated as a C or S corporation, a partnership, or a limited liability company (LLC) that’s treated as a partnership for tax purposes.

The now-permanent 21% corporate federal income tax rate under the Tax Cuts and Jobs Act (TCJA) makes buying the stock of a C corporation somewhat more attractive. Reasons: The corporation will pay less tax and generate more after-tax income. Plus, any built-in gains from appreciated corporate assets will be taxed at a lower rate when they’re eventually sold.

The TCJA’s reduced individual federal tax rates may also make ownership interests in S corporations, partnerships and LLCs more attractive. Reason: The passed-through income from these entities also will be taxed at lower rates on a buyer’s personal tax return. However, the TCJA’s individual rate cuts are scheduled to expire at the end of 2025, and, depending on future changes in Washington, they could be eliminated earlier or extended.

2. Assets. A buyer can also purchase the assets of a business. This may happen if a buyer only wants specific assets or product lines. And it’s the only option if the target business is a sole proprietorship or a single-member LLC that’s treated as a sole proprietorship for tax purposes.

Note: In some circumstances, a corporate stock purchase can be treated as an asset purchase by making a “Section 338 election.” Ask your tax advisor for details.

Buyer vs. seller preferences 

For several reasons, buyers usually prefer to purchase assets rather than ownership interests. Generally, a buyer’s main objective is to generate enough cash flow from an acquired business to pay any acquisition debt and provide an acceptable return on the investment. Therefore, buyers are concerned about limiting exposure to undisclosed and unknown liabilities and minimizing taxes after the deal closes.

A buyer can step up (increase) the tax basis of purchased assets to reflect the purchase price. Stepped-up basis lowers taxable gains when certain assets, such as receivables and inventory, are sold or converted into cash. It also increases depreciation and amortization deductions for qualifying assets.

Meanwhile, sellers generally prefer stock sales for tax and nontax reasons. One of their main objectives is to minimize the tax bill from a sale. That can usually be achieved by selling their ownership interests in a business (corporate stock or partnership or LLC interests) as opposed to selling business assets.

With a sale of stock or other ownership interest, liabilities generally transfer to the buyer and any gain on sale is generally treated as lower-taxed long-term capital gain (assuming the ownership interest has been held for more than one year).

Keep in mind that other issues, such as employee benefits, can also cause unexpected tax issues when merging with, or acquiring, a business.

Professional advice is critical

Buying or selling a business may be the most important transaction you make during your lifetime, so it’s important to seek professional tax advice as you negotiate. After a deal is done, it may be too late to get the best tax results. Contact us for the best way to proceed in your situation. 205-345-9898 or info@covenantcpa.com.

© 2019 CovenantCPA

It should come as no surprise that cash is the most popular target of fraud perpetrators. After all, once stolen, cash itself is virtually untraceable. But that doesn’t mean forensic accounting professionals can’t unearth cash fraud schemes — and the crooks behind them.

3 categories

According to the Association of Certified Fraud Examiners, there are three main categories of cash fraud (which includes checks because they’re easily converted to cash):

  1. Theft of cash on hand,
  2. Theft of cash receipts, and
  3. Fraudulent disbursements.

The last category comprises many of the most frequently executed schemes, such as overbilling and “ghost” vendor or employee schemes. For example, overbilling vendors usually submit inflated invoices by overstating the price per unit or the quantity delivered. A dishonest vendor also might submit a legitimate invoice multiple times. Overbilling may involve collusion with employees of the victim organization, who typically receive kickbacks for their assistance.

Employees also can conduct billing fraud on their own, submitting bogus invoices payable to a fictitious vendor and diverting the payments to themselves. Similarly, an employee might set up payroll disbursements to nonexistent ghost employees.

Tracing schemes

Cash can be difficult to trace once it’s in the hands of a thief. But forensic experts usually are able to trace the path that stolen cash took before the fraudster pocketed it. This includes who “touched” the cash and what prompted its flow out of the organization.

Inflated invoices, for example, often leave a trail of red flags. Experts look for invoices that bill for “extra” or “special” charges with no explanation. Other suspicious signs include round dollar amounts, or amounts just below the threshold that requires management’s signoff, and discrepancies between invoice amounts and purchase orders, contracts or inventory counts.

If forensic experts suspect that fictitious billing has occurred, they often investigate accounts with no tangible deliverables — such as those for consulting, commissions and advertising — and check vendor addresses against employee addresses. Invoices with consecutive numbers or payable to post office boxes receive extra scrutiny.

Returned checks can supply useful information, too. Fraud perpetrators are more likely to cash checks, whereas legitimate businesses typically deposit them and rarely endorse checks to third parties.

To trace ghost employee schemes, experts examine payroll lists, withholding forms, employment applications, personnel files and other documents. The information collected from these sources may provide vital links between actual and ghost employees that wouldn’t otherwise be apparent.

To catch a thief

Strong internal controls are instrumental in preventing cash-type schemes. But even the strongest controls sometimes fail to prevent a determined fraudster. If that happens, we can help your business ferret out the fraud and track down the perp. Call or email us today for help– 205-345-9898 or info@covenantcpa.com.

© 2019CovenantCPA

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