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    Roles of the Treasurer’s Committee for the Smaller Not-For-Profit

    Often Board members simply get handed the role of Treasurer if they have a financial background. Understandably, most Board members have agendas for their service that supports the organizations mission and, let’s face it, only a certain portion of the population embraces finance and board controls.   If you are lucky, you receive some form of past records from your successor and guidance from management or the outside accountant. Utilizing your resources is quite important if you are to be successful, especially if success is enhancing further toward best practices.

    Financial reporting requirements necessitate a review with management and/or the independent auditors the effect of any regulatory and accounting initiatives, as well as other unique transactions and financial relationships, if any. Independently, through professional reading and focused continuing education, keep up-to-date on new developments related to the applicable industry, the organization’s specific sector, and the environment in which the organization operates, including any regulatory requirements it may be subject to. We have huge resources at our disposal in this day and age, and we are glad to offer our thoughts to assist you. These discussions best occur as meetings, whether they are in person, video or simply teleconferences. Unless you are following a well-functioning individual, watch how management and the independent auditors react to your request for their participation in these meetings. Don’t be surprised if they react with amazement with what you wish to accomplish. The other reaction may be a lack of interest, which you should read as a need for you stepping into this role. As outside auditor, I can tell you that if the board doesn’t want to hear it, it most likely means they haven’t considered it. However, we all know auditing requirements seek enhanced evaluation by the audit committee.

    Expect to be in the role of reviewing any interim financial reports issued since the last meeting. This should be your entire committee’s responsibility so don’t feel overwhelmed. This is you taking time to understand the organization and its mission, and information that is available concerning that niche of the industry area and updating your experience in financial aspects of the organization. You will then be in a position to discuss with management and the Chief Audit Executive the financial statements, with emphasis on changes in reporting, how results are achieving the organizations budget or objectives for the year. Specifically, focus on any new and unusual transactions and the financial trends. The trends may be simply meeting budget aspects on revenue raising and expenses. New and unusual transactions tend to be recorded by journal entry. They are outside the usual recording of transactions. Therefore, your service on the board and knowledge of important aspects occurring are vital to your reviewing the records. We forewarn you, you are looking not just for what is recorded but what is not recorded or missing. It will take time for you to grow into your role and you should take each interaction as an opportunity to grow. Further, watch for those who can serve as your successor, as life changes for all of us and let’s face it, this is a volunteer position for you and you may need to move on at some point.

    As part of your role as Treasurer and having a functioning committee, the option of conducting executive sessions with the outside auditors, executive director, and chief financial officer (CFO) are rightly available to you. If the organization has a chief audit executive (CAE), general counsel, or outside counsel, executive sessions should be conducted with each of these individuals as well. Circumstances may dictate that additional executive sessions may be needed with the director of financial reporting, controller, or others as desired by the Committee. Such meetings can range from short, ten minute telephone calls, to longer or more involved meetings, depending on the topic(s). Your role in monitoring each of these important relationships can become somewhat involved. Consider the timing of the establishment of these sessions in conjunction with regularly scheduled meetings on a schedule which works best into your service year, or as might become necessary as you serve. It is important that you review the content and action steps established with your committee, preferably at its regularly scheduled meetings. Thus, there may be a need for more than two meetings a year if you wish to spread the burden of these important functions among you and your committee members.

    It falls to your committee to appoint the independent auditors to be engaged by the organization, establish the audit fees of the independent auditors, and pre-approve any non-audit services provided by the independent auditors, including tax services, before the services are rendered. In order to accomplish that function—at least once each year—discuss each of these items with management, the CAE (if applicable), and the board of directors. Assure you understand the total audit fee in relation to any non-audit services being provided by the independent auditors. Review and evaluate the professional relationship with the auditors, including continuity of partner, manager, and staff; and level of service provided by auditors. Review the scope of all services provided by the audit firm throughout the organization. It is best to review soon after the audit has been approved by the board, so that the recommendation for the appointment of the outside auditor in the next fiscal year can be documented in the board minutes in a timely manner.

    Assure that you record each and every important aspect of these actions and discussions, especially any action steps taken, as part of your committee’s meeting minutes.

    Do you need professional help with your non-profit? Czarnowski & Beer is currently offering a complimentary, no-obligation evaluation of your nonprofit organization. Visit our nonprofit offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

     

     

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    The Tax Law and Taking Advantage of Company-Sponsored 401K Plans

    So, are you one of those who dreams of a comfortable retirement, but struggle to maximize your contribution to your company’s retirement plan and the amount you can save just isn’t large enough for you to retire comfortably?

    The good news is that the new Tax Law may be coming to the rescue. While certain high-profile companies provided employees with bonuses last year after the tax overhaul law sharply lowered the corporate rates, some are instead increasing their contributions to employee 401(k) retirement plans. Thus, the company’s contributions are added to what we all struggle to sock away each year and the increments can be substantial. What goes around, comes around as companies moved from footing the bill for retirement and now its full circle, when it’s the executives who aren’t vested into huge employer contributions, the tide begins to turn. By returning overall compensation to areas other than salaries and bonuses, some are taking a longer-term view and working to motivate a company’s most important asset, their employees.

    Let’s review. An individual 401(k) account is generally a worker’s retirement savings vehicle, as we have all heard what to expect from social security as the baby boomers retire. Presently, you can contribute up to $18,500 a year in 2018 into your company’s 401(k) plan, while those 50 and older can put in up to $24,500 a year. These investments grow tax-free until they are withdrawn, and employers typically match with a percentage, essentially providing workers with tax deferred compensation. The more of the latter, the less of the former is what is needed.

    It has always surprised us that many employees don’t take the full advantage of company-sponsored 401(k) plans by maximizing the matches. We are seeing trends where it’s hard to see how many will have enough to retire comfortably.

    So, let us all get on the “Add to your worker’s retirement savings” and all suggest to everyone that we know that the additional compensation that companies should provide from their post-tax reform profits be returned to employees in this manner. Let us stress the goodwill of making the employee in America considered Great Again. Send the message on to all you know and become part of the movement!

    Do you need a fresh look at your tax returns or need to re-file? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

     

     

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    Administrative aspects for the smaller not-for-profit Treasurer’s Committee

    In many instances, there is a single individual, or collection of such committee members with financial expertise serving on the Treasurers’ committee. That can be the Treasurer but doesn’t necessarily need to be the case. Other times, it is only access to appropriate financial expertise, perhaps an agent of management or outside accountant. If the financial expertise does end up being provided by one individual, it is desirable that he or she be a member of the board of directors. One important administrative aspect of the audit committee role is that when no single member of the board has the requisite skills, it is vital to assure other arrangements are made to ensure that the committee has the necessary (mostly financial) expertise to carry out its duties. For those joining a Board, you may be able to ascertain who serves as the requisite financial expert. It is vital for adequate transitions, that an annual evaluation be made and that the results of that evaluation are documented in committee meeting minutes specifically how financial expertise is available to the audit committee.

    Housekeeping of the committee’s role as audit committee should include an annual review of the charter to reassess its adequacy and proposed changes to the board of directors. This may include an annual evaluation of the board itself and its ability to accomplish the role of those charged in governance. For many volunteers, the position of board member comes without a clear understanding of their role or any, mentoring for growth and success. Nor is there an evaluation process to identify functioning and non-functioning members. Acceptance of a less than engaged member is surmounting to working harder yourself and establishing the fast track to a loss of your motivation to serve.

    Part of the review processes is to consider changes that might be necessary because of new laws or regulations. Assess the appropriateness of each point in the charter considering the previous years’ experience. Build on the success of late, with an achievable level of improvement. Only then, will you completely feel your success and satisfaction abut serving the organization’s purpose. Let’s face it, it’s all about furthering the purpose that brought you here. The committee needs to adequately assess the completeness of the charter considering (hopefully) each year’s new and improved best practices and the changing legal or regulatory environments.

    The deliverable is a report to the board on the appropriateness of the audit committee charter and any revisions recommended. Sometimes, though changes are needed during the year, and when it is evident that such are needed, the committee must act.

    The continual workings of the audit committee as it meets is to address matters on its agenda. The audit committee may invite members of management or others to attend the meetings and provide pertinent information as necessary. Don’t be shy to ask for help and appropriate support. It is best that in-person meetings occur at least once each year.

    Custom agendas for meetings should be prepared and provided to members in advance, along with appropriate briefing materials. Assure that minutes which document decisions made and action steps taken following meetings are reviewed for approval. All members are expected to attend each meeting in person, via telephone conference, or videoconference.   The option to hold telephone conference meetings is available. An agenda item to consider new business should be available to all members at all meetings. Meeting minutes should be filed with the board of directors. Minutes should be distributed as soon as possible but no later than before the next meeting.   In this day and age of the word processor, they should not simply readdress the items of the month before but be drafted from scratch based upon the custom agenda. Indicate in the audit committee minutes whenever a new member is appointed. Affirm annually or whenever a change in status by any audit committee member occurs.

    For those committees who are fully functional of the aspect of monitoring financial reports, dealing with a review of management for areas that effect the audit and have a comprehensive program to annually hire and communicate more than once with eh the outside auditor during the year, the audit committee may consider performing such other functions as assigned by the organization’s charter or bylaws, or the board of directors. This may include monitoring developments in the regulatory and legislative and legal environment and responding to any new requirements as needed.

    Those committees wishing to reach best practices status will need to include an annual review of the committee for its effectiveness, efficiency, and consideration of new objectives. By reviewing its accomplishments and making recommendations for improving its effectiveness it strives to be the best it possibly can be. Naturally, discuss recommendations with board of directors, but the importance of an annual review can’t be overstressed.

    Do you need professional help with your nonprofit? Czarnowski & Beer is currently offering a complimentary, no-obligation evaluation of your nonprofit organization. Visit our nonprofit offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

     

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    Five Warning signs of IRS Tax Scams

    OK so the filing deadline has passed, and you have resolved this year’s deadline. Merrily going on in life that your taxes are being paid until next filing time, has been a safe place most Americans have had the luxury of living comfortably with. Cybercriminals lurk as a year-round phenomenon, but they know after filing would be a logical time to hear from the Taxing authorities to “verify” your taxpayer information as historically they would reach out by mail to claim some issue that results in additional tax liability. We are all off thinking of the next event of summer fun in our lives, so the tendency is to just click it fast and resolve this immediately. We can’t offer you better advice than to slow down whenever you hear from the Tax authorities! You see, as professionals, we find more and more that emails and calls seeking Tax payments or information tend to be thefts and not the “Taxing Authorities” they may tend to portray.

    A tax return contains virtually all the information an identity thief would need, so it’s no wonder that it’s a common target. The most common scam involves trying to get taxpayers to “verify” sensitive information from their tax return – like their Social Security number or bank account information.

    The other most common tax scam is that you owe additional tax and that must be paid right away. While it might cost more if you wait (due to additional interest charges), not paying the fraudster saves each dollar the less sophisticated taxpayer might get scammed for. Examples are the scammer may claim that there was a miscalculation on the return, or then there are these old back taxes that are owed for whatever reason. Again, if they haven’t been paid for this long what’s a couple weeks more? True Taxing Authorities will always allow for some time to evaluate. Here is the kicker: pay the Taxing Authorities with a method of payment, other than the usual check, such as sending the funds on a prepaid debit card. Duh, never ever pay your taxes with this method.

    As mentioned, there is no reason to detail the many current successful Tax scams as there are many variations of each individual scam. We want you to know what to look for, so that you can avoid most of them simply by saying no and evaluating if the original concern has ANY merit.

    So direct from the IRS are five WARNING SIGNS of tax scams that all American taxpayers should know. All types of scams would be too much to layout for you, so the IRS is focusing on the most prevalent. Further, these criminals continue to be creative and unfortunately, the IRS needs to understand what’s going on out there before they can adapt to this constantly evolving environment.

    The IRS will NEVER, EVER:

    1. Call you to demand that you pay any tax debt immediately or with a specific payment method. The IRS initiates contact with taxpayers by mailing a bill first, and you’ll always have time to review and contest any legitimate IRS tax bill. Furthermore, the only place legitimate tax payments are made is to the U.S. Treasury.
    2. Threaten to have you arrested for nonpayment. No, the IRS doesn’t call the police over a simple outstanding tax bill!
    3. Ask for payment without giving you the opportunity to question how much you owe. This is one of the basic provisions of the taxpayer’s “bill of rights” issued by the IRS. You also have the right to appeal the commencing of such option stops the money collection process, period.
    4. Ask you for credit card or debit card numbers over the phone. The IRS does accept credit and debit cards, but through payment processors listed on irs.gov.
    5. Use email, texts, or social media to discuss your tax issues. The IRS generally communicates with taxpayers by mail. It won’t just send you an email with a tax bill, nor will a legitimate IRS agent reach out to you via Facebook or Twitter.

    These are at the heart of many common scams that the IRS is seeing over and over again. If the individual or organization you’re dealing with does any of ONE these things, you are to feel CERTAIN that an attempt to scam you is occurring.

    Once you believe that you’ve been targeted by scammers, its important to use the internet to protect yourself and others. You can report scam emails at phishing@irs.gov, and you can report any scam (phone, email, or otherwise) to the Treasury Inspector General for Tax Administration as well as the Federal Trade Commission.

    Fortunately, much of tax scams are 100% avoidable if you know what to look for. Obviously, if you see any signs of a scam, you should hang up the phone or ignore the email or text you received. Don’t give out any personal information. There are limited places that your social security or bank account number needs to be disclosed. We start by saying we do not supply that and many times legitimate organizations accept that or find a more comfortable method for you to share it.

    If you think the call or email might be legitimate, make some notes for yourself and then call the IRS directly or log into irs.gov to view your actual tax information. This way, you’ll be certain that you’re dealing with the correct authorities. This is not a place where you want to be any less than 100% sure who you are dealing with.

    Do you need professional help with your nonprofit? Czarnowski & Beer is currently offering a complimentary, no-obligation evaluation of your nonprofit organization. Visit our nonprofit offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

     

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    The Composition of a Smaller Audit Committee

    It is always preferred that a member of the board of directors serve as the chair of the audit committee. This member should be in good standing and independent from management. In smaller not for profits this usually falls to the Treasurer. Since the Treasurer may utilize a “Finance or Treasurers Committee” structure, that committee many times takes on the dual role of audit committee. Independence is quite important and should be evaluated. This is generally based on the policies established by the organization. Minimal independence standards would prohibit employees or those with direct financial interests in entities serving the organization from serving on the audit committee. Quite clearly, no member of the organization’s independent auditors may serve on the audit committee or on the board of directors. However, a good working relationship of the committee and auditor is quite valuable for many reasons.

    The committee’s size and composition will vary by the size of the organization, its charter and complexity and extent of operations. Therefore, the committee can be as few as two or as large as needed to accomplish the role and aspects deemed appropriate by the Board. It is vital that: (1) consideration be given to what has been previously accomplished by the Committee, (2) goals are set out by the Board and (3) determine he number of individuals involved in order to establish a committee strategy. The march toward best practices starts with step one and requires many. Overzealous expectations generally lead to failed objectives which tend to degrade the morale of the hardest working members. This is especially true in volunteer Boards.

    Board composition tends to change over time. Therefore, establishing basic guidelines and committee structure should be a priority for Treasurers so that a functioning structure is available to the next Chairman. If nothing else, leave the Committee in better shape than you found it and provide adequate Standards of Operating Procedure for the next person. Such Standards should be provided to the Board’s Historian as the transition from one person to another maybe less than complete and thus your hard work can be compromised. By establishing a functioning Audit Committee aspect to the role of Treasurer, you allow the organization to comply with generally accepted committee principles. This in turn paves the way towards a comprehensive and more effective annual audit. The benefits of a free flow of appropriate information between management, the Board, and auditor will be realized for many years after your service.

    Do you need professional help with your nonprofit? Czarnowski & Beer is currently offering a complimentary, no-obligation evaluation of your nonprofit organization. Visit our nonprofit offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

     

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    529 ABLE Accounts

    529 plans may now be rolled over to ABLE accounts without a penalty, that is, provided that the ABLE account is owned by the designated beneficiary of that 529 account (child), or a member of such designated beneficiary’s family. Such rolled-over amounts count towards the overall limitation on amounts that can be contributed to an ABLE account within a taxable year. Both accounts must have the same beneficiary or a member of the same family, and you can roll over up to the annual gift exclusion amount, which is $15,000 in 2018. Starting at a young age and investing the accounts for growth goes a long way to fully funding a child’s college education.

    A Coverdell ESA is a savings account that is set up to pay the qualified education expenses of a designated beneficiary. They can be opened at any US bank or IRS-approved entity. Who can have a Coverdell ESA? Any beneficiary under 18 or with special needs. The contributions are not deductible but realize that any earnings are not taxed while in the ESA and so long as you use the funds solely for the beneficiary’s qualified education expenses each year, there is no taxation for that year.

    The annual contribution limit is $2,000 for each beneficiary no matter how many accounts exist for that beneficiary or how many individuals contribute.

    Can contributions of stock or bonds be made to a Coverdell ESA? Only cash contributions are allowed.

    When must contributions stop? No contributions may be made to a beneficiary’s account after they reach 18, except for special needs beneficiaries.

    Sec. 11024 temporarily increases the contribution limitation to ABLE accounts under certain circumstances. While the general overall limitation on contributions (the per-donor recipient annual gift tax exclusion ($15,000 for 2018)) remains the same, the limitation is temporarily increased with respect to contributions made by the designated beneficiary of the ABLE account. Under the temporary provision, after the overall limitation on contributions is reached, an ABLE account’s designated beneficiary may contribute an additional amount, up to the lesser of (a) the Federal poverty line for a one-person household; or (b) the individual’s compensation for the taxable year.

    Additionally, the provision temporarily allows a designated beneficiary of an ABLE account to claim the saver’s credit for contributions made to his or her ABLE account.

    ABLE Accounts, which are tax-advantaged savings accounts for individuals with disabilities and their families, were created as a result of the passage of the ABLE Act. The beneficiary of the account is the account owner, and income earned by the accounts will not be taxed. Contributions to the account made by any person (the account beneficiary, family and friends) will be made using post-taxed dollars and will not be tax deductible, although some states may allow for state income tax deductions for contribution made to an ABLE account.

    Millions of individuals with disabilities and their families depend on a wide variety of public benefits for income, health care and food and housing assistance. Eligibility for these public benefits (SSI, SNAP, Medicaid) require meeting a means or resource test that limits eligibility to individuals to report more than $2,000 in cash savings, retirement funds and other items of significant value. To remain eligible for these public benefits, an individual must remain poor. For the first time in public policy, the ABLE Act recognized the extra and significant costs of living with a disability. These include costs, related to raising a child with significant disabilities or a working age adult with disabilities, for accessible housing and transportation, personal assistance services, assistive technology and health care not covered by insurance, Medicaid or Medicare.

    Eligible individuals and their families are allowed to establish ABLE savings accounts that will not affect their eligibility for SSI, Medicaid and other public benefits. The legislation explains further that an ABLE account will, with private savings, “secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, Medicaid, SSI, the beneficiary’s employment and other sources.”

    The ABLE Act limits eligibility to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. If you meet this age criteria and are also receiving benefits already under SSI and/or SSDI, you are automatically eligible to establish an ABLE account. If you are not a recipient of SSI and/or SSDI, but still meet the age of onset disability requirement, you could still be eligible to open an ABLE account if you meet Social Security’s definition and criteria regarding significant functional limitations and receive a letter of certification from a licensed physician. You need not be under the age of 26 to be eligible for an ABLE account. You could be over the age of 26, but must have had an age of onset before the individual’s 26 birthday.

    The total annual contributions by all participating individuals, including family and friends, for a single tax year is $15,000 for 2018. The amount may be adjusted periodically to account for inflation. Under current tax law, $15,000 is the maximum amount that individuals can make as a gift to someone else and not report the gift to the IRS (gift tax exclusion). The total limit over time that could be made to an ABLE account will be subject to the individual state and their limit for education-related 529 savings accounts. Many states have set this limit at more than $300,000 per plan. However, for individuals with disabilities who are recipients of SSI, the ABLE Act sets some further limitations. The first

    $100,000 in ABLE accounts would be exempted from the SSI $2,000 individual resource limit. If and when an ABLE account exceeds $100,000, the beneficiary’s SSI cash benefit would be suspended until such time as the account falls back below $100,000. It is important to note that while the beneficiary’s eligibility for the SSI cash benefit is suspended, this has no effect on their ability to receive or be eligible to receive medical assistance through Medicaid.

    Additionally, upon the death of the beneficiary the state in which the beneficiary lived may file a claim to all or a portion of the funds in the account equal to the amount in which the state spent on the beneficiary through their state Medicaid program. This is commonly known as the “Medicaid Pay-Back” provision and the claim could recoup Medicaid related expenses from the time the account was open.

    A “qualified disability expense” means any expense related to the designated beneficiary as a result of living a life with disabilities. These may include education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services and other expenses which help improve health, independence, and/or quality of life.

    Distributions from an ABLE account are excludable from income to the extent that the total distribution does not exceed the qualified disability expenses of the designated beneficiary during the taxable year. If a distribution from an ABLE account exceeds the qualified disability expenses of the designated beneficiary, a pro rata portion of the distribution is excludable from income. The portion of any distribution that is includible in income is subject to an additional 10-percent tax unless the distribution is made after the death of the beneficiary.

    Do you need an extension to file tax returns? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

    Please note, this offer is subject to change or expire without notice on or before October 15, 2018. Please confirm with Czarnowski & Beer if you are reading this blog post after this date. Thank you.

     

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    IRS Code 179 for Expenses Has Been Updated

    Internal Revenue Code Section 179 has been around since the 1980s but the great news from the new tax law is that the maximum expense amount per year increases to $1,000,000. Newly qualified assets include depreciable tangible personal property used predominantly to furnish lodging, or in connection with furnishing lodging, any facility where sleeping accommodations are rented your HomeAway landlords!

    Other newly qualified improvements to existing non-residential real property include:

    Roofs, heating, ventilation, and air-conditioning, fire protection and alarm systems, security systems.

    As a reminder, Section 179 is normally available for assets in the 3, 5, 7 and 10-year life categories (there are some exceptions). Be careful though, bonus depreciation (a separate blog to follow) rules are the norm and Section179 requires an election on your tax return.

    There are limits of an income requirement and by a dollar maximum and it’s recaptured if the business use percentage drops to less than 50%. We see Section 179 as preferable to bonus depreciation for small business because of the ability to specifically determine the amount rather than utilize the “all or none” approach of the bonus system.

    Do you need an extension to file tax returns? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

    Please note, this offer is subject to change or expire without notice on or before October 15, 2018. Please confirm with Czarnowski & Beer if you are reading this blog post after this date. Thank you.

     

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    The Sunset of the Alternative Minimum Tax

    In all things that have potential cost except in taxes, minimum is a good thing. So, we always found a hidden meaning in the name of this tax, as in a high-income tax State such as New York, especially with the high standard of living here, that most anyone who could afford to live here ran the risk of being minimized.

    That was because for each individual client, we needed to run a calculation of both the regular as well as the minimum tax and have them pay the higher amount. Many times, minimum was higher.

    Well, the new tax law guts the cornerstone of the issue for those in high Income tax States, as it removes that deduction altogether. So no longer are they deductible solely for the regular tax and in one swoop, many are relieved of the alternative, only to now pay a higher regular tax instead.

    Two of the other most common causes will also no longer apply: the personal exemption and other itemized deductions. When you combine a truly enhanced grace level AMT exemption, plus substantially elevated phasing out of the exemption, it will now be unusual for taxpayers to pay the “Alternative Minimum.”

    Do you need an extension to file tax returns? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

    Please note, this offer is subject to change or expire without notice on or before October 15, 2018. Please confirm with Czarnowski & Beer if you are reading this blog post after this date. Thank you.

     

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    Corporations and Cash Basis Tax Planning

    It used to be once a Corporation got to $5 Million of average gross receipts over three years, it was required to use the accrual basis of accounting. The cash basis method allows for easier deferral of income by asking customers not to pay you until a future year. Many small businesses and professionals use this method to time their net income to maximize their tax position.

    The new tax law spikes the limit to $25 Million. Now many larger small businesses can better time their net income. Any business other than a tax shelter qualifies and, as a reminder, adjustments to cost of goods sold for inventory must still be made. For contractors, the percentage-of-completion method now uses the same $25 Million threshold.

    You will need to seek (automatic acceptance) permission from the Internal Revenue Service by filing Form 3115. There has been a lot written since the new Tax law came out about the benefits of changing to the cash basis or accrual basis with the expensing of prepaid expenses. Its important that you seek the advice of your tax professional to properly pursue such a change.

    Do you need your tax returns evaluated for the new tax year? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

    Please note, this offer is subject to change or expire without notice any time after October 15, 2018. Please confirm with Czarnowski & Beer if you are reading this blog post after this date. Thank you.

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    Capital Gains Tax Planning Under The New Tax Law

    With the huge gains since the Presidential election in the stock market, we believe many are thinking about pocketing gains. We wanted to remind everyone that for single taxpayers with incomes below $50,700 and married couples at $101,400 of income, there are no capital gains tax rates for taxpayers when they realize gains on the sale of stock investments. You heard that right, a 0% tax rate where their other income tax bracket is 15% or less. For those above those levels, the capital gains rate is 15%. The limit is $68,000 for married filing separately, which is the same as filing single and head of household.

     

    So, realize those profits if you want. There is also a quite valuable tax planning opportunity to monitor this all toward year end. If you determine you will be in this low capital gains rate bracket, consider selling stocks with gains to lock those in tax-free (other than state taxes). You can then go back into the market and buy back those securities at roughly what you sold them for and start fresh with the much higher stock basis. Any future capital gain tax will be minimized and if the stocks go down, you might even get a deduction to offset other gains that you wouldn’t have had, if you didn’t realize the gain at a 0% tax bracket. And don’t worry about wash sale rules, they only apply to losses!

     

    Do you need your tax returns evaluated for the new tax year? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

    Please note, this offer is subject to change or expire without notice any time after May 30, 2018. Please confirm with Czarnowski & Beer if you are reading this blog post after this date. Thank you.

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    Estate Tax Changes

    Those with more than $5 million dollars in net assets who are concerned about their heirs paying estate tax might want to kick the bucket within eight years. Or, if you don’t care about the amount of estate taxes your heirs will have to pay, no need to read on.

    Those most concerned should be owners of businesses that they wish to remain in the family. Many small businesses can’t stay in family hands unless adequate lifetime planning has been accomplished. The good news is that the exemption from estate tax has basically been doubled, so a couple can plan to transfer up to $22 million to their heirs, tax-free. Like many aspects of the new Tax law, which have sunset provisions, they are only around for the short term. This one expires in eight years.

    Those who expect or plan to live longer and capture as much of the $22 Million as they require, should utilize the annual gift tax exclusion by making gifts in these full sunshine years to vehicles such as irrevocable or generation-skipping trusts.

    Act now to get to the same place without having to sunset yourself by 2025.

    Do you need your tax returns evaluated for the new tax year? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

    Please note, this offer is subject to change or expire without notice any time after May 30, 2018. Please confirm with Czarnowski & Beer if you are reading this blog post after this date. Thank you.

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    So, They Say the Health Insurance Mandate Has Been Eliminated

    Not so fast, the penalty for not having qualified health insurance has been removed beginning in 2019. That means that the penalties are still in effect in 2017 and continue through 2018. Let us also remember that certain states have their own penalty for not having insurance (Massachusetts) and low and behold, other states (D.C.) are considering taking the matter into their own hands. These states include Connecticut, California, Maryland, and don’t expect New York to be too far behind.

     

    Hope that the individual insurance markets survive to help millions obtain adequate health insurance. A reminder to large employers (50 or more full-time plus full-time equivalent employees) that your company is still required to offer qualified insurance or potentially face a penalty. Many of those with less than 100 employees are considered small businesses.

     

    Do you need your tax returns evaluated for the new tax year? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

    Please note, this offer is subject to change or expire without notice any time after May 30, 2018. Please confirm with Czarnowski & Beer if you are reading this blog post after this date. Thank you.

     

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    Defending Against Ransomware

    ransomeware

    Let’s face it, we have all heard in the news about ransomware attacks, and that they are on the rise worldwide as the bad guys and girls here and abroad infiltrate computer systems and hold sensitive data hostage.

    Many are under the mistaken notion that ransomware attacks only threaten large businesses, but you need to realize any computer owner is at risk. How much would you pay to get your personal computer back if it was presently locked up? Presently, the bad ones accept relatively lesser amounts to release them not attempting to determine who has been impacted and truly how much they will pay. For business, the amounts they will pay to maintain operations is substantial. Our concern is if the kidnappers determine a way to find those that really need to pay, and charge accordingly. So, think about how much you would pay to get yours back? Now think about your employer and others in your life.

    Ransomware is a type of malware that infects computers, networks, servers and then encrypts (locks) data. Cybercriminals then demand a ransom to release the data. Users generally are unaware that malware has infected their systems until they receive the ransom request. The 2017 Phishing Trends and Intelligence Report issued annually by Phishlabs named ransomware one of two transformative events of 2016 and called its rapid rise a public epidemic.

    The most common delivery method of this malware is through phishing emails. We have written about ways to protect yourself from those emails that lure you unsuspectingly to either open a link or an attachment. Realize that ransomware is evolving, and cybercriminals can infect computers by other methods, such as a link that redirects users to a website that infects their computer. The available methods continue to explode.

    Victims should consider not paying a ransom. Paying it further encourages the criminals and worse yet, the scammers often won’t provide the decryption key even after a ransom is paid.

    Prevent these ransomware attacks by talking to an IT security expert. All businesses, their payroll departments, human resource organizations and just about everyone should consider these steps to help prepare for and protect against ransomware attacks:

    • Make sure employees are aware of ransomware and of their critical roles in protecting the organization’s data.
    • For digital devices, ensure that security patches are installed on operating systems, software and firmware. This step may be made easier through a centralized patch management system.
    • Assure that antivirus and anti-malware solutions are set to automatically update and conduct regular scans.
    • Manage the use of privileged accounts — no users should be assigned administrative access unless necessary, and only use administrator accounts when needed.
    • Configure computer access controls, including file, directory and network share permissions, appropriately. If users require read-only information, do not provide them with write-access to those files or directories.
    • Disable macro scripts from office files transmitted over e-mail.
    • Implement software restriction policies or other controls to prevent programs from executing from common ransomware locations, such as temporary folders supporting popular Internet browsers, compression/decompression programs.
    • Back up data regularly and verify the integrity of those backups.
    • Secure backup data. Make sure the backup device isn’t constantly connected to the computers and networks they are backing up. This will ensure the backup data remains unaffected by ransomware attempts.

    To learn more about Czarnowski & Beer, LLP, and what we can do for you, visit our practice areas page, or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to answer your questions.

     

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    What is cogeneration and how does it save me money?

    cogenerationCooperative ownership is based in the premise of working together for the benefit of community and ultimately humanity. One blossoming area for appropriate properties of 300 or more so units utilizing the “co” in cooperative and community is cogeneration. Conceptually, it’s the utilization of potentially wasted heat energy, predominately from the generation of electricity. The older properties that utilize the furnace to heat hot water all year long, obtain substantial savings from using the wasted heat energy from steam generation to drive electricity producing turbines that power the resident’s homes. With this, the property produces all or part of the electricity that normally would come from the local utility.   The money that the residents would normally pay to outsiders, is re-circulated back into the property to cover the costs of producing and financing the electricity generation equipment.   The remnants of steam that drove the electric turbines are redirected into a system to capture the excess heat energy which maintains sufficient hot water supply for residents.   The heat plant, capable of heating the entire property now only needs to run the roughly 4 months of the heating season as opposed to the entire 12 months of the year to supply adequate hot water.   Thus, the shareholders continue to pay for electricity at existing utility rates and the property saves on overall energy costs, but you will need to rely upon experts to accomplish such a substantial feat.

     

    You will need a specialist to guide you through the volumes of complications that accompany such a substantial transition. Inquire of your property manager for a consulting firm adequate to verify the viability of such a project. Once you have assured viability, the equipment needs to be acquired and installed as well as maintained. Let’s face it, your building superintendent is no expert in electricity production systems nor their maintenance. By working with the proper professional, you can obtain all the benefits that are available. NY State Energy Research and Development Agency (NYSERDA) offers incentives to establish such energy efficient aspects of your property by offering incentives which reduce your out of pocket costs. NY City is on course to become a leader in energy efficiency and the States programs support that initiative. Together, your property can save, and the State and City can shine as beacons of where our country needs to go. Become a leader and utilize your influence to ascertain how “co” is part of your properties vocabulary.

     

    To learn more about Czarnowski & Beer, LLP, and what we can do for you, visit our practice areas page, or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to answer your questions.

     

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    For Co-op Board Members: Window dress your Financial Statements Reserves

    financial statementsSo, you have a reserve fund, but do you know if it is reasonable? To have a well-dressed annual Financial Statement, does your reserve funds cover the just the minimum? If so, then by spending any of that minimum reserve fund would force you to lose the designation that you have a minimum reasonable reserve fund. Therefore that money may not be available to your Board since you need to maintain that minimum amount in the reserve fund to cover a tragedy and because the bare minimum for a small building in New York is $100,000, roughly enough to replace a small boiler. But what about all those other components to your property that will need to be improved or replaced over time?

     

    Let’s face it, properties need long term repairs so its not just “what we have now, but what we need”. And that’s the part that seems to be missing from most Financial Statements of properties in New Jersey, Florida or California. That’s because those states require each property obtain and disclose a reserve study. Look at the opinion page of having your properties annual Financial Statement and see if it includes an emphasis paragraph about not promulgated a reserve study or disclosing the results. Gee, it was important enough for the accounting guidelines to include it, can the ready answers be available to resolve the concerns of such a study?

    Well for the most part, the amount of future costs cannot be predicted. But conceptionally, the actions the Board takes now can offset some aspects of what’s important, that is Keeping your reserve funds replenished: Prospective purchasers will want to see a relatively adequate cash reserve fund. It may be that from time to time unexpected bills may show up or reserves may be dwindled down by operating losses without notice. That is why it is imperative for you to periodically monitor the activity in the cash reserve fund. “You won’t regret it!”

     

    Many seem to consider two aspects, what’s in the account(s) or the balance, and how much needs to be spent. Your Board can window dress by focusing on where those funds come from. That means that the receipts from owners of any specific assessments make it all there. There are a number of actions other than assessment that can enhance the reserve fund. Otherwise, over time and spending, it is quite easy to get to the point that additional borrowing needs be utilized. If you have tried it, how has constant borrowing worked in your life?

     

    So, what your property needs is a long-term funding vehicle.  I recommend a Transfer Fee imposed on departing owners. That way, they leave behind funds to pay for the replacement of systems that they used when they lived in the building, for when they need to be replaced next. Another option is an annual allocation of monthly carrying charges to capital. In times where savings are found from things like conversion to natural gas projects and refinancing at lower interest rates, rather than reduce monthly charges, these savings can be directed to reserves. Also, periods when annual increase are low, like recent years, a percentage point here and there can supplement the reserve funds.

     

    Together, its important to work on the level of reserves and the plans to replace them as they will appropriately need to be utilized over time. By window dressing the reserves on your Financial Statement you enhance to the financial success of your property as well.

     

    Does your board need help with your cooperative financial statements? Czarnowski & Beer is currently offering a complimentary, no-obligation financial statement evaluation. To take advantage of this limited time offer, visit our offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

     

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    Protecting Your Business from Cybersecurity Threats

    We are offering some very important tips for businesses to get started protecting their businesses from cybersecurity threats.

    We are seeing businesses being targeted by national and international criminal syndicates that are highly sophisticated, well-funded and technologically adept and no business can afford to ignore cybersecurity threats or overlook putting in place strong safeguards.

    cyber security

    • Take responsibility or assign an individual or individuals to be responsible for safeguards
    • Assess the risks to sensitive information in your offices, including operations, physical environment, computer systems and employees
    • Make a list of all the locations where information is kept (computers, filing cabinets, websites)
    • Write a plan of detailing what every employee needs to do to safeguard such information. Put the appropriate safeguards in place
    • Use only service providers who have policies in place to also maintain an adequate level of information protection as defined by your Safeguard Rules
    • Be sure to monitor, evaluate and adjust security programs as business or circumstances change

    There are five action-item categories:

    Identify:

    • Identify and control who has access to business information
    • Conduct background checks
    • Require individual user computer accounts for each employee
    • Create policies and procedures for information security

    Protect:

    • Limit employee access to data and information
    • Install Surge Protectors and Uninterruptible Power Supplies (UPS)
    • Patch operating systems and applications
    • Install and activate software and hardware firewalls on business networks
    • Secure wireless access point and networks
    • Set up web and email filters
    • Use encryption for sensitive business information
    • Dispose of old computers and media safely
    • Train employees

    Detect:

    • Install and update anti-virus, spyware and other malware programs
    • Maintain and monitor logs

    Respond:

    • Develop a plan for disasters and information security incidents

    Recover:

    • Make full backups of important business data/information
    • Make incremental backups of important business data/information
    • Consider cyber insurance
    • Make improvements to processes, procedures and technologies

     

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    Protecting Our Data

    Every person in America, especially those that work with access to people’s personal data, whether part of a large organization or a small one, are now potential target for highly sophisticated, well-funded and technologically adept cybercriminals from around the world. Their objective is to obtain secure personal data so that they can best impersonate their victims. They utilize email, telephone or any other means that they can devise to trick each of us into giving up computer passwords, e-Services passwords, trick you into taking what seems like a normal business action but with them having access to what we all expect is normal operations. They will even attempt to take remote control of your entire computer.

    protecting our media

    None of us can fight these crimes alone. It takes all of us, working together. That is why the Security Summit – the unprecedented partnership between the IRS, state tax agencies, and the private-sector tax industry have come together to form a united and coordinated front against this common enemy. They warn us to increase our computer security and to be aware of our inbox – specifically for the successful email scams dubbed spear phishing that identify themselves as our friend, customer, appropriate colleague or company.

    As part of the Security Summit effort, has a campaign entitled “Don’t Take the Bait.” It’s critical that we all remember that we have not just a moral obligation but a legal requirement under federal law to protect personal information.

    As new and evolving threats involving data breaches, intrusions and various takeovers that put people’s personal information at risk occur, we all need to work to protect each other. Too many of us still seem to overlook basic security steps needed to protect the data we possess. We urge everyone we work with, not just personally but professionally, beware your inbox, don’t take the bait from these phishing scams.

    Phishing scams use bait or lures to trick us into opening an infected link or attachment or disclosing usernames and passwords to critical accounts. Falling for the phishing bait means exposing data to theft. Don’t click on the link, and be wary of attachments. When in doubt, type a new email to the email address you have on file. Call the phone number on the monthly statement or back of the credit regardless of what the email says you should do. On a daily basis, wear a fraud hat, don’t facilitate someone being a victim. You are mostly protecting yourself.

    Information that IRS is receiving indicates that from January through May, there were 177 tax professionals or firms who reported data thefts involving client information involving thousands of people. The IRS currently is receiving three to five data theft reports a week from just tax practitioners.

    We are taking the time to remind everyone that we work with that yes, each of you are increasingly the targets of national and international cybercriminal rings. These syndicates are well-funded, knowledgeable and creative. It’s going to take all of us working together to combat these identity thieves, doing nothing or making a minimal effort is no longer an option for any of us.

    The Security Summit is a collaboration of Federal and State Government as well as private companies that have come together and focus on pressing personal information security issues. We will be offering information from their “Don’t Take the Bait” series on security awareness, emphasizing the various types of phishing scams as well as common and successful tactic used in data breaches. The 10 part series will also focus on what steps each of us can take to protect ourselves as well as our clients and their businesses from these attacks.

    The tax community and others with taxpayer data – including human resource departments, small businesses and others – are among those targeted with increasingly sophisticated phishing schemes.

     

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    Payroll departments, you better watch out for these W-2 email scams

    Payroll departments and businesses beware of a recent increase in email scams targeting obtaining employee Forms W-2. A prevalent W-2 scam, called a business email compromise (BEC), is one of the most dangerous phishing email schemes trending nationwide. The IRS saw a sharp increase in the number of incidents and victims during the 2017 filing season.

    W-2 forms

    A business email compromise occurs when a cybercriminal can “spoof” or impersonate a company or organization executive’s email address and target a payroll, financial or human resources employee with a request. For example, fraudsters will try to trick an employee to transfer funds into a specified account or request a list of all employees and their Forms W-2. It’s important to be on the alert this time of year as the criminals will immediately file a fraudulent tax return that tends to mirror the actual income received by employees and has the correct withholding amounts. Then, it can also be posted for sale on the Dark Net, where other criminals also seek to profit once again from these thefts.

    In 2017, the IRS saw the number of businesses, public schools, universities, tribal governments and nonprofits victimized by the W-2 scam increase to 200 from 50 in 2016. Those 200 victims translated into several hundred thousand employees whose sensitive data was stolen. In some cases, the criminals requested both the W-2 information and a wire transfer. Businesses with large payrolls, or who process payrolls on behalf of clients are very much at risk.

    If a business or organization is victimized by these attacks, it should quickly notify the IRS. The IRS will take steps to help prevent employees from being victims of tax-related identity theft. However, because of the nature of these scams, many businesses and organizations did not realize for days, weeks or months that they had been scammed. Reporting of such attacks should be made to a special email notification address specifically for businesses and organizations to report W-2 thefts: dataloss@irs.gov. Be sure to include “W-2 scam” in the subject line and information about a point of contact in the body of the email.

    Protecting ourselves from BECs

    First off, we all must beware of the threat to our own systems and to educate each other about the existence of BEC scams. Employers, especially payroll departments, should review their policies for sending sensitive data such as W-2s or making wire transfers based solely on an email request.

     

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    Preventing Phishing Attacks

    We all hear about reports of a significant increase in phishing activities in the world around us. Many of us know to be careful, and yet the thought still might enter our minds to open that questionable attachment or click the link because we are busy. Let’s face it, the only way we will see change is if we all focus on eliminating the identity theft and fraud risk from phishing. That means not only protecting ourselves, but to spread the word to those we know and work with and assure everyone understands all there is to know about this potential bombshell, thus we are focusing our posting attention to this important area.

    It is reported that the total number of unique phishing attacks in 2016 was 1.2 million – a 65 percent increase over 2015. We now see close to 100,000 unique phishing attacks each month, an over 5,000 percent increase in just the last decade. Each phishing attack has the potential to involve millions of emails.

    Phishing.org reports there are more than 100 billion spam emails sent each day; more than 85 percent of all organizations have been targeted by phishing attempts and phishing damages exceed $1 billion.  Verizon, which publishes an annual data breach investigations report, warns that 1 in 14 users are tricked into opening a link or attachment from a phishing email. The sad part is that a quarter of the victims have been duped more than once.

    The bulk of the successful phishing attacks include some sort of malware software installation that allows thieves to export data or take control of the systems. The main culprit either stolen passwords or accessing weak passwords. We thought that the following reminders on passwords would help those in our professional network:

    1. Use strong, unique passwords.
    2. Better yet, use a phrase instead of a word.
    3. Use different passwords for each account.
    4. Use a mix of letters, numbers and yes, include special characters.
    5. Use of varying lower case and capital letters
    6. Rotate the order of the mix to avoid replication
    7. Avoiding easy to remember strings or series
    8. Consider utilizing password control software

    Those of us who hold sensitive financial data are critical targets. At C & B, we have numerous levels of protection including varying levels of passwords, mandatory password rotation and criteria as well as policy for not clicking on links and only opening attachments from known sources.

    You should be especially aware of spear phishing emails, a common tactic used by cybercriminals to target those who have sensitive customer personal information.   Phishing emails target a broad group of users in hopes of catching a few victims. Spear phishing emails, often tailored to specific individuals, are the most common, they pose as familiar entities, and the cybercriminals have done extensive research and homework in order to target a specific audience.

    We are utilizing an example from the Protect Your Clients, Protect Yourself campaign called “Don’t Take the Bait” which is specifically focused on Tax professionals as an example. This is an example of a spear phishing email that targeted a tax professional during the 2017 filing season. Note the use of “Tax return” in the subject line to bait the tax preparer as the sender impersonates a prospective client:

    Note the sophistication of sender who has done their research, obtaining the name and email address of the tax professional. And, the email is conversational but ungrammatical and oddly constructed: “hope your (sic) doing good (sic) and actively involved in the tax filing season.” This is potentially a sign that English is a second language. Finally, note the hyperlink using a “tiny” URL is used to mask the true destination – this is another red flag.

    There are several other versions of spear phishing emails in which the criminal poses as a potential client. In one version, the prospective “client” directs the tax professional to open an attachment to see the 2016 tax information needed to prepare a return. In reality, the attachment downloads malware instead, which tracks each keystroke made by the professional so that the criminal can steal passwords and sensitive data.

    It is important for you to realize that most spear phishing emails have a “call to action” as part of their tactics, an effort to encourage the receiver into opening a link or attachment. The example above asks the preparer to review their tax information and provide a cost estimate.

    Other spear phishing emails impersonate the IRS, such as the IRS e-Services tools for tax professionals, or in some instances a private-sector tax software provider. In those examples, preparers are warned that they must immediately update their account information or suffer some consequence. The link may go to a website that has been disguised by the thieves to look like the login pages for IRS e-Services or a tax software provider.

    Cybercriminals are endlessly creative. This year, some identity thieves hacked individuals’ emails accounts. Noticing that the individuals had been in email contact with tax preparers, the criminals used the individual’s email address to send a note to their preparer asking that the direct deposit refund account number be changed.

    Protecting You and Your Business from Spear Phishing

    There is no one action to protect your customers or your business from spear phishing. It requires a series of defensive steps. Tax professionals should consider these basic steps:

    1. Educate all employees about phishing in general and spear phishing in particular.
    2. Never take an email from a familiar source at face value; example: an email from “IRS e-Services.” If it asks you to open a link or attachment, or includes a threat to close your account, think twice. Login in directly to the website for confirmation that action is truly required.
    3. If an email contains a link, hover your cursor over the link to see the web address (URL) destination. If it’s not a URL you recognize or if it’s an abbreviated URL, don’t open it.
    4. Consider a verbal confirmation by phone if you receive an email request
    5. Use state of the art security software to help defend against malware, viruses and known phishing sites and update the software automatically.

    Contact Czarnowski & Beer today for a no-obligation financial statement evaluation, or to speak to one of our certified accountants about your unique situation, we can help!

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    Preventing Remote Access Takeover Attacks

    Yes, your or your firms entire digital network could be at risk for remote takeover by cybercriminals. Such a takeover could lead to personal as well as huge business losses. Today, we want to work to increase awareness about remote takeovers, as these takeovers can be devastating to your business as well as to the customers you serve. It’s critical for people to take steps to understand and prevent these security threats before it’s too late.

    A remote attack targets an individual computer or network as the cybercriminal exploits weaknesses in security settings to access the devices. Another line of attack uses malware to download malicious code that gives the criminals access to the network. Please realize that especially vulnerable are wireless networks, including mobile phones, modems and router devices, printers, fax machines and televisions that retain their factory-issued password settings. Sometimes, these devices have no protection at all.

    There are multiple ways that cybercriminals can gain control of computers and other devices. As we have written before, phishing emails with attachments can easily download malware that, when opened, give the criminal remote control of a computer.

    Cybercriminals also can deploy certain tools that allow them to identify the location of and get access to unprotected wireless devices. For example, a printer with a factory-issued password can easily be accessed, and the criminals can view information stored in its memory.

    Let us all work to prevent remote access takeover attacks by taking the following steps to help protect ourselves from remote takeovers:

    • Educate everyone about the dangers of phishing scams, which can be in the form of emails, texts and calls, as well as the threat posed by remote access attacks;
    • Use strong security software, set it to update automatically and run a periodic security “deep scan” to search for viruses and malware;
    • Identify and assess wireless devices connected to the network, including mobile phones, computers, printers, fax machines, routers, modems and televisions. Replace factory password settings with strong passwords.
    • Strengthen passwords for devices and for software access. Make sure passwords are a minimum of eight digits (more is better) with a mix of numbers, letters and special characters;
    • Be alert for phishing scams: simply just no longer click on links or open attachments from unknown, unsolicited or suspicious senders. Be alert to fake messages that appear to be from someone you trust;
    • Review any software that is used to remotely access the network as well as those used by IT support vendors to remotely troubleshoot technical problems. Remote access software is a potential target for intruders to gain entry and take control of a machine. Disable remote access software until it is needed.

    Contact Czarnowski & Beer today for a no-obligation financial statement evaluation, or to speak to one of our certified accountants about your unique situation, we can help!

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    Child Tax Credit

    One aspect of the new tax that is quite important to almost all taxpayers with children is the child tax credit. The dependent exemptions of the past are now gone, and other than a $500 credit for dependents other than the taxpayer and spouse, so this becomes the premier tax reduction vehicle for families

    For dependent children under 17, the new law increases the child tax credit to $2,000 per child. The child must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always considered your own child. Being a dependent requires that the child does not provide more than half of their own support and they must be claimed as a dependent on your federal tax return. The child must have a Social Security number issued before the due date for filing the return. If the child reaches 17 during the year no credit will apply.

    The credit is available to many more taxpayers than in previous years. Unfortunately though, there is still a phase out, however, it is at much higher levels of adjusted gross income, in excess of $400,000 (in the case of married taxpayers filing a joint return) and $200,000 (for all other taxpayers) and you lose $50 for each $1,000 over the threshold, thus you fully phase out at $40,000 above those thresholds. Here’s a quick example of how the phase-outs work. Let’s assume that as a single taxpayer, you are entitled to a credit of $2,000 but your income is above the $200,000 threshold: it’s $201,000. Your credit would be reduced by $50 (because you’re $1,000 over the threshold amount) so that your available credit is $1,950.

    For lower income Americans, there is a refundable portion of the credit, that is, if you don’t pay Federal Income Tax you can get cash back of up to $1,400 per child.

    Its important to realize that if you have three or more qualifying children, you need to use an alternative formula to determine the refundable portion. Under that alternative formula, the refundable portion is equal to the amount by which your Social Security taxes (those taken out of your wages or paid out as self-employment taxes) exceed your earned income credit. It’s a little complicated so check with your tax advisor.

    A tax credit is quite a lot more valuable than a deduction, as with a deduction you only save a portion, your marginal income tax rate. With a credit, it’s the face value of that credit in your pocket, so cherish the gift!

    e distributed by the earlier of the beneficiary’s: Reaching age thirty (within thirty days); or death. Contributions may be made to both an ESA and a 529 plan in the same year for the same beneficiary.

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    Education Savings Options – 529 Plans, CoverDell & Able Accounts

    Clients with children are quite special to us. We are all family people at our firm, so helping each other is what America is all about. Thus, we wanted to spend this advice time speaking to those who wish to save for their children’s education.

    It seems the hottest product these days is an Internal Revenue Code (IRC) Section 529 account. There has been a lot of publicity over the years on these as the annual contribution limits are quite high, plus there is a catchup for those who wish to make contributions in the current, for years when they didn’t. The other benefit is that it offers a State income tax deduction when used for the qualified education expenses of the designated beneficiary, such as tuition, fees, books, as well as room and board. No one wants to diminish any tax savings as part of something mom and dad want to do anyway, but let’s face it, most of our Federal tax rates are higher by multiples of our State tax rates, and currently, high tax States are seeking to reorganize their form of taxation to minimize the effect of the limitation on State and local taxes. So, we have little idea of what the State benefit will be starting this year.

    A IRS Section 529 plan is a program set up to allow you to either prepay, or contribute to an account established for paying, a student’s qualified education expenses at an eligible educational institution. Whoever purchases the Section 529 plan is the custodian and controls the funds until they are withdrawn. Our favorite sources for information plans is www.savingforcollege.com.

    529 plans are now allowed to distribute not more than $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the designated beneficiary at a public, private or religious elementary or secondary school. Realize that such limitation is on a per-student basis thus a child may be the designated beneficiary of multiple accounts, that child may receive a maximum of $10,000 in distributions. So, you may need to communicate with Grandma and Grandpa if they have also planned for your children as it is not on a per-account basis

    For those who aren’t trusting the education system, expenses to include certain expenses incurred in connection with a homeschool. If you might be interested, those expenses are (1) curriculum and curricular materials; (2) books or other instructional materials; (3) online educational materials; (4) tuition for tutoring or educational classes outside of the home (but only if the tutor or instructor is not related to the student); (5) dual enrollment in an institution of higher education; and (6) educational therapies for students with disabilities.

    Another option for the kids is the Coverdell Education Savings Account (ESA) which has now become the savings account of choice. Annual deposits are allowed, earnings are exempt from tax and the money may be used for college, high school or elementary school, including private schools. Withdrawals used for education expenses from the account, are tax-free.

    The annual contribution limit is $2,000 for each beneficiary no matter how many accounts exist for that beneficiary or how many individuals or whom contributes. Contributions to ESA’s must be in cash and must be paid to a qualified trustee, generally any entity which qualifies as a normal IRA trustee, before the beneficiary reaches 18.

    The balance in the account must be distributed by the earlier of the beneficiary’s: Reaching age thirty (within thirty days); or death. Contributions may be made to both an ESA and a 529 plan in the same year for the same beneficiary.

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    Medical Deduction Under the New Tax Laws

    money jarNote that one of the few retroactive changes in the new tax law which affects filing in 2017 is that up until January 1, 2019, the threshold for deducting medical expenses is 7.5% for all taxpayers. Previous rules had 2017 moving to a 10% threshold for all taxpayers, even those age 65 or older. It makes “expense bunching” much more important.

    Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. In addition to doctor and hospital bills, it includes the costs of equipment, supplies, and diagnostic devices needed for these purposes. It also includes dental expenses.

    Medical care expenses must be incurred primarily to alleviate or prevent a physical or mental defect or illness. Medical expenses include the premiums paid for insurance that covers the expenses of medical care, and the amounts paid for transportation to get medical care. Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for qualified long-term care insurance contract.

    Do you need your tax returns evaluated for the new tax year? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

     

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    New Tax Law Tax Rates

    The new bill keeps the same number of tax brackets, but it does work to reduce most of them. Widening the bracket is the theme of many of the lower tax brackets, which creates lower tax amounts for all those and higher levels. Bracket expansion in the lower end of the 32% and 35% brackets seem to be the sole levels affected by the rates.

    The largest step up in the rates occurs between the 12% and 22% brackets, almost doubling the lower bracket’s rate. The lowest two tax brackets use income ranges that are almost identical to the current-law brackets, just with a lower tax rate in that second bracket at 12%. Since the median American household is currently in the 15% tax bracket, this is totally expected to achieve the sponsors desired result of lower taxes for middle-income households. The marriage penalty has been eliminated except for the highest brackets.

    Here is a table of the brackets:

    Do you need your tax returns evaluated for the new tax year? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

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    New Money in Your Pocket From Uncle Sam

    The new tax law states that the IRS may choose to continue current withholding rules through 2018. The good news is that the withholding tables are a changing this month and the Republicans say we are all getting a tax cut, so how will you spend your extra dollars? The lowest two new tax brackets apply to income ranges that nearly match the pre-2018 brackets but the second bracket does reduce the tax rate from 15% to 12%. Since the average American household is currently at that former 15% tax bracket, there’s money to be found in their adjusted withholding paychecks.

    So, you’ll notice it this month. No, you didn’t get a raise, but you will have more to spend. Another option is to invest in your future and start or increase your 401(K). The biggest retirement planning mistake people make isn’t always that they didn’t set enough aside, but it’s not taking advantage of the matching contribution from their employers. So, contact HR and be sure you are contributing at least enough to get this free money. You might want to determine what’s the minimum amount you need to contribute to grab the maximum amount your employer is offering. That’s just plain good business on your part.

    If you can’t reach that level don’t grow anxious. Take the time to look over your budget and some of your discretionary spending. If there is any of that, you at least are better off than many who scrape by and can’t take advantage of their employer’s matching offer. Then decide if you can do without, in the interest of finally starting that retirement account that you know you should have started years ago.

    Do you need your tax returns evaluated for the new tax year? Czarnowski & Beer is currently offering a complimentary, no-obligation tax return evaluation. To take advantage of this limited time offer, visit our tax return offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.

     

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    Divorce, Alimony, and the New Tax Law

    One provision of the new tax law scraps a 75-year-old income tax deduction, the one for alimony payments. The good news is that the change won’t affect anyone who divorces or signs a separation agreement before 2019, so hate to say — alimony payers — lets get going on that settlement!

    Rightly so, many divorce experts worry that the change will complicate negotiations and will lead to less spousal support as the payor’s cash now goes to pay taxes first.

    The purpose of alimony is to avoid unfair economic consequences of a divorce, generally giving the spouse who has less income a chance to get to stand on their own two feet financially, now that the marriage has ended. For divorces commenced next year, the spouse paying the alimony will now pay income taxes at their usual income tax rate. That is usually a higher income tax rate than the spouse receiving the alimony a payment. This tradition followed the long-term notion that if you didn’t get the benefit then you shouldn’t have to pay the income tax. It seems that paying alimony has become more personal in that those who now pay, somehow are receiving a personal benefit and thus pay income tax. The new law seems to have lost sight that the love between the parties has died.

    Divorce lawyers say the current setup tends to preserve more money overall to allocate between spouses, helping them afford living separately after paying taxes together as a couple during their marriage. The long-term notion of having the person who receives the benefit of the income pay the tax during the dissolution and moving on in life period after the marriage ends. It was something quite helpful in settling divorce cases as the payer would pay income tax on the income if it didn’t go the former spouse as alimony.

    Imagine this example: High-earning “Spouse A” now pays and deducts $30,000 a year in alimony. Spouse A’s income is federally taxed at 33 percent, so the deduction saves him $9,900.

    Lower-earning “Spouse B” owes taxes on the alimony at a 15-percent rate, paying $4,500 instead of the $9,900 that would be due at Spouse A’s rate. The two have saved $5,400 between them, and Spouse A got a break that makes the payments more affordable.

    The deduction saves Spouse A about $5,000 a year as the person getting the money should be the one who pays taxes on it.

    Critics fear that without the deduction, higher-earning spouses won’t pay as much to their ex-spouses. Some foresee future alimony recipients losing up to 10 to 15 percent of what they’d get under the current law.

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    Maintenance Charges/Common Charges and Increases

    Do you know what percentage increase in maintenance or common charge fees are common? As much as we all prefer they didn’t, operating costs tend to rise every year. But ultimately it is a sign of a healthy economy. After undergoing the annual budgeting process, many properties will initiate an increase early in the new year. On average, you will receive an increase every year or two to keep up with inflation. In recent years, due to the rising fuel and real estate costs, buildings have had to impose increases to cover unavoidable costs. Average increases range from 2% to 3%.

    Did you know co-ops collect maintenance fees monthly from unit owners which are used to pay for the building’s operating expenses? For Condos, the fee is referred to as a “common charge”. As a rule of thumb, monthly maintenance fees or common charges charged to the unit should be approximately $2.00 per square foot of the unit. Note that the formula is based on the square footage of the unit, not the shares or percentage interest.

    Oh, that famous line, “we can’t increase monthly charges by that amount!” And yet, the Board’s responsibility is to cover expenses and whatever they are, there needs to be sufficient revenue. By default, after reflecting other forms of revenue, the last place income can be projected to come from is unit owners in the form of an increase in monthly maintenance or common charges. It’s plain math, but people’s perceptions sometimes differ from reality. Everyone understands that costs rise in a metropolitan area, and yet they don’t want to pay more. Don’t confuse their need to complain with their understanding of reality. Find a way to let them feel that they have been heard, give them time and they will come around. Never, ever, vote for a lower increase than the budget calls for. You are simply kicking the can down the road.

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    What to do about the Equifax data breach

    In today’s world of electronic information being so accessible, the Equifax data breach may be more than just a headache for some, it has the potential to put half of all American credit card holders at risk. Before you think you are covered by your credit card company for any charges you don’t make so you shouldn’t be worried, it can be a bigger issue than just your credit card information. These days, with just a few key pieces of information, thieves can do a lot of damage to your credit and your finances.

    By now, most all Americans have heard about the Equifax data breach and seen the news clips of what it may mean to your credit. But something you may not know is that because of that breach, thieves can purchase your social security number and birth date and can do more damage than you realize. With that information, a thief can not only take out loans and credit cards in your name, they also have the ability to access your bank accounts and access your tax return deposits.

    So you think, no big deal, you are not legally liable for a credit card you didn’t open in your name. Well, true, however it can take a lot of time to clear up what a thief can do to your credit reporting. What about hiring an insurance company to keep an eye on your credit reporting and clear up any discrepancies or charges that are not yours? Yes, you can have that too, however there is a monthly fee you need to pay for that service as well and you will still have to deal with the insurance company to clear up any illegal activity on your account.

    So what is the best solution to keep you protected? You work hard for your money, and these days with apps and on-line purchases, it’s easier than ever to be targeted by a criminal out to steal from you. Here are some tips you can use to keep you protected and protected your finances from being vulnerable.

    1. Check your credit score for free. This is probably the easiest thing you can do to keep your credit history clean. Generally, your credit score may fluctuate or unfamiliar activity may be present in your credit report if you have been victimized. Set it on your calendar, once a year, to pull your credit report. A simple review can ensure that there are no issues that need to be addressed. You are entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. You can order your credit report on-line at annualcreditreport.com or call 1-877-322-8228.
    2. Inform the credit card companies that you want your name on fraud alert. Transunion.com allows you to create an on-line account where you can manually place a fraud alert on your financial information. What’s great about this feature is that not only can the alert be removed at any time, but the dates in which you set the alert can be adjusted. When you place the alert, Trans Union will then notify the other two reporting agencies (Equifax and Experian) regarding said alert.
    3. Sign up to be alerted of any changes to your account. This tool is essential because you can be informed each time a charge, that exceeds a specific dollar amount that you choose, is made on your account. It’s totally customizable!
    4. Take the initiative to protect your tax refund. Filing a tax return in a timely manner is a pivotal step in securing your tax refund. If you file early you take the opportunity away from a thief to file a fake return with your stolen information and access the funds therefrom. Don’t procrastinate!

    Overall, the Equifax breach should be a wake-up call. Do not ignore the recent events as you could possibly become a victim of identity theft or credit card fraud. Take matters into your own hands to secure your financial identity by using the tips posted in this blog!

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    Accelerate RE Tax Payment

    To the Boards of Directors of our Cooperative Housing Corporation Clients:

    Federal Tax Legislation: Limitation of the Individual State, Local, Sales and Real Property Tax Deductions in 2018

    As you may have been following, Congress has passed tax reform legislation that is expected to be enacted by this year end. One aspect that may warrant the Board’s attention is the specific provision which would limit the annual tax deduction for all state and local income, sales and real property taxes to no more than $10,000 ($5,000 for married individuals filing separately) beginning in 2018. An opportunity exists for shareholders of the cooperative to realize a one‐time benefit in 2017, should the cooperative “prepay”, in 2017, part of its 2018 real estate taxes due in January or January and April (if paid quarterly) 2018. The benefit would be that in lieu of four quarters of real estate taxes as a deduction in 2017, this one year there would be five or six quarters whereby deductions are amassed in the year that there is no limitation. However, there are numerous aspects which need to be considered. Please allow us to explain:

    The cooperative would need to have sufficient operating cash available to fund the payment before the collection of some of the January maintenance payments by shareholders. Please realize that most cooperatives utilize the accrual basis of accounting and thus such a prepayment would normally have no effect. Having made an extra payment, a cooperative would, as part of filing its 2017 Corporate Income Tax Return, move to change its accounting method for income tax purposes to recognize all customary prepaid expenses (i.e., real estate taxes, insurance, possibly others) as deductions in the year paid as opposed to the specific period that they cover.

    Please realize that while acceptance is expected, such a filing does require IRS approval. Further, the new accounting method must apply to all future years. Therefore, the cooperative will have to continue to prepay its same real estate tax obligation that is accelerated for each subsequent year going forward to ensure a full 12-month deduction is available to shareholders. The change of accounting method will result in differences between amounts reported in the cooperative’s income tax returns and its financial statements which use the Generally Accepted Accounting Principles method. There would be a need to maintain two sets of accounting records, one to support the income tax returns and the other to support the financial statements, commencing in 2017 and for each year moving forward.

    To facilitate your decision whether to change the accounting method for income tax reporting purposes, we suggest that you consider:

    • The IRS may not agree to the change in accounting method.
    • Certain shareholders may not individually benefit from the prepayment of real estate taxes. There are many factors that could affect this including whether the shareholder is subject to the Alternative Minimum Tax in 2017.
    • The cooperative will have to continue to prepay real estate taxes to provide shareholders with pass‐through real estate tax deductions based on 12 months of expenses as reported in the cooperative’s income tax returns.
    • Should a successful challenge by the tax authorities to the tax position be taken, amended tax deduction letters and individual income tax returns might be required.
    • There will be additional accounting fees incurred for the needed one-time filing of Form 3115 and to accomplish the necessary adjustments between 2017 and 2018 to support this change as well as for each year to maintain the two sets of accounting records previously mentioned.

    Based on concerns outlined in the previous paragraphs, we do not recommend that our clients file a request for a change in accounting method. However, we are available to discuss each client’s circumstances with them. If a client does request so, we would do the additional work to change the accounting method and update the tax deduction letter. We do request that clients inform us immediately, or the latest by January 3, 2018 if they had chosen to prepay the 2018 real estate taxes and request the added work of us.

    For those Boards which might not yet be ready to decide, the opportunity cost to make the real estate tax payment due in January 2018 by the end of 2017 is minimal, assuming sufficient cash is available, and the decision whether to change the accounting method can be delayed into early 2018.

    As always, Czarnowski & Beer stands ready to provide the professional tax and accounting advice to enable our clients to fully achieve their goals. Please let us know if you have any questions on this matter.

    Truly yours,
    Czarnowski & Beer, LLP.

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    Liabilities and Equity

    We owe vendors, Cooperators and lenders

    Equity (what we owe Cooperators when they leave):

    Shares don’t generally change

    Paid in capital grows:

    New Cooperators pay assessment

    Mortgage is amortized

    Accum deficit is net operation of the property since inception

    Income Statement

    • Reports how a property performed during the period(s) presented
    • That results in either a profit or loss (Net before other items)
    • Can be on the Cash Basis
      • How much revenue was actually received
      • What items were paid
    • Accrual Basis
    • How much revenue was earned (Amount we were entitled to)
    • What costs were incurred

    Income Statement-Revenue

    • Income from Cooperators
    • Portion to amortize mortgage
    • Allocation to capital
    • Abatements
    • Other revenue
    • Commercial and professional rents 

    Fluctuates with sale vacancies

    Can verify per room charge times number of rooms

    Mortgage amortization is an addition to cooperator basis

    If allocation, reduces taxable income funds Long Term capital

    Abatements are required to be given to Cooperators

    Surcharge revenue seems to be declining

    Other income opportunity to minimize per room increases

    Income Statement-Expenses

    • Repairs and maintenance
    • Labor and its overhead
    • Real estate taxes
    • Utilities
    • Insurance
    • Other

    As buildings age the need for Repairs tends to grow

    Less items can be repaired internally

    Labor is union scale, benefits rising double digit

    Only residential is subject to shelter rent regulations

    Commercial/professional seem to continue swift rises

    Other City charges grow many times inflation rate

    Fuel oil versus Gas

    Interruptible service

    Severity of 2013/14 winter

    Benefit for budgeting to lock in certain number of gallons even if not less costly

    Insurance rates up 10%, Workman’s comp varies and rising

    Plan on increases of 3.5% per year

    Internal controls over inventory can create significant savings

    As paying staff to do work that saves bringing in a contractor

    Income Statement-Net operations and other items

    • Excess before other items
    • Other items 
      • Allocation of monthly charges to capital
      • Nonpayers happen
      • Mortgage prepayment penalty is deductible in year paid
      • Depreciation and amortization
    • Net deficiency is simply an accounting item 

    Required to comply with accounting standards but usually 

    Statement of Cash Flows

    • Reports on the company’s cash movements during the period(s)
    • Three Sections:
      • From Operations
      • From Investments (fixed assets)
      • From Financing (debt and treasury units).

    Notes to the Financial statements

    • Provides more detailed information about the financial statements
    • Significant Accounting Policies
      • Nature of Organization
      • Use of Estimates 
      • Cash Equivalents
    • Concentrations
    • Related Party Transactions
    • Mortgage Payable
      • Shows next five years of principal
    • Commitments & Contingencies
    • Special Assessment 
    • Rental Income
      • Shows next five years of minimum lease payments
    • Future Major Repairs and Replacements
    • Subsequent Events

    Other Items

    • There may be details in supplemental schedules

    Working With the total Numbers 

    • Current Assets vs. Current Liabilities
      • Compare current assets to current liabilities 
        • Looks at ability to pay bills in the next year
    • Net Income vs. Net Income before other items/depreciation
      • Year versus year
      • Year versus budget
    • Is there cash flow from operations?
      • Are operations throwing off enough cash or is a carry charge increase called for
    • Supplemental Cash Flow
      • Evaluate improvements payable
        • Highlights unpaid bills on major repairs and replacements

    Payroll as Percentage of Net Maintenance

    • Informational
      • Indicates what portion of maintenance is locked up by payroll costs

    Real Estate Tax as Percentage of Net Maintenance

    • Informational
      • Indicates what portion of maintenance is locked up by real estate taxes

    One Other Item

    • Watch the Funding
      • Every item funded- reserves, special assessment, real estate tax, water and sewer- should be segregated
      • Should not spend excess elsewhere unless absolutely sure why excess exists

    Key Metrics

    Key Metrics-Cash Per Unit

    • Benchmark
      • $2,000 minimum suggested level
      • $5,000 healthy
      • $10,000 extraordinary

    Key Metrics-Debt Per Unit

    • Benchmark
      • $40,000-$50,000 (Manhattan)
      • $30,000-$40,000 (Other Boroughs)

    Key Metrics-Deductible Portion of Maintenance

    • Benchmark
      • 40%, 60% is getting high

    Key Metrics

    • What to do with this information:
      • Use guidelines provided
      • Benchmark to the averages
        • CNYC Study- shown on per room basis
        • Czarnowski & Beer LLP Study- approximate benchmark numbers for a variety of metrics

    One Last Thing

    • Financial statements “present fairly, in all material respects”
    • Audit does not check every penny!

    Questions?

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    Assets

    The simple way to look at assets is that they are what we’ve got. Everyone wants to assure an entity is solvent.  Try to obtain several years to look at. There are a number of things to consider, and obviously we can’t cove them all.  You need to glean the unique situations and then evaluate what’s going on.  Some basic things to look for are things like are the current assets more than current liabilities?   What’s the relationship of accounts receivable to sales, is cash constantly created.

    Is there a trend for cash, accounts receivable and inventory?  If they are moving in the same directions as the business that is a positive.

    Make sure you understand the longer-term assets.  Certain property and equipment is needed to run a business and that is depreciated, a provision to charge its usage as an expense over its expected life.  Nearing full depreciation assets may require replacement in the future and will cost more than they did the last time.  Other than non-cash items required to comply with accounting standards, longer term assets are generally locked up and not available to help with insolvency or contain restrictions on this usage.  So stick to the current assets and an understanding of the fixed and longer term assets.

    Not-for-profit note:

    Certain entities, like not-for-profits have little concern for fixed assets once solvency has been evaluated. At that point, the amount of available cash is an important consideration.

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    The Balance Sheet

    In this day and age, pictures are everything.  So, considering a balance sheet as a snapshot of the company’s financial position at a specific point in time or date is helpful.  It would be different both the day before or the day after. So, it’s up to you, the user of financial statements, to ensure you read and do your best to understand the entire financial statement document.   This exhibit shows what the entity owns, what it owes as of that date and then a section to somewhat show how it got there. Item are considered current if they are expected to be realizable into cash or paid within the next year.   Long term assets are recorded at historical cost, so they may be worth substantially more than that.  Some items are simply accounting entries and linking them to realization of cash is not feasible.   Remember, if it is presented on cash basis that you won’t see all the unpaid bills.  What you want to glean is if the business can meet its debts and keep operating.  Remember, while a consideration, that the net assets over liabilities generally minimally effect the value of a business where generally a reflection of the net future profits is utilized as part of the calculation.

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    Variations for the standard Independent Auditors’ Report

    The don’t come with color coding so you’ll need to be the one to see the red flags.  Some variations are common, such as a different basis of presentation, the most common of those are either the Cash Basis or Income Tax Basis (which also can be Cash Basis).  Remember cash basis is solely designed to explain only what occurred.  So a high amount of unpaid bills may have piled up and thus the expense actually incurred during the audit period are potentially more than what was paid, conversely they may actually be lower and former period bills were paid.  Further, revenue is earned only when cash is collected for something.

    Emphasis of matter paragraphs are required if there is a concern of area which requires highlighting.  The most common are exceptions to Generally Accepted Accounting Principles which would be detailed as a separate paragraph.  There is generally a reference to a financial statement note which offers an further explanation of the

    concern.  When the continuity of the business is coming into question, then a going concern is emphasized.  Not all issues highlighted in an emphasis of matter paragraph are violations of accounting principles.  Most are simply an exception to Generally Accepted Accounting Principles which may make sense in that specific industry or entities current circumstances and highlighting the further explanation is required. It is good if you do not find an emphasis of matter paragraph.

    Not-for-profit note:

    While every user should be sure to understand anything in an emphasis of matter paragraph, the situation with not-for-profit’s requires more than usual diligence.  These entities tend to get lost in that it’s all about the organization’s purpose and mission and things like ability to continue as a going concern can occur more frequently than a business operated for a profit.

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    Generally Accepted Accounting Principles

    Yes, there is group whose role is to maintain all those accounting rules and it’s the Financial Accounting Standards Board and it sets out the standard framework of guidelines for financial accounting used in a specific jurisdiction, such as the United States of America.  They are more commonly referred to as accounting standards. Basically, they are the requirements, conventions, and rules that accountants follow in recording and are thus summarized in financial statements.  Not all the rules are the same for specific industries and a user of financial statements doesn’t necessarily need to know them all.  The American Institute of Certified Public Accountants published audit alerts which deal with specific aspects of various industries might you be interested.

    There are the common principles of accounting:

    1. Revenue principle, also known as the realization principle, states that revenue is earned when the sale is made, which is typically when goods or services are provided reflected when legal ownership passes from seller to buyer.
    2. The expense principle is the flip side of the revenue principle, if you receive or use some services or goods, you’ve incurred the expense of those.
    3. There is a matching principle to relate these two, it is necessary to match the related expenses with the revenue.
    4. Amounts are generally quantified, or recorded at historical cost.  Items like the building owned by the business are reflected at what it cost way back when as opposed to what it can be sold for now, thus the historical cost principle.
    5. While estimates are sometimes required, but let’s face it, we want financial statements to be factual, thus objectively reported. This principle says to rely on subjectivity as little as possible.
    6. It is expected that a business will continue to operate, otherwise there should be a variation of the auditors’ report, thus the continuity assumption.
    7. Quite simply what is reported for a U.S. businesses needs to use U.S. dollars in their accounting.  The unit-of-measure assumption assumes that a business’s domestic currency as its unit of measure.
    8. To be clear, a business must be an entity separate for its shareholders, partners or it has a sole owner, that individual.
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    Who did what?

    Financial statements are the responsibility of the entity.  Some believe incorrectly, that because they came from the accountant, the accountant is responsible.  The examination letter clearly lays out who is responsible for what.  Management is generally supervised by “those charged with governance”, most commonly a Board of Directors, periodically elected by the shareholders to represent them in governing the entity.  Governing is leadership and thus carries responsibility.  A hole management team or members of management can be replaced at any time, it is less easy to replace a Board.  In some cases, such as Homeowners Associations, the owners are made up of members as they own specific parcels which make up the entity that manages a specific property the Board is dedicated to managing.  With the responsibility comes the role to assure internal control is appropriately designed (sufficient checks and balances), and such is properly implemented and maintained by management.

    Not-for-profit note:

    Smaller entities tend to have less than comprehensive segregation of duties.  Segregation of duties is vital to reaching best practices level of financial controls.  Professional, management is generally utilized when it comes to Cooperatives and Condominiums of less than one thousand units.  Segregation of duty issues can be resolved with a well function Board of the entity that appropriately monitors management.

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    Limitations on examinations or audits

    Regarding examinations, we need to realize that an audit does not mean every transaction will be examined, as the report will clearly mention that the Financial statements are “presented fairly, in all material aspects”.  In practice, this means that while an examination is intended to detect material fraud, it may not detect all fraud.   The report will mention that the Financial statements are presented under generally accepted accounting principles in the United States of America.  That indicates that they are on the accrual basis, recording revenue when its earned and expenses when the obligation arises.  This indicates a more informative premise than cash basis, which reports what occurred in bank accounts or Income Tax basis which follows Income Tax regulations.

    The goal is a reasonably fair presentation that is free from material misstatements in the Financial statements, whether such misstatement might come from fraud or error. Thus, the Certified Public Accountant expresses solely an opinion subject to the material misstatement concept by performing procedures to obtain sufficient audit evidence about various amounts and disclosures contained within the entire Financial Statement document.

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    Independent Auditors’ or other Accountants’ Report

    The accountant acknowledges to degrees varying based upon the level of evaluation they are asked to apply, the reasonableness of those numbers and disclosures. Those variations range from certifying that the numbers and disclosures are materially correct, down to simply presenting the client’s information.   As you read the financial statement report, look for the highlighting of the level of service.  It may be an examination (a certification), review, or compilation (presenting client information).   The variation can be substantial. For an examination, the Certified Public Accountant accepts responsibility of the accuracy of the amounts and disclosures.  For a compilation, if the client said the sky is purple, the accountant can present that in the financial statements, even though we all know that is not the color we see.

    Many lenders require an examination but that is not always the case.  In instances where there is a small entity with a long term working relationship with the lender, a lower level of accountant service may be accepted, to save the borrower money.  If you are relying on a set of Financial statements, we suggest you tread lightly if they are not an examination.

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    Components of Financial statements

    Financial statements are the accepted presentation of an entity’s financial condition.  The accountant acknowledges, to degrees varying based upon the level of evaluation they are asked to apply, the reasonableness of those numbers and disclosures.  With some patience, most anyone can glean important information and knowledge from the financial statements. The components:

    Independent Auditors’ or Other Accountants’ Report

    Balance Sheet – what they have and owe on the date of the Financial statements

    Income Statement – results of profit and loss operations for the year

    Statement of Equity – details on the owners’ equity and accumulation profit and loss results less distributions to owners

    Statement of Cash Flows – reconciles income statement, which is on the accrual basis, to cash coming in and going out of the organization (recording revenue when entitled to it and expenses when incurred, neither reflected when they are paid)

    Notes to Financial statements – important disclosures that Financial Statement users need to know

    Following postings will address each component.

    Not-for-profit note:

    For these entities, Owners’ Equity is quite meaningless.  Also, distributions don’t occur.   Cash flow rules!

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    Unit Owner Budget Time

    As we put away our beach blankets and memories of our summer trips and the seasons change, it becomes time to anticipate what everyone at your property needs to be paying for up to fifteen months.  Annual budget preparation season brings a number of obligations as well as some helpful opportunities.

    The obligations involve a reminder that whatever amounts the Board calculates, each unit owner will need to prepare to pay at least for the next year.  It may be necessary to impose that increase earlier than New Year’s as we will explain later. So now it’s time to prepare the annual document most anticipated by unit owners, the annual budget. The anticipation is over how much of a monthly charge increase is necessary.  For some reason, even in an environment of annual increased costs for union employees, vendors and equipment, there is the belief that somehow the possibility exists that there may not be an increase this year. Unfortunately,  other than plunging energy prices and a couple warm winters in the Northeast, costs are rising each and every year.

    The budgeting process is simple enough and it’s best to start as soon as possible.  Unfortunately, your property management firm has a portfolio of other clients who need theirs done as well.   Therefore, the term budget season comes to mind for all the Finance Department employees as they tend to have work compression and possibly overtime hours.  Part of the reason to do the budget early is being sure your property completes a comprehensive and timely process and can take advantage of opportunities to accomplish appropriate planning for calendar year end.  These include the ability to detect potential issues that could make your properties financial results a concern to lenders as well as the possibility to save income taxes.

    Before we get to the planning opportunities, let us look at the basics of the process.  It is a chance to look at what goes into each expense category and detect opportunities to save.  Examples include better scheduling to minimize the number of employee overtime hours required for coverage, shopping for insurance well before the deadline for policy renewal, and use of employees to accomplish repairs in lieu of outside contractors.  Even when 90 or 95% of your propert’s costs are non-discretionary, it’s really important to take the time to understand what makes up those costs if your interest is minimizing annual increases.

    As far as planning, generally these entities do not pay income taxes.  However, it does happen, most specifically for condominium complexes with over 15% of their square footage utilized for commercial purposes and cooperatives which have expired operating loss carryforwards, which tend to be older properties.  In that case, the earlier the conversion to cooperative ownership took place, the more likely income taxes are to be an issue.

    Clerks at banks which originate mortgages on units are now armed with checklists to identify potential financial issues. An important one is operating losses.  No one wants to hear that a prospective purchaser has been told that the building is not qualified for loans from that lender.  Therefore, taking action now, months before calendar year end, to avoid reporting a financial operating loss on the annual financial statements, allows for a more focused and precise result.   The goal in all cases is the best possible operation of your property.

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    Monthly Report – Arrearages

    Collecting money is just plain vital to any business.  Most of the property management firms have developed a report which details the billings and collections from tenants.  It is imperative you understand that this form of report offers a life-line to a most important aspect of your operations.

    Let’s face it, people can choose to be chronic late payers.  Business revolves around the notion that

    “Cash is King”. Let’s remember, if it’s not in the bank, it can’t be used to pay your bills. It’s hard to believe that our neighbors don’t think they need to pay it all, or get it to us timely unless we follow up on collection.

    So, it’s important that a monitoring function takes a look at this report to see that all who should have been billed have been billed and who hasn’t paid.

    Managing arrearages can be fraught with difficulties, as the tools available to the Board, including assessing late fees and interest charges or placing a lien on the property, can seem harsh. However, every board member must remember that each owner deserves to be treated equitably, including not being charged for another owner’s unpaid maintenance charges.

    Don’t be the one asked by your property manager, What, you didn’t  look at the reports we provided?

    If you as a Board is not watching, who will be?  So take the time to really understand what’s going on with arrearages as they provide a vast amount of information when appropriately evaluated.  This will ensure timely collect and maximization of cash flow.  Remember, each dollar missed needs to be collected in the form of monthly carrying charges.

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    Monthly Report – Aged Payables

    It’s easy to move past looking at the detail of the unpaid or aged unpaid bills listing provided with the monthly management report.  Whilr the total due might be the most pressing issue, looking at the detail of what’s due can lead to saving money and protecting assets. So let this report do more than just inform you as to the extent of the unpaid bills.

    The components of the total are most important as to what’s for capital items and what’s for operations, the regular monthly bills.  The former is generally non-recurring and, hopefully, adequate capital budgeting and planning was done as part of approving the capital work.  The total for operations should generally be comparable.

    Operating expenses can change as certain expenses are due on a less than monthly basis. Generally real estate taxes are due quarterly or semi-annually and without financing, insurance is due once a year.

    Is it possible for you to consider the work that you are aware of has been accomplished over the last month?

    If so, see if those services or deliveries had been paid for in the check register.

    If not, you can evaluate if all that you are aware of is included in the unpaid bill listing.

    You may find that not all the items are actually included.

    We wish to warn you to never expect that the list is totally comprehensive.

    As part of our audit work, we find unpaid bills which were not included on the unpaid bill listing by the date it was printed.

    Have last month’s report handy.

    It is helpful in order to review this month’s listing!

    Compare to the one from the prior month to the current one and:

    • Evaluate invoices which remain from the prior month
    • Consider how the total amount owed has changed from the prior month
    • Scan the list to determine which types of invoices are reasonable
    • Verify the effect on non-recurring items on annual budget
    • Compare the balance in the operating cash bank account to cover the change
    • And most of all, always be aware of the total aged payables balances that are growing and growing! 
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    Monitoring Budget Preparation

    So the Governing Documents require that a budget be prepared each year and the unit owners get a copy. Realize, however, that for the well-functioning property it doesn’t stop there.  You see, applying that information as a benchmark offers a very important monitoring opportunity, the chance to watch month by month as the year progresses.

    Garbage in, garbage out.  The right way to do this is not, inflation is X so we just raise each cost by that percentage, satisfies the opening requirement, but offers us little else.  So, let’s do more.

    Here’s your chance to get into the heart of each source of revenue, each aspect of expense.  Can’t do all this year?- then start with what’s the most discretionary, or what’s out of line with other properties.  We offer a per room checklist that can help you identify which costs may be out of line for your property.  While you need to maintain the systems and supply the amenities that you have, you can drill for cost savings gold by delving into the detail.   One aspect this year, another next.  Look back how at how it all comes together and the year after do it again, that is, if you really want to know and save.

    There is detail to dig into. Someone has to lead and if they can divvy up the research, that’s preferred.  The higher intelligence of bringing it all together is necessary.  Have the Superintendent or Resident Manager dig into the maintenance systems and where the supplies are going.  Put the payroll on an hour-s-of-the week schedule to see who’s working when, you will find savings in overtime.  Speak to the insurance broker, have conversations on energy usage and potential savings ideas.  Benchmark your costs against data from other properties.   Some expenses are comparable from property to property, others are property-specific, but understanding the variances and the reasons will only strengthen your budget model.

    Build a model that takes this down to the property aspect level, then it can all be summarized into where the money goes each year.  Avoid the use of miscellaneous or other, wherever possible.  Things break this year, but then not again for some period of time, so accumulation and expansion are tools available to make the best possible product.  When you are done, you and the Board will know so much more about where your money goes, then you can ask more than common sense questions as work needs to be accomplished.  You’ll find that relying on what you are told diminishes as your knowledge of this niche industry grows.  Accumulate the data for future Boards, your contribution will save money, increase revenue and build a Board with renowned function and culture.

    Investment in the budget preparation will yield enhance monitoring, and possibly, even time saved in that function.  See our separate posting on using a well prepared budget as an incredibly effective internal control as a monitoring tool.

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    Maximizing Building Revenue

    KEEPING CASH FLOWING IN TOUGH TIMES

    When it comes to managing real estate, a cash flow drought can quickly become a catastrophe. Whether cooperative or condominium, a building that does not have the resources to pay its expenses is headed for disaster. The fall-out can damage everyone with a financial stake in the property, especially unit owners who are usually forced to make up any shortfall in meeting financial obligations. However, many property owners and managers may be overlooking important opportunities to reduce unnecessary expenses and find additional sources of revenue.

    Repair Controls

    One of the primary ways Boards spend money unnecessarily is through repairs. Often, it is not immediately clear whether a repair is the responsibility of the unit owner or the building. As a result, this may cause disputes between unit holders and building management fueled by contractors who may not be fully aware of the responsible party. In some cases, mistakes may even lead to improper billing of the building management for repairs that are the responsibility of the homeowner. To prevent these unnecessary charges, building management should develop a protocol for repair orders. A straightforward form, produced in triplicate with copies for the unit owner, manager, and contractor, should be used to record the initial concern as well as the contractor’s assessment. From there, the building management will have a clear paper trail of the specific problem, as well as whose responsibility it is to pay for the repair.

    Additional Asset Rentals

    Within the property, there may be space or assets that represent untapped revenue opportunities. For example, if your property has a large parking lot in an area where parking is scarce, you may be able to rent some of those spots. Review your building’s use of space to see if there are opportunities for storage units that can be sublet or meeting rooms that can be rented. Look at the needs of the community in which the property is located and seek out asset rental opportunities that fit the local market.

    Similarly, if the property features an amenity such as a workout facility, swimming pool, playground, or roof garden, it may be possible to recoup additional dollars by offering memberships or rentals to community members or by charging fees for guest access.

    Administrative and Enforcement Fees

    The daily administration and enforcement of rules can be time-consuming and costly. However, some of that expense can be recouped in the form of fees for paperwork requests and item replacements, as well as fines for rule violations. For example, replacing a lost stock certificate or occupancy agreement could command a $250 each per occurrence fee*. Fees for lost keys ($25-$75 each); replacement of parking garage clicker or card requests ($75); unit alteration agreements ($200-$500), to name a few, could result in adding significant money in the building’s coffers.

    Enforcement fees and fines serve two purposes: They provide an incentive for residents to abide by the building’s rules, creating a more orderly building, while also generating revenue from those who choose to violate building rules. Some enforcement fees and fines include: Alteration agreement violation (up to $3,000); first, second, and third rules violations ($50to an amount set by the building board) and even bounced check fees ($50).

    Transaction-Related Fees

    When a unit is purchased, sold, transferred, or sublet, there is typically a significant time commitment needed from building management in overseeing the change in ownership or occupancy. This expense can be mitigated by fees such as a prospective purchaser application fee ($300), stock and estate transfer fees ($200 to $800); and various closing-related fees ($100 to $400 each). Fees can also be applied to refinancing and reverse mortgage financing ($50 to $100 each).

    While every building will have different opportunities for such revenue streams, the opportunity exists for almost every property. The key to using them effectively is to tailor a menu of fees, rental and access opportunities, and enforcement fines (to each building’s individual circumstances). In addition, these charges must be clearly communicated to unit owners or shareholders before they are put in place to ensure that everyone understands the purpose and impact of the new fees and fines.

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    Fannie Mae Effected by Cost Overrun

    All Cooperatives, Condominiums and Homeowners Associations need to be concerned about their eligibility for Fannie Mae loans to avoid conflicts between the Board and Unit Owners who are attempting to sell their units. This is due to the fact substantially all end loans on individual units are originated through Fannie Mae. The Board is most likely to be informed about a difficulty encountered in satisfying approval requirements by the current unit owner, as they believe the hard part of selling is behind them, i.e., finding a buyer.
    However, the buyer generally can not obtain a mortgage if the property does not meet the eligibility requirements.

    The most pressing issue which is impacting both established and new Condominium projects is that the budget is to provide for funding of replacement reserves for capital expenditures and deferred maintenance of at least 10% of the budget. We all need to remember that this should not be viewed as a threshold that replacement reserves are to be in excess of 10% of the budget, but rather that the annual funding of such is 10% of the budget. For many properties, this is has potentially required an increase in carrying charges of 10% above rising operating costs.

    For example, an unusually cold winter can make the full funding of this provision a potentially difficult situation. Many properties can come close to depletion of their FULL YEAR heating budget just partway through the winter. This means the shortfall has to come from another source. If all is going well elsewhere in the budget, some will find overall that their properties are still on target. If not, an additional assessment, even though fully explainable, is generally frowned upon. That leaves utilizing existing cash or the annual reserve fund provision. We suggest Board fully explore the effects on potential cost overruns, especially in energy costs. The most comprehensive method is to have a consumption to date report obtained from the vendor and compare the amounts to your annual budgets. Historically, 2/3 of the heating budget is utilized in the first six months of the calendar year.

    Czarnowski & Beer LLP has always recommended that a long term funding vehicle be in place for all of our clients. While waivers are being issued in certain situations, established and new Condominium projects should endeavor to establish a reserve provision of some amount in their operating budgets and work toward fully satisfying the requirement over a certain period.

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    Long Term Funding Vehicle

    Establish a long term capital budget including evaluating long term funding options

    A business’s strategy is the key to its success.  Corporations spend huge sums on assuring that executives take time to annually plan strategy including functions such as corporate retreats.  Strategy needs to be spawned, then nurtured, with continued and periodic attention.  Your Board is charged with the responsibility for strategy and you may be focused on the concept.  But as the Boards are made up of volunteers, Board meetings tend to follow the same recurring agenda of dealing with the issues of the present, while strategy seems to be lost along the way. Then, when action is required for major repair and replacement, options become limited.  With the tightening of lending practices, refinancing to obtain funding is much more limited than in the past. Many boards find it helpful to schedule strategy meetings separately from regular monthly meetings several times each year to ensure focus on longer term issues.

    The Board is administering an association whose sole purpose is to operate and maintain the property. The largest issue for long term strategy is funding for major repairs and replacements of the property.  Unlike a for-profit business which can build a new factory across town, the structure(s) of your property must be maintained.  Rebuilding is an unlikely option.  So long term budget planning, including the utilization of long term funding vehicles are not luxuries but necessities.  But in an age of limiting of costs, such requirements tend to move to the bottom of the list. But that is precisely the time they need to be maintained. Otherwise, when funds are required to fund major repairs, reserves may be inadequate.

    What vehicle is your property using for its long term funding ?

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    WARNING – Financial Window Dressing is now a REQUIREMENT

    As the pendulum has swung from easy access to lenders and mortgages to loan officers armed with denial checklists, publishing the best possible financial “picture” on your property’s 2016 Financial Statement has become a necessity. Attention is required to avoid unpleasant developments for your property in 2017. Prospective purchasers and their lenders are scrutinizing YOUR performance as a Board member. Previously, that might have been limited to the amount of monthly increases over time, but now seems to include responsibility for qualification to each lender’s requirements. No Board member needs to deal with implications of the building not being on the approved list for a lender. Items such as deficits, minimizing taxable income, inadequate funding of replacement reserves are highlighted “after the fact” with unprecedented urgency. This departs from past experiences where mostly additional monthly increases and assessments were focused on.

    In addition, as part of our Exceptional Services, it is important to evaluate the many important individual income tax benefits available to your unit owners. With rising income tax rates, this area is becoming an even more significant consideration in the costs of maintaining a home in a cooperative or condominium. There are various enhanced tax benefits beyond solely deducting a percentage of monthly charges.

    Planning strategy is the key to success and presentation is everything. By working with your professional team, we can attempt to maximize important issues and ensure the best possible financial picture is presented and that all available tax benefits are utilized as part of the operation of the property.

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    Amount of Monthly Charges

    Many go shopping for a residential unit and naturally the complex, amenities and the actual unit are their most important considerations. Some, however, do compare monthly carrying charges as part of the evaluation, relying on what they are told are the monthly costs, but do little to understand what’s included, what the unique expenses of the property are, and how future capital needs will be funded. Then, there can be regret, when an additional assessment is imposed or the increase is well above other properties.

    As our properties rely on the plunge in energy costs and the warmness of the weather the last couple years in the Northeast to offset other rising costs, knowing what’s going into your monthly charges, the risks you carry for others and the diligence of prior Boards to adequately fund for capital needs seem to come with that regret.

    It’s straight forward that monthly charges should cover operating costs. But some properties have a large mortgage, others do not. Does a doorman meet you twenty-four/seven or only certain times? Was the property built with valuable commercial space or not? If so, who’s benefiting from those rising commercial rents, the owner of that unit, the developer or Sponsor or the unit owners? Are energy efficiencies a priority or does your property just incur the same old costs year after year. Amenities, naturally come with costs, so finding the right fit for your needs may seem to make a lot of sense.

    We are not suggesting that you should become a gadfly about maximizing revenue or minimizing costs and nickel and diming is not for everyone. But by evaluating the aspects of the property that reflect reasonable extra charges, assuring that commercial lessees are paying all they are required, and a focus on timely unit owner charges can create new cash flow without an increase in monthly charges to unit owners. Long term capital needs must happen, and their funding needs must be considered constantly. A board taking the trouble to work into their agenda a community effort to discuss how to save money, whether that is something as simple as maintenance schedules to assure that the equipment runs efficiently, the seals chalked and the systems last as long as possible just plain seems to have lower annual increases than other properties. Remember, it is the Board that asks the most questions, and asks for the most, that tends to get the best service. Such service can help differentiate your property in many, many ways. Maybe it’s time to think about what goes into the monthly charges your property is paying.

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    Don’t Get Fooled By Others!

    In an effort to maintain your property, hiring professional services and supplies is a must! These services and supplies require expenditures. In order to run a smooth financial operation and participate in smart-spending, your Board needs to assess what services and supplies are needed, how much your budget allows for, and match it with the best price for the necessary quality of services and supplies.

    Bidding can be compared to going to another doctor for a second opinion. In the case of servicing and supplying your property, your Board should almost always be calling on multiple companies that can cater to that one service or supply that’s needed. How many of you have a “Preferred Vendor List”?  This will help your company select vendors that are responsible and cost effective.

    Have you ever selected a vendor with the lowest bid and been disappointed with its services or supplies? Maybe the lowest bidder isn’t the way to go.  You could utilize the RFP (Request for Proposals) process which will help get you the best performance and supplies at a competitive price.

    First, think of the expenses for these services and supplies because, often times, they are different. These differences are recurring and non-recurring expenses, and the bidding for these has its disparities as well.

    Recurring expenses for services should be bid out periodically by the Board- usually every year (though this can be hard for a volunteer board). Annual bidding is also highly recommended for recurring suppliers. On the other hand, non-recurring expenses for services should be bid out only when the quote for the service is over-budget. However, it is recommended that your Board should seek out multiple proposal requirements anyway. If non-recurring suppliers are over the set apportionment amount, it’s time for your Board to get that second opinion (and a third, fourth, and fifth) as it’s important to establish a minimum number of bidders. Also, play it safe- get every detailed quote in writing!

    But wait, the bidding process isn’t over just yet! Once each bid is presented to the Board in its sealed envelope or package (hence the term “sealed bid”), it’s extremely important to have all aspects of the opening process documented such as a specific attendance sheet of the Board members (also make sure that there’s the required amount of members present at the opening of the sealed bids) and a Bid Control Sheet (the reason for the decision on the chosen vendor).

    Please note that there are exceptions to the rules about bidding when the need for a service or a supply is an emergency, the required professional services are of a confidential nature, or when there is absolutely no possibility of competition for a given service or supply.

    To protect the property’s objectives and demonstrate stellar operational practices within the Board, it’s very important to monitor and control these processes by documenting them in a written policies and procedures manual, a schedule, and/or a checklist. This will preserve a set way of your Board’s activities and practices while improving the quality of your property, minimizing costs, and enhancing Board accountability.

    I guarantee that your Board will get the very best financial results!

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    Evaluation of Internal Controls

    Auditing Standards for condos and coops are evolving toward a focus on the Auditor communicating more with the client.  This may be somewhat more difficult with not – for – profit volunteer Boards as they tend to outsource the basic accounting work and the relationship with the Auditor to a management company.  Here are some of the potential concepts that we report to our clients.

    While evaluation of internal controls is not part of a Financial Statement audit, gaining an understanding of your controls can allow auditors to identify significant deficiencies or material weaknesses.  The most common concern, is that the auditors involvement in the conversion of the Corporation’s internal financial information (which is prepared on a cash or modified accrual basis) to the full accrual basis of accounting, including preparation of the financial statements and related footnote disclosures, constitutes a significant deficiency in internal control over financial reporting.  This issue arises in the audits of many smaller entities which outsource the year end closing function. Any concern on our part tends to be alleviated with management possessing the skill and competency to prevent, detect and correct potential misstatements.

    Czarnowski & Beer provides comments and recommendations that are not just required but are intended to improve internal controls and/or may result in other operating efficiencies.  This helpful information allows management and the Board to enhance operations and minimize risk.   Comments and recommendations tend to cover broad aspects of your operations.

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    Auditing Standards for Condos and Coops Are Evolving

    Not all clients are aware that auditors are required to provide you with certain information related to the audit.  This tends to occur at the conclusion of the engagement in the form of a letter to management (in the case of condos and coops, this is the Board). This management letter relays information required by professional standards on Auditor and Board responsibilities, regarding the scope and timing of the audit and any difficulties encountered in the audit, including the extent of any required adjustments to the financial statements and any disagreements with management.

    Czarnowski & Beer provides comments and recommendations that are not just required but are intended to improve internal controls and/or may result in other operating efficiencies.  This helpful information allows management and the Board to enhance operations and minimize risk.   Comments and recommendations tend to cover broad aspects of your operations.

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    Communicating More with The Client

    Segregation of duties is a challenge in some office environments
    The most basic, and one of the most important, internal controls is adequate segregation of duties. This can be difficult in small offices with only a few individuals available. In such cases, the monitoring role of the Board becomes even more important as this expanded control can offset the limitations of the management office. This role may include additional monitoring activities which should be performed routinely by a member of the Board or committee(s). Czarnowski & Beer offers a checklist to aid in identifying potential areas for improvement in your management office’s functions. This allows your own Board to better coordinate activities to assure adequate segregation of duties for best practices designation.

    Monitoring of financial reporting is a critical element of internal controls
    An important internal control over operations is the monitoring of the financial reporting system. An integral part of the controls is a structured process to periodically evaluate the revenue and expenditures in the management reports. While it is understood that Board members serve as volunteers and the amount of time they are expected to be available is limited, the implementation of such a structured process for monitoring of the financial reporting systems is one aspect through the review of a comparison to budget report, including investigating significant differences should be a priority of the board operation. Guidelines can be designed to assure adequate monitoring of the financial reporting process utilizing the most common budget comparison report.

    Identifying incorrect payments is a key Board duty
    With the volume of invoices to pay for all of the entities, payments of invoices for other entities do occur. The most effective internal control to offset this risk is a Board Committee serving as a monitor of management, this can include reviewing substantial invoices paid as part of their periodic review of the management reports.

    Our experience indicates that when a Board meets in a scheduled format there tends to be an increased level of involvement in decision making. That is, significant issues tend to be more likely to be brought before the entire board for discussion and broad based approval is given for the actions to be taken. Depending on the needs of the operations these scheduled meetings may be monthly, bimonthly or quarterly. Special attention may be required more often than once or twice each year.

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