Tips for Investigating Employee Fraud Tips

Occupational fraud is a crime generally committed by employees against their employers. Ironically, employees also are most likely to notice or suspect occupational fraud schemes conducted by their coworkers or managers. Whether they report through an anonymous tipline or directly to management or HR, rank-and-file workers often are the first to raise the alarm. If an employee alleges that someone has committed theft or fraud, or simply exhibits suspicious behavior, it’s your responsibility to take the charges seriously and investigate them. Here’s how. Preliminary digging If you receive a fraud tip, you’ll need to assess its validity by conducting preliminary interviews — even if you plan to eventually turn the investigation over to legal and fraud experts. To help avoid unnecessary legal complications, keep details of any allegation...

A Job Loss is Bad But the Tax Implications Could Make it Worse

Unemployment has been holding steady recently at 3.7%. But there are still some people losing their jobs — particularly in certain industries including technology and media. If you’re laid off or terminated from employment, taxes are likely the last thing on your mind. However, there are tax implications due to your altered employment circumstances. Depending on your situation, the tax aspects can be complex and require you to make decisions that may affect your tax bill for this year and for years to come. Be aware of these three areas. (1) Unemployment and payments from your former employer Many people are surprised to find out that federal unemployment compensation is taxable. (Some states exempt unemployment comp from state tax.) In addition, payments from a former employer for any...

Employee Retention Tax Credit Penalty Relief

We are finding that, all too often, taxpayers that make Employee Retention Tax Credit (ERTC) claims by engaging a so-called “ERTC Mill” are never told of their responsibility to amend their applicable prior year federal income tax return(s), and are shocked to learn that they owe additional taxes, penalties and interest. In order to offset their wage expense for the amount of the credit claimed, taxpayers who file an amended Form 941-X to claim an ERTC refund must simultaneously file an amended income tax return(s) for the tax year(s) in which the ERTC-eligible wages were paid. Because of the resulting lower salary expense, this results in a higher tax burden for taxpayers with sizable ERTC refunds. Reasonable Cause Penalty Relief To the extent an ERTC was retroactively claimed,...

Better Tax Break When Applying the Research Credit Against Payroll Taxes

The credit for increasing research activities, often referred to as the research and development (R&D) credit, is a valuable tax break available to certain eligible small businesses. Claiming the credit involves complex calculations, which we’ll take care of for you. But in addition to the credit itself, be aware that there are two additional features that are especially favorable to small businesses: Eligible small businesses ($50 million or less in gross receipts for the three prior tax years) may claim the credit against alternative minimum tax (AMT) liability. The credit can be used by certain smaller startup businesses against their Social Security payroll and Medicare tax liability. Let’s take a look at the second feature. The Inflation Reduction Act (IRA) has doubled the amount of the payroll tax...

Use a Business Valuation Pro to Evaluate Solvency

Business bankruptcies increased 40.4%, from 13,481 to 18,926, from 2022 to 2023, according to statistics released by the Administrative Office of the U.S. Courts. Solvency opinions may help creditors determine whether a liquidating debtor can meet repayment obligations. They also may come into play in fraudulent conveyance, bankruptcy alter ego and due diligence actions. When questions arise about solvency, the parties often call on a business valuation expert for guidance. The basics Solvency is generally defined as a business’s or individual’s ability, at a specific point in time, to meet long-term interest and repayment obligations. To determine whether a business is solvent, both the federal Bankruptcy Code and the Uniform Fraudulent Transfer Act look at the “fair value” of a debtor’s assets. The company (or debtor) is determined...

New Option for Unused Funds in a 529 College Savings Plan

With the high cost of college, many parents begin saving with 529 plans when their children are babies. Contributions to these plans aren’t tax deductible, but they grow tax deferred. Earnings used to pay qualified education expenses can be withdrawn tax-free. However, earnings used for other purposes may be subject to income tax plus a 10% penalty. What if you have a substantial balance in a 529 plan but your child doesn’t need all the money for college? Perhaps your child decided not to attend college or received a scholarship. Or maybe you saved for private college, but your child attended a lower-priced state university. What should you do with unused funds? One option is to pay the tax and penalties and spend the money on whatever...

Preventing Fraud Losses Across Multiple Business Locations

If you operate your business in multiple locations (as with retail or restaurant chains), you face some extraordinary fraud-prevention challenges. After all, you can’t be everywhere at once. And the more locations you operate, the harder they are to monitor. Without the appropriate checks and balances in place, fraud losses in one store could threaten the health of your entire company. If you don’t already have one, consider implementing a robust antifraud program. A comprehensive strategy Whether you operate multiple locations as an independent owner or franchisee, fraud is an ever present risk. Depending on the products and services your business offers, employee, credit, returns and gift card fraud are all schemes your business potentially faces. Mitigating these risks requires a comprehensive strategy that doesn’t rely exclusively...

Tax-Wise Ways to Take Cash from your Corporation While Avoiding Dividend Treatment

If you want to withdraw cash from your closely held corporation at a low tax cost, the easiest way is to distribute cash as a dividend. However, a dividend distribution isn’t tax efficient since it’s taxable to you to the extent of your corporation’s “earnings and profits,” but it’s not deductible by the corporation. 5 different approaches Thankfully, there are some alternative methods that may allow you to withdraw cash from a corporation while avoiding dividend treatment. Here are five possible options: 1. Salary. Reasonable compensation that you, or family members, receive for services rendered to the corporation is deductible by the business. However, it’s also taxable to the recipient(s). The same rule applies to any compensation (in the form of rent) that you receive from the corporation...

Taking Your Spouse on a Business Trip? Can You Write Off the Costs?

A recent report shows that post-pandemic global business travel is going strong. The market reached $665.3 billion in 2022 and is estimated to hit $928.4 billion by 2030, according to a report from Research and Markets. If you own your own company and travel for business, you may wonder whether you can deduct the costs of having your spouse accompany you on trips. Is your spouse an employee? The rules for deducting a spouse’s travel costs are very restrictive. First of all, to qualify for the deduction, your spouse must be your employee. This means you can’t deduct the travel costs of a spouse, even if his or her presence has a bona fide business purpose, unless the spouse is an employee of your business. This requirement prevents tax...

When to Consider Subsequent Events in a Business Valuation

Business valuators sometimes consider major events that happen after the valuation date. For example, what if a business is subsequently sold, files for bankruptcy, discovers new technological advances, or experiences a major fraud loss, data breach or natural catastrophe? Such events could potentially affect a business’s fair market value, but whether a valuator will consider a particular event depends on the facts and circumstances of the valuation assignment. “Known or knowable” principle In general, events that are known or knowable on the valuation date will be factored into a valuation. Or valuators might consider the risk that a particular event will happen. But there are several exceptions. For example, in Estate of Jung v. Commissioner (101 T.C. 412, 1993), the U.S. Tax Court concluded, “Actual sales made in...