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January 26, 2018

IRS Sets Final 2018 Deadline for Roth Conversion Do-Overs

(Forbes) January 19, 2018 – One of the few retirement changes in the tax overhaul was the elimination of do-overs for Roth IRA conversions. It used to be that you could convert a traditional IRA to a Roth IRA one year, and then have until Oct. 15th of the next year to undo the transaction and avoid the tax hit. That move — called “re-characterization” - is no longer allowed. But what about taxpayers who made the move in 2017? They weren’t sure if they only had until Dec. 31, 2017 to unwind transactions, or if they would be allowed the extra time. Now the Internal Revenue Service has spoken in FAQs, and it’s a taxpayer-friendly answer.
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IRS Issues Additional Guidance on Transition Tax on Foreign Earnings

(IRS) January 19, 2018 – The Treasury Department and the Internal Revenue Service on Jan. 19 provided additional guidance (Notice 2018-13) for computing the “transition tax” on the untaxed foreign earnings of foreign subsidiaries of U.S. companies under the Tax Cuts and Jobs Act.
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The ‘My Way’ Approach to Zero-Based Budgeting

(CFO) January 9, 2018 – “Regrets. I’ve had a few …” Much like Frank Sinatra, financial executives who have just wrapped the laborious budgeting process are also likely to have a list of unmentioned regrets. If they were inclined to articulate them, no doubt zero-based budgeting would land atop the heap. ZBB’s focus on exposing and eliminating unproductive costs and understanding cost drivers has earned it a renaissance of late, particularly among executives seeking more sophisticated value-creation tools.
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3 Critical Reasons Your Firm Needs an IT Strategy for 2018

(AccountingWEB) January 24, 2018 – The thieves of today don’t typically break into banks or have getaway cars. They sit at a computer thousands of miles away sending attacks to get their hands on valuable client data to, in many cases, sell on the ‘Dark Web.’ As such, it’s become more important than ever to define an accounting firm IT strategy, no matter the size of your practice.
readmore

 

Employee Loyalty Not for Sale

(Workforce) January 15, 2018 – Faced with a red-hot job market, employers are offering perks like free ski passes, complimentary e-readers and on-site acupuncture to attract and retain quality employees. These benefits are certainly fun and may help attract top talent. Certainly, some people may jump at the chance to work at a firm that offers in-house yoga and spin classes. But there are organizations where once the luster wears off, employees begin to see that these benefits are simply camouflage over a toxic work environment.
readmore

 

Apple’s $38B U.S. Taxes Leave EU Nemesis Unmoved

(Accounting Today) January 18, 2018 – European Union regulators reacted coolly to Apple Inc.’s move to repatriate hundreds of billions of overseas dollars to the U.S., saying “nothing has changed” in its order for the iPhone maker to pay back taxes to Ireland. Apple will pay about $38 billion in U.S. taxes on money it’s repatriating to the U.S., the company said on Wednesday. The transfer comes after Congress scrapped tax rules that allowed corporations defer U.S. income taxes on foreign earnings until they returned the income to the U.S. The EU was unmoved.
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IRS Sets Final 2018 Deadline for Roth Conversion Do-Overs

(Forbes) January 19, 2018 – One of the few retirement changes in the tax overhaul was the elimination of do-overs for Roth IRA conversions. It used to be that you could convert a traditional IRA to a Roth IRA one year, and then have until Oct. 15th of the next year to undo the transaction and avoid the tax hit. That move — called “re-characterization” - is no longer allowed. But what about taxpayers who made the move in 2017? They weren’t sure if they only had until Dec. 31, 2017 to unwind transactions, or if they would be allowed the extra time. Now the Internal Revenue Service has spoken in FAQs, and it’s a taxpayer-friendly answer.

The IRS website says this under IRA FAQs:

How does the effective date apply to a Roth IRA conversion made in 2017?

A Roth IRA conversion made in 2017 may be re-characterized as a contribution to a traditional IRA if the re-characterization is made by October 15, 2018. A Roth IRA conversion made on or after January 1, 2018, cannot be re-characterized. For details, see “Re-characterizations” in Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

This certainty is good news. Taxpayers who did Roth conversions last year can look at their tax picture this year – up until the extended due date for their 2017 return—to decide if the Roth conversion still makes sense, depending where the markets are, and how their tax rate shakes out under the new tax law.

Will Roth conversions still make sense in 2018 and forward, without the ability to fall back on re-characterization? One factor favoring conversions are the lower tax rates under the new tax law, says CPA Ed Slott. Instead of going all in, consider doing a partial conversion, possibly over several years, using up some of the lower tax brackets or some of the bigger standard deduction.

Another strategy to consider, given the new huge estate tax exemption under the tax overhaul, is to help an older relative convert his or her IRA. Say you’re in your 50s and highly paid, and your widowed mom has a traditional IRA of $300,000 she doesn’t need for living expenses and plans to leave to you. The last thing you need is an inherited IRA, where required payouts will add to your taxable income. So, you could gift mom $100,000 to pay for the conversion tax hit. She no longer has required payouts, and the Roth IRA grows tax free for the rest of her life and yours (you must take out money based on a IRS payout rules but those payouts too will be tax free). “The bottom line is that you, the executive, with high income, pay tax at the mother’s low rate,” says Slott, adding, “Make sure she names you as beneficiary.”

 

 

 

 

 

IRS Issues Additional Guidance on Transition Tax on Foreign Earnings

(IRS) January 19, 2018 – The Treasury Department and the Internal Revenue Service (IRS) on Jan. 19 provided additional guidance (Notice 2018-13) for computing the “transition tax” on the untaxed foreign earnings of foreign subsidiaries of U.S. companies under the Tax Cuts and Jobs Act.

On Dec. 29, 2017, the Treasury Department and the IRS provided initial guidance on computing the transition tax in Notice 2018-07.

The Jan. 19 notice describes regulations that the Treasury Department and the IRS intend to issue, including rules addressing the calculation of earnings under the transition tax and other rules to clarify certain aspects of the law.  The notice also makes a modification to the prior notice issued on Dec. 29, 2017, regarding the repatriation of earnings subject to the transition tax.  Finally, the notice provides taxpayers targeted relief from certain unintended regulatory and reporting consequences arising from a change to existing stock attribution rules in the recent tax legislation.

Additionally, Treasury and the IRS request comments on the rules described in the notice and on what additional guidance should be issued to assist taxpayers in computing the transition tax.  The Treasury Department and the IRS expect to issue additional guidance in the future.

Notice 2018-13, will be published in IRB 2018-06 on February 5, 2018.  The Treasury media contact for this matter is Marisol Garibay, Deputy Assistant Secretary for Public Affairs, 202-622-6490.

 

 

 

 

The ‘My Way’ Approach to Zero-Based Budgeting

(CFO) By Hal Polley, January 9, 2018 – "Regrets. I’ve had a few … "

Much like Frank Sinatra, financial executives who have just wrapped the laborious budgeting process are also likely to have a list of unmentioned regrets. If they were inclined to articulate them, no doubt zero-based budgeting (ZBB) would land atop the heap.

Because it’s a concept so often misunderstood or misused, let’s avoid our own regret and pause for clarification: ZBB, first introduced in the ’70s, is a process of budgeting that requires managers to build their budgets from zero on an annual basis. It employs a complex methodology wherein finance breaks costs into decision packages, assigns each package to two owners with differing perspectives, and requires decision-makers to force-rank priorities.

ZBB’s focus on exposing and eliminating unproductive costs and understanding cost drivers has earned it a renaissance of late, particularly among executives seeking more sophisticated value-creation tools.

The aforementioned “unmentioned” regret tends to fall into two distinct camps: the “Just Dids” and the “Never Wills.”

The Just Dids

This clan is comprised of those CFOs who, given fund sponsor or stakeholder pressure, undertook a ZBB approach to budgeting, only to find its sullied reputation true: It was indeed not only prohibitively complex, but it also positioned the office of the CFO as a burdensome antagonist to the business.

More regretful was the fact that it just didn’t work. The Just Dids fall into the 65% of companies that employed ZBB but failed to meet budgeting goals.

A deeper dive into ZBB user survey stats shows even more reason for regret: 41% who have employed ZBB point to poor design and understanding as a reason for goal failure; 47% point to the poor business case for its use in the first place.

The Never Wills

Of course, the flip side to those who just went through a failed ZBB pilot are the executives who never will. These are the CFOs who have either heard the ZBB horror stories (see above) or who simply elect a more traditional approach to budgeting.

Why the regret then? Because, these are also the (mostly private equity-backed) CFOs who have substantial cost cutting-targets to meet and now, on the backend of budgeting season, realize the traditional approach won’t get them there. These are the CFOs who know that post-deal, PE investors retain the existing CFO only 25% of the time. In addition, they are concerned about their level of “replaceability” with an executive more amenable to unorthodox budgeting philosophies and more confident about meeting aggressive value creation targets.

ZBB-Light

With apologies to Sinatra, what neither the Just Dids nor the Never Wills seem to understand is that there is a “my way” approach to ZBB that avoids the pitfalls of going all-in, while still embracing a more innovative approach to budgeting.

We call it ZBB-light. This edited approach borrows many of the ZBB principles and applies them to certain costs within specific business departments and functions. (It’s particularly applicable to costs that are not directly related to revenue).

Leveraging some of ZBB’s core concepts (like decision units and decision packages) can force the organization to think about alternative ways to perform functions without burdening the business with some of ZBB’s labor-adding exercises.

Sound too good to be true? That’s because in some ways it is.

Yes, ZBB-light strips some of the risks from the unabridged approach. But implementing the light approach effectively still requires the meticulous up-front planning of its Full Monty cousin. In fact, one might argue that because ZBB-light targets only certain, applicable units of the business, the upfront diligence required to identify those units must be even more meticulous.

It raises the question: Given the heavy lifting required for even an abridged ZBB approach, why do it at all?

Putting aside the “not getting fired” incentive, smart CFOs recognize that the benefits of ZBB, particularly in a PE-environment, are plentiful and meaningful:

  • A well-justified budget aligned to strategy rather than history
  • The avoidance of “automatic” budgetary increases
  • The improvement of operational efficiency via rigorous challenge of assumptions

But First, We Cleanse

But, doing ZBB-light and doing it right are two different things entirely. For the latter to occur, the planning phase for year-end budgeting has to happen, well, now. And that planning must take the form of a three-step robust data hygiene exercise, the purpose of which is to create a single source of financial truth to inform cost cutting targets.

Step 1: Diagnostic. The diagnostic phase helps identify the lowest hanging fruit for ZBB-light applicability. CFOs must create a matrix of corporate financials, by functional area, department, and cost category (e.g., travel and expenses) focusing on selling, general and administrative expenses versus gross margin. This data diagnostic exercise will enable the corporation to target the right functions/departments and will provide an accurate assessment of the total scope of potential margin improvement.

Step 2: Benchmarking. Now that the data are clean, the CFO has an accurate point of departure for comparison. That comparative exercise must take place both internally and externally: Finance must take a full inventory of what the company has done historically by function and department. Those internal benchmarks need to assess specific costs as a percentage of revenue over, say, a previous five-year period in order to paint a clear picture of company-specific investment/outcome ratios. The exercise must then contrast that against industry norms and best-in-class numbers. Those two comparative measures, when combined, will allow for informed target setting and achievable, yet still aggressive, goals.

Step 3: Defining Success. This final step must take a very granular approach toward defining success per department/function. For example: in human resources, what does success look like? Low recruiting costs? Decreased attrition rates? In sales, is success reduced sales cycle times? A larger customer base? Increased share of wallet? Defining targets requires an understanding (via the data hygiene exercise) of the drivers of success and their correlation with spend.

Only when that three-step data hygiene and analytics exercise is complete can companies effectively begin any strategic ZBB implementation, light or otherwise. It’s an undertaking, to be sure, but one that can pay significant dividends in the form of potential margin improvements upwards of 1,000 points.

With margin improvements like that, maybe Sinatra was on to something: CFOs embarking on a meticulously planned ZBB-light implementation may, in fact, wind up with too few regrets to mention.

 

 

 

 

 

3 Critical Reasons Your Firm Needs an IT Strategy for 2018

(AccountingWEB)  By Alessandra Lezama, January 24, 2018 – The thieves of today don’t typically break into banks or have getaway cars. They sit at a computer thousands of miles away sending attacks to get their hands on valuable client data to, in many cases, sell on the ‘Dark Web.’ As such, it’s become more important than ever to define an accounting firm IT strategy, no matter the size of your practice.

With more firms pursuing the worthwhile and groundbreaking benefits of cloud computing and storage, they become more susceptible to threats they can’t block or detect with firewalls and antivirus software.

Hence, the traditional defenses against data breach – protocols for using and storing physical devices – simply won’t protect your organization from today’s modern threats. So, in order to thoroughly protect your firm from data breach, here are three key reasons why an intentional and thoroughly researched IT strategy is a must-have for the coming year.

1. The Cloud Has Changed How We Work

According to the software security company McAfee’s recent report, “Building Trust in a Cloudy Sky: The state of cloud adoption and security,” 93% of all organizations and 99% of financial service organizations currently host or store data in the cloud.

This fundamental change in how accounting firms and their clients do business can leave your data vulnerable if you have not considered what role IT plays in your overall business strategy. The risks of locally managed, onsite servers being compromised is three-fold due to the lack of enterprise tools implemented as well as outdated systems not being maintained. A clear IT strategy will give you the information you need to put strategic planning in place and make the most of new cloud-based landscape opportunities.

2. Accounting Firms are Prime targets for Attacks

Data breaches are more common now among organizations in general, but accounting firms are even more at risk because they handle such sensitive financial, and personal client data. If you don’t think it can happen to you, think again.

More than 500 million financial records were stolen in 2014, alone. This means all firms, big or small, are susceptible to getting hacked.

Clearly, prominent brands are not entirely safe as evidenced by recent hacks of Facebook, Google, and GoToMyPC to name a few, but neither are smaller brands. In fact, there were more than 750,000 ransomware attacks in 2016 and more than 80 percent of US companies have been breached. Not having an IT strategy only leaves you and your clients more vulnerable.

3. Technology is a Competitive Advantage

If you’re in the camp that insists on doing things the way you’ve always done them, you’ll want to pay careful attention in 2018 to the connection between technology adoption and performance. The right kind of technology can provide enhanced protection to your accounting firm’s data and clients. Plus, it helps your team members outperform competing firms, by speeding up your processes or providing enhanced value to your clients.

For example, hedge fund firm Sasserath & Zoraian, LLP wins more business using the investment management software Advent Geneva versus Excel spreadsheets. In general, larger hedge funds want to limit human error, but don’t want to have to pay for and learn the program in-house. These kinds of benefits can turn your accounting firm IT strategy into an important opportunity to differentiate your offerings from your competitors.

Conclusion

If you want to make 2018 your most profitable and successful year yet, your business plan needs to start with researching and testing the latest technology and proactively incorporating it into your firm’s processes. Having a clearly defined IT strategy will keep your accounting firm’s finger on the pulse of the most efficient and profitable advancements and ensure that your business – and your clients – will come out ahead.

 

 

 

 

 

Employee Loyalty Not for Sale

(Workforce) January 15, 2018 – Faced with a red-hot job market, employers are offering perks like free ski passes, complimentary e-readers and on-site acupuncture to attract and retain quality employees.

These benefits are certainly fun and may help attract top talent. Certainly, some people may jump at the chance to work at a firm that offers in-house yoga and spin classes. But there are organizations where once the luster wears off, employees begin to see that these benefits are simply camouflage over a toxic work environment.

They speculate that such perks are provided simply to entice employees to never leave as opposed to rewarding them for jobs well done. Catered lunches and dinners might make employees think that leaving the office for meals is frowned upon, while free trips cause skeptical workers to question whether they’ll be able to make their own vacation plans or do as the company dictates.

Workplaces with low employee morale see constant churn, and right now, the number of U.S. workers quitting their jobs is the highest it’s been in more than a decade. Seven in 10 American workers are not engaged in their jobs, according to Gallup’s recent “State of the American Workplace” survey.

Given today’s robust job market, employers must work to develop positive, healthy workplaces that entice top talent. Dedicating resources to the benefits that matter most — competitive compensation and respect for a healthy work-life balance, to name just two — will help ensure that workers join the right firms and stick around.

So how can businesses build and sustain a positive culture? It starts the day they receive a prospective hire’s résumé.

Promote Timely Hiring Practices

Many businesses drag out the hiring process and make prospective hires fret for weeks after they take an interview. That rubs applicants the wrong way. In a survey of 1,000 U.S. adults by my organization, Robert Half, 40 percent reported that waiting just one to two weeks after an interview for an offer was “too long.”

This lengthy hiring process causes 40 percent of U.S. adults to lose interest in the role and pursue other job openings, according to the same survey. Nearly 1 in 3 adults reported that a lengthy process makes them question the company’s ability to make other decisions.

It’s imperative for employers to put their best foot forward the moment an applicant submits a résumé. Managers should interview all candidates on-site and make sure that everyone who needs to meet with the applicant is available that day. Employers should also offer applicants a chance to see the office and meet their potential co-workers, which allows candidates to quickly assess the company’s culture for themselves.

After the interview, employers should let prospective hires know when they can expect to hear back. If there’s a delay in the decision-making process, employers should update candidates as soon as possible.

These simple courtesies go a long way in ensuring that prospective hires feel wanted and respected, which increases acceptance rates and builds goodwill.

Focus on What Matters Most to Workers

Employers also must make sure that they’re giving employees what they want. Workers aren’t as interested in extravagant perks as employers may think.

According to a survey by software firm Qualtrics and venture capital firm Accel Partners, 80 percent of millennials rank in-office perks as the least important benefit when considering a new job. The same survey found that millennials want a workplace that fosters a sense of pride and offers competitive compensation, a positive culture, opportunities to advance and flexible hours.

Getting the Fit Right

According to “The Secrets of the Happiest Companies and Employees,” a survey of 12,000 workers by Robert Half in collaboration with engagement-analytics company Happiness Works, the biggest factor affecting worker happiness is the sense of pride an employee takes in their job. Workers who share a company’s vision derive more meaning, satisfaction, and happiness from their jobs than employees who see their work as a mere paycheck.

But employees also want competitive compensation, and they want their managers to be proactive about giving it to them. Ninety percent of workers think they deserve a raise, but only 44 percent planned to ask for one in 2017. In fact, many professionals would rather be cleaning their house, getting a root canal or being audited by the IRS before asking for a raise.

Given this hesitancy, employers need to be proactive. They should clearly communicate guidelines for raises and they should be more vigilant about ensuring that they’re paying competitive salaries. It’s no longer enough to compare salaries once a year. In today’s job market, employers should strive to cross-compare salaries at least twice a year, if not quarterly.

To that end, managers also should set up meetings with their employees to discuss compensation. These meetings can help professionals understand the factors affecting compensation levels and the steps needed to earn a raise.

Recognizing workers’ successes with consistent compliments and encouragement costs managers nothing but makes employees feel valued. In fact, nearly 1 in 2 employees ranked management’s recognition as “very important” to their job satisfaction, according to a survey of 600 U.S. employees by the Society for Human Resource Management.

Workers also want an opportunity to climb the company ladder. Prospective hires consider advancement as one of the chief considerations of taking a job, according to that same SHRM survey.

Finally, a company culture that gives employees the flexibility to attend to their private lives is of high importance to employees.

More than half of workers are willing to change jobs for a position that offers more flexible working hours, according to the Gallup survey. This is understandable, given that today’s workers spend an average of 49 minutes commuting each day, according to my company’s research.

Businesses can offer this work-life balance by allowing telecommuting where it makes sense and bringing in project workers when the core team is overwhelmed.

Following these guidelines would do wonders to attract and retain workers as well as boost employee happiness.

The Benefits of Happy and Engaged Workers

When employees are invested in their work and committed to doing their jobs well, company productivity also improves. According to the Gallup survey, business units that score in the top quartile of their companies on measures of worker engagement experience 41 percent less absenteeism compared to the lowest quartile of units. They are 17 percent more productive. These companies also are 21 percent more profitable, the survey noted.

Happy and engaged workers are also considerably less likely to leave their jobs, thereby reducing turnover-related costs.

By comparison, when workers are not engaged, the company’s bottom line suffers. One disengaged employee costs his company more than $2,200 per year, according to a study by ADP. That equates to hundreds of billions of dollars overall.

At a moment when talented employees are increasingly hard to come by, attracting top talent requires more than quirky company perks. Businesses need to invest in creating the kind of workplace culture that supports happy, engaged employees.

If they don’t, their most valuable workers will have no trouble finding the exit no matter how many trips to posh Caribbean resorts you are offered.

 

 

 

 

 

Apple’s $38B U.S. Taxes Leave EU Nemesis Unmoved

(Accounting Today) January 18, 2018 – European Union regulators reacted coolly to Apple Inc.’s move to repatriate hundreds of billions of overseas dollars to the U.S., saying “nothing has changed” in its order for the iPhone maker to pay back taxes to Ireland.

Apple will pay about $38 billion in U.S. taxes on money it’s repatriating to the U.S., the company said on Wednesday. The transfer comes after Congress scrapped tax rules that allowed corporations defer U.S. income taxes on foreign earnings until they returned the income to the U.S. The EU was unmoved.

“Over many years, tax rulings issued by Ireland allowed Apple to pay less tax on profits recorded in Ireland than other companies,” the European Commission said in an emailed response to questions. “This gave Apple an illegal advantage.”

Ireland’s delay in extracting some 13 billion euros ($15.9 billion) in tax from Apple has already raised the ire of EU Competition Commissioner Margrethe Vestager. The EU is taking the Irish government to court for failing to recoup the money. Irish Prime Minister Leo Varadkar said it will start collecting the tax bill in the second quarter. Any funds will be held in escrow while Ireland and Cupertino, California-based Apple fight the EU order at court.

Apple may ultimately be able to get a foreign tax credit to recognize the Irish payment and reduce its U.S. bill, Mary Cosgrove, a lecturer at the School of Business and Economics, National University of Ireland, Galway, said in a Twitter posting.

“If the appeal is lost by Apple, they pay the 13 billion euros to Ireland and they might be able to get a refund of the same amount from the U.S. against the U.S. tax liability, provided the U.S. treat it as a tax payment,” Cosgrove, who previously worked in the tax advisory industry, said.

The new tax rules may mean Apple has little incentive to appeal the EU decision, “from a cash point of view,” Cosgrove said, as the tax would still have to be paid, albeit in the U.S., if it succeeded.

“Still, from a political and reputation point of view, they might want to push ahead,” she said. “Also, the U.S. might be keen for them to go ahead, because if it succeeds, the tax goes to the U.S., rather than Europe.”