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The CEO and Reputation

By John Garvey

John Garvey

John Garvey

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

Warren Buffett’s advice on protecting the most valuable commodity an individual or organization possesses is spot on. In business, however, it helps to know what ‘do things differently’ means, in advance of the next crisis.

As a business leader, what not to do is well-known. If you are unsure, just Google ‘Travis Kalanick’ or ‘Oscar Munoz’ and the word ‘crisis.’ Don’t be those guys. Essentially, they and most business leaders get in trouble or impact negatively on their organization’s reputation by not thinking enough about reputation — their company’s and even their own.

Reputation is not only worth worrying about, it should be regarded as a market advantage.

Reputation is your sustainable differentiator. It’s why a lot of customers come to your door, why influencers send you referrals, and perhaps why parents tell their children to do business with you. Most businesses invest quite heavily in enhancing their reputation, an effort that conveys to their audience, “we are here to help you with our products and services.”

Anything that threatens or damages that message is a reputational threat. It’s that simple.

The complicated part of reputation management is that threats have changed and responses have not. Today’s threats are fueled by algorithms. You’d recognize those computer programs as the Internet, primarily search engines like Google, and social media. Algorithms add fire to smoke, and that fire spreads quick across audiences and sometimes into traditional media. Then your phone rings.

The typical response is to answer it, and here is where the CEO is most often thrown under the bus, or better put, steps out in front of it. The CEO answers the call, makes the statement quickly to put out the fire, and days later is apologizing for that quick response. Don’t be that CEO.

Recently, when Facebook faced a crisis because of a data breach, Mark Zuckerberg did not pick up the phone. Instead, the organization met behind closed doors and went to work on the problem. The fire grew hot in the interim, but when he finally did talk, he apologized and suggested that the organization would do better. The crisis is not over of course, but Facebook took proactive steps to manage it — rather than be managed by it.

Knowing what causes threats is a good place to start the process of protecting your organization’s reputation. Threats sometimes come from national issues that have nothing to do with your individual company but are, instead, targeting your industry. Similarly, local issues that you may have a loose tie to, e.g., one of your customers did something wrong, also can be a source of threat.

Social media, where haters go to hate, often is where micro-threats eat away at your reputation like termites. Customers, former employees, or anyone with a grudge can become the troll that chips away on the reputation that you have worked so hard to enhance. Just about anything you do in a community can have negative consequences, e.g., that new office that you opened or a merger that you recently completed.

So, now that you are thinking about threats to your reputation, let’s move on to the doing. First, don’t jump out in front of the bus. Just don’t. Think baseball: the CEO is the closer, maybe the reliever at times — not the starting pitcher. CEOs get in trouble when they push aside professional staff or are encouraged by the same to jump into the fray early. Build crisis resilience every day. That is your job.

Have you set your north star, meaning the values that your organization stands for? Does everyone, including your executive staff, board of directors, and customer-facing associates, know what those values are and how they are turned into action? They all should, because they are your first line of reputational defense.

You should develop a crisis-management plan. It doesn’t have to be a big plan, but it should define potential threats and determine who is responsible for managing them (including the starting pitcher). You also always want to buy time to prepare, know any interview questions in advance, and contemplate the mediums where your message will be carried.

If it is a TV interview, you will want to contemplate the setting for that interview. If it is a print interview, you will want to provide photo images (of yourself, perhaps) and helpful images like infographics. You also want to outline your options: respond, avoid, or divert.

Back to a few more do’s and don’ts: If and when you do get called in front of the microphone, stick to the script. If your thought is from your heart, leave it there. This is about your organizational values — the ones you have worked so hard to instill (your north star). That should be reflected in the message and should be in your head, not your heart.

Here is something to think about: don’t immediately consider posting your message on social media. The trolls will eat you alive. Conversely, traditional media will do a better job of getting your message right.

Finally, harking back to the famous line from Hill Street Blues, “be safe out there” — it’s a dangerous world, and CEOs need to treat it as such. Unfortunately, it is a fact of life — your life — that some crisis or even everyday business could provoke someone to confront you or even do you harm.

John Garvey is founder of GCAI Digital Marketing and PR. He has more than three decades of public-relations experience. He holds a certificate in reputation management from the Public Relations Society of America. He was also a keynote presenter on “Managing the Media and Your Reputation in a Crisis” at the Massachusetts Bankers Assoc. 2017 Executive Officers Conference.

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Finance: A Primer on the TCJA

By David Kalicka

David Kalicka

David Kalicka

It is important to note that, although many business changes are permanent, the individual changes are temporary. The changes in tax rates, standard deductions, and personal exemptions will expire in 2025, unless extended at some future date.

Individual Tax Changes

Tax rates: Lower individual income-tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and a top rate of 37%. (The current rates would be restored in 2026, i.e. 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%).

Standard deduction: Single $12,000, increased from $6,350 (2017). Married filing joint $24,000, increased from $12,700 (2017).

Personal exemptions: Eliminated. Under prior law, exemptions would have been $4,150 each for 2018.

Child tax credit: Temporarily increased to $2,000 per child under 17 (was $1,000) and new $500 credit for dependents other than child.  These credits phase out for higher-income taxpayers.

Itemized Deductions: Deduction for taxes (income taxes and real-estate taxes) limited to $10,000 per year.

Mortgage interest: For mortgage debt incurred after Dec. 15, 2017, interest deduction limited to acquisition debt of $750,000. Acquisition debt incurred prior to that date is still subject to the $1 million limit.

Home equity loan/line of credit interest deduction eliminated beginning in 2018, regardless of when the home-equity loan originated.

The deduction for contributions of cash to public charities will be limited to 60% of AGI beginning in 2018 (prior limit was 50% of AGI).

Miscellaneous itemized deductions have been eliminated. This category included unreimbursed employee business expenses and investment expenses. Under prior law, these were deductible to the extent they exceeded 2% of AGI.

• In view of the elimination or limitation of certain deductions and the increase in the standard deduction, fewer taxpayers will be itemizing. To maximize the benefit of deductions, you should consider bunching allowable deductions in alternating years. For example, a married couple with no mortgage and state and local income taxes and real-estate taxes of at least $10,000 will need an additional $14,000 to exceed the standard deduction. Combining multiple years’ charitable contributions in one year may be a way to benefit from itemizing in a particular year. One technique for doing this is a donor-advised fund.

Elimination of other deductions: The moving-expense deduction has been eliminated.

Alimony: For divorce agreements executed after Dec. 31, 2018, alimony will no longer be deductible by the payer or taxable to the recipient. If anticipated, any such agreement should be reviewed in light of the new law to determine the effects of timing.

Alternative minimum tax: The individual AMT has been retained, but the exemption has been increased. With the limitation on taxes and the elimination of miscellaneous itemized deductions, fewer people will be subject to AMT.

Section 529 plans: These plans can now be used to pay up to $10,000 per year for private elementary or secondary school tuition.

Casualty and theft losses: The itemized deduction for casualty and theft losses has been suspended except for losses incurred in a federally declared disaster.

Estate and Gift Taxes

For decedents dying and gifts made after Dec. 31, 2017 and before Jan. 1, 2026, the federal exclusion has been doubled to roughly $11 million per person. Keep in mind that this expires in 2025 and then reverts to about $5.5 million per person.

Taxpayers with large estates should consider the benefit of making large gifts now to take advantage of this temporary increase in exemption.

Business Tax Provisions

These provisions have been made permanent in the new tax law unless otherwise indicated.

C-corporation: Flat corporate tax rate of 21% (old law 15%-35%). This low tax rate is attractive; however, keep in mind that there is a second level of tax when the corporation pays dividends or is liquidated. Also, C-corporations have additional potential penalty taxes (personal holding company tax and accumulated earnings tax).

Pass-through entities: Many S-corporation shareholders, LLC members, partners, and sole proprietors will be able to deduct 20% of their pass-through income. This seems like a simple concept. Unfortunately, there are some very complex rules depending upon the individual’s taxable income and whether the business is a professional service business or real-estate business. It is not practical to try to explain these rules in this communication. Therefore, you should consult with your tax adviser to discuss the optimal entity choice for your business and how you can plan to take additional advantage of some of these rules.

DPAD repealed: The new law repeals the domestic production activities deduction for tax years beginning after 2017.

Entertainment expenses: No longer deductible (50% deductible under prior law). Business meals remain deductible subject to the same substantiation rules and limitations. The 50% disallowance is expanded to cover meals provided via an in-house cafeteria or otherwise on the employer’s premises

Section 179 expensing: Annual limit increased to $1,000,000 (previous limit was $500,000). Also, the expanded definition of assets eligible for section 179 includes certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. The definition of qualified real property eligible for expensing is also expanded to include the following improvements to non-residential real property after the date such property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.

Bonus depreciation: increased to 100% (from 50% under prior law) for property placed in service after Sept. 27, 2017 and before Jan. 1, 2023, and expanded to include used tangible personal property. After 2022, it phases down by 20% each year until Jan. 1, 2027.

Luxury auto depreciation limits: Under the new law, for a passenger automobile for which bonus depreciation is not claimed, the maximum depreciation allowance is increased to $10,000 for the year it’s placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years in the recovery period. These amounts are indexed for inflation after 2018. For passenger autos eligible for bonus first-year depreciation, the maximum additional first-year depreciation allowance remains at $8,000 as under pre-act law.

Business interest deduction limitation: For businesses with gross receipts in excess of $25 million, interest-expense deductions will be limited to 30% of adjusted taxable income. For years beginning before 2022, adjusted taxable income is computed without regard to depreciation and amortization. Any excess interest expense is carried over to future years. Real-estate businesses may elect out of this limitation. However, the election requires use of ADS depreciation, which results in longer depreciable lives and loss of bonus depreciation.

Net operating losses: There is no longer a carryback provision; however, the carry-forward period is now unlimited (previous law provided that NOLs could be carried back two years and forward 20 years). In addition, any losses incurred after Dec. 31, 2017 can offset only 80% of taxable income.

Excess business limit: The new tax law limits the ability of a non-corporate taxpayer to deduct excess business losses. After application of passive loss rules, the deduction of business losses is limited to $500,000 per year for taxpayers filing jointly and $250,000 for others. The excess loss is carried forward as part of the taxpayer’s net operating loss. This provision applies to tax years beginning after Dec. 31, 2017 and prior to Jan. 1, 2026.

As you can see from this brief summary, the new law is extremely complex. You should consult with your tax adviser to fully explore how to take advantage of the opportunities and to minimize the impact of the negative changes.

David Kalicka, CPA serves as partner emeritus for the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 536-8510; [email protected]

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Law Column

By Marylou Fabbo

Marylou Fabbo

Marylou Fabbo

During the holiday season, employers may have been faced with a variety of religion-related requests such as whether they may display certain religious icons in their work areas. Throughout the year, employees may want time off to observe certain holy days rather than conforming to the employer’s holiday schedule, request breaks to pray, or seek an exemption from an employer’s dress or grooming standards so that they may express themselves consistent with their religious beliefs.

While employers do not question most requests, what should an employer do if it suspects that the requested accommodation is being made to upset a co-worker or that an employee is requesting certain days off to go shopping or take a long weekend?

What Constitutes a Religious Belief?

Both state and federal law prohibit discrimination against employees and applicants based on religion, and employers are required to reasonably accommodate bona fide religious beliefs.

A ‘bona fide religious belief’ means that the individual has a religious and sincerely held belief or practice. Title VII defines ‘religion’ very broadly. It includes traditional, organized religions as well as those that are new, uncommon, not part of a formal church or sect, or held only by a small number of people. Religious beliefs don’t need to be part of organized religion, and moral or ethical beliefs as to what is right or wrong could constitute religious beliefs. According to the U.S. Equal Employment Opportunity Commission (EEOC), however, “social, political, or economic philosophies, or personal preferences” are not religious beliefs.

What Religious Accommodations Must an Employer Provide?

Employers may not refuse to accommodate an employee or applicant’s sincerely held religious beliefs or practices unless accommodating them would impose an undue hardship.

Some examples of accommodations that an employer would have to provide, absent undue hardship, include excusing a Catholic pharmacist from filling birth-control prescriptions or permitting a Muslim employee to take a break schedule that will permit daily prayers at prescribed times. With the holidays approaching, an employee may request other accommodations, such as the ability to take certain days off (other than Christmas) or to display religious symbols in their work areas. What should an employer do in response? Read on.

When May an Employer Deny a Request for a Religious Accommodation?

Employers must grant a request for a religious accommodation unless doing so would pose an undue hardship on the employer. The ‘undue hardship’ burden is lighter when it comes to religious accommodation than it is when talking about disability-accommodation requests. For religious-accommodation purposes, an undue hardship exists if it would cause more than de minimis cost in terms of money or burden on the operation of the employer’s business. Generic co-worker complaints usually are not valid reasons to deny a request for religious accommodation.

What If an Employer Suspects the Employee Wants an Accommodation for Non-religious Reasons?

Certain behaviors may make an employer question an employee’s assertion that the employee sincerely holds a religious belief that forms the basis of a requested accommodation. The EEOC has suggested that these behaviors may include whether the employee has behaved in a manner markedly inconsistent with the professed belief, whether the accommodation sought is a particularly desirable benefit that is likely to be sought for secular reasons, whether the timing of the request renders it suspect, and whether the employer otherwise has reason to believe the accommodation is not sought for religious reasons.

The courts, too, have recognized that an employee might use ‘religious beliefs’ to obtain an accommodation for a personal preference rather than a religion. In a recent case, a hospital employee refused to receive a mandatory flu vaccination based on her religious beliefs, which included the notion that her body is a temple. The hospital excused the employee from the mandatory vaccine and instead required her to wear a mask. She claimed that the mask was not an acceptable alternative because it interfered with others’ ability to understand her. During the litigation, the employer sought a detailed description of the ways in which the employee adhered to her belief that her body is a temple, and, despite the employee’s protest, the court required her to answer the question.

It’s probably the best practice to ask the same questions to everyone who makes a religious-accommodation request, or question whether an employee has a sincerely held religious belief, when there is objective evidence that the request may have been made for ulterior reasons.

How Should Employers Handle Requests for Religious Accommodations?

When an employer receives a request for a religious accommodation, the employer should let the requesting employee know it will make reasonable efforts to accommodate their religious practices.  Employers should assess each request on a case-by-case basis.

Remember, while an employer should consider the employee’s requested accommodation, employers are not required to provide an employee’s preferred religious accommodation if there’s another effective alternative. However, be wary of affording employees who practice certain religions different treatment than afforded to those who practice other religions. Employers should train supervisory personnel to make sure they are aware that a reasonable accommodation may require making exceptions to regular policies or procedures.

Marylou Fabbo is a partner and head of the litigation team at Skoler, Abbott & Presser, P.C. She provides counsel to management on taking proactive steps to reduce the risk of legal liability that may be imposed as the result of illegal employment practices, and defends employers who are faced with lawsuits and administrative charges filed by current and former employees; (413) 737-4753; [email protected]

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Seven Keys to a Successful Nonprofit

By Christopher D. Marini, MSA, MOS

Christopher Marini

Christopher Marini

With an increased regulatory environment and constant pressures to maximize revenues, operating a fiscally successful nonprofit organization can be more challenging now than ever before. There are many actions, both big and small, that can be taken to ensure an organization is operating as effectively as possible.

I’ve selected seven keys to discuss that can help your organization in the years to come.

An Investment in People

In an industry that’s so intently focused on varied sources and levels of funding, it’s good to remember that an important asset of any organization is its staff. Here are some points to consider:

• Having a solid management team is particularly important because their attitudes permeate through all levels of the organization. To aid them, look for trainings or webinars that can help management develop their leadership abilities. With motivated, inspiring, and knowledgeable leaders at the helm, staff are more likely to be inspired to work with passion.

• Any time is a good time to perform an analysis on your hiring process. Is your new-hire training standardized, and does it help introduce staff to the culture of the organization in addition to position-specific training?

• Keep an eye out for that shining star of an employee that shows aptitude for future growth and leadership. If you can provide him or her with an opportunity to develop their skills, you will develop a pipeline for strong leadership. This form of succession planning can help the future continuity of the organization.

• Keeping employees and staff engaged and motivated is always a challenge. Are your organization’s raises and promotions based on measurable merit, whereby those employees who best meet the desired criteria of success are rewarded for their efforts? Doing so will keep your best and brightest engaged and set an example for other employees.  A consistent method of evaluating the success and performance of your employees is a great foundation.

Having an Involved Board

Having a diverse and knowledgeable board of directors is a tremendous advantage. Be sure to tap into their unique skill sets and contact networks to maximize their value. Be open-minded about ideas they have, and assist them in organizing periodic meetings to discuss big-picture items such as programs, investments, budgets, legal issues, and other high-level or important items that may require attention.

Public Image

Public image and recognition are crucial to obtaining donations, funding, and support from your local community. Consider evaluating your current marketing efforts critically to determine whether your approach is earning you the recognition needed to support your program. You likely have a wide range of tactics available to you — press releases, networking, speaking opportunities, social media, and a website.

However, simply having these things in place does not breed efficacy in and of itself, and, unfortunately, marketing is often the last thing on the minds of busy and inundated nonprofit leaders.

First, it’s important to clearly define your intended audience. All too often, organizations take a very broad approach without first considering the profile of their audience. It’s imperative to know who your audience is before engaging in public relations.

Next, consider whether your outreach initiatives are using resources effectively. Here’s an example: your organization is engaging in speaking events to garner support and find new volunteers for summer-camp programs your organization runs for area youths. However, your current speaking engagements at local Rotary clubs and chambers of commerce aren’t yielding the number of volunteers you’d hoped for. In this case, you might consider alternative audiences like church community-service groups, student organizations on college campuses, or other community-based groups whose mission better matches the profile of your ideal volunteer. The idea here is to think critically on every mode by which you communicate to determine if alternate approaches might be more efficient or effective.

Utilizing Volunteers

An excellent method of keeping costs down, while still getting work done, is utilizing volunteers. In order to attract and retain volunteers, it is important that the community is aware of the existence of your organization and cares about its mission, as noted above. If either of these criteria is not met, obtaining volunteers will prove to be a challenge.

Once volunteers are on board, it is imperative to use their time well.  When they arrive, ensure clear expectations are set, while at the same time making the process fun and convenient. If a volunteer has a good first experience, they are more likely to come back and even bring a friend.

Always show appreciation for their time and energy. Some organizations will even buy small gifts or hold an annual reception for volunteers.

Diversify Funding Sources

Most people have heard the adage “don’t put all your eggs in one basket.” When nonprofits rely too heavily on one type of grant or donor, they create a concentration that could potentially be detrimental if they lost this key revenue source. Most nonprofits already have a good handle on garnering cash donations from individuals and businesses, but here are some other sources that may not have been considered yet:

• One way of giving that is becoming more popular is making a charitable donation from a retirement account. Amounts attributable as qualified charitable distributions will not be included as taxable income to the individual.

• Non-cash gifts or trade can also be helpful for certain organizations.

• Charitable gift annuities are a good way to gain immediate revenue while offering tax advantages to the donor.

• Encourage people to name your nonprofit as a beneficiary in their wills or through tax-beneficial methods such as charitable remainder trusts. A good public image and mission will make this easier.

• Special events are a great way to generate additional revenue in a fun setting.  It is also an excellent way to have direct face time with donors.  Examples of popular special events include golf tournaments and annual galas.

Know the Rules

Nonprofits are highly regulated, and the rules are constantly changing. There are many annual filing requirements, and audits are a requirement for organizations with certain amounts or types of government funding. Regular communication with your accountants and attorneys is always a good place to start.

Additionally, consider sending certain staff to external trainings or seminars to help them stay on top of what they need to know to successfully perform their job.  Further nonprofit information can be obtained at www.mbkcpa.com/category/non-profit.

Mergers

While it is a word that some organizations dread, mergers can sometimes be a useful tool. Oftentimes, a region may have too much direct competition for resources, or a key executive director will retire or accept a position elsewhere. In instances where continuity seems troublesome, mergers can be an effective way for organizations of similar missions to come together for a common good.

Mergers can help centralize and combine resources, leading to a better financial position and the ability to spread the organization’s mission to a larger population.

In Conclusion

Running a fiscally successful nonprofit organization ultimately comes down to the quality of the people involved and the programs it operates. With knowledgeable employees, involved board members, and motivated volunteers, your nonprofit will be able to keep a positive public image and be in a good position to maintain the proper funding and regulatory compliance necessary to ensure future continuity and fiscal success. u

Chris Marini is a senior associate with the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3549; [email protected]

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Entrepreneurship

By Melyssa Brown

Melyssa Brown

Melyssa Brown

More than 627,000 new businesses open each year, according to the Small Business Administration, and entrepreneurship is a hot topic, especially here in the Pioneer Valley.

Local colleges have created centers and degrees around entrepreneurship, and organizations have been created to help startup companies prosper through coaching and education.

Whether you call yourself an entrepreneur or not, starting a business can be a significant challenge. Having an idea that inspires you is a good place to start. Once you have that, your passion for the business or its purpose is the most important factor to keep you pushing through the inevitable challenges and decisions that are ahead and are inherent to starting a business. The following helpful tips and guidance will provide resources to get you started down the right path.

The Business Plan

A business plan is a sales tool that should be considered as a first step in any business creation. It will help you raise money, get partners, and, most importantly, get people interested in your business.

Start by creating a document that describes your business inside and out. Describe your product or service. Your product description should take 30 seconds or less to explain. It should be simple and straightforward so that other people (even children) can understand and repeat it back to you. Lengthy or overly detailed pitches, while seemingly chock-full of great information, can actually be counterproductive and aren’t usually as effective at getting the attention of your audience.

Describe the product’s unique value proposition. What advantage does your product offer that no one else does? How is it different from other businesses? Also, describe the market opportunity by answering the following questions: how large is the market? How many total dollars are spent on similar products? How fast is the market growing? Who is your competition? Always remember to state who your customers are. Next, describe how you plan to generate revenue and sell your product or service.

Your customer may want the product or service, but who is actually paying for it? Is the customer paying subscriptions, or are you generating revenue via advertising from other businesses? Next, describe the business strategy or long-term vision. Where do you see the business in three, six, nine, and 12 months, and then in five to 10 years? Think of key metrics and set smart goals to help get you there and monitor your progress.

Describe who the management team will consist of to help you achieve the business strategy. You want qualified employees with relevant experiences to fill the needs of the business. Beware of simply bringing on friends and family — always ensure your team members understand your mission and objective, and not just their relationship with you personally.

A business plan should include projected financial information for the next three years. Explain the basic assumptions and key drivers behind your financial model. Revenue assumptions consist of the number of customers and how much will be charged for the product or service. Startup expenses may include lease/rent expense, building improvements (if needed), equipment, labor, supplies, and utilities.

There are certain costs when you start a business, and there is no negotiating some of it, such as safety precautions, filing fees, and fees for permits and licenses. However, you may be surprised by how many expenses you can cut or at least postpone — for example, using pre-owned equipment until you are making some sales.

Financial projections help determine how much outside financing you need to obtain. There are several financing options, including starting your business on the side while continuing to work full-time, working a part-time job until your business becomes established, waiting to start your business until you have saved up a financial reserve, and borrowing or raising funds, if necessary.

You may already be using the friends-and-family funding technique. Make it clear to them that the money is intended as risk capital, and they might lose it completely, or it may not be returned in the short term.

Technology has made asking the general public for donations and monetary support for a business commonplace. Crowdfunding is a form of finance that does not require repayment, and it will help you not only gauge interest in what you have to offer, but also help you build a customer base. Many times, the startup business will provide perks, such as free products or discounts, as a thank-you for the donations. Also, small-business grants are available from a number of resources, including state governments and private groups.

Although the grant-application process can be time-consuming, it is well worth it if you win the award. Also, even locally in the Pioneer Valley, there are investors and venture capitalists who are willing to fund a promising, high-risk startup business in exchange for a share of the business. They often bring experience, management expertise, and contacts to the table.

Prepare a business-plan deck to pitch to investors and venture capitalists. Create a PowerPoint presentation that addresses each of the major items in your business plan. Each item should have its own slide, and the presentation should be no longer than 15 slides. Begin with a high-level concept and brief, ‘grabby’ statement that sticks in the mind and most importantly tells a story.

Consider including a video of what the product or service does and how it interacts with customers. Investors and venture capitalists will want a preliminary valuation of the company. The valuation helps determine what share of the business you are giving up for what value. It can be a calculation of the future revenue (net earnings) of the business which then uses a discount factor to value it in today’s dollars. No matter which source you raise funds from, be sure to provide key operating, strategic, and accounting information to your financiers periodically.

Business Structure

The business structure can be impacted by your sources of financing. You can change the structure as the financing and business needs change. There are a few options to choose from, including sole proprietorships, general partnerships, limited-liability companies, C-corporations, and S-corporations, as detailed below.

• A sole proprietorship has no legal distinction between the owner and the business. It is a business of one person such as a lawyer, plumber, etc. There are minimal requirements, such as a business license.

• A general partnership is a joint business where the profit and debt are shared by general partners. A partnership agreement is created to dictate how the profit and debt are shared. For both sole proprietors and general partnerships, the business owner has primary personal liability.

• In a limited-liability company (LLC), owners are not personally liable for the debts of the business. LLCs are easy to use, have low setup fees, provide protection of the corporate veil, and are a pass-through tax entity.

• C-corporations are taxed separately from owners, the shareholders own stock in the business, and they require a board of directors who are hired by shareholders and are responsible for the business. C-corporations are perceived as providing the most protection between personal and corporate assets.  However, they may have double taxation upon the sale. Your salary is taxed at your personal rate, and business earnings are taxed at the corporate rate.

• In S-corporations, the business pays no federal taxes, and profit and losses are divided among the shareholders to be taxed at their personal rate. The number of shareholders is limited. Work with your accountant and lawyer to determine the best structure for your business.

Business Name

Determining the business name can be the most important and potentially challenging step. The right business name will help distinguish you from a sea of competitors, provide your customers with a reason to hire you, and aid in the branding of your company. Your name projects your image, brand, and position in the marketplace, so consider your mission statement, your business plan, and your unique selling proposition, and don’t forget to think about your target audience.

The more ideas you generate, the more possibilities you will have to choose from. You may want to conduct a series of brainstorming sessions or use a free business-name generator, such as Biznamewiz, Name Thingy, or Naming.net. Avoid wordplay dangers, and if you want a local name, add it to your marketing materials, such as “exclusively serving the (town) area.” Lastly, put your business name through the spelling test and ask others to spell it.

Once you have chosen a name for your business, you will need to check if it’s trademarked or currently in use. Search the federal database of the U.S. Patent and Trademark Office. You should also run a series of searches with Google and other search engines for your desired business name to make sure there isn’t another company already using your name. Then, you will need to register it with your county or state office. Also, don’t forget to register your domain name once you have selected your business name. Your website address should be the same as your business name.

Licenses and Permits

For a list of licenses and permits, go to the Small Business Administration (SBA) website. The SBA has compiled state-by-state information on small-business registration and license and permit information. Also, obtain a tax/employer identification number from the IRS.

Accounting System

An accounting system is necessary in order to create and manage your budget, track your actual results, set your rates, conduct business with others, and file your taxes. You can set up your accounting system yourself or hire an accountant to take away some of the guesswork. This should include opening a business checking account. Also, understand employer regulations such as new-hire reporting, employer corporate and payroll tax responsibilities, minimum-wage laws, workers’ comp, unemployment insurance, and health-insurance laws.

Lastly, get training and have a support network, which may include family, friends, colleagues, a mentor, a coach, and anyone else who can help you navigate roadblocks and be a successful entrepreneur. When you have an effective support system in place, you will find that you have a cheerleader, consultant, moral support, and even a devil’s advocate when necessary. Continually review and update your business plan and question its key assumptions by using a SWOT (strengths, weaknesses, opportunities, and threats) analysis of the business.

Melyssa Brown, CPA is a senior manager with the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3484; [email protected]

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Be Ready to Launch

By Carolyn Bourgoin, CPA

 

Carolyn Bourgoin

Carolyn Bourgoin

Crowdfunding has become a popular vehicle to raise money for personal, charitable, or business endeavors due to its ease of use and accessibility. However, many businesses and individuals who enter into a crowdfunding campaign have not considered potential tax implications prior to launching a campaign.

Here’s how it works. Websites such as Kickstarter, Indiegogo, and GoFundMe provide a forum for persons seeking funds (i.e. project initiators) to present their project or products in order to attract potential contributors, referred to as ‘backers.’ Project initiators may offer contributors rewards of nominal value, such as T-shirts, in exchange for a contribution, while others may offer sample products or rewards based on the level of contribution.

Campaigns can be set up with a fixed funding goal where the project initiator receives contributions only if funding goals are met, or with flexible funding goals that allow the initiators to keep funds even if the funding goal is not met. The websites charge initiators a fee per transaction; fixed funding goal campaigns are charged a lower fee.

Contributions are made via credit cards, so the crowdfunding websites often use financial intermediaries like PayPal or Amazon Payment to track the credit-card transactions. If more than 200 separate transactions worth more than $20,000 are generated by a campaign, the intermediary has to file a Form 1099-K to report the proceeds. Though a 1099-K is not required in many cases, this does not mean that the funds received are excludable from the recipient’s taxable income.

Tax Treatment of Crowdfunding Revenues

Under general income-tax principles, gross income is broadly defined to include income from all sources. Only items specifically exempt can be excluded from income. Based on these principles, most crowdfunding revenues will be includible in the recipient’s gross income unless he or she can show that the funds are excludible as: (1) contributions to capital in exchange for an equity interest in the entity, (2) loans that must be repaid, or (3) gifts made with donative intent where the donor does not receive a tangible economic benefit in return for his contribution.

Proceeds from donation-based campaigns may qualify as non-taxable gifts if the funds are for the benefit of an individual or a public charity, depending on the purpose and intent of the payment. For instance, if a campaign is to help an individual with unanticipated medical bills due to a tragedy, then the contributions might qualify as a gift. Where a gift exceeds the annual gift-tax exclusion of $14,000 (2016 exclusion amount), the donor may have a gift-tax filing responsibility.

Whether the proceeds from a reward-based campaign should be included in the recipient’s gross income is more difficult to determine because the value of the ‘reward’ must be determined. Crowdfunding often involves the project initiator providing a new product to the contributor in exchange for their ‘contribution.’ If the reward given to the contributor equals or exceeds the amount of the pledge, then the full payment is considered gross income to the recipient.

In essence, the contributor has paid for the reward, and there is no donative intent. Where the value of the reward is less than the ‘contribution,’ then the difference between the contribution and the value of the reward must be evaluated to determine whether it qualifies as a gift or some other type of contribution. In this situation, only a portion of the payment received by the recipient may be characterized as gross income.

Newer to the crowdfunding scene are equity-based campaigns, where crowdfund contributors are provided with an ownership stake in a startup venture in exchange for their contribution. These payments are a contribution to capital and are not gross income to the startup entity. However, there may be tax implications to the investor depending on the valuation of the interest, which is beyond the scope of this article.

Tax Treatment of Crowdfunding Expenditures

Once it has been determined that crowdfunding revenues should be included in federal gross income, the project initiator must determine what expenses, if any, are deductible. A detemination must be made whether the activity is a trade or business or a hobby. Distinguishing between the two is based on a fact-and-circumstances determination that looks to a series of nine factors.

In addition, the timing of when crowdfunding expenditures may be deducted can be an issue. The crowdfunding activity must be considered an active trade or business for the expenses to be eligible for deduction.

Tax Treatment of Contributions to Crowdfunding Campaigns

The tax treatment of a contribution made by a backer to a crowdfunding campaign depends on the motive of the backer as well as whether he or she receives anything in exchange for the payment. If the backer is making a campaign contribution out of disinterested generosity and does not receive anything in return, he has most likely made a gift. Only if the gift is to an approved public charity will it be deductible as a charitable contribution. A gift to a private individual seeking funds is not going to qualify as a charitable contribution even though it may be to help defray medical costs.

Contributions made to a campaign where the contributor receives goods or services of equivalent value in return are not tax-deductible. If a backer wants to make a significant contribution to a cause or project, it may be worth consulting with an advisor as to whether there are more beneficial or efficient ways to provide support.

Other Tax Issues

State and local taxes as well as sales and use taxes are other areas of concern for crowdfunding campaigns. Advance consideration should also be given to the most beneficial accounting method and best form of doing business for project initiators in a startup trade or business. Proper planning before entering into a crowdfunding campaign can help avoid undesirable tax consequences and surprises to project initiators.

Carolyn Bourgoin, CPA is a senior manager with Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3483; [email protected]

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Finance

  By RACHEL CURRY

With year-end fast approaching, taxpayers are looking for any deduction available in order to minimize their personal income taxes. If you have young children, childcare may be one of the highest deductible expenses you will encounter.

Most individuals have a requirement to file a tax return annually, and if you have young children, the likelihood is that you have paid some form of child-care expense throughout the year. If this applies to you, then you may be eligible to enroll in an employer-sponsored cafeteria plan (also known as a Section 125 plan), or you may receive a federal tax credit against your federal tax owed at the end of the year. In order to decide which benefit would be the best option for your situation, you need to know all the details. With either option, it is important to note that, if you are married, both spouses need earned income, and the child must be 12 years old or younger and your dependent.

A cafeteria plan is a benefit that may be provided by your employer. This would allow you to contribute up to $5,000 per year of pretax earnings into a specific, employer-controlled account. This account would then be used to reimburse you for any dependent-care expenses. A cafeteria plan allows you to reduce your gross income, which in turn reduces the amount you pay in federal, Social Security, and some state taxes.

Unless your employer specifically states otherwise, the money in your cafeteria account at the end of the year will be lost. This is an important factor to think about when deciding how much to contribute into this specified account. Another consideration is the cash-flow effect. Your salary is reduced, but you must provide proof of payment of daycare expenses to receive the reimbursement. You want the total amount contributed to not exceed the expenses you pay out throughout the year. This way, you are maximizing the benefits of having this type of plan.

Since the amount you contribute to the cafeteria plan is not included in your wages, you will see a separate line item on Form W-2, Box 10 that states ‘Café 125.’ You would report the W-2 wages as seen on the form, and since you already received a pre-tax benefit from being enrolled in this plan, you may not be eligible to also receive an additional credit on your taxes for the expenses paid through this plan. You are required to file a Form 2441, which is explained later in this article.

If your employer does not offer a cafeteria plan, there is another dependent-care option available in the form of a personal federal tax credit. Similar to the cafeteria plan, this credit has specific guidelines that need to be met in order to receive the total credit. As mentioned above, you must have earned income, which includes wages, salaries or tips, and self-employment income. If you are filing a joint tax return, your spouse must also have earned income. If you are out of work for a period of time but are actively looking for a job, you may still be eligible for the credit.

If you believe the credit may apply, you should provide your tax professional with a list of all applicable expenses. Be sure to note that expenses may include day care or education costs below kindergarten. These expenses are for the care of the child. The credit is equal to 20% to 35% of the total qualified expenses. The percentage of the total expenses that you can deduct depends on your adjusted gross income. The maximum amount of qualified expenses you’re allowed to use to calculate the credit is $3,000 for one qualifying person and $6,000 for two or more qualifying persons. To claim this credit on your tax return, you must complete Form 2441: Child and Dependent Care Expenses and attach it to your Form 1040. On this form you must disclose the name, address, and taxpayer identification number of the individual or organization that is providing the care. It is important to keep supporting documentation in your records in case of an IRS inquiry. If the information is incorrect or incomplete, your credit may not be allowed.

In conclusion, taxpayers with taxable income that is taxed at a rate higher than 20% (married filing joint $74,900, single $37,450) are more likely to obtain greater benefit from a cafeteria plan than taking the tax credit. Another additional benefit of the cafeteria plan is the Social Security tax savings on the amount contributed to the plan. When you receive a credit on your tax return, this also means you are reducing your tax, not receiving an actual refund.

When you are enrolled in a cafeteria plan, you are getting the benefit of reducing your taxable wages before you even begin to prepare your tax return.

If you have any questions, be sure to contact your tax professional.

Rachel Curry is a tax associate with the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3488; [email protected]

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Business Law: Marking a Milestone

By OLGA M. SERAFIMOVA, Esq.

Olga Serafimova

Olga Serafimova


July 26 marked the 25th anniversary of the passage of the Americans with Disabilities Act (ADA) — landmark legislation that created rights for individuals with physical and mental disabilities in employment, government facilities and services, places of public accommodations, telecommunications, and transportation.

In recent years, employers have seen a significant increase in discrimination litigation under the ADA and its state law counterpart, M.G.L. c. 151B. According to the Equal Employment Opportunity Commission (EEOC), the federal agency responsible for the enforcement of the ADA’s employment provisions, over the past 10 years there has been a fast and steady increase in the number of charges filed with the EEOC premised on disability discrimination, from about 19% of all charges in 2004 to almost 29% by 2014. This increase is particularly noticeable since the 2008 amendments to the ADA went into effect, which significantly expanded the medical conditions that qualify as disability for purposes of the act.

The same bears true with regard to complaints filed before the Mass. Commission Against Discrimination (MCAD), the agency that enforces c. 151B. Specifically, since at least 2008, disability discrimination claims have been present in approximately one third of all complaints filed with the MCAD, resulting in more than 1,000 disability complaints each year. For example, last year, of the 3,127 complaints filed with the MCAD statewide, 1,187 contained at least one count of disability discrimination.

Given these statistics, it is absolutely crucial for businesses to be familiar with the responsibilities imposed upon them by the state and federal disability anti-discrimination statutes.

In the employment context, there are four types of possible disability discrimination claims: (1) disparate treatment; (2) failure to accommodate; (3) hostile work environment; and (4) retaliation.

A disparate-treatment claim alleges that a disabled person is treated differently (less favorably) than non-disabled co-workers solely because of the person’s disability. The difference in treatment does not have to come from a malicious place to be unlawful and may constitute a less-obvious omission, such as the failure to consider someone for a promotion or to offer training necessary for advancement.

Disparate treatment claims are most often brought by employees who are currently suffering from a serious physical or mental impairment. In addition to apparent disabilities, such as an inability to see, hear, speak, or walk, employees with latent physical afflictions, such as diabetes, disc herniation, cancer, and HIV/AIDS, may also be covered. Employees diagnosed with a wide spectrum of mental disabilities may also be protected, including, for instance, major depression, ADHD, and bipolar disorder.

Many employers are unaware of the fact that disability-discrimination claims may also be brought by employees who are not currently disabled. Specifically, a disparate-treatment claim may be brought by an employee with a past history of a serious medical impairment, as well as by a healthy employee who, for one reason or another, may be perceived by his or her employer as disabled.

Also, under what is known as “associational discrimination,” an employee who is closely associated with a disabled individual, such as a spouse or a child, is likewise protected from discrimination.

The second type of disability discrimination — failure to accommodate — is perhaps the most complicated area of the law. Employers must provide reasonable accommodations to employees who are actually disabled. The most important thing for employers to know is that, once a request for an accommodation is made or the need for one becomes apparent, an employer must engage with the employee in what is called the “interactive process.”

This process can be as simple as a conversation aimed at finding out what accommodation is necessary and sufficient to permit the employee to perform the essential functions of his or her job. Employers should also keep in mind that taking too long to engage in this process or to grant a request for a reasonable accommodation can likewise lead to litigation and result in liability. Lastly, while there is an exception for requests that would put an undue financial burden on the employer, this standard is very hard to meet, and so the exception should rarely be relied upon.

As suggested by its name, a hostile-work-environment claim alleges that an employee who is disabled is subjected to an abusive work environment by others in the workplace. The law prohibits speech or conduct that is severe or pervasive and not merely unpleasant or uncivil. Nevertheless, employers are well advised to take all complaints of harassment seriously in order to reduce the risk of litigation.

Lastly, in retaliation claims, employees most often allege that they were fired in retaliation for either requesting a reasonable accommodation or speaking up about what they believe to be discrimination. Employers should know that conduct short of a termination, such as a reduction in hours or a change in shifts, may also result in litigation if perceived by the employee as retaliatory.

One way employers can reduce their risk of litigation is to have a well-trained management team. Supervisors need to know how to recognize requests for accommodations and how to handle complaints of harassment. Good documentation is also crucial. Oftentimes, employers find themselves defending against a disparate treatment or retaliation claim after taking well-deserved disciplinary action towards an employee. In these situations, a written record of poor performance, attendance, or other employment issues and a documented consistency in application of policies will make all the difference.

Olga M. Serafimova, Esq. is an attorney at Royal LLP, a woman-owned, boutique, management-side labor and employment law firm. Royal LLP is a certified women’s business enterprise with the Mass. Supplier Diversity Office, the National Association of Minority and Women Owned Law Firms, and the Women’s Business Enterprise National Council; (413) 586-2288; [email protected]

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To Avoid That Fate, Do Battle with Your Assumptions

By JOHN GRAHAM

Selling is never easy. Never. But salespeople often make it even tougher for themselves by letting customers get away empty-handed. It isn’t that customers don’t find what they want or what they’re looking for. It’s just that they don’t want to deal with the salesperson.

With the 800-pound Internet gorilla lurking over every sale, today’s customers are much more demanding when dealing with salespeople. If the experience doesn’t meet their expectations, they’re gone.

More often than not, misreading customers causes them to look elsewhere—missed sales. It doesn’t need to happen and here’s how to avoid it:

1. Be sure you’re speaking with the right “customer.” Wrapped up in every customer is a handful of different customers, who behave differently depending on the situation. The first job is figuring out which of these customers you’re dealing with at the moment so you can respond correctly. Here they are:

• The “I want to know more” customer. This individual requires patience, so ask clarifying questions and get them talking. Don’t push, but gently pull them along until they’re comfortable.
• The “I have all the answers” customer. Let this customer talk and tell you all about it; don’t cut them off. This person wants to be the salesperson so let them feel they made the buying decision on their own.
• The “I know what I want” customer. By listening carefully to these customers, you may find inconsistencies in their thinking. Then by asking them follow up questions, these customers may recognize that what they thought they wanted was not a good idea after all.
• The “I can’t make up my mind” customer. Here, the salesperson becomes a resource, offering options and comparisons and making note of the customer’s responses so the person can recognize the best solution.

By making sure you’re talking with the right customer, salespeople take a big step toward making the sale rather than losing it.

2. Think individuals, not groups. Even though everyone is unique, we lump people into groups — doctors, servers, business owners, blue collar, boomers, Gen Z, old people, Hispanics, and on-and-on. In reality, we know that all Hispanics, accountants, or electricians are not the same.

For example, out of the nearly 80 million 18 to 35 year-old Millennials, there’s a segment of 6.2 million with an annual family income of $100,000 or more. They’re the affluent Millennials and they’re quite different from the other 62 million non-affluent Millennials of the total group.

According to a study, Money Matters: How Affluent Millennials are Living the Millennial Dream, this group is in a second phase. “Compared to non-affluent Millennials, affluent Millennials over index when it comes to changing jobs, buying a home, and making home improvements in the last 12 months,” and they also “over index when it comes to expecting a child in the next 12 months,” states FutureCast, the study sponsor.

It’s clearly good to be cautious when making marketing and sales assumptions about any group. Basing decisions on opinion, inaccurate information, or hearsay leads to misreading customers — and missed sales.

3. Don’t stop with first impressions. A marketing manager called about meeting to talk about working with his company. After a 400-mile drive, he arrived in a near-ancient pick up truck, wearing ragged jeans, a wrinkled shirt, and dirty boots. There was little doubt about that first impression: the meeting was going to be a waste of time.

Not recognizing it, we instantly pigeonhole customers — and that can be a mistake. First impressions may not tell the whole story. The man in the dirty boots is a good example. He was for real; his company became our largest account.

Never get carried away with first impressions, and be prepared to discard those that don’t fit.

4. Always offer options. There’s a lot to learn from companies that do a great job capturing customers by offering options. The Honda Accord, for example, comes in several models, each with a basic price: LX, Sport, EX, and EX-L. Choices engage customers so they don’t go away.

To be effective, options must be realistic and not so many that they become confusing or frustrating to customers. A financial advisor may present three scenarios for a client’s consideration, while a real estate agent may show a client several styles of homes. Options should create discussion and further interaction.

5. Don’t tell customers what to think. “Do you love it?” asked the interior decorator after delivering the reupholstered sofa cushions. The couple murmured a few words, “It’s bright and different.” But at that moment, one thing was certain; they didn’t love it.

Far too often, salespeople make the mistake of trying “to guide” customers, tell them what to think: “This a great buy.” “Isn’t this a perfect floor plan for your family?” “Don’t you just love the color?” “This is going to look great in your home.”

Customers want help and suggestions, but they don’t want salespeople telling them what to think. When that happens, it’s a turn off.

6. Forget about customer loyalty. It’s only human to believe that we have loyal customers. When some leave, we make excuses as to why they left. It’s tough seeing customers leave. It’s as if they are rejecting us. It negates everything we’ve done for them. Breaking up is painful, particularly after making customer care a top priority and bending over backwards to satisfy them.

We think that customers show their appreciation by being loyal to a company, brand, or salesperson. However, what we label as loyalty may be something quite different. It may be nothing more than convenience, price, laziness, inertia, or habit. Nothing more.

In other words, customer loyalty is an illusion. It lets us think the interchange with customers should result in their loyalty — and that’s a big mistake. Today, nothing — absolutely nothing —stands in the customer’s way from getting what the customer wants, the way the customer wants to get it, and where they want to get it.

We misread customers and lose them when we expect their loyalty. Our task is to focus on doing everything possible to give them a great experience. That’s the only reward that counts.

Misreading customers costs sales. To prevent this from happening, it takes doing battle with our assumptions, particularly those that influence how we think about customers and what we expect from them.

John Graham, of GrahamComm, is a marketing and sales strategist-consultant and business writer. He publishes a free monthly eBulletin, “No Nonsense Marketing & Sales Ideas.” Contact him at [email protected], (617) 774-9759; johnrgraham.com

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EEOC Targets Gender Discrimination Against Transgender Individuals


By KARINA L. SCHRENGOHST, Esq.

Karina L. Schrengohst

Karina L. Schrengohst


Discrimination based on transgender status or gender identity is a developing area of employment law.

Some states, including Massachusetts, have recognized gender identity as a protected class under state anti-discrimination laws. Federal courts are increasingly finding that laws prohibiting gender discrimination apply to transgender individuals. In the past year, the Equal Employment Opportunity Commission (EEOC), the federal administrative agency responsible for enforcing Title VII of the Civil Rights Act of 1964, the federal law prohibiting, among other things, sex (gender) discrimination in the workplace, has filed the first three lawsuits ever filed by the EEOC alleging sex discrimination against a transgender individual.

The EEOC has identified sex discrimination against lesbian, gay, bisexual, and transgender individuals as an enforcement priority. Citing a 2011 UCLA study, Mary Jo O’Neill, regional attorney for the EEOC Phoenix District Office, stated that “78% of transgender employees nationwide reported harassment or mistreatment at work because of their gender identity.”

On Sept. 25, 2014, the EEOC filed the first lawsuit alleging that a transgender employee of a Detroit funeral home was fired two weeks after telling her employer that she was transitioning from male to female. (See EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., Civ. No. 2:14-cv-13710.) That same day, the EEOC filed a second lawsuit alleging that a transgender employee of a Florida eye clinic was fired after she began to present at work as a woman and informed her employer she was transitioning from male to female; in April 2015, this case was settled for $150,000. (See EEOC v. Lakeland Eye Clinic, P.A., Civ. No. 8:14-cv-2421.)

Most recently, early last month, the EEOC filed a third lawsuit alleging that Britney Austin, a long-term and satisfactorily performing transgender employee, was subjected to sex discrimination by her employer, Deluxe Financial Services Corp., a check-printing and financial-services corporation. (See EEOC v. Deluxe Financial Services Inc., Civ. No. 0:15-cv-02646.)

Specifically, the EEOC alleges that, after Austin began to present at work as a woman and told her supervisors that she was transgender, her employer refused to let her use the women’s restroom. In addition, it is alleged that Austin’s supervisors and co-workers subjected her to a hostile work environment, including making derogatory statements and intentionally referring to her by the wrong gender pronoun.

Commenting on this case, Rayford Irvin, district director for the EEOC’s Phoenix District Office, noted that “a long-term, well-respected employee should not be rewarded for her years of dedicated service by being forced to face the indignity and danger of using a restroom inconsistent with her gender identity, simply because a company’s management subscribes to sex stereotypes and believes co-workers may feel uncomfortable.”

This case is similar to the most recent EEOC decision involving sex discrimination against a transgender individual. On April 1, 2015, the EEOC ruled that denying employees use of a restroom consistent with their gender identity and subjecting them to intentional use of the wrong gender pronouns constitutes sex discrimination in violation of Title VII. (See Lusardi v. McHugh, Appeal No. 0120133395.)

This litigation follows the landmark case of Macy v. Bureau of Alcohol, Tobacco, Firearms and Explosives. Mia Macy, a transgender woman, filed a complaint against ATF alleging employment discrimination in violation of Title VII.

Macy applied for a job as a ballistics technician with ATF. After a telephone interview, Macy was informed that she would be hired if she passed the background check. However, after learning that Macy was transitioning from male to female, ATF informed her that the position was no longer available due to budget cuts. Macy later learned that ATF hired someone else for the position.

On April 20, 2012, the EEOC, for the first time, concluded that discrimination against a transgender individual because that person is transgender is gender discrimination prohibited by Title VII. The EEOC stated that gender discrimination occurs when “an employer discriminates against an employee because the individual has expressed his or her gender in a non-stereotypical fashion, because the employer is uncomfortable with the fact that the person has transitioned or is in the process of transitioning from one gender to another, or because the employer simply does not like that the person is identifying as a transgender person.” (See Macy v. Department of Justice, Appeal No. 012012082.)

Following the EEOC’s decision, the Department of Justice investigated and, on July 8, 2013, found that ATF discriminated against Macy based on her transgender status.

The year before Macy filed her complaint with the EEOC, Massachusetts became the 16th state to prohibit discrimination on the basis of gender identity. An Act Relative to Gender Identity (also known as the transgender equal-rights law), which was effective July 1, 2012, prohibits private employers with six or more employees from discriminating against applicants and employees on the basis of gender identity. Under Massachusetts law, gender identity is defined as “a person’s gender-related identity, appearance, or behavior, whether or not that gender-related identity, appearance, or behavior is different from that traditionally associated with the person’s physiology or assigned sex at birth.”

Massachusetts state and federal law prohibit discrimination based on gender, transgender status, and gender identity. This means that employers may not make decisions regarding hiring, promotion, termination, and other terms and conditions of employment based on an applicant’s or an employee’s transgender status, gender identity, or perceived non-conformity with gender stereotypes.

To reduce the risk of litigation, employers should ensure that their policies and practices are compliant with state and federal law. Also, employers should educate employees that discrimination and harassment based on transgender status and gender identity is unlawful and will not be tolerated in the workplace.

In addition to ensuring that policies related to discrimination and harassment are compliant with state and federal law, as a proactive measure, employers should consider implementing written policies and guidelines for managing gender transition, which address use of gender-specific facilities such as bathrooms and locker rooms, dress code and appearance standards, confidentiality and privacy rights, and updating personnel records. Employers should also consider working with transgender employees to develop individual plans for workplace transitions.

Finally, employers should train their managers and supervisors on how to respond when employees approach them regarding gender transition and how to address questions and reactions from co-workers. Because this is a developing area of the law, employers would be wise to consult with their employment-law counsel when issues arise in the workplace concerning transgender employees.


Karina L. Schrengohst, Esq. is an attorney at Royal LLP, a woman-owned, boutique, management-side labor and employment law firm. Royal LLP is a certified women’s business enterprise with the Massachusetts Supplier Diversity Office, the National Assoc. of Minority and Women Owned Law Firms, and the Women’s Business Enterprise National Council; (413) 586-2288; [email protected]

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The Tax Rules of the Road Are Different for Each Category

By TERRI JUDYCKI

Terri Judycki, CPA, MST

Terri Judycki, CPA, MST

The decision to purchase a second home can be based on many factors — an investment opportunity, a favorite vacation spot, or a desirable residence for future retirement, to name just a few.

Many decide to rent the home in order to offset some of the ownership and maintenance costs. It is important to understand the tax consequences that result from mixed personal/rental use of the property. 

Depending on usage, a property with mixed use can be categorized as one of the following:

• Personal residence, if rented out for fewer than 15 days during the year;
• Vacation home, if rented out for more than 14 days and if personal use exceeds the greater of 14 days or 10% of the days rented; or
• Rental property, if personal use does not exceed the greater of 14 days or 10% of the days rented. 

It is important to note that a property can be categorized differently from one year to the next. 

A personal residence that is used for personal purposes for more than 14 days but rented for fewer than 15 days is treated as solely a personal residence. The income is not taxable, and expenses are not deductible, other than the taxes and qualified residence interest that may be deductible on Schedule A.

If the property is rented for more than 14 days and personal use exceeds the greater of 14 days or 10% of the rental days, rental income and allocable expenses are reported on Schedule E. Deductions (other than taxes and qualified residence interest) are limited to rental income, and ordering rules apply to determine which expenses are allowable.

Gross rental receipts are reduced by costs to obtain tenants, such as commissions and advertising. Expenses are then allocated between personal and rental days. For example, if the property is rented for 75 days and used personally for 25 days, then one-quarter of the expenses are personal and three-quarters are deductible as rental expenses. The expenses allocated to rental use are considered in the following order: (1) expenses that are deductible whether or not the property is rented, such as taxes and qualified residence interest; (2) operating expenses, other than depreciation; and (3) depreciation.

Expenses in the second and third categories may not create a loss. Any such expenses disallowed due to the income limitation may be carried forward to future years until there is sufficient rental income. The taxes and qualified residence interest allocated to personal use are deductible on Schedule A, subject to limits. Note that there is a conflict between the IRS and the Tax Court concerning the proper allocation of taxes and interest. Because taxes and interest are incurred regardless of use, the Tax Court has allowed taxpayers to pro-rate those expenses over the entire year.

Property that is rented and has personal use that does not exceed the greater of 14 days or 10% of the days rented is not considered a residence under tax rules; it is considered rental property. While expenses must still be allocated between personal and rental days, there are no ordering rules for expenses, and expenses are not limited to income. Passive-activity-loss rules may limit the use of any loss for a particular tax year.

The taxes attributed to personal use may still be deducted on Schedule A, but the portion of mortgage interest allocated to personal use may not be deducted on Schedule A, because the property is not considered a residence. This may be a tax trap, depending on the size of the mortgage. If the interest allocated to personal use is significant, it may be beneficial to use the property personally for more than the greater of 14 days or 10% of the rental days. 

Because tax treatment depends on the mix of personal and rental use, it is important to understand how tax law defines ‘personal use.’ In determining personal use, in addition to the days of use by the owner, days used or rented by anyone at less than fair rental must be included. Rental to a family member, even at fair rental, is considered personal use unless the property was used as the family member’s principal residence. Days the taxpayer spends repairing and maintaining the property on a full-time basis are not counted as days of personal use. 

Timeshare units have additional complications. Personal use by other owners, such as other timeshare owners, is included in determining the extent of personal use. This rule makes it almost certain that timeshares will never be considered rental property.

Personal usage by all the unit owners will almost always be sufficient to cause all the owners to be subject to vacation home rules and limitations. Also, in order to qualify for as a residence with fewer than 15 days rent, the rental days for all the unit owners must be fewer than 15 days, again making it almost impossible to qualify for that exception.

However, in determining whether the mortgage interest can be deducted as qualified residence interest, the taxpayer need only determine whether his or her personal use exceeds the greater of 14 days or 10% of the individual owner’s rental days. Due to a special rule governing mortgage-interest deductions, if the unit is not rented at all, the mortgage interest may be deductible on Schedule A, provided all the other requirements are met. 

While an owner’s use of property is normally driven by non-tax considerations, it is important to understand how choices will affect tax consequences. Because each taxpayer’s situation is different, determining how changes in use will affect taxes requires individual analysis.

If you have questions regarding the status of your second home or are planning to purchase a second home that may see mixed use, be sure to speak with your tax professional.


Terri Judycki, CPA is a tax senior manager with the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3510; [email protected]

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Consider the Many Options with IRAs

By KEVIN E. HINES, CPA, MST, CVA, CSEP

Kevin Hines

Kevin Hines

It’s a common belief that Social Security benefits alone will not be enough to fund your retirement, these benefits will most likely diminish over the years as the need grows, and you will need to supplement them with other income, whether through part-time work or retirement savings.

It is a given that, if you can contribute to your employer’s retirement plan, you should do so. At a minimum, you should participate with your employer so that you can maximize any company matching, since this is newfound money. This article will explore other options beyond employer retirement plans.

Traditional IRA

The IRA began back in 1974 when it was first added as a tax-advantaged investment (deferral of taxes until withdrawal). Current rules allow you to make annual tax-deductible contributions up to $5,500 (and an additional $1,000 if you are over age 50); these can be made before April 15, 2015 for calendar year 2014. There are certain restrictions for which taxpayers can take the deduction.

If you can participate in your employer plan and your income levels are higher than threshold amounts (single taxpayers with income in excess of $129,000 and married filing jointly with income in excess of $191,000), you may be limited in the amount of your deduction. An additional requirement is that you have earned income that equals or exceeds the amount of the contribution. Examples of earned income would be W-2 wages, sole-proprietorship income, or partnership pass-through income subject to self-employment taxes.

Advantages of an IRA

There are several advantages to having an IRA or some other tax-advantaged retirement plan:

• You are able to invest more dollars because the investment is on a pre-tax basis;

• The earnings are tax-deferred as well; and

• Taxes are paid only when you withdraw the funds down the road. The common thinking is that, at retirement, you should be in a lower tax bracket and, therefore, pay less in taxes. This thinking may need to be re-evaluated in the future based on where the tax law is heading.

Disadvantages of an IRA

It is only fair to consider the negative attributes as well as the good:

• If you should withdraw the funds before age 59 1/2, there could be a penalty for early withdrawal of funds; and

• You will pay at ordinary tax rates when the funds are withdrawn and possibly lose out on the preferred tax rates of capital gain and qualified dividends, which are taxed at lower rates.

Spousal IRA

As required by tax law, you must have earned income in order to contribute to an IRA. There is one exception to this rule. Should your spouse have earned income, you may treat a portion of his or her earnings as your earnings. This will allow a spouse to contribute to his or her own IRA separate from the working partner. This would be the same for traditional and same-sex marriages recognized by your home state.

Non-deductible IRA

If you are not eligible to take advantage of the tax-deductible IRA (for reasons mentioned above), you still can put money into your IRA. Keep in mind that one of the advantages is the tax deferral on the earnings held within an IRA even if you miss out on the tax deduction.

IRA Payouts

There are a number of considerations when planning for IRA withdrawals:

• If you make a withdrawal from an IRA before age 59 1/2, generally there will be a 10% penalty, in addition to the withdrawal being included as taxable income. There are a number of exceptions to this for hardship causes, but generally, it is not a good idea to withdraw funds until after this age;

• You may defer withdrawals until age 70 1/2. It is generally an advantage to defer the payment of tax as long as you can. This will allow for more funds (the funds you would have paid in taxes) to be invested longer; and

• Should one spouse pass away, you may elect to defer taking into income the IRA funds by completing a spousal rollover and deferring the income until a later date.

Roth IRA

In 1997, along came the Roth IRA. This IRA involves a different approach to investing one’s retirement funds.

The Roth does not allow for an income-tax deduction when you contribute funds. The benefit is that, under current tax law, you will not pay any income tax on the withdrawal of the funds, both income and contributions, provided that you do not withdraw within the first five years and you are older than age 59 1/2.

Best of all, you are not required to begin withdrawing funds during your lifetime if you so choose. As you consider these Roths, think estate planning.

Consideration of Roth Rollover

Beginning in 2010, any taxpayer may take funds out of an IRA account and roll them over into a Roth IRA. The disadvantage to this practice is that you must pay income taxes up front on funds being rolled over. However, the estate-planning opportunities are significant in the right situation.

Consider the following example. Grandparents roll their funds into a Roth IRA and pay the tax up front. They name their grandchildren as beneficiaries. This might allow the funds to continue to accumulate during the remainder of the grandparents’ life and then be drawn down over the following 20-plus years tax-free by the grandchildren. This is real planning, especially if you don’t need the funds during your lifetime.

Consult with a Professional

This topic is a very complex area of income tax and estate planning and is fraught with peril. Consider seeking a tax or estate professional to sit with you and review your situation, particularly because each situation is unique.


Kevin E. Hines, CPA, MST, CVA, CSEP, is a partner with Meyers Brothers Kalicka, P.C., with specialties in business valuations, estate planning, and taxes; (413) 536-8510.

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Employers Should Heed Social-media Rulings

By PETER VICKERY, Esq.

What should you do if an employee ‘likes’ a Facebook post that accuses you of dishonesty? The answer may surprise you.

Peter Vickery

Peter Vickery

Are you on solid legal ground if you peruse a job applicant’s blog? The answer to that question could change, depending on what happens in the next session of the state Legislature. Employers interested in staying on the right side of social-media law should know about two recent decisions from the National Labor Relations Board (NLRB) and one state-level proposal that would further limit the ability to screen job applicants here in Massachusetts.

Let’s start with the federal decisions. Section 7 of the National Labor Relations Act (NLRA) protects employees who are engaged in “concerted activity for the purpose of collective bargaining or other mutual aid or protection.” It applies to unionized and non-unionized workplaces alike, so long as the business falls under the jurisdiction of the NLRB.

In the last four years, the NLRB has issued three reports on the extent to which the act protects employees’ online statements, and earlier this year it decided two cases that between them answer some questions about how far employers can go in protecting their businesses from the damaging effects of employees’ social-media activities. The first case involves Facebook’s ‘like’ button.

What’s Not to Like?

Can a series of public, profanity-laced Facebook comments accusing the employer of incompetence and dishonesty constitute protected concerted activity? Yes, says the NLRB. What about clicking ‘like’ to show you approve of a comment-forming part of the discussion? Is that a protected Section 7 right? Yes, it can be.

Ralph DelBuono and Tommy Dadonna own Triple Play Sports Bar and Grille in Watertown, Conn. They produced an employee handbook that contained a policy about online conduct. The policy warned employees that they would be subject to disciplinary actions for engaging in “inappropriate [online] discussions about the company, management, and/or co-workers.”

In early 2011, Triple Play’s owners learned that some of their employees were worried that they might owe more in state taxes than anticipated, so DelBuono and Dadonna decided to call a staff meeting. A week or so before the scheduled staff meeting, a Facebook discussion took place, initiated by a former Triple Play employee, Jamie LaFrance. That online conversation led to a decision from the NLRB, Three D, LLC d/b/a Triple Play Sports Bar and Grille (Aug. 22, 2014).

By way of status update on Facebook, LaFrance alleged that Triple Play’s owners “can’t even do the paperwork correctly” and that, as a result, she owed taxes to the state. She concluded her status update with a profanity. A Triple Play customer posted a comment, which also included a profanity.

One current Triple Play employee, a cook named Vincent Spinella, then ‘liked’ LaFrance’s status update. LaFrance posted an additional statement about DelBuono, saying “he’s such a shady little man. He prolly [sic] pocketed it all from all our paychecks.” At that point Jillian Sanzone, a current Triple Play server and bartender, joined the conversation, stating “I owe too. Such an a—hole.” Two other Triple Play employees participated in the discussion as well.

The employers learned about the Facebook discussion and discharged Sanzone. After asking Spinella why he had ‘liked’ the status update, and concluding that he approved of the disparaging comments, they discharged him, too. Sanzone and Spinella took the matter to the NLRB.

An administrative-law judge decided that the Facebook discussion, including Spinella’s ‘like,’ was concerted activity and that the discharge of Sanzone and Spinella was unlawful. Triple Play appealed to the board, without success. Although the outcome was the same (the employer lost), the board differed from the judge as to which standard to apply in determining whether the comments forfeited protection under the act. In other words, the board agreed with the judge that the comments did not lose protection, but disagreed as to why.

Triple Play’s owners said the Facebook posts were disparaging and defamatory. But the board disagreed, deciding that the comments “did not even mention the respondent’s products or services, much less disparage them.” And although an employer has the right to protect its reputation, Sanzone’s and Spinella’s comments were “not so disloyal” as to lose the protection of the NLRA. Because they were posted on an individual’s Facebook page, the board held that the comments were not directed to the general public, but were more like a workplace conversation that “could potentially be overheard by a patron.”

So the first aspect of the case that employers should bear in mind is that Facebook discussions among non-unionized employees relating to work can constitute concerted activity, thereby bringing those employees’ statements within the protection of the NLRA.

Second, the NLRB does not consider Facebook discussions that flow from a status update to be directed at the general public. Would the situation be different if the discussion had started on a Facebook page with a link to a blog and then continued on the blog’s moderated thread? Perhaps. But for now, business owners need to remember that discussion on an individual’s Facebook page is not directed at the public in the eyes of the NLRB.

The third point concerns the reach of a ‘like’ on Facebook. The administrative-law judge had taken Spinella’s ‘like’ as approving of the discussion in its entirety, but the board concluded that it only meant he approved of the initial status update (i.e., “they can’t even do the [tax] paperwork correctly”). Had he been so inclined, Spinella could have ‘liked’ the additional disparaging comments separately, but he did not. When reviewing a contentious Facebook discussion, employers should bear this distinction in mind.

The final reason this case matters has to do with social-media policies. Unlike the administrative-law judge, the board found that the Internet/blogging policy’s language about “inappropriate discussions” was unlawful because it would tend to “chill employees in the exercise of their Section 7 rights.” The policy’s language was too broad, and the board ordered the owners to revise or rescind it.

The takeaway for employers? General statements that discourage inappropriate discussions are definitely out of favor with the NLRB, so your online/social-media policies might be in need of some changes.

Beacon of Hope

The second NLRB decision, Richmond District Neighborhood Center, 361 NLRB No. 74 (Oct. 28, 2014) displays a little more balance. The board ruled that the Facebook posts at issue did constitute concerted activity under Section 7, but were not entitled to protection. So the employer was allowed to withdraw its offer to rehire the posts’ authors.

The employer was a nonprofit in the business of providing after-school activities via the Beacon Teen Center at George Washington High School in San Francisco. The case concerned two of the center’s employees: Ian Callaghan, an activity leader, and Kenya Moore, a program leader. They seem to have been unhappy in their work and, judging by their plans for the coming school year, were intent on spreading the unhappiness around.

On Aug. 2, 2012, Callaghan expressed his dissatisfaction with the program being “happy-friendly-middle school campy,” and said he would “have parties all year” at the center, encourage the students to “graffiti up the walls,” and, more generally, “f— it up.” Moore’s comments were of a similar timbre: “F— em. Field trips all the time to wherever the f— we want,” and “when they start [losing] kids I ain’t helpin.” She also indicated that, in the year ahead, she would take the students to “clubs” and that her work attendance would be less than exemplary: “I ain’t never go[ing to] be there,” she stated (in all caps).

After seeing a screenshot of the discussion, the employer rescinded its offer to rehire the pair. So Callaghan and Moore filed a complaint with the NLRB, where the administrative judge, referring to the Facebook exchange, found that “these two employees were engaged in concerted activity when voicing their disagreement with management’s running of the teen center.”

If Callaghan and Moore had resumed their positions as activity leader and program leader, it seems fairly likely that the Beacon Teen Center would have been anything but “happy-friendly-middle school campy,” as Callaghan put it. So it is worth pausing at this point to reflect that, in the eyes of the judge, when two employees of a publicly funded after-school program, charged with the care of teenaged high-school students, expressed their intention to hold parties at the center, put graffiti on the walls, take the students away from the center on “field trips” (including trips to clubs of some kind) without informing anyone, and simply fail to show up for work, they were engaged in Section 7 concerted activity.

Fortunately for the employer — and for the students and their parents — although he deemed the discussion to be concerted activity, the judge also found that it was of such a character that the employer was allowed to consider the employees unfit for further service. He dismissed the case. The General Counsel of the NLRB, on the side of the employees, appealed to the full board, arguing that the Facebook posts “could not reasonably be understood as seriously proposing insubordinate conduct.” The board disagreed with the General Counsel and upheld the administrative judge’s finding that the posts had lost the act’s protection.

The final outcome of the Beacon Teen Center case may give employers some degree of hope for future NLRB decisions regarding potentially damaging social-network commentary. It serves as a reminder that there is, indeed, a line between protected concerted activity and concerted activity that is so egregious that it forfeits protection. Even if it does not demarcate that line clearly, at minimum, the case suggests that, if employees indicate on Facebook that they are going to jeopardize (a) child safety and welfare, and (b) program funding, it might just be permissible to discharge them.

On the other hand, it is important to bear in mind two points. First, even a discourse like the one authored by Callaghan and Moore can amount to concerted activity. Second, even after trial, the General Counsel of the NLRB took the position that the participants in that discussion (replete as it was with plans to render the teen center a chaotic danger zone) were not really proposing insubordinate activity.

State-level Development

In addition to noting the federal decisions, employers should keep an eye on a state-level proposal that might reappear when the Legislature assembles next January. If reintroduced and enacted, state Rep. Cheryl Coakley-Rivera’s bill from the last session, titled an “Act Relative to Social Network Privacy and Employment,” would add to the growing list of thou-shalt-nots. If the bill becomes law, employers would not be allowed to require that job applicants and current employees add the employer to their list of social-media contacts or grant the employer access to their networks.

One apparent concession to the rights and needs of business owners is the bill’s proviso that employers would not be prohibited from obtaining information about an applicant or employee that is “in the public domain.” That looks reassuring. But ‘public domain’ is a term with a precise legal meaning, and it applies to creative works whose copyright has expired. It is not a synonym for ‘publicly available.’ An applicant’s blog may be visible for all the world to see, but that does not strip it of copyright protection and put it in the public domain.

If this bill becomes law in its present form, a judge construing the exemption could conclude that the Legislature intended to allow employers to obtain only information that is in the public domain (i.e., not subject to copyright) and to prohibit employers from obtaining information that is not in the public domain (i.e., information subject to copyright). But most of the information an employer would be interested in reading is subject to copyright. This presents a serious problem.

Imagine an applicant’s blog that consists of screeds about various Massachusetts businesses and their customers. Unless the job applicant takes a conscious decision to dedicate the blog to the public domain, the applicant owns the copyright. Is the publicly accessible blog in the public domain? No. Because copyright attaches at the moment the author creates the work and lasts for the life of the author plus 70 years, there would be precious little online information that an employer could look at without falling foul of the statute.

If the “Act Relative to Social Network Privacy and Employment” is re-filed, it will merit serious attention from the Massachusetts business community.

Peter Vickery practices law in Amherst; (413) 549-9933; www.petervickery.com

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Know the Rules for Charitable Gift Deductions

By Terri Judycki, CPA, MST

As year-end approaches, most charities see an increase in donations as a result of donors’ year-end tax planning. Many donors do not realize that they need to do more than write out a check to secure the charitable contribution deduction.

Terri Judycki, CPA, MST

Terri Judycki, CPA, MST

This article will explore the compliance and substantiation requirements for both donors and donees of charitable contributions, since organizations that receive gifts have an interest in ensuring that donors can deduct their gifts for income tax purposes as well as avoiding penalties that could be imposed on them.

Of course, donors must be able to substantiate their gifts to charities — dates and amounts. For this purpose, a bank record or acknowledgement from the charity is sufficient. However, if the amount of the gift is $250 or more, the donor must have a written acknowledgement from the charity that includes either a description and estimate of any goods or services the charity provided in return for the contribution or a statement that no goods or services were provided in return for the contribution. 

There are exceptions for insubstantial or token items as well as for certain membership benefits. The donor must have this written acknowledgment prior to filing his or her income tax return claiming the deduction or by the due date of the return, if the tax return is filed late. The donor’s requirement to obtain written substantiation for gifts in excess of $250 also applies to out-of-pocket expenses incurred on behalf of a charity.  

While the $250 written acknowledgement is a requirement imposed on the donor, the charity has a requirement to disclose in connection with any part-gift/part-purchase with a price exceeding $75. For example, if tickets to a golf tournament or gala exceed $75, tax law imposes a requirement on the charity to disclose the amount that the patron may deduct as a charitable contribution. The acknowledgement must include a statement that only the amount in excess of the fair market value of the goods or services provided by the charity is deductible and must provide an estimate of the value of those goods or services, which may be very different than the cost to the organization. 

The acknowledgment must be made in a manner that will be noticed. The penalty for noncompliance is $10 per contribution up to $5,000 for a single fundraiser.  

With respect to non-cash gifts, additional requirements are imposed on the donor and the charity. Donors are required to obtain qualified appraisals for non-cash gifts (other than publicly traded securities) in excess of certain thresholds. For property with a claimed value of more than $5,000, the donor must attach to his or her income tax return an appraisal summary on Form 8283, signed by both the appraiser and the charity.

If the charity sells or otherwise disposes of donated property with a claimed value of more than $5,000 within three years of the donation, the charity is required to file Form 8282 reporting the sale. Every time a charity is asked to sign a Form 8283, it should consider the potential Form 8282 filing requirement if the asset is disposed of within 3 years. Form 8282 is due on or before the 125th day after the disposition, and a copy must be sent to the donor. Penalties for failure to comply may apply. 

There are even further rules and requirements that apply to contributions of qualified intellectual property, art valued at $20,000 or more, other non-cash property valued over $500,000, certain qualified conservation easements, and contributions to a college or university that entitle the donor to purchase tickets to athletic events.

In response to perceived abuse, there are now specific rules that apply to donations of used cars, boats, and airplanes after Dec. 31, 2004. While there are many exceptions and modifications, in general if the vehicle is sold for more than $500, the charity must file Form 1098-C. The donor must receive a copy within 30 days of the date of sale, and it must be filed with the IRS by Feb. 28 of the following year. Again, penalties may apply. Note that Form 1098-C is in addition to, not in lieu of, Form 8282 discussed above.

Many charities hold raffles as a fundraiser or in connection with another fundraiser. Raffles are a form of lottery, and only certain charities may hold raffles under Massachusetts law. The charity is required to obtain a permit from the local town hall before the raffle and to pay a tax to the Massachusetts State Lottery Commission within 10 days after the raffle. There are additional Massachusetts requirements for tickets with a sale price of $10 or more or if the prize is worth more than $10,000. The purchase of a raffle ticket is never deductible as a charitable contribution, and the charity should be cautious not to imply that the purchase price may be deducted. There are income-tax-reporting and withholding rules that may apply to the winnings if the value of the prize is $600 or more.

Massachusetts requires income tax withholding when the value is $600 or more. For federal purposes, if the prize is valued at $600 and is at least 300 times the amount of the wager (for example, a $1 raffle ticket with a $600 or greater prize), reporting is required on Form W-2G, but federal withholding is not required until the value of the prize exceeds $5,000.  For noncash prizes, the winner must remit the withholding tax to the charity. If, instead, the charity pays the withholding tax on behalf of the winner, it must include the tax remitted on behalf of the winner in the value of the prize.

Raffle tickets with non-cash prizes of $600 or more should contain language to the effect that the winner may be required to pay state or federal income taxes to avoid any hard feelings. A charity that fails to withhold income taxes when required can be liable for the tax. There are somewhat similar rules that apply to charities conducting other types of gaming activities.

Don’t let your charitable contributions fall into the “no good deed goes unpunished” category from a tax perspective. Now is the time to gather your acknowledgment letters and signatures on Form 8283, if required. If you’re in doubt regarding the requirements in a specific situation, consult your tax adviser.

Terri Judycki, CPA, MST, is senior tax manager with the certified public accounting firm Meyers Brothers Kalicka, P.C. in Holyoke; (413) 536-8510.

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Is More Accountability the Answer? Think Again

By ANN LATHAM

“We need more accountability!”

This is a familiar cry. Executives, managers, and employees alike, all frustrated by delays and incomplete work, are demanding greater accountability.

What exactly do they want? They want clear goals, follow-up, answers, and consequences. They crave order and predictability so everything can go more smoothly. If necessary, heads must roll.

It is easy to see why. The norm in most companies includes many dropped balls, missed deadlines, crossed signals, and inadequate responses to requests and problems. The frustration and demand for greater accountability are totally understandable.

If management would just tighten everything up and take control, results would be easier to achieve for all. Right? Wrong.

The solution isn’t accountability. There are far too many situations where accountability practices fail.

When the work is unfamiliar and unpredictable, strict accountability, with its black-and-white goals and black-and-white follow-up, only highlights repeated failures as employees hit one obstacle after another. Accountability doesn’t make the goals, which are merely guesses in new situations, more reasonable. It doesn’t eliminate unanticipated problems. It doesn’t magically reveal to employees what they don’t know. And it doesn’t instantly create new skills. But it does generate feelings of disappointment, stress, anger, insecurity, and injustice. It does encourage employees to invest time and energy in developing excuses at the expense of achieving results.

When the goals require contributions from many employees, strict accountability doesn’t magically reduce dependencies and create autonomy. It doesn’t increase the impact of any one employee’s tiny piece of the puzzle. It doesn’t make less-skilled employees more capable, or less-committed employees more determined. But it does pit employees against each other. It encourages us-versus-them thinking and finger pointing. And it leaves employees feeling powerless, frustrated, and overwhelmed.

And when the work lands in the hands of employees who just aren’t highly effective, strict accountability sets them up for failure, not success. It doesn’t hand these employees self-mastery, critical thinking, interpersonal skills, patience, persistence, confidence, courage, discipline, or great communication skills. It doesn’t suddenly make them superstars. But it does leave many well-intentioned, hardworking employees at the mercy of the many obstacles common to humans and complex organizations.

These are just a few examples where accountability fails. Tighten accountability for employees in these situations, and you create losers, not winners.

The Power of Commitment

Now, if all your employees are either highly effective or have highly predictable days, great autonomy, and goals over which they have total control, then accountability practices will work great for you. But when you think about it, those employees probably deliver even without much emphasis on accountability.

No, accountability is not the answer. Commitment is.

Committed employees keep on plugging, surpass goals, constantly look ahead, and give no thought to excuses for missing the mark. They help each other and don’t point fingers. They are open to honest feedback because they don’t feel threatened. They see themselves as important players, not pawns in a game where raises, bonuses, promotions, and jobs are on the line.

Committed managers help employees identify and overcome obstacles. They team up to solve problems and don’t feel the need to hold feet to the fire. They build confidence and reduce stress. And they build the commitment of their employees.

When employees and managers are truly committed, they get the job done. Somehow. Collectively. It might not be pretty, but it works. They band together. They are inventive. They are excited and determined. Often, it doesn’t even really matter who was supposed to be accountable. They succeed because of their commitment, not because of accountability practices.

When it comes to getting results, nothing is as powerful as commitment.

To generate commitment, managers must partner with their employees. They must be true partners — partners who win and lose together. Partners who are obviously on the same team.

How do partnering managers behave? They:

• Treat employees as equals, needed for mutual success, not subordinates;

• Encourage employees to take ownership of their own success, on the job and in life;

• Listen, ask, answer, and offer — and resist the temptation to do more until asked;

• Provide honest feedback so employees know where they stand, know how they can improve, and develop self-awareness and self-management; and

• View the employment relationship as a win-win deal, which is created and ended with mutual respect, professionalism, and no shame.

When managers tap into the natural accountability of partnerships, which prevents either party from letting the other down, everybody wins.


Ann Latham is the president of Uncommon Clarity Inc. She has done projects in 28 industries, and her clients include for-profit organizations, such as Hitachi, and nonprofit organizations, such as public television and Smith College. Her words of advice have appeared in 85 media sources, including Bloomberg BusinessWeek, Forbes, MasterCard.com, MSNBC.com, and the New York Times. Her writing can also be found at Ann’s Clarity App, bit.ly/anns-clarity-app, and at uncommonclarity.com.

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It Takes the Right Tactics to Improve Sales Performance

By JOHN GRAHAM

In Lee Child’s Without Fail, a Secret Service official simplifies a disturbing problem. “If the Yankees come to town saying they’re going to beat the Orioles, does that mean it’s true?” And then he adds, “Boasting about it is not the same thing as actually doing it.”

It’s the same with sales, where there’s often too much boasting and not enough doing. Here are seven tactics to improve sales performance.

1. Use stories that make a difference to customers. While facts help support a sales presentation, they can also be confusing, create doubt, and turn people off. Yet, many salespeople fill their presentations with facts and figures and so-called ‘hard information’ to build a solid, compelling case with customers.

A simple, quick story that grabs interest may be far more effective in moving a customer to action, however. While salespeople love to tell stories, too often they shoot themselves in the foot with stories about themselves or whatever comes to mind at the moment, failing to sense the effect on the customer.

Sales stories should be strategic, as marketer Jen Agustin suggests when she says, “if you think back to your favorite stories, the great ones are those that inform, educate, and drive people to act.”

2. Forget about ‘the latest and the greatest.’ “I’ve made a conscious choice to not spend all my time … looking down at a device,” said legendary motion-picture director James Cameron, of Avatar and Titanic fame, in a recent USA Today interview. “I’m a Luddite — but a high-tech Luddite.” Referring to Twitter, “I hate it,” he said. “I hate everyone else’s tweets, too. They’re boring. What can you say in 140 characters? I can’t even clear my throat in 140 characters. Same goes for Facebook.”

As the most techie director of all time, Cameron’s outburst sends a message to salespeople. It wasn’t so long ago that ‘cutting edge’ gave salespeople an advantage with customers, as they longed for the next great thing. But not now. The times have changed. It’s clear what moves them to action now: they want what works, what solves a problem, what gives them an edge.

3. Don’t talk about what you do. It may sound crazy to suggest that salespeople should avoid talking about what they do. Even so, it’s good advice. It’s tempting to talk about what we know best — what we do. We’re excited about we do and want to share ‘the good news.’ But, no matter what anyone says, to talk about what we do is a huge turnoff for customers.

If you ask Sally what she does and she tells you she sells insurance, that’s all it takes — you shut down. However, when Sally recognizes that you’re 50-ish, you might feel different if she said, “I help people make sure they have enough money for a great retirement.” If you’re someone with a young family, Sally might say, “I help make the dream of going to college a reality.” It’s an approach that gives new meaning to ‘the customer comes first.’

4. Be careful when you make promises. There’s always a temptation to tell customers what they want to hear, and it leads to trouble. “It will be here in about three weeks,” said the contractor, referring to the bathroom accessory selected by the customer. Well after the due date, the customer was upset because it still was unavailable, and was then told the expected delivery would be several months later.

It’s a familiar story, and it points how out salespeople disappoint customers by making promises they can’t keep. It’s a deadly scenario. Once disappointment sets in, satisfaction begins unraveling.
To maintain customer confidence if a problem may occur, tell them about it upfront, keep them informed, and have options ready if they’re needed.

5. Don’t overstate. In other words, don’t exaggerate. It’s the curse that many salespeople fall prey to time and again, so that it becomes second nature — and it always causes trouble. They can’t have a conversation or make a presentation without ‘gilding the lily,’ as they say. Salespeople want to look good to their customers, so they stretch the truth, embellish the facts, and are even misleading.

It’s a dangerous practice. For today’s customers, it’s one strike and we’re out. No one understands this better than Amazon. And few companies do a better job communicating with customers, particularly when it comes to on-time deliveries, accurate product descriptions, and reliable customer comments.

Unlike other retailers who try to lure customers with exaggerated claims, Amazon’s goal is to build trust so customers come back again and again, even when a competitor may have a lower price. It starts with a no-exaggeration policy. Salespeople can learn from companies like Amazon.

6. Explore vulnerabilities. Salespeople can perform a significant service to customers by showing them where they may be losing business, how they might improve a procedure, if they have a product or service weakness, or any other exposure.

Because business owners and managers can be so caught up in daily operations that they fail to see potential threats, salespeople can be the extra set of eyes to provide valuable feedback. The owner of a retail chain was ready to buy another store when a salesperson pointed out that significant changes in the area could have a negative impact on the business. The owner heeded the salesperson’s advice and avoided making a costly mistake.

7. Reinforce the customer’s buying decision. It’s just after the sale — when salespeople revel in their success — that the customer relationship is most vulnerable. This is when post-sale doubts set in and questions arise. Perhaps they are getting more familiar with a purchase, encounter an unexpected issue, or discover that what they bought isn’t what they expected. Whether it’s a beer or Lexus, customers want to feel good when they make a purchase.

The savvy salesperson, knowing what can occur, takes the initiative and contacts customers to gauge how they are feeling about their purchase and to reinforce why their buying decision was prudent. The person who made the sale should make the contact, otherwise the value of the call is diminished in the customer’s mind. The customer wants to know that the salesperson cares.

The bottom line is, when salespeople use the right tactics, they boast less, do more, and improve their sales performance.

John Graham is a marketing and sales strategist, consultant, and business writer with GrahamComm. He publishes a free monthly e-bulletin titled “No Nonsense Marketing & Sales”; (617) 774-9759;
[email protected]; johnrgraham.com

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Is Coach Class Really Cheaper Than Business Class?

By FRANC JEFFREY

Most business owners are acutely aware that every penny they spend on what might be considered non-essentials is one cent that’s not being invested back in their business, whether it’s flying three executives from New York City to Chicago to meet with a prospect, or flying 100 executives from New York to Frankfurt  to attend a major pharmaceutical conference.

There’s a lot of time and energy spent on financially planning these all-important trips. But there’s one cost-saving measure that you should skip. Simply put, flying anything less than first class is not only a strategic mistake, but could hurt a potential deal.

A little TLC and some much-appreciated extra leg room might not seem worth the added expense of paying for a ticket upgrade. But have you really thought about what that higher fare buys you?

In a recent New York Times article, David Liu, co-founder and CEO of TheKnot.com, explained why he thinks business owners and executives should rethink their habits of flying coach.

“I’ll never forget one of my first meetings with a venture capitalist,” recalls Liu. “I booked the round-trip ticket for less than $200. Of course, on the way back, there were three layovers. It didn’t matter to me because any money I saved could be used to hire personnel.

“It was a great meeting because she understood how we were trying to grow the business. I told her that I was leaving for the airport at 3 p.m. for a red-eye back to the East Coast. She was really confused because, obviously, a red-eye flight doesn’t leave midafternoon. But then, I told her my flight from Los Angeles had several layovers and I was actually going to get back to New York at 6 a.m. She looked at me like I was crazy.”

Adds Liu, “I remember her telling me that travel can make people stressed, and they couldn’t afford to have a stressed-out CEO. She rebooked the flight for me and got me a first-class ticket. I’ve always remembered her advice that having a chief executive who is half-dead from bizarre travel schedules doesn’t do a company any good. Unless your company is in its infancy or dire financial straits, take a clear-eyed look at the costs associated with economy, and the case for avoiding cattle class becomes clear.”

It seems quite clear that companies should consider more than simply the cost when it comes to booking travel for their employees. Businesses instead should be making travel plans that are based around what the executive or company wants to achieve from the trip, and understand that important contracts can be lost as a result of staff arriving fatigued by their travel experience.

The majority of those deciding on business travel policy, whether it is HR, finance, or procurement personnel, tend to base policy on their own science, but almost exclusively base that decision from a cost perspective. However, to ensure that the process of travel is efficient, effective, and safe, a much wider focus is required.

Companies should be asking the question: “how can we expect our executive to win a major piece of business if they are being asked to make a presentation after getting up at 4 a.m. and sitting in a cramped seat for a long, trans-Atlantic flight?” Even a short-haul flight averaging four hours can easily equate to an eight-hour working day when traveling to and from the airport, checking in, and security and immigration queues are taken into account.

This will be a tiring experience for the employee, and particularly so when traveling economy. Work productivity in economy is limited, due to lack of space, facilities, and distractions. With long-haul destinations, economy flights can have an even greater negative impact upon the performance and well-being of the employee.

It is important to research all aspects when considering business travel options, particularly when business travel remains the third-highest expense for any business. This is particularly true when the journey is undertaken overnight, when the traveller may get little or no rest, leaving them fatigued for the business ahead.

Those in charge of booking travel should consider a higher class of cabin with flat or partially flat beds to ensure the employee is comfortable and well-rested. And a number of airlines have been doing their part to see that top executives and other business travelers arrive at their meeting at the top of their game.

Lufthansa Airlines offers first-class passengers a dedicated lounge featuring beds, showers, office space, special security screening, and chauffeured limousines directly to the aircraft.

Don Buckenburg, Lufthansa’s managing director for sales, North America, says that many airlines offer a suite of enclosed space with a door, creating a passenger’s “own little cabin.”

“When we developed first class, we asked customers what they wanted, and our customers responded that they like open space, but they also like privacy,” said Buckenburg. “So now you have a seat, but a wall that separates you. You press a button, and a wall comes up.” The retractable wall allows couples or fellow travelers to decide whether to be connected or separated.

In addition, according to Buckenburg, flight attendants are specially trained to serve first class, understanding how to “read” the passenger differently and knowing the wine and menus with precision.

Bountiful food, sparkling champagne, and walls that go up and down are all very nice. But ask business travelers what they want most on their flight, and the overwhelming majority will respond in unison — “more leg room.” The bottom line is, nobody wants to limp into an important business meeting.

Flying coach tends to be uncomfortable for anyone of larger than average height or weight. The leg room is limited, so your knees might be cramped against the seat in front of you, and you might find your shoulders are pressed against your neighbor. Plus-size passengers might also find that the armrests are too close together to sit comfortably in one seat. And sleeping is hard for some because the seats recline only a few inches in coach.

Airlines such as Delta are now offering up to four inches more leg room and 50% more seat recline in their business class. That might not sound like much difference for the additional cost, unless you’re a 6-foot, 4-inch CEO flying from Chicago to Paris. And then it sounds like heaven.

At all times, the purpose of the trip must be taken into account to ensure employees can perform to their best ability and achieve the goals set forth by the company.

You may find that pivotal business results, such as winning that crucial contract, are not being achieved due to inefficient travel policies, which could have a serious financial impact on the business. As a result, many business organizations are finding that business class flights are in reality much cheaper than economy class for the majority of their traveling executives — particularly when weighed against the potential for lost business.

Franc Jeffrey is CEO of EQ Travel, with offices in the United Kingdom and Boston. With more  than 25 years experience in worldwide corporate travel, Jeffrey is an experienced travel and event-management professional, with a track record in corporate-travel management, negotiating rates, and implementing travel technologies; [email protected]; www.eqtravel.com

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An Employer’s Obligations to Sick and Disabled Employees

By KATHRYN S. CROUSS, Esq.

Kathryn S. Crouss, Esq.

Kathryn S. Crouss, Esq.

Even the most well-intentioned employers can potentially expose themselves to liability if they are not well-versed in the benefits afforded to their sick or disabled employees under state and federal law.

The following summary of the relevant law will assist you in understanding what employment practices are lawful or unlawful, and what steps you must take with regard to your sick or disabled employees.

The language in the federal statute, the ADAA, and the Mass. statute, General Laws c. 151B, are substantially similar. According to state and federal law, employees with a qualified handicap are protected from discrimination on the basis of that handicap, as long as the employee is capable of performing the essential functions of the position with reasonable accommodation.

Unwary employers could fall into certain traps regarding their treatment of sick or disabled employees. Following are some questions to ask to navigate those potential pitfalls.

Is the Employee Handicapped?

Employees are generally considered ‘handicapped’ if their condition limits or restricts a major life activity, even temporarily. The legal definition of major life activities is very broad, including walking, seeing, hearing, speaking, caring for oneself, performing manual tasks, working, thinking, and sleeping, among others. A qualified handicapped person is one who is capable of performing the essential functions of a particular job with reasonable accommodation to his or her handicap. If an employee can be considered a qualified handicapped person, an employer has certain obligations to that employee.

Can the Employee Perform the Essential Functions of the Job?

Employers are often faced with balancing the needs of running a business against their obligations to their sick or disabled employees. If employees are not capable of performing the primary tasks associated with their position, then employers are not obligated to the employee under disability law.

However, if an employee’s handicap or illness limits only incidental functions of the position, or tasks that are not performed regularly as part of the position, the employer may owe the employee a duty to offer a reasonable accommodation.

What Is a Reasonable Accommodation?

A reasonable accommodation is any adjustment or modification to the way a job is done, an employment practice, or a work environment that makes it possible for an employee to perform the essential functions or his or her position. Even if a handicapped employee is actually performing the job, the employer is obligated to reasonably accommodate the employee if he is performing the job with difficulty.

It is important to note that the employer does not have to provide the best accommodation available, or even the accommodation specifically requested by the employee, but instead is obligated to provide only an accommodation that is effective for its purpose. Further, an accommodation that is not likely to enable the employee to perform the essential functions of the position is not considered a reasonable one, and therefore not required.

What Are Some Types of Reasonable Accommodations?

Most employers recognize that wider doorways or lowered desk spaces are reasonable accommodations to assist disabled employees in performing the essential functions of their positions. However, accommodations that have been found to be reasonable by the courts may surprise some employers.

In certain circumstances, employers may be required to reassign non-essential job functions to other employees, permit performance of job functions at alternate locations (such as working from home), or even modify methods of supervision or evaluation. Employers are often surprised to learn that time off from work, even extended periods of time, can be considered a reasonable accommodation.

While employers are not required to grant sick or disabled employees open-ended or indefinite leaves of absence, courts have required employers to provide leaves of absence as long as 52 weeks to a disabled employee.

What Are the Employer’s Obligations?

Logically, an employer is not required to provide an accommodation when it is not aware of, or has no reason to know of, the employee’s illness or disability. Employees are responsible for informing their employer that an accommodation is needed, unless the handicap and the need for an accommodation are known or should be known to the employer.

However, if an employee is unable to suggest a reasonable accommodation, the employer is obligated to engage in a dialog with the employee to identify one.

The duty to engage in an interactive dialogue is ongoing. Both employers and employees must engage in a good-faith, interactive discussion to determine whether a reasonable accommodation exists that would permit the employee to perform the essential functions of his job. In some cases, employers may even be required to initiate the discussion if the employee has not done so.

It is important to note that employers are obligated to engage in the interactive process even when it believes the requested accommodation is futile. Employers must take note that refusal to engage in the interactive process is in and of itself a violation of discrimination laws.

What About Undue Hardship?

Of course, the duty to provide sick and disabled employees with reasonable accommodations is not without limit. Employers that can successfully show that providing the employee with a reasonable accommodation would pose an undue hardship to the business are not obligated to do so.

For example, if an employer can successfully demonstrate that holding an employee’s position open during an extended leave of absence would pose an undue burden to the company, it is not obligated to hold the position open. Considerations specific to each employer, such as the size of the business in proportion to the number of employees, the composition and structure of the employer’s workforce, and the nature and costs of the necessary accommodation, will be important in determining an employer’s obligation.

In summary, employers must be aware of their obligations when making employment decisions regarding employees or potential employees with known illnesses or disabilities. Employers are advised to consult an employment-law attorney to avoid potential exposure to liability.


Kathryn S. Crouss, Esq. is a member of Bacon Wilson’s litigation department and handles all aspects of civil litigation, including employee and management-side employment-law litigation, personal injury, and domestic-relations litigation; (413) 781-0560; baconwilson.com/attorneys/crouss

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Here’s a Helpful Estate-planning Year-end Checklist

Lisa L. Halbert

Lisa L. Halbert

As the end of the year approaches, this is a good time to take stock and review where you have been and where you want to head. Financial planners encourage annual reviews, employers start to consider year-end evaluations, and life coaches ask clients to reflect on steps taken and plans for professional growth. And estate planners encourage clients to periodically review elder and estate plans in order to confirm (or re-confirm) that all is in place.
Estate planning is not a static project to be finalized and then put on a shelf, never to be reviewed again. In truth, it is a never-ending process, one which requires periodic review in order to remain pertinent. At least every five years and upon major life events, pull out the documents and make sure they continue to be relevant. Further, periodic statutory changes dictate that your intentions will be best attained if documents are reviewed.
Among the action steps or paperwork to consider are the following:

List Your Assets
At the core of any good estate plan is a list of all of your assets, with estimated values. Generally this will include bank accounts, securities, real estate, retirement funds, insurances (life or disability), annuities, business valuations, and tangible personal property, just to name a few. Identify whether each asset is owned in your name alone (and with or without a beneficiary designation) or jointly with another, and whether it carries a beneficiary designation or is held in trust. This information informs an estate-planning attorney as a beginning point. After your estate plan is fully developed, do not be surprised if assets are re-titled or change columns.

Last Will and Testament
A last will and testament controls assets that are held in your name alone and without a designated beneficiary at your time of death. These are the only assets that go through the probate process. Your will provides a road map as to who you would like to receive your probate assets. It can also provide for forgiveness of debt or allow someone temporary use of an asset (such as living in a home until a certain age, or a certain event occurs).
Generally, a will allows you to control and determine who inherits your estate at your death. (Exceptions to this statement are that a surviving spouse and minor children have certain statutory rights that take priority over the terms of the will, even if you intended to disinherit the spouse and/or child.)
Under the Massachusetts Uniform Probate Code (MUPC), which went into effect March 31, 2012, the probate process has now been expedited and no longer requires as much court intervention or oversight, although court supervision is available where appropriate.
If you pass away without a will (referred to as dying ‘intestate’), state law dictates how your assets get distributed. Historically, if you die intestate, survived by a spouse and children, your assets are allocated among them. Under the MUPC, if you die intestate and are survived by your spouse and children of both you and your spouse (whether biological or adopted), then your spouse will receive your entire net estate, without any portion specifically allocated to the children of both you and your spouse.
The MUPC also changes the title of the person appointed to oversee the administration of an estate to a personal representative (PR). Further, the MUPC provides a list of individuals who have priority to serve as your PR. At the top of the list is your spouse, and then a child (over the age of 18), etc. However, if you die intestate and the spouse does not want to serve as the PR, the MUPC allows the spouse to designate someone else to act as the PR, even if an adult child wants to serve. And while the statute is a bit more complex, the point is that you should consider whether it is more thoughtful and prudent to effectuate your intentions by dying with or without a will.
If you want to know that all of those you love will receive certain assets, then have a will or other estate-planning document prepared. Particularly for those who might not have a spouse, but do have good friends or charitable inclinations, a will is likely a solid start to accomplish those same distributions.
A will might also have some significance prior to your death. During your lifetime, if you become incapacitated and another is put in charge of your assets and financial management, there may be occasions where gifts are appropriate and the fiduciary could look to your will in order to figure out who or what entities are most dear to you. The will, therefore, may offer some direction even during your lifetime.

Trust-based Planning
Depending upon your assets, intended beneficiaries, and other information, a trust might be a better option to accomplish your preferred distributions than a will. A trust is a document with three major players: the person who creates it (you, also known as the grantor), the trustee (who could be you and/or others and is the one who actually administers or manages the assets), and the beneficiaries (who could be you and/or others who receive a benefit under the trust). It provides an instruction manual or road map as to how you want your assets (and debt) managed and invested, as well as distributed. It is especially useful if there are minor beneficiaries and you want to know that instructions are followed long-term, or where another needs some long-term financial assistance or management (such as a special or supplementary-needs trust).

Beneficiary Designations
Confirm that beneficiary designations on your various accounts remain current and in line with your overall estate plan. Types of assets that frequently carry opportunities for beneficiary designations include insurance, annuity, retirement accounts, and/or some brokerage accounts (accounts that hold securities and other investments). Beneficiary designations (other than to your estate) completely avoid the asset going through probate, and there may be some income-tax advantages to naming a beneficiary directly, rather than your estate or trust.
Keep in mind that the individuals or entities named on the beneficiary designation are the recipients to whom the assets will be paid. If your estate plan is premised on having assets go through your probate estate, and therefore directed to be distributed through your will, but the beneficiary designation is not changed to be consistent with that approach, your plan will be defeated.
An estate plan, once completed, may use a blend of assets that are directed to specific beneficiaries via designation, as well as assets that go through probate or a trust. Retirement assets may have a better income-tax benefit if directed to specific individuals or charities (especially if you are looking to save an income-tax bite to the estate), while life insurances might be more appropriate to go through probate. Each client situation is different.
If you are divorced and intend for your ex-spouse to receive assets via a beneficiary designation that has not been changed since the divorce, revisit the designation. Under the MUPC, divorce effectively revokes certain beneficiary designations to a prior spouse. You may need to take affirmative steps to insure that the designation will be upheld by renewing it post-divorce.

Same-sex Spouses
On June 26, 2013 the Supreme Court of the United States issued a decision that addressed the legality of the Defense of Marriage Act (DOMA). The court determined that, although each state may regulate marriage for its citizens, once married, all spouses are to be treated equally under federal law. For planning purposes, this impacts not only your federal income taxes, but Social Security benefits, FMLA, and health-insurance coverage.
Retirement benefits from a qualified retirement plan will be required to allow the surviving spouse of a married couple, whether same-sex or heterosexual, to withdraw the funds over the surviving spouse’s lifetime. IRAs that allow a spouse to roll over inherited assets into his or her own IRA are now allowed. There are more than 1,000 federal benefits that may be impacted by this ruling. Check beneficiary designations as well as federal tax withholding (IRS Form W-4).
Same-sex married residents no longer need to file separate federal tax returns for each spouse. Married filing jointly or married filing separately is the same for all married couples. In fact, you might want to consider amending your returns for 2011 and 2012. While an amended return is not guaranteed to benefit you, if you do not look into it, you will never know.
For estate planners, another significant change is that same-sex couples now are able to take advantage of the unlimited marital exemption to transfer assets between spouses during life, as well as at death. For high-wealth couples, portability of the estate-tax exemption at the death of the first spouse to a surviving spouse is now allowed. With an estate-tax exemption currently at $5.25 million per spouse, this allows a same-sex married couple to have a combined $10.5 million estate-tax exemption. While you might not think it impacts you, if the surviving spouse wins a large lottery ticket or comes into money for any other reason, even after the first spouse’s death, having elected portability may result in a significant estate-tax savings.

Healthcare Proxy (HCP)
Review your HCP to confirm that it identifies current designations of those whom you want making healthcare decisions for you if and when you can no longer make or communicate them on your own. It can only benefit you to list appointees to serve in consecutive order. Ask your attorney whether additional provisions to your document would be prudent.
For example, do you have a religious belief that needs to be articulated? Would you allow certain drugs to be administered that might otherwise require court approval? Do you want your healthcare agent to choose a nursing home for you if it becomes necessary? Once signed, provide your HCP to your healthcare providers and other physicians and hospitals. Some peoplekeep a copy on the refrigerator, in the car, or with other important papers. And, of course, provide a copy of your HCP to those you have appointed as decision makers.
Even though you may have already signed a HCP at your attorney’s office, did you more recently have a medical procedure where you signed a “new” HCP in the physician’s office or hospital? Understand that by signing the new form you revoked the prior one. Though it might not have been your intention, reconvene with your attorney to discuss whether to re-sign the old document. It was likely more comprehensive and the product of greater deliberation.
Without an HCP, if healthcare decisions need to be made for you, a court will appoint a guardian to make sure they are made. Your spouse does not automatically have that right. The benefit of an HCP is that you get to choose those individuals who you trust to make decisions for you, as opposed to having a court choose.

Do-not-resuscitate Order
The DNR is not prepared by your attorney. It is available to be signed in your physician’s office, and it states that, if your heart stops, you do not want extraordinary measures taken to restart it. A DNR is not interpreted to mean that you want to be taken off of medical machinery (and be allowed to die) if you are being kept alive only by such mechanical devices.

Durable Power of Attorney
The DPA allows you to appoint people to assist with financial management of assets in your name (and not in trust) while you are alive. It terminates at the moment of death. A DPA can be very broad or narrow in the actions which the appointee (the attorney-in-fact) is authorized to take. The benefit of a DPA is that you, not a court, choose who can have access to your financial information. A DPA can allow the attorney-in-fact to have access to your assets even though you are fully capable of thinking and acting for yourself (for example, while away on vacation), or it can be written to allow access only if and when you start to fail mentally.
A DPA does not change the underlying ownership of the asset. It merely allows another to act as your fiduciary, step into your shoes, and make decisions as your agent. If an asset is owned by you and you alone, then at your death, the authority of the attorney-in-fact terminates, and the asset then goes through your will, unless there is a beneficiary designation attached to it.
Provide the DPA to your appointee(s), or advise the appointee of your attorney’s name so that the document can be located if needed. Remember, if no one knows about it, or you fall ill and cannot communicate where the document is located, court action might still result.

Passwords
While not directly related to estate planning, a more controversial issue arises regarding passwords. While any IT person will advise against making a comprehensive list of your accounts and associated passwords, those same individuals might not regularly work with a segment of the population that may become ill or lose their memory.
There is no perfect solution in this electronic world. Perhaps you prefer to prepare the list of passwords and save it on paper, publish it to your attorney-in-fact under a DPA, or provide a copy to your legal counsel.
Others recommend putting the passwords into a paper file and filing it at the back of your filing cabinet, backwards. The list should be comprehensive and cover whatever assets you access (such as an ATM card) and electronic accounts, whether for bank, brokerage, credit card, loan, and even health-related information. It also helps to print out the most recent security questions and answers, too.

Important Papers
Organize a filing system for important papers. If an alphabetical system is not your style, consider putting all important papers in one place. Documents to be retained include Social Security card, copy of birth certificate, and legal documents (will, trust, HCP, DPA, marriage license or divorce decree, and funeral-related paperwork). Include on this list your children or next of kin and their addresses. If you should die, and a non-family member is involved, it makes locating family much easier.

Health Insurance and the Affordable Care Act (ACA)
This checklist would be incomplete if you are not reminded about open enrollment for many health-insurance plans in general, and the ACA in particular (open enrollment has been extended through March 2014). Even if you currently have health insurance, there may be financial advantages to reviewing the costs associated with the ACA. This is particularly true for blended families, those where an ex-spouse continues to be covered, or where you are straddling being on Medicare yourself, but have children to cover.

Conclusion
This checklist provides a starting point. For more information, contact an estate-planning professional for a comprehensive review of your plans. n

Lisa L. Halbert, Esq. is an associate in the Northampton office of Bacon & Wilson, P.C. A member of the estate planning, elder, and real estate departments, she is especially focused on legal matters relating to elder and estate planning, and asset protection; (413) 584-1287; baconwilson.com/attorneys/halbert

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Creating Promotional Pieces that Attract Clients

By DAWN JOSEPHSON
Whether you’re creating a sales letter, brochure, newsletter, or any other business promotional piece, you need to write in a way that not only explains your product or service, but also compels your prospects to contact you.
Unfortunately, many promotional pieces miss the mark. Outrageous claims, weak calls to action, and boring text are common mistakes that plague most people’s writing. Such errors accomplish only one thing: they destine your promotional piece for the infamous round file. They also show prospects that you’re lazy, uncreative, and possibly incapable of delivering quality work.
In order to entice prospects to contact you based on your promotional mailings, you need to keep your writing both lively and factual. The following guidelines will help you write promotional pieces that even your toughest prospects can’t resist.

1. Write a headline that gets to the point. You have less than five seconds to impress your prospects to read on. And the first thing any prospect reads is the piece’s headline. So craft a compelling headline that immediately conveys why this information is important to your prospects. The four main headline formulas that work are:
How-to — the formula is ‘how to’ + verb + product/service/noun + benefit. Example: “How to create a store promotion that increases revenue.”
New — the formula is ‘new’ + product/service + benefit. Example: “New tax law saves you money.”
Power verb — the formula is power verb + product/service + benefit. Example: “Prepare a business plan that boosts company profits.”
Free — the formula is ‘free’ + product/service + benefit. Example: “Free booklet reveals the secret to lowering your interest rate.”
Since your headline determines if the prospect keeps reading, craft yours wisely.

2. Keep the hype to a minimum. Many people think that, in order to get people to read their promotional piece, they must write something outrageous. To some degree, this is true. Saying something outrageous is a great way to generate interest, as people naturally love controversy. Plus, if you can stir things up, you’ll get lots of exposure. The thing to remember, however, is that you must be prepared to answer questions and/or prove everything you write. So if you want to write something just for sensationalism but can’t back it up, don’t. You must be able to support everything you print.

3. Go easy on the posturing. While you may produce the best products or offer the most unique services in the world, that is for your prospects to decide. Every superlative you use in your promotional piece will reduce the prospect’s trust in what you say. So instead of telling prospects that your product is “the most extraordinary thing to ever hit the market” or that your service is “capable of revolutionizing the industry,” show your prospects how these claims are possible. Give the benefits of using the product or service as they pertain to your prospects’ lives so they can determine just how extraordinary or revolutionary the product or service really is.

4. Evoke images. As you write, evoke more than one of the five senses. Paint a picture with your words so prospects see, hear, smell, taste, and feel what you’re describing. Contrary to popular belief, the best promotional writers think in pictures, not words. They see the image they want to convey to their prospects, and that’s what they write. So if you’re a candy manufacturer or a florist, for example, write so that your readers smell the candy or the flowers, not just see what they look like. If you’re in the restaurant business, help your readers taste the food. If you’re writing about business productivity, help your prospects hear the hustle of productivity and feel the rush of a sales call. Do more than just tell prospects what’s going on.

5. Always make a compelling call to action. What do you want the person reading your sales letter, brochure, or other promotional piece to do? Buy your product? Call you for more information? Visit your website? Whatever action you want your prospects to take, state it clearly. Too many promotional pieces ramble on about all the features and benefits of the product, but they never tell the prospects to actually do anything. For example, in a sales letter, you could write: “Please call our office immediately for more information on how we can help.” A brochure could say: “Order the widget at our special introductory price today.” In a newsletter you could write: “Visit our website for more information about our new product line.” Tell prospects precisely what you want them to do.

Bottom Line
When your promotional pieces present your information in the most compelling and factual manner, your prospects will find them and your company irresistible. So as you write future sales letters, brochures, or other promotional pieces, keep these guidelines in mind. When you do, you’ll create a promotional piece that delights prospects and makes them eager to do business with you.

Dawn Josephson is a ghostwriter, editor, and writing coach who helps business leaders and professional speakers create engaging and informative books, articles, and marketing pieces; www.masterwritingcoach.com

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Set a Thorough, Realistic Budget for Your Business

By DEBRA KAYLOR, CPA

Kaylor-DebYou may have heard a lot about the budget for the Commonwealth of Massachusetts this summer and how we, the taxpayers, were going to help balance that budget through new taxes. But what about your budget?
Budgets are a necessary tool to help you monitor where you are and what changes you may need to make to address any unforeseen situations on a timely basis. Many are still recovering from the recession, and while the thought of having to prepare a budget seems frightening to many, it’s a useful and necessary tool to help you and your business make it through any economy — good or bad.
Budgeting helps measure your performance by being able to review what you expected to happen as opposed to what actually happened, and analyze why those differences occurred. Depending on the size of your business, budgeting might be done semi-annually, quarterly, monthly, or even weekly. It relies on assumptions and expectations for the future. As such, you need the right data to build these assumptions and expectations.
There are many questions to ask yourself and others — where do we think revenues will be, what new customers do we think we will gain (or conversely lose), what is the expected cost of our supplies, what new projects do we need or want to do, how many employees do we need, and what will happen with our insurance rates? While no one has a crystal ball, working with other departments in your organization as well as colleagues in your industry will allow you to build a realistic vision of what is expected to happen.
Here are a few things to consider:
• Know what you can control and what you can’t control. Some industries are fairly straightforward, and revenues (and related expenses) can be easily predicted. However, most are not and are subject to variables that are market- or economy-driven and cannot be controlled. Start with what you know, and then step back to review the variable factors and how your business will (or can) react to significant changes in those factors.
• Be realistic. If you expect revenues to decrease, set your budget that way. Do not set yourself up for failure. Budgets are there to help you, not hurt you. Don’t make your budget a target of where you’d like to be, but rather a tool to monitor your progress toward your strategic goals.
• Be careful not to get too specific. This may divert your efforts too much to gathering the data instead of effectively using it.
• Consider seasonal changes in your business when preparing quarterly or monthly budgets. Is most of your revenue generated in the summer? Prepare your budget that way so you can better analyze your budget versus actual results and why actual results may or may not meet the budget.
• Allow plenty of time before the year begins to prepare the budget. Typically, the process isn’t easy, and a lot of information must be gathered prior to pulling it all together. This will also give you an opportunity to consider other actions that may be necessary to meet certain goals — i.e. do you need additional financing, or do you need to reconsider your insurance package? The budget should also be approved by management or a board of directors and discussed with those responsible for monitoring their areas.
• See if your accounting software can help develop and monitor your budget. Many software packages do allow you to enter your budget on an annual and/or monthly basis and may be able to help pull the historical data you may want. This will eliminate the time and potential errors of manually entering information into an Excel spreadsheet.
• Monitor the budget in a timely and consistent manner. This allows you not only to measure your performance, but also to hold people accountable for their areas and reward those who do well. Yes, there are always unknowns, and sometimes things happen that are not in the budget. But that’s OK. One common mistake of monitoring is expecting actual results to mirror the budgeted amounts. While some line items are typically easy to predict (like rent expense, which usually does not change month to month if there is a signed lease agreement in place), most are not, and variances are expected. Monitoring on a timely basis will allow you to identify the factor that kept you from meeting your budget. Successful monitoring will also enable you to adjust other areas as necessary for the larger variances in a timely fashion.
• Learn from your mistakes, especially if you haven’t used budgeting as a tool in the past. In addition to helping you monitor how your business performed monetarily, budgeting should teach you something about your customers and your vendors. What is happening with them will affect you both in the short and long term.
While budgeting is often thought of a tool for businesses, it is also effective for your personal finances. Do you want to take a vacation this year? Do you need a new car? How much money will you need? The same principles apply and will allow you to do the things you would like to do and be prepared to react to unexpected events.
Now that you have your budget, keep up the good work. Budgeting is not a one-time event. To be successful, it must be monitored on a consistent basis to help you succeed with all of your goals. If you monitor and review your budget on a timely basis, you will be better prepared for the unexpected as well as preparing for the future.

Debra Kaylor, CPA is an audit and accounting senior manager at the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3515; [email protected]

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10 Ways to Lose Money in Your Business

By PAM LONTOS
Chances are that you’ve read numerous books and articles on what to do to succeed in business. But often, knowing what not to do is even more important. In order for your company to make more money, be sure you’re not inadvertently making any of these top 10 business mistakes.
Mistake #1: Prejudging your customers.
They say you can’t judge a book by its cover, but all too often, business owners prejudge their prospects and customers before ever talking with them. How many times have you met someone and thought, ‘I doubt he can afford my product,’ ‘she looks like she’d be impossible to work with,’ or ‘this person isn’t my ideal client’? Rather than prejudge and dismiss who could be your next best customer, suspend judgment and take the time to get to know each prospect and client.
Mistake #2: Taking too long to follow up.
If someone calls or e-mails to inquire about your products or services, how long does it take you to get back to them? While many business owners think it’s OK to reply within three days, you really need to get back to people within 24 hours or less. After all, if they’re contacting you for information, they are likely contacting your competitors as well.
Mistake #3: Not working with someone because of imagined slights.
If someone is having a bad day or is not feeling well, they may say or do things that you think are intended in a mean-spirited way. For example, a prospect may ask, ‘how did you get into this business?’ But because of their demeanor that day, or because they’re rushed, or because of any number of other reasons, their question might come across to you as though they asked, ‘how did you of all people get into this business, because you certainly don’t look smart enough to do this?’ Never take anything a customer says or does as a personal attack. It usually isn’t.
Mistake #4: Making prospects and customers feel unimportant.
People want to know that they’re more than just another sale to you. They want to feel that you really care. For example, one business owner was stumped as to why one of the company’s best customers stopped buying. Finally, she asked the customer what happened, and the customer explained that, in the past, the business owner had had always taken her out to lunch once per quarter, and they hadn’t done that for nearly six months. As a result, the customer felt that she was no longer important. Upon hearing this, the business owner promptly took the customer out to lunch, and she got a sale. Therefore, take an active interest in your customers. Remember their birthdays. Send them a small gift on their anniversary. Do whatever you can to make each customer feel special.
Mistake #5: Not letting your staff handle important issues.
When there’s an issue with a customer, can your staff take care of most of the situations? Or must everything wait for you to resolve it? When you make customers wait for you to get an issue resolved, you’re giving them extra time to stew over the situation and get angrier. Instead, give your staff the training and tools to handle whatever situation arises so they can make the customer happy right away. Remember, you want your customers to always leave your store or office happy and with all their issues resolved. That’s the best way to ensure repeat business.
Mistake #6: Being inflexible with your hours.
We all want life balance, but sometimes work is not a 9-to-5 job. You have to be flexible if you want to get the sale. That means, if you have a good lead or a customer who is ready to spend money with you now, you may have to work outside your normal business hours. So be open to returning phone calls after business hours or even meeting with a client on a weekend. You can always balance out the extended hours you put in one day by taking time off another day.
Mistake #7: Waiting too long to make an important decision.
In business, the speed at which you can make an important decision is critical to your success. Opportunities won’t wait until next month, next week, or even the next day. To prosper, you have to take action quickly. For example, if you interview someone who seems perfect for your open position, make an offer immediately. If you wait, another company will also think the person is perfect and hire them. Or, if you have an opportunity to sponsor an event at a good price, secure your spot. When you hem and haw over the ROI of the decision, by the time you make up your mind, all the sponsorships could be bought. Trust your gut when it comes to decision making; it’s usually right on.
Mistake #8: Making it impossible to find your contact information.
Make sure your contact information is easy to find. On your website, your phone number and e-mail address need to be prominent on every page. Nothing frustrates customers more than wanting to contact you but not being able to because they can’t locate your phone number on your website or in your e-mail signature. Even the most loyal customer will eventually give up and call your competition simply because they made their contact information visible and easy to find.
Mistake #9: Using cheap marketing materials that make you look bad.
Your marketing materials tell a lot about your company — not just in the words on the page, but also in the overall look and feel of the piece. Take a good look at your current marketing materials. Do they look professional? Are there misspellings? Do they properly represent you? When your marketing materials look like an amateur created them, or when they’re riddled with errors, you send the message that you’re unprofessional and incapable of delivering quality work. Make sure your marketing materials present you in the best light.
Mistake #10: Being rigid with your contracts.
If your business uses a contract with customers, it’s definitely an important part of the transaction. However, just because it’s important doesn’t mean it can’t also be flexible. If someone requests a change to the contract, consider it. If it’s something small, give in to it. Realize that sometimes, people just want to feel as though they’ve won — that they negotiated a good deal. So if the item they want to change is small and not that important to you, let them have it. And rather than give them more time to think about it while you reissue a new contract, allow them to simply handwrite in the change and initial it. The quicker the contract is executed, the sooner you’ll get the sale complete.

Bottom Line
Of course, taking advice from others can be hard for any business owner. But why repeat the mistakes others have made? Why not learn from them so you can shorten your learning curve? When you take the steps to avoid these top 10 mistakes, you’ll be on the fast track to long-term success.

Pam Lontos is President of Pam Lontos Consulting. She consults with businesses, speakers, authors, and experts in the areas of marketing, publicity, and speaking. She is a past vice president of sales for Disney’s Shamrock Broadcasting, where she raised sales 500%, and she founded PR/PR Public Relations. She is the author of I See Your Name Everywhere: Leverage the Power of the Media to Grow Your Fame, Wealth and Success. She is also a former professional speaker; (407) 522-8630; [email protected];
www.pamlontos.com

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Why You Should Be Cynical About Marketing

Marketing is too important to be left either to marketers or CEOs –– but for different reasons.
Much of marketers’ energy goes into what is popularly known as self-marketing — that is, landing the next marketing gig. If you don’t believe it, take a trip through LinkedIn, where self-promotion among marketers is brazenly and shamelessly transparent.
Marketing is also too important to allow company CEOs (or anyone else of that ilk) to get their hands on it. Inevitably, they will try to shape it to fit some notion they have inside their heads. And it will be wrong. Look no further than JCPenney’s tragic history. Even if those surrounding the CEO, including board members, know what’s wrong, many are prone to nod their heads on cue.
For marketing to be effective, it requires the best that both CEOs and professional marketers can bring to it, the former for the story (no one knows it better), and the latter for astutely translating the story into winning and keeping customers.
If either fails to understand and appreciate the role of the other, marketing fails. If either fails to perform their role, marketing fails. And if either attempts to assume the role of the other, marketing fails.

How to Be a Cynic
Because marketing is critical to a company’s success, the role of a marketer deserves careful attention, and playing the role of cynic is the best way to do perform this task. For example:
• Be cynical of anyone who lays on the marketing jargon. If someone is in marketing and they use terminology you don’t understand, watch out. This person is faking it; they’re arrogant, and they don’t know anything about marketing.
Marketing is quite different. It’s all about clarity and doing away with roadblocks to communication. The goal is bringing people together so they can interact and learn from each other.
• It helps to be cynical and believe that much of what a marketer does is actually a carefully planned exercise in résumé building. All this is quite obvious, particularly when you find a continuous string of Facebook or LinkedIn ‘experience’ and ‘expertise’ updates. Don’t be surprised if you discover that some marketers seem to have only one customer: themselves.
• While the coveted ‘marketing manager’ title is intended to elicit confidence, the cynic recognizes that it may be a cover. Quite often, this title is a sign that the person’s self-appointed role is heavy on talking, telling, and meeting, but extremely light on thinking, planning, and doing.
• Sure, you should be cynical if a marketer talks a lot about what the ‘company’ wants. Rather than focusing on customers, it’s a good bet that the boss is the only customer that counts. Marketing isn’t easy –– it requires a high degree of objectivity that recognizes when saying no is the right thing to do.
• You should be cynical when the new marketer says, “we want to spruce up the company’s image with a new logo.” If this happens, you can be sure you have the wrong person. It’s a ploy that’s often used by hires to let everyone know who is in charge (and to buff up the résumé).
Whatever company it happens to be, its identity demands research, thoughtful discussion, and testing. That’s a rigorous task that takes time. Anyone who wants to rush into adopting a new logo is likely the wrong person for the job.
• If it seems that the company’s marketing program is all over the map, it’s time to be cynical about what’s going on. A primary role of a marketer is to constantly monitor the marketing activities and make sure they reflect the agreed-upon marketing plan. If this isn’t happening, you may have a marketer problem on your hands.
• Crank up the cynicism if a marketer speaks disparagingly about customers. As odd as it might seem, there are marketers who seem to have little regard for their customers –– in effect, their clients.
Try as hard as we might, we can’t be objective, genuinely enthusiastic, or do our best work when negative biases affect our thinking.
• If it seems that those responsible for your marketing think that their task is to get people to buy stuff, it’s time to be cynical. When marketing becomes the handmaiden of sales, it’s no longer effective. In fact, it’s dead. It isn’t easy to maintain a solid customer commitment when the pressure is on to make the numbers.
Yet, if marketers have a justifiable role, it’s doing everything possible to create customers, those who discover the company is aligned with their values and want to do business with it. Inside the company, marketers have the unique task of being customer advocates, making sure that customers are heard and well-represented.
• Be cynical if you’re getting ‘copycat’ marketing. If you think most marketers are innovators and risk takers, think again. While there are exceptions, most marketers play it safe to avoid negative repercussions. They often prefer borrowing surefire ideas from others rather than developing marketing activities that uniquely serve their customers’ best interests.
• If your marketing people seem to be ‘gofers,’ it’s time to be cynical. In fact, it’s long overdue. Far too often, management (and others) treat marketing people as if their role is to do just about everything other than marketing, pulling them in more directions than the latest lottery winner. It’s time to be sufficiently cynical to put a stop to it.

Keeping a Close Eye
All this suggests that a careful review of your company’s marketing may find that cynicism doesn’t go far enough. Marketing is on target only when the various components exhibit a strong sense of unity so the whole delivers a greater impact than the sum of the individual elements. If the picture of your company’s marketing is more like the scattered pieces of a puzzle with the parts bearing little resemblance to one another, it’s time to make some serious changes.
Marketing may not be the only company function that deserves the close attention of a cynical eye –– but it’s a good place to start. n

John Graham, of GrahamComm, is a marketing and sales consultant and business writer. He publishes a free monthly eBulletin, No Nonsense Marketing & Sales; [email protected]

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Taking Steps Now Can Lessen Your Tax Burden for 2013

Jim Barrett

Jim Barrett

It may seem that you just filed or extended your 2012 tax return, but it isn’t too early to start planning for your 2013 return. There have been significant changes in tax law recently, so to avoid unpleasant and costly surprises, it makes more sense than ever to take a midyear look at your tax situation.

Even before the first dollar of income or deduction hits your return, be aware of the listed personal information, including Social Security numbers. Tax fraud through the use of identity theft tops the IRS 2013 list of tax scams. Tax returns and tax information should be safeguarded.

Shredding is the recommended means for disposing of unneeded records and returns. Keep in mind also that the IRS does not initiate contact with taxpayers by e-mail to request personal or financial information, so don’t be a victim of a phishing scam.

If you are on the move, notify the IRS of your change of address. For name changes because of marriage or divorce, for example, be sure to notify your local Social Security Administration office.

A number of new tax provisions referred to below apply at various thresholds, including certain levels of wages and self-employment income, adjusted gross income, and overall taxable income. Watch for the break points that might put you in a higher tax bracket or limit your deductions.

Tax planning to reduce income and/or consolidate deductions may avoid various limitations in the tax law. Contributing to qualified retirement plans, deferring income, investing for tax-exempt income, and grouping deductions into 2013 are just some of the midyear planning opportunities that could reduce your taxes. The new thresholds aren’t consistent through the various limitations, so it’s more important than ever to perform calculations to determine the best strategies.

Shifting income and future appreciation from investments to family members by means of gifting may be a tax-planning opportunity. For gift-tax purposes, the annual exclusion in 2013 has been increased from $13,000 to $14,000. Each year, this amount may be given to each of any number of recipients with no tax consequences.

In addition, the estate, gift, and generation-skipping transfer tax has been permanently set at a top rate of 40%, with a $5.25 million exemption for total lifetime gifts or for estates of decedents dying in 2013. However, when dependent children are still under 19, or under 24 while full-time students, the so-called ‘kiddie tax’ applies the parents’ tax rate to the children’s investment income in excess of $2,000 for 2013. That may reduce in the short term the income-tax benefit of shifting income.

 

Personal Income

First off, check your 2013 income-tax withholding or 2013 estimated tax payments, particularly if you receive self-employment income. An underpayment penalty will apply on April 15, 2014, if your 2013 withholding and estimated tax payments do not equal at least 90% of your 2013 total tax.

Other exceptions apply based on your prior-year tax. If your estimates equal or exceed 100% of your 2012 total tax (110% if your 2012 adjusted gross income exceeded $150,000), the penalty will not apply.

Be sure to report all of your income. The IRS is watching for unreported offshore bank accounts and brokerage accounts. There is nothing wrong with international investments, but all of the related income must be reported on Form 1040, and information about foreign accounts must be separately reported on Form TD F 90-22.1.

Starting in 2013, an additional 0.9% Medicare tax is being applied to wages and self-employment income for those whose earnings exceed certain thresholds:

• For single taxpayers, the tax applies to wages and self-employment income exceeding $200,000.

• For married taxpayers filing joint returns, the tax applies to wages and self-employment income on joint income exceeding $250,000.

Employers may not withhold this new tax if individual wages do not exceed the threshold. But if joint wages exceed the threshold, a tax underpayment may result if the new tax is not considered in estimated tax requirements.

Beginning in 2013, the top rate on dividend income and long-term capital gains has increased from 15% to 20% for taxable income in excess of $400,000 for single taxpayers and $450,000 for married taxpayers filing jointly.

In addition, the new 3.8% Medicare tax on net investment income will apply. Net investment income includes income from passive activities, so there may be an opportunity to take another look at your businesses and consider their classification, grouping elections, tax basis in these entities, etc., to help minimize this tax.

The application of the new 3.8% tax starts at adjusted gross income of $200,000 for single taxpayers and $250,000 for married taxpayers filing jointly. Consequently, for these higher-income individuals, a combined top tax of 23.8% on dividends and long-term capital gains can apply.

Reducing long-term capital-gain income by selling capital-loss investments to offset the capital gain is a tax-planning opportunity, resulting in a lower overall gain subject to tax. For taxpayers with taxable income (including capital gain and dividend income) of up to $72,500, the capital gain and dividend income is taxed at a 0% rate. In addition, the 15% rate applies at lower levels of taxable income. Therefore, planning techniques to shift income or deductions between years could affect the rate at which your capital gain and dividend income are taxed.

Other tax-planning opportunities to reduce the new 3.8% tax include:

• Investing in tax-free municipal bonds;

• Reducing investment income subject to tax with investment expenses and account-maintenance fees;

• Avoiding the tax with qualified plan contributions;

• Deferring the tax with installment sales and like-kind exchanges; and

• Grouping passive partnership profit-and-loss investments to minimize overall passive income subject to the tax.

 

Business Income

Several business provisions in the tax law are available only through 2013. For this reason, it may be prudent to plan to use them by the end of the year. They include:

• Section 179 expensing of up to $500,000 of new or used equipment when total fixed asset additions do not exceed $2 million for the year;

• Lesser expensing is available when fixed-asset additions exceed $2 million but are less than $2.5 million;

• No deduction is available when fixed asset additions equal or exceed $2.5 million;

• A 50% bonus depreciation on new equipment;

• A 15-year rather than a 39-year cost recovery on qualified leasehold improvements and restaurant and retail assets;

• Research and development credits; and

• The Work Opportunity Tax Credit.

Midyear and year-end planning may be especially important for Section 179 expensing, which is scheduled to drop from $500,000 in 2013 to $25,000 in 2014, and for bonus depreciation, which is scheduled to expire totally after year end.

Starting in 2013, taxpayers may deduct $5 per square foot of office space, up to 300 square feet, annually for as much as $1,500 in deductions in computing deductible expenses for a home office in lieu of actual expenses. While simplifying record keeping, a larger deduction might be computed on actual expenses. A home-office deduction generally is allowed only when a portion of a home is used as the principal place of business and exclusively for business — not just as a convenience for bringing work home.

 

Deductions from Gross Income

Certain deductions from gross income have been extended only through the end of the year, so it may be prudent to begin identifying opportunities to take advantage of those tax breaks. Among the provisions are:

• Deduction of up to $250 for K-12 teachers’ expenses; and

• Deduction of up to $4,000 of tuition and related expenses (limited at higher income levels).

Some of these deductions may not be available for taxpayers at various levels of higher income.

 

Retirement Savings

In a typical qualified retirement plan, a tax deduction is allowed when contributions are made to the plan, and future distributions are taxable. For a Roth IRA, no deduction is allowed for contributions, but distributions of original contributions and income are tax-free.

Last year, a qualified retirement plan could allow participants to contribute to a Roth account. Plans also could allow participants to convert pre-tax accounts to Roth accounts, but only for amounts participants had a right to withdraw, usually because they were at least 59 1/2.

Starting in 2013, any amount in a non-Roth account can be rolled over to a Roth account in the same employer plan, whether or not the participant is 59 1/2. The conversion is subject to regular income tax but not an early distribution penalty.

 

Personal Exemptions

Each taxpayer and dependent in a tax return is allowed a personal exemption of $3,900, which reduces taxable income and the related income tax. A limitation that was in the tax law several years ago has been resurrected in 2013. For single taxpayers with more than $250,000 of adjusted gross income and married taxpayers filing joint returns with adjusted gross income over $300,000, the amount of each personal exemption is reduced, causing an increase in total tax.

Personal exemptions are completely phased out at adjusted gross income of $372,501 for single taxpayers and $422,501 for married taxpayers filing joint returns. Tax planning that reduces taxable income may have the added benefit of preserving more of the personal exemptions.

 

Itemized Deductions

The total amount of itemized deductions — frequently consisting of state income taxes, real-estate taxes, mortgage interest expense, and charitable contributions — is reduced for single taxpayers with more than $250,000 in adjusted gross income and married taxpayers filing joint returns with adjusted gross income in excess of $300,000. A taxpayer may not lose more than 80% of itemized deductions.

 

State Taxes

Midyear and year-end tax projections are especially important for state taxes. Just like the IRS, states generally impose withholding and estimated-tax requirements, and they charge underpayment penalties if sufficient payments are not made during the year.

State taxes are deductible in computing federal income tax, but the timing of payments may be important. One tax-planning strategy is to prepay by Dec. 31, 2013 state-tax estimates (due in January 2014) and projected balances (due on April 15, 2014) to accelerate deductions into 2013.

However, this strategy is not beneficial for a year in which you are paying the alternative minimum tax, since the AMT doesn’t allow deductions for taxes, including state income taxes. If this sounds complicated, that’s because it is. A tax projection is the best way to approach this issue.

 

Charitable Contributions

A number of natural disasters have already occurred this year. Unfortunately, disasters bring out scam artists who impersonate charities to obtain money or private information under false pretenses. Be sure to verify charitable organizations before sending a check or providing a credit-card number.

Now is the time to document charitable contributions made so far this year. Receipts or canceled checks are required for donations of up to $250, and a separate acknowledgment letter from the charity is required for contributions of $250 or more. The acknowledgment letter must state whether any goods or services were provided to you by the charity.

Only your contribution in excess of the fair market value of anything you received is deductible. For example, if you buy a $250 ticket to a charity ball and a dinner valued by the charity at $75 is served, the excess payment of $175 is tax-deductible.

With an increase in the capital-gains tax from 15% to 20% this year for higher-income taxpayers, it may be advantageous to contribute appreciated stocks held longer than one year directly to a charity. In that case, the full, fair-market value of the contribution would be deductible, but the related capital gain is not subject to tax.

A transfer of IRA assets directly to a charity is also permitted through the end of the year. No charitable deduction is allowed because a deduction was permitted when the IRA originally was funded. However, the transfer is not a taxable distribution from the account, yet it fulfills the obligation of the required minimum distribution for taxpayers over age 70 1/2.

 

Tax Rates

The so-called Bush tax cuts have been extended permanently for most taxpayers, avoiding an increase in all tax brackets. But the top rate has increased from 35% to 39.6% for single taxpayers with more than $400,000 in taxable income and for married taxpayers filing a joint return with more than $450,000 in taxable income.

Coupled with the new 3.8% tax on net investment income and the expanded 0.9% Medicare tax, tax planning is an important midyear exercise, especially for higher-income taxpayers. However, midyear tax planning is important for all taxpayers who want to reduce their tax liability and avoid surprises at tax-return filing time.

 

Credits

The dependent care credit for children under 13 has been permanently extended. Eligible expenses of up to $3,000 for one child and up to $6,000 for two or more children are allowed.

The credit is reduced from 35% to 20% when adjusted gross income exceeds $43,000. A planning opportunity exists by first electing up to $5,000 in pre-tax dependent care during open enrollment in employee benefit plans this fall and then using the dependent-care credits for expenses above that amount.

The child-tax credit has been made permanent. The credit of up to $1,000 per child is available for dependent children under age 17. The credit is reduced and eventually eliminated when adjusted gross income exceeds $75,000 for single taxpayers or $110,000 for married taxpayers filing a joint return. Tax planning to reduce adjusted gross income may provide a larger child-tax credit for the year.

The American Opportunity Tax Credit for college costs has been extended for five years through 2017. A credit of up to $2,500 may be claimed during the first four years of college. The credit phases out for adjusted gross income in excess of $80,000 for single taxpayers and $160,000 for married taxpayers filing a joint return.

The $1,500 credit for new windows and doors has expired, but a credit of up to $500 for residential energy property is still available if prior years’ credits were not taken.

Credits in particular are valuable because they reduce taxes dollar-for-dollar, while deductions reduce the amount of income subject to tax.

 

Conclusion

To benefit from midyear tax planning, a projection of 2013 — and possibly 2014 — income and deductions and income taxes for the year can be performed now and then updated for a final year-end look. Taking some time to plan now can save real tax dollars in 2013 or, at the very least, push taxes to later years.

Contact your CPA to help you plan to take action now to reduce your 2013 tax burden.

 

James Barrett is managing partner of Meyers Brothers Kalicka in Holyoke; (413) 536-8510; [email protected]

Columns Sections
Time is Money, So Manage More Effectively

Patricia Murphy

Patricia Murphy

Time management in the life of the busy professional is always a challenge. The balance of one’s commitments at work and at home can be difficult and, at times, overwhelming to manage.
Modern technologies intended to make our lives easier, often add too much information and clutter, forcing us to spend time on unimportant and unprofitable tasks. Whether you are a small business owner, in commission sales, or an employee of a small or large company, using your time wisely is essential to your individual production and overall profit. As the old saying goes “time is money.”
While we can’t add more time to our days, we can manage the time we have more effectively. Finding a time-management strategy that works depends on the individual and their environment. Hopefully, these tips can help you more effectively manage your time.

Planning
Failing to plan is planning to fail. Reviewing your calendar and identifying your commitments can help you manage your priorities and make the most of your time. Looking at the week ahead can help you make the distinction between what is urgent and what is important. Making planning a habit and doing it religiously is crucial to maintaining control over your time. Here are some additional thoughts:

• Spend time at the beginning of each week planning for your week ahead. Planning in advance gives you time to react to unforeseen situations and plan for things you want to do;
• Plan for tomorrow before today ends. Spend some time planning for your next day’s accomplishments;
• Try to limit scheduled time too, because distractions always seem to arise.

Task Lists
To effectively manage all of the outstanding tasks, commitments, and engagements, we cannot rely on our memory alone. The average person has 50 tasks in their heads at any given time according to the “Getting Things Done” time-management system created by David Allen. Maintaining a reliable and well-kept list allows us to reduce the mental energy required by storing the list in our heads, resulting in forgotten items and missed tasks.

• Make a list of all the things in your world that need resolution;
• Go through each of these items and assign it a letter of importance from A (very important) to C (unimportant);
• Assign an amount of time to complete each of the items;
• Prune your list by following the ‘4-D theory’: do it, dump it, delegate it, or defer it, making it manageable; and
• Remember that multitasking can actually lower the quality of work; try to devote full attention to one task at a time.

Calendars
In order to help manage meetings and events, it requires the effective use of a calendar. Whether it’s paper or electronic, you need a system where you know where to be and when. A calendar which shows the entire month at a glance is better than one that shows a week at a time.
Viewing your calendar monthly will help you to obtain a better picture of your time and it will help you to plan on a weekly basis. Here are some tips:
• Input only time and day-specific items; try not to over clutter;
• Set up recurring events;
• Color code your calendar (green for personal; red for meetings; blue for phone calls, for example);
• Use notifications and reminders;
• Automatically add holidays into your calendar; and
• Syncronize calendars whenever possible.

E-mail
E-mails have become a necessary evil in today’s business world. While e-mails can save time and long conversations, they can also be misleading, overused, and misinterpreted. Using e-mail more effectively will not only save time but could actually help increase productivity. Keep these suggestions in mind:
• Keep an empty inbox — read the e-mail once and decide what to do with it. As with the task list, use the 4 D theory: do it, delegate it, defer it or delete it (file);
• Try to limit e-mails to a few sentences — get right to the point;
• Make your subject line obvious;
• Try to write fewer e-mails and avoid copying unnecessary recipients;
• Set aside time to check and respond to e-mails, especially during “low productivity time” (i.e. lunch);
• Avoid checking e-mails first thing in the morning. This will help you to avoid reacting to others demands and will allow you to stay focused on your own demands;
• Write smarter e-mails and be clear. Try to anticipate the next reply in order to answer any potential questions;
• Set up folders to have a good email filing system;
• Route annoying e-mails to junk and non-essential e-mails (newsletters or blogs) can be set up to go straight to a folder;
• Turn off the visual and audible e-mail alerts; and
• Create an e-mail template for recurring e-mail messages sent, such as thank-you notes and meeting confirmations.

Get Organized
Paperwork can easily get out of control and eat up valuable time you could be using to accomplish your goals. Keeping your desk clean is crucial to avoid getting overwhelmed by the clutter and maintaining control of your environment. Here’s how:
• Try to touch each piece of paper only once, using the 4 D theory discussed above;
• Set up a well-maintained filing system; and
• Add an extra monitor or two, which will allow you to have multiple screens open at the same time, significantly increasing your efficiency.  Monitors are even portable; they are lightweight and are the size of a legal pad.
Even the best strategies we implement can’t work without the dedication to making them work and the consistency it takes to make them a habit. If we can start to think of time as a commodity, as we do money, we can start to put a value on our time and question how we spend it.
Using your time wisely will allow you to be more effective with the time you do have.
Staying focused on what is important and being proactive rather than reactive will result in increased productivity, reduced stress and devoting more time to important and rewarding projects. Overall, successful time management will make a positive difference in your career and ultimately your bottom line.

Patricia J. Murphy, CPA, is a Senior Associate with the Holyoke based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3540; [email protected]

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Wage Suit Against Lady Gaga is Litigation of Note

Karina L. Schrengohst

Karina L. Schrengohst

The lawsuit brought against Lady Gaga by her former personal assistant (PA) illustrates some of the wage-and-hour law challenges that employers face.
Lady Gaga hired a friend to be her personal assistant at an annual salary of $75,000. After the two had a falling out, Lady Gaga’s former PA filed a lawsuit alleging that she is owed almost $400,000 in unpaid overtime under the Fair Labor Standards Act (FLSA) and state law. The PA claims she worked 24/7, around the clock. According to the PA, her job duties included reviewing and reconciling credit card statements, ordering meals, heating Lady Gaga’s food, ensuring the promptness of a towel after a shower, serving as a personal alarm clock to keep Lady Gaga on schedule, packing and unpacking Lady Gaga’s 20 bags of luggage, and sleeping in Lady Gaga’s bed with her so that she would be able to attend to all her needs.
Under the FLSA, employees are entitled to overtime unless they fit within specific overtime exemption categories. For a personal assistant, the most likely exemption is the administrative exemption. In order to fit within this exemption, Lady Gaga would have to show that her former PA was paid on a salary basis of at least $455 per week, that her primary job duty included performing office or non-manual work, and that she exercised discretion and independent judgment. In this case, the job duties the PA described do not require the requisite level of discretion and independent judgment sufficient to meet the administrative exemption. Therefore, assuming her description of her job duties is accurate, she would be entitled to overtime for the hours she worked over 40 in a workweek.
But exactly how many hours of overtime did the PA work? According to the PA, she was not compensated for 7,168 hours. But no one kept track of her hours, which, in the case of a non-exempt employee, is an employer’s responsibility.
Also, the PA claims that even during her time off during the day she was required to carry her cell phone in case Lady Gaga needed something. Consequently, according to the PA, she was limited in her ability to engage in personal activities. Therefore, as a non-exempt employee, she likely would be entitled to be paid during some of this on-call time. Similarly, if the PA really had to sleep in Lady Gaga’s bed to attend to any needs that might arise, that time during the night would likely be compensable as well.
During her deposition, Lady Gaga stated that her former PA knew that she would be paid $75,000 for working 24/7 and that she knew that she was not entitled to overtime. Further, recounting some of the perks of the job, Lady Gaga stated that her PA “slept in Egyptian cotton sheets every night, in five-star hotels, on private planes, eating caviar, partying . . . all night, wearing my clothes.” However, knowing she was expected to work 24/7 and enjoying these perks does not overcome the fact that, based on the PA’s description of her job duties, the PA was a non-exempt employee, entitled to overtime pay and on-call time pay.
State and federal laws pertaining to wage-and -hour issues, such as overtime, are complicated. As a result, these are areas where mistakes are often made. Employers, however, cannot afford these errors because the consequence of not complying with these laws can be very costly. In fact, in Massachusetts, there are mandatory treble (triple) damages for unpaid wages. This means that if an employer is found in violation of state law, at a minimum, for every dollar an employer does not pay in accordance with wage-and-hour laws, that employer will have to pay three times that amount. In Lady Gaga’s case (if the case was brought in Massachusetts, which it was not) if the court found that her PA was owed $400,000 in unpaid overtime, Lady Gaga would have to pay $1.2 million. In addition, Lady Gaga would have to pay her former PA’s attorneys’ fees and costs of the litigation. Thus, in order to reduce the risk of liability, employers should consult with their employment counsel and familiarize themselves with state and federal wage-and-hour laws to ensure compliance.
As a side note, Lady Gaga’s legal battle also illustrates the importance of an employer maintaining her poker face during deposition. During her deposition, under oath, Lady Gaga called her former PA a “f—ing hood rat who is suing me for money she didn’t earn.” She also stated “I’m the queen of the universe every day.” And she said to her former PA “I’m quite wonderful to everybody that works for me, and I am completely aghast to what a disgusting human being that you have become to sue me like this.”
These colorful comments will likely be quoted by the PA’s attorneys in briefs submitted to the court. Although an extreme example, it illustrates how damaging emotionally driven testimony can be.

Karina L. Schrengohst, Esq. is an attorney at Royal LLP, a woman-owned, SOMWBA-certified, boutique, management-side labor and employment law firm; (413) 586-2288; [email protected]

Columns Sections
Some On-the-money Advice on Grant Writing

By DONNA ROUNDY, CPA and CARLY CAVANAUGH, CPA

Donna Roundy, CPA

Donna Roundy, CPA

Carly Cavanaugh

Carly Cavanaugh

Grant money can be used in a number of applications, including the forming of new nonprofit organizations, startups, and the expansion or development of current initiatives and programs. However, securing grant money for your organization isn’t always as easy or straightforward as you may expect.
In a difficult and tumultuous economy, funding is increasingly difficult to secure. There is heightened competition for a diminishing grant pool, increased scrutiny by granting organizations, and limited resources to utilize when applying for grant dollars. Beyond the economic constraints involved, there are a number of additional issues to consider, including where to begin looking for grant money, how to apply, and how to determine which grants you may be eligible for.
However, despite the many challenges you may face when pursuing grant money, there is a light at the end of the tunnel. In this article, we will explore ways to differentiate and enhance your application, resources you may use in order to pursue the best opportunities, and strategies that you can utilize in order to build cohesive and effective relationships with granting organizations. Further, we will discuss the importance of finding granting organizations whose goals and mission are aligned with that of your organization.
When applying for a grant, it is crucial to be informed about the granting organization and its expectations. Ensuring that both organizations are working toward similar goals is step one; carefully read the application and assess whether your missions align. A careful analysis of your own organization’s mission and long-term goals is imperative.
Also, determine if any of your professional or personal contacts have an affiliation or relationship with the grantor. Matt Blumenfeld, principal of Financial Development Agency, noted that “your board and close friends matter. While it is frequently the executive director and/or board chair who will officially submit the proposal, it is really important to figure out if your organization (volunteers or staff) has any existing relationships with an individual at the funding source.”
If you can locate and activate a ‘champion’ inside the funding entity that will help to distinguish your proposal from all of the other excellent applicants you’re competing with, you increase your likelihood of acquiring funding. Blumenfeld stressed how important building relationships with the grantor can be. Establishing a relationship can be helpful because they get to know your organization.
Collaboration among organizations seeking grant money is a unique way to set your organization apart and increase your chances of winning a grant. When two organizations with similar or complimentary missions connect, you can increase the population you are helping and may be able to offer a more complete service.
For example, if you are applying for a grant to decrease childhood obesity through after-school programs, you may consider teaming up with a local gym, a farmers market, or your local parks and recreation department. Pooling these resources not only more effectively accomplishes your goal but also creates a symbiotic relationship between entities that makes a difference in the community and increases your chances to be successful in winning your grant award.
Be mindful of deadlines. A significant amount of information is needed to complete an application. Working with your team to set internal deadlines before the grantors’ deadline is a great way to ensure enough time for review and rewrites.
Being honest and realistic about what you hope to achieve is essential. Let your passion stand out in your writing. You want the funder to share your excitement about what you plan to achieve. It is important that you understand and can clearly communicate your program objectives but also how you are going to make that dream a reality. Realistic expectations and budgets can make the difference. Having additional funding sources can be a deciding factor in your favor, as grantors prefer not to be the sole provider of funds.
Once you have finished writing your proposal and have performed an intense self-review, one strategy for success is to reach out to people outside of your company or organization. Often, professional colleagues have gone through the process and can provide insight into making your proposal successful. A proofreader can give you objective advice on how to be more clear and logical in your language, and can catch inconsistencies. Be open-minded to suggested changes.
Here in Western Mass., there are a number of resources available to you when searching for funding sources. One organization that lists private funders is the Foundation Center Directory (www.foundationcenter.org). You may also wish to contact the Community Foundation of Western Mass. for help with the technical aspect of grant writing and to request funding. If you are a smaller organization and do not have the personnel or time to put into writing a grant proposal, you may consider using a grant-writing company, such as the Financial Development Agency of Amherst. These types of agencies are there to help you along the way and provide guidance through this difficult process if your organization lacks the resources to devote to grant writing.
Securing grant money is a difficult and challenging process. However, with the appropriate amount of research, relationship building, and passion, it’s an achievable goal. The guidance of your peers and that of the granting organization can help you successfully navigate the grant-application process. Always be sure to leverage the resources available to you, ensure that your mission and that of the grantor are aligned, and, above all, pay strict attention to detail when preparing your grant application.
By keeping these strategies in mind, you will be well on your way to winning your bid.

Donna Roundy, CPA is a senior manager with the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C. (MBK); [email protected] Carly Cavanaugh, CPA is a senior associate with MBK; [email protected]

Columns Sections
Managing the Property Tax on Your Business

Most businesses have recently finished their tax year and are closing their books and analyzing expenses. Part of this process is usually reviewing what expenses can be reduced in future years to add profits.

Many times, the amount paid for personal property tax is not even considered in this process. However, effectively managing this tax can have a significant impact on the final amount assessed. This article will explain a few simple steps you can take to ensure that you’re not overpaying your company’s personal property tax.

The Form of List (FOL) is a document used by Massachusetts cities and towns to calculate the local personal property taxes of businesses. The form, which is issued early in the year, is often completed with very little regard. Unfortunately, this particular form can have significant tax consequences.

When completing the FOL, be sure to report a value for all the assets listed on your books. No asset has a zero value in the eyes of your city or town. Be mindful of this and make sure that the assets listed on your books accurately represent those assets you actually possess — there is no need to pay a tax on something you no longer own.

The majority of local assessors will assign a fair market value to the assets on your books, none of which will have a value lower than 10% of the original cost. This makes it very important to write off all of those old computers, that broken-down forklift, or even that traded-in copier still included in your fixed assets.

Another issue to keep in mind is that some local assessors require that the disposal of assets be formally communicated to them. Simply leaving those assets off the listing doesn’t ensure that they will be removed from the assessor’s file. Businesses can request a list from the assessor summarizing their assets, their cost, and their assessed value. Use this list to cross out assets that have been disposed of (or abandoned) so they are removed from your base taxable amount.

If you are a Massachusetts corporation registered with the state, you pay a tangible-property excise tax on your state income-tax return for the net book value of furniture, fixtures, and inventory.

Local assessors should assess you only a personal property-tax bill at the local mill rate on non-manufacturing machinery owned. Care should be taken to ensure that items being listed as non-manufacturing machinery (computers, copiers etc.) are not also listed under furniture or fixtures on your state tax return. This will result in a double tax.

If your business is not incorporated (a sole proprietor or partnership, for example), the city or town can tax all of your fixed assets and inventory at the local mill rate. It could be advantageous to consider the effect of this difference. Local property rates can be about $40 per thousand of fair market value versus the state rate of $2.60 per thousand of net book value.

 

New Requirement

This year, Massachusetts has introduced a new filing requirement. Based on this new obligation, corporations and LLCs taxed as corporations (including S corporations) must now file a “Certificate of Entity Tax Status” with the MA DOR annually. Companies who have a web-file business account with the state will now see a new tab for “Annual Certificate of Entity Tax Status,” which allows them to submit the information needed to be included on the MA DOR Annual List of Corporations for Property Tax Status, also called the Corporation Book.

This list is examined by local assessors for a few different reasons. The first reason is to determine if your business is a corporation, preventing a local tax on your inventory, furniture, and fixtures. The second reason, and perhaps the most important part of this process, is to determine whether or not you are in fact a classified manufacturer.

Classified manufacturers receive a local property-tax exemption on their machinery in addition to their inventory, furniture, and fixtures. As outlined above, the differences in the taxable amount and tax rate make this very beneficial. So how do you go about determining whether or not your business has the classified manufacturing status? If you don’t have it, how do you go about getting it?

On the Corporate List, there is a code to distinguish companies that are classified manufacturers in Massachusetts. If your company is not distinguished on the list as such, you need to file a Form 355Q with the MA DOR for status approval. There are certain qualifications that must be met in order to be considered a classified manufacturer in the Bay State.

Generally, a corporation may be classified as a manufacturing corporation for any calendar year if it is in existence and engaged in manufacturing in Massachusetts as of Jan. 1 of that year. A corporation is engaged in manufacturing if both of the following requirements are satisfied:

1.  The activities of the corporation involve manufacturing; and

2.  The manufacturing activities performed by the corporation are substantial.

Manufacturing is defined as the process of substantially transforming raw or finished materials by hand or machinery, and through human skill and knowledge, into a product possessing a new name and nature, and adapted to a new use. This is a facts-and-circumstances test emphasizing the importance of what information you provide when completing the Form 355Q.

There may be other challenges to overcome, but this is a good starting point when determining whether your company could be eligible to receive the local property-tax exemption on machinery. If you believe that your company meets any of the requirements listed above, you should be sure to discuss this with your accountant or tax advisor. Do not assume that you should receive an exemption without the state’s approval; cities and towns are aggressively working to identify businesses not qualified for the local exemption either partially as a corporation or more extensively as a classified manufacturer.

When that Form of List comes in the mail this year, be sure to pay attention and, as always, consult your tax advisor.

 

Dan Eger is a tax associate for the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3555; [email protected]

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A Primer on What the Compromise Means for All Taxpayers

Kristina Drzal-Houghton

Kristina Drzal-Houghton

After much back-and-forth negotiation — fraught with the possibility of a deadlock and failure — the terms of a fiscal-cliff resolution have finally been successfully negotiated.

Early on Jan. 1, the Senate, by an overwhelming vote of 89 to 8, approved H.R. 8, the “American Taxpayer Relief Act.” Late the same day, the House of Representatives followed suit and passed the bill by a vote of 257 to 167. The President quickly signed and enacted the bill into law on Jan. 3.

Understand that the American Tax Relief Act is nowhere close to the sweeping legislation envisioned by the president after the November election. It is effectively a stopgap measure to prevent the onus of the expiration of the Bush-era tax cuts from falling on middle-income taxpayers. The Budget Control Act of 2011 imposed sequestration (across-the-board spending cuts), effective after 2012. The American Taxpayer Relief Act temporarily postpones sequestration for two months. Congress is likely to revisit tax policy and spending cuts when it tackles the expected increase on the nation’s debt limit in February.

The American Taxpayer Relief Act of 2012 makes permanent for 2013 and beyond the lower Bush-era income-tax rates for all, except for taxpayers with taxable income above $400,000 or $450,000, depending on tax-filing status. Income above these thresholds will be taxed at 39.6%.

While this means that the federal tax-payroll withholdings for most taxpayers will not be changing, nevertheless, all taxpayers will find less in their paycheck in 2013. The tax relief act effectively raises taxes for all wage earners (and those self-employed) by not extending the 2012 payroll-tax holiday that reduced the OASDI part of Social Security taxes from 6.2% to 4.2% on earned income up to the Social Security wage base of $113,700 for 2013.

While the individual marginal tax rates of 10%, 15%, 25%, 28%, 33%, and 35% will remain, for those individuals with income above the $400,000/$450,000 threshold, the bracket ranges for the 35% rate now cover only a relatively small sliver of what constituted the upper-income range. On the positive side, taxpayers who find themselves in this higher 39.6% tax bracket will continue to benefit from the extension of the Bush-era rates below the 39.6% amount.

 

Other Changes

The American Taxpayer Relief Act also extends the beneficial Bush-era tax rate of 15% for capital gains and dividends. However, these same taxpayers will find themselves subject to a higher capital-gains and dividends rate of 20%, up from the previous 15%. All others will continue to enjoy the old, preferential rates, including the zero-percent rate, if their total income does not exceed the 15% bracket. Installment payments received after 2012 are subject to the tax rates for the year of the payment, not the year of the sale.

Also effective for 2013 and later is the Patient Protection and Affordable Care Act’s (PPACA, better known as Obamacare) 3.8% additional tax on net investment income for taxpayers with taxable income exceeding the thresholds of $200,000 or $250,000, depending on filing status. Therefore, starting in 2013, capital gains for these high-income taxpayers will effectively become 23.8%. In anticipation, many taxpayers completed transactions in 2012 to benefit from these lower rates. If any of these transactions are eligible for installment reporting, careful consideration should be given to the effect of such an election.

Short-term capital gains remained taxed at the ordinary income marginal rates. The 28% and 25% rates for certain long-term gains also remain unchanged.

The American Taxpayer Relief Act ‘patches’ the alternative minimum tax (AMT) for 2012 and subsequent years by increasing the exemption amounts and allowing non-refundable personal credits to the full amount of the individual’s regular tax against AMT. Without the patch, the AMT exemption amounts for 2012 would have been significantly reduced as compared to 2011. This patch saves more than 60 million taxpayers from being subject to AMT on returns filed in 2012.

The American Taxpayer Relief Act officially revives the phaseout of itemized deductions and personal exemptions for higher-income taxpayers.  This phase-out, known as the ‘Pease’ limitation, was eliminated by the 2010 Tax Relief Act. However, its return will impact fewer taxpayers since the thresholds have increased to $300,000 for married taxpayers and $250,000 for single taxpayers. These thresholds are approximately 165% of the inflated thresholds under the previous sunset rules.

In summarizing the phaseout thresholds for the various changes, you should note that, in almost all cases, if a married couple elects to file separately, most of the thresholds are cut to one-half of the higher married threshold, which is lower than the stated single thresholds.

The recently passed legislation retained the $5 million exclusion for decedents dying after Dec. 31, 2012 and permanently provides for a maximum tax rate of 40%. Of course, ‘permanent’ is a very relative term.

Also retained and made permanent is the ‘portability’ between spouses. This allows a surviving spouse to use any unused exclusion of their previously deceased spouse. These rates and exclusions apply to gifts made after Dec. 31, 2012 as well.

Other noteworthy extensions for individual income tax payers include:

• Permanently extending the $1,000 per-child tax credit, subject to comparable phase-out provisions;

• Earned-income credit provisions in the Bush-era and subsequent legislation are extended through 2017, while some provisions are made permanent;

• Adoption credit/assistance provisions were extended permanently, subject to comparable phase-out provisions;

• The child and dependent-care credit amounts and expenditure caps from Bush-era enhancements are permanently extended;

• The American Opportunity Tax Credit for qualifying tuition was extended through 2017, subject to comparable phaseout provisions;

• Provisions related to above-the-line tuition deductions and certain student-loan interest deductions have been extended;

• The teacher classroom-expense deduction for up to $250 was extended through 2013;

• The exclusion from income of up to $5,250 of qualifying, employer-provided education assistance was extended permanently; and

• Tax-free distributions of up to $100,000 (per taxpayer, per year) to charities from IRAs by individuals over age 70 1/2 was extended through Dec. 31, 2013.

Many popular but temporary tax extenders relating to businesses are also included in the American Taxpayer Relief Act. Among them is Code Section 179 small-business expensing, research credit, and the Work Opportunity Tax Credit.

The American Taxpayer Relief Act extends through 2013 the enhanced $500,000 Code Section 179 dollar limitation for 2012 and 2013. The rule allowing off-the-shelf computer software is also extended. Also extended is the 50% bonus depreciation through 2013; the limitation was previously set at $139,000 for 2012 and $25,000 for 2013.

The act extends through 2013 the Research Tax Credit. This credit had expired at the end of 2011, but continues to enjoy bipartisan support in Congress, and President Obama has called for making the credit permanent.

The measure also extends through 2013 the Work Opportunity Tax Credit, which rewards employers that hire individuals from targeted groups with a tax credit.

Many other business provisions and credits with extremely narrow application were also extended through 2013. Perhaps the most notable is the reduced recognition period of five years for S corporations with built-in gains.

 

Bottom Line

To properly evaluate how this tax act affects you or your business individually, you should consult with your tax adviser. However, you should keep in mind that, since the passage of the 2010 Tax Relief Act, several proposals for comprehensive tax reform have been unveiled in Washington that may hold promise for a more permanent solution.

For example, a presidential panel developed the so-called Simpson-Bowles plan. Also, the GOP has put forward several proposals for comprehensive tax reform, also calling for reduced individual income-tax rates, while both parties struggle to strike a grand bargain.

Later in 2013, a broader, more permanent solution may be found.

 

Kristina Drzal-Houghton, CPA MST is the partner in charge of Taxation at Holyoke-based Meyers Brothers Kalicka, P.C.; (413) 536-8510.

Columns Sections
Optimizing Performance: Is It Art or Science?

Jim Mumm

Jim Mumm

Is helping people perform to their full potential an art or a science? Do the best leaders use their natural-born leadership abilities, or do successful managers have a well-thought-out, scientific plan?  Surprisingly, very few leaders have developed a well- thought-out formula for finding, developing, and retaining top performers.

Not surprisingly, many of these same leaders say, “most of our employees aren’t top performers, and most don’t care.” Let’s take a closer look and see what’s going on.

The success of an employee is no accident; success is a function of how well a leader understands, teaches, and executes the four roles of leadership: supervisor, coach, trainer, and mentor. But does a good leader just have natural talent, or is he great at creating and following a well-thought-out, repeatable, and therefore scientific plan?

In the supervisor role, the manager has the primary responsibility for monitoring, interpreting, and responding to the day-to-day activities of the employee to keep them individually and collectively working toward individual, departmental, and company goals. The supervisor’s role is to have ‘super’ vision; he or she must know what’s going on and act upon this information.

Identifying the activities that need to be tracked is only half of the performance-monitoring formula. Identifying the amount and frequency of activity is the other half.

 

The Supervisor

Each employee must be monitored to ensure that he or she is performing the right activity, the right amount and frequency, and at a specified and minimum level of quality.  Determining what and how much should be done, evaluating the performance of those tasks, and facilitating changes in performance when necessary are the most essential functions the manager performs. All other management roles — training, coaching, and mentoring — evolve out of this interaction. As you can see, the metrics of what, how much, and at what quality level are all measurable and trainable. Therefore, the supervisory role is definitely science.

 

The Coach

The coach’s primary role is to be supportive and motivational, focusing on the participant’s application of skills toward maximum performance in the team environment.

Think back to a time when you had a really good coach who helped you perform as an athlete, business leader, speaker or salesperson. Although I think we’d all agree that these memorable coaches are special people, everything they do can be duplicated and learned. Therefore, even this inspirational and seemingly difficult role is based on science.

My guess is that, if you asked great coaches how to develop hyper-performing people and teams, they would give you a well-thought-out formula that they use again and again to turn out consistent winners. The results seem so magical that they appear to be out of our reach as mere mortals — but they’re not.

 

The Trainer

The role of the trainer is primarily concerned with the development of competence in the trainee. The same argument applies to trainers. Yes, there is a continuum of poor to great trainers, but great training technique can be learned, duplicated, and documented. Therefore it, too, is science.

 

The Mentor

Finally, the mentor typically socializes the mentee by example into the nuances of the norms and values of both the role and the company. Once again, this is a learnable, repeatable, and therefore scientific role.

It is pretty obvious that the skills necessary to be a good leader can be learned.  One doesn’t need to be, and typically isn’t, born with sufficient natural leadership abilities. All these skills can be trained and developed. Therefore, getting the most out of your people has to be mostly science, with a nod to those special, highly gifted and talented coaches, mentors, and trainers we’ve all had the privilege to know. The good news is that leaders can — and must — continuously improve their skills.

Jim Mumm is CEO of Sandler Training, serving Western Mass., as well as an award-winning trainer, author, speaker, and entrepreneur; (646) 330-5217; www.jimmumm.sandler.com

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Law

How to Survive Scrutiny of Social-media Policies

Karina L. Schrengohst

Karina L. Schrengohst

Does your company have a provision in its employee handbook that prohibits employees from publicly posting content on social-media sites that damages or defames your company or your employees? If you do, it is important to know how to tailor such a policy to survive the National Labor Relations Board’s scrutiny.

This is particularly important because, over the past year or so, the NLRB has taken an interest in social-media policy discipline and discharge cases.

As an increasing number of employees are using social media, many employers have found it necessary to include a section in their employee handbooks that prohibit certain electronic postings. Accompanying this growth is a rise in litigation involving such policies. Therefore, the importance of a carefully drafted social-media policy cannot be overstated.

The NLRB issued its first formal ruling on the legality of social-media policies on Sept. 7, 2012, finding language in an employee handbook that employers commonly use unlawful. Although this is the first NLRB decision addressing this issue, the topic of social media has received much attention from the NLRB and by administrative-law judges around the country. This recent decision reaffirms the board’s position that the National Labor Relations Act (NLRA) is broad enough to provide protection to employees who make comments about their employers via social media such as Facebook posts.

This decision is also consistent with the guidance the NLRB’s acting general counsel has issued in the past year or so that overly broad restrictions on negative statements about the workplace may make employees feel that they are prohibited from using social media to discuss job-related concerns such as wages, hours, and working conditions, and, therefore, such restrictions violate the NLRA.

In the recent case in question, the NLRB found Costco Wholesale Corp.’s social-media policy unlawful, in part, because it broadly prohibits electronic statements “that damage the company, defame any individual, or damage any person’s reputation or violate the policies” in its employee handbook. This language should look familiar to many employers, as it is commonly used in employee handbooks.

Specifically, the rule in Costco’s employee handbook stated that “any communication transmitted, stored, or displayed electronically must comply with the policies outlined in the Costco Employee Agreement. Employees should be aware that statements posted electronically (such as [to] online message boards or discussion groups) that damage the company, defame any individual, or damage any person’s reputation, or violate the policies outlined in the Costco Employee Agreement, may be subject to discipline, up to and including termination of employment.”

The board found that Costco’s policy could be construed as prohibiting concerted communications, such as speech critical of the company’s treatment of employees or working conditions, and such restriction on Section 7 rights violates the NLRA. Section 7 of the NLRA guarantees employees, whether in a union or non-unionized work environment, the right to engage in concerted activities for the purpose of mutual aid and protection. In other words, all employees have the right to discuss the terms and conditions of their employment.

Although the board failed to articulate any criteria to assist employers in crafting social-media policies, this decision is important because it suggests that employers might avoid liability by including appropriate disclaimers in their social-media policies and restrictions on its application. As part of its reasoning, the NLRB criticized Costco’s policy for not having disclaimer language that the policy did not apply to communications protected under the NLRA. This suggests that express language excluding Section 7 communication from the scope of the policy might have survived the board’s review. And it is likely that the board will find policies without language that explicitly excludes protected activity under the NLRA unlawful.

In addition, as part of its reasoning, the board criticized Costco’s policy for not having language which restricts its application. This suggests that a policy that provides context to restrictions by giving specific examples of prohibited conduct that is not protected by the NLRA, such as the use of profane language; malicious, abusive, or unlawful statements; or unlawful harassment, would be more likely to survive NLRB scrutiny.

The takeaway from this decision is that, even in a non-unionized work environment, vague and overbroad social-media policies restricting disparaging comments about the company or its employees will be found unlawful by the NLRB. Furthermore, disciplining an employee under such a policy could potentially lead to unfair-labor-practice charges and wrongful-termination claims.

In light of this decision, and given the fact that the language at issue is commonly found in employee handbooks, employers should carefully review their social-media policies and consult with their employment counsel to ensure that their policies do not contain broad prohibitions on employee conduct and are tailored to survive NLRB scrutiny.

 

Karina L. Schrengohst, Esq. specializes exclusively in management-side labor and employment law at Royal LLP, a woman-owned, SOMWBA-certified, boutique, management-side labor- and employment-law firm; (413) 586-2288; [email protected]

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Be Wary of Pitfalls That Can Be Costly to Your Company

James T. Krupienski

James T. Krupienski

Oct. 15 is almost upon us. For some, this is just another day on the calendar. For those responsible for an employee-benefit plan, however, this is a very important date.

Oct. 15 is the extended due date for filing a calendar year-end employee-benefit-plan tax return — Form 5500. This means that many of you are wrapping up your annual financial statement audit, or are working with your third-party administrator to remember your PIN and password, which is needed to electronically file your return.

As an auditor of these plans, I often see fiduciaries who are not fully aware of the specific provisions of their plan or the rules and regulations regarding their administration. As a result, there are many errors that can occur. Some of these errors can lead to serious consequences regarding the continuation and qualified status of the plan.

While preparing your plan’s tax filing, it’s a good idea to re-evaluate some of the process and controls involved, making adjustments and improvements where necessary.

This article is intended to highlight some of the more common errors that are found, including the timing and remittance of employee-deferral contributions, the improper application of the definitions of eligibility and compensation, the improper use and review of hardship distributions, and a general overreliance on the plan’s third-party administrator.

 

Timing of Employee Deferrals

Employee-deferral contributions are required to be remitted to the plan as soon as they can be segregated from the company’s general assets, but in no event later than the 15th business day of the month following the month they were withheld. In many instances, plan administrators will cite the 15-day rule when discussing their remittance policies. It should be noted that the 15-day rule is not a safe harbor, but rather the last day before contributions are automatically considered late.

More often than not, upon examination by the Department of Labor, examiners will look at when all other payroll taxes were remitted by the company. In addition, they will look at consistency, adherence to the established policy, if any, and past history. With technology today, most plans should be able to remit these funds within three to seven business days. Any remittances that fall outside of the established guidelines, even if only by one day, may be considered late and consequently subject to corrective procedures and excise tax reporting.

 

Eligibility and Compensation

There are many items that are defined in the plan document. Two of the most misunderstood and/or overlooked definitions are those for plan eligibility and compensation.

Misunderstanding the plan’s definition of ‘eligibility’ often leads to employees being delayed entrance to a plan when they are eligible, while other employees are allowed to enter the plan prematurely. Many administrators misinterpret the difference between when an employee meets the eligibility requirements and when the employee is allowed to enter the plan. For example, if an employee meets the eligibility requirements of a plan on June 1 but there is a quarterly entrance date, the employee may not be able to enter the plan until July 1.

If for any reason you feel that this is not being performed properly, please check with your third-party administrator or CPA, as the penalties for failing to comply with the provisions of a plan can be severe.

Compensation is another area to which plan administrators need to pay particular attention. First, not every plan uses the same definition of compensation. Second, the plan may use different definitions of compensation for different purposes, such as for deferrals and employer contributions. Most often overlooked is the treatment of bonus compensation in relation to the plan definition of ‘eligible compensation.’ For example, if the plan elects to use W-2 wages as its definition of compensation, all bonuses, whether through payroll or manual check, must be included when calculating the employee deferrals. If not, a written election from the employee must be on file.

 

Hardship Distributions

With the current economic conditions, hardship distributions may become more common for those plans that allow them. It is critical to take note of the rules and regulations for these distributions, which must be adhered to.

First, before a hardship distribution can be requested, the employee must provide evidence to the employer that all other sources of financing, including loans from the retirement plan, have been exhausted. Second, the amount requested cannot exceed the amount needed to satisfy the event at hand, such as the amount necessary to block foreclosure proceedings of a home. Additionally, the request can be made only to satisfy certain predetermined obligations. Purchasing a new car is not a qualifying event.

In order to provide evidence that these provisions have been met, it is strongly recommended that the request be made in writing and that the employee provide documentation that should be kept on file with the application. Finally, once the distribution has been made, it is imperative to understand that employee deferrals to the plan must be suspended for a period of six months.

 

Third-party Administrators

When errors are detected, the response most often heard is ‘why didn’t our third-party administrator catch this?’ Unfortunately, while this may be a valid argument in some cases, at the end of the day there is a fiduciary responsibility that has been placed on the trustees and administrators who oversee the plan in-house. Adequate time and attention are often not devoted to administering these plans, but when something goes wrong, there is the potential for personal liability, up to and including fines and other penalties.

It is recommended that, at minimum, those assigned to oversee the plan obtain and review the reports that are available from the third-party administrator on a quarterly basis. When reviewing these reports, don’t focus solely on investment performance.

Take the review further. Tie out contributions posted to the account to your general ledger and payroll records. Review loan activity and balances, questioning new loans that aren’t recognized or outstanding loans with balances that have not changed. Also, review benefit payments to ensure that you have properly executed withdrawal-request forms on file for each.

Retirement plans, depending on how they are designed, can be very complex. Additionally, there are many rules and regulations that need to be followed, which are not always spelled out explicitly in the plan document. Penalties and ramifications for not following the plan document or governing rules can be extremely severe.

It is strongly recommended that your plan, no matter how large or small, have a few basic controls and procedures in place. Your third-party administrator can assist you with this process, but they can’t replace the ultimate responsibility that you have as the plan’s fiduciary. In the event of an unwanted knock on the door from the Internal Revenue Service or Department of Labor, how well-prepared will you be?

 

James T. Krupienski, CPA, is a senior manager with the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C. His practice is based in the healthcare industry; (413) 322-3517; [email protected]

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Some Business Ideas to Challenge Our Thinking

The company president was excited about a popular cartoon depicting warriors fighting a battle with bows and arrows, along with a suited salesman carrying a machine gun and a briefcase. “Can’t you see I have no time to see a salesman,” says a beleaguered officer. “I’ve got a battle to fight.” Ironically, this is the same executive who nixed new opportunities for his company to grow its sales.

Ideas challenging the status quo can face roadblocks in just about any company, whether in sales, marketing or, most importantly, the future. Yet, it may be that those are ideas that can let in more light so that effective change can take place. Here are six of them:

• Business owners can be wrong. Scratch entrepreneurs, and it doesn’t take much to discover their immense pride in the business and, ironically, a dogmatic belief in their own ideas that may do it damage.

A president of a highly successful industrial business became so enamored with breaking new ground in his industry by selling equipment on the Internet that he made a substantial investment in an e-commerce Web site without taking the time to determine whether or not customers would purchase his company’s type of products online. The venture failed — and, worse yet, just at the time when the recession began taking its toll on the economy.

What we think about our business can distort reality and interfere with meeting today’s challenges and tomorrow’s opportunities.

• Everything is never on the table. It’s pure posturing, and anyone who puts it to the test gets hurt. Just ask GM’s recently fired marketing chief, Joel Ewanick. He’s the one who came up the Chevrolet campaigns “Love it or return it” and “Chevy runs deep.” He also opted out of Super Bowl advertising and cancelled GM’s Facebook ads just prior to the social-media giant going public.

Most revealing, he also discovered that other things run even deeper at GM; namely, “that ain’t the way we do it around here.” When someone says, “everything is on the table,” don’t believe it. They may think they mean it, but putting them to the test can be dangerous. There are always ideas, practices, and activities that are untouchable.

• It’s all about strategy. When the Boston Business Journal asked Mark Kerwin, deputy director and chief financial officer of Boston’s Museum of Fine Arts, about the biggest challenge he faces in his field today, he gave his answer in six words: “staying strategic as opposed to tactical.”

Steve Jobs couldn’t have said it better. First and foremost, he was a brilliant strategist. His commitment was to building a company that built beautiful things that consumers admire and love to use in their daily lives. It’s no accident that M.G. Siegler of TechCrunch describes Mountain Lion, Apple’s latest operating system, as “definitely the most polished and robust version of OS X yet.”

Tactics are easier to understand and far more fun, but most of the time, they’re temporary and don’t advance us to the goal.

• ‘Customers for life’ is deception. Why? Because it’s counterintuitive, naïve, and even dangerous. Yet, these three words seem so ingrained in our thinking that Googling them produces 1,390,000 results. Even against such a mountain of evidence, it’s still an illusion.

On the face of it, it should be obvious that customers are never for life: they die, find a better deal, move, change their lifestyles, retire, or want something new. In B2B, some merge or sell, go out of business, or become obsolete.

In spite of doing everything possible to keep customers happy and satisfied, they still leave. Yet, bloggers, speakers, and business writers implore us to embrace the belief that we can keep them forever.

Businesses are best served by abandoning mythical thinking, such as customers for life, and embrace reality with a nothing-is-forever mentality.

• Downed by the demon of self-deception. More than just about anything else, self-deception is the biggest human stumbling block, and just about every business is plagued with this unrelenting problem.

In a study of a group of college students, researchers discovered that cheating gives students false confidence in their abilities, according to a report in the Chronicle of Higher Education. The upshot seemed to be that, once we lie, it doesn’t take much for us to convince ourselves that we’re not lying.

Ask the president of a highly successful consumer-services company to describe his primary business objective, and he would undoubtedly say, “putting our customers first.” In all sincerity, he would mean it. Yet, this same president sent a letter to his customers filled with dozens of references as to why customers should do business with his company, but no rationale was given as to why it would benefit the customers to do so. It was as if he was writing the letter to himself.

To test out just how widespread self-deception is in business, watch the employees’ faces when the president or sales manager is holding forth on the company’s newest product launch, announcing next year’s goals, or the need to increase productivity. Then, you can see the clash of two quite different realities.

• Forget about the ‘Great Person.’ At Talbot’s, the women’s clothing retailer, there has been a parade of CEOs, each one with the answer to the company’s troubles and each one taking it deeper into lower sales and increased debt. The story is the same at Yahoo, where hope now hangs on yet another CEO.

It might be helpful if boards of directors stopped wanting to believe that the next executive holds the key. The ‘Great Man/Person Theory’ has had its day, even though its vestiges can be found everywhere, including business.

The fallacy rests in believing that success will follow with the right person. But, as science writer Matt Ridley notes, innovation depends on exchange. For example, he points to Uruk, in Southern Mesopotamia. It “was probably the first city the world has ever seen, housing more than 50,000 people within its six miles of walls. Uruk, its agriculture made prosperous by sophisticated irrigation canals, was home to the first class of middlemen, trade intermediaries.”

Arguably, it’s the same in America: Silicon Valley in technology, Boston in medical care, New York in finance, and Las Vegas in casinos.

As Ridley points out, “in the modern world, innovation is a collective enterprise that relies on exchange.”

In business, as elsewhere, ideas, as much as action, make a difference. Companies that put action above ideas may find that they are doing a lot of things backwards.

John R. Graham of GrahamComm is a marketing and sales consultant and business writer. He publishes a monthly e-newsletter, “No Nonsense Marketing & Sales”; (617) 774-9759; [email protected]; johnrgraham.com

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Adopting His Philosophy Would Certainly Be a Successful Habit

Charlotte Cathro

Charlotte Cathro

Stephen R. Covey, a teacher, author, and business consultant, passed away in July at age 79 from complications after a bicycling accident. Known for his bestselling books, his words affected millions of people, and in his passing, many reflect on his teachings.
Covey’s management principles were founded on values and behavioral psychology. Part motivational speaker, part business consultant, his concepts have been embraced by an international following.
Covey graduated from the University of Utah with a bachelor’s degree and Harvard Business School with a master’s, both in Business Administration. Dedicating himself to teaching, he completed a doctorate degree at Brigham Young University. In 1984, he left his life as a university professor and founded the Covey Leadership Center. The center merged with FranklinQuest in 1997 to become Franklin Covey Co., a publicly traded company providing services in 147 countries worldwide. The management-consulting firm specializes in leadership training, improving productivity, and implementing business strategies.
The 7 Habits of Highly Effective People is Covey’s best known work. The book has sold more than 20 million copies and was named the most influential business book of the 20th century. The success of 7 Habits spawned a series of followup editions, Webinars, and management trainings. The seven habits have been adapted for families, associates, and managers. Covey toured the world lecturing and facilitating workshops. Business courses at universities often include the book in their curriculum and show excerpts of his presentations. Fortune 500 companies have even accredited his management principles as the foundation for their business processes.
The habits focus on maximizing individual effectiveness while improving teamwork and communication. For instance, Covey comments on the distractions that have come along with advanced technology and their polarizing effect on interpersonal relationships. e-mail, for example, muddles communications. Active listening is not just hearing a person, but also seeking to understand. The book defines for us the differing realities of the personal and the interpersonal. Our intentions and expectations are not always a shared understanding. Working together as a team, our individual self can get in the way of common goals. We are most successful when we are able to achieve the ‘win-win’ scenario.
Time management is a concept we all struggle with. When people are busy, they become overwhelmed by small tasks and have trouble prioritizing. Covey presents a matrix for determining how to plan and execute assigned responsibilities. As a famous exercise at his workshops, he demonstrates this concept with different sizes of rocks and a glass jar. The large rocks represent the most important considerations in your life — for example, family time. The small rocks are the small daily jobs we all have to do, like laundry. If you pour the small rocks into the jar as you place the large rocks, you can then fit in everything you need to accomplish.
The book is motivational, with step-by-step processes and relatable anecdotes. Included are visual and mental exercises designed to reinforce the material. Concepts in 7 Habits are assigned buzzwords, which have since been adopted into the language of business. These terms include ‘win-win,’ ‘proactive,’ and ‘synergy.’ The secret to the book’s success, however, is the understanding of human nature it demonstrates the behavioral commonalities we all share. The insights span both business and personal relationships, and thus countless individuals have found them applicable to their lives.
Accolades for Covey and his work are too numerous to mention. Covey was named one of Time magazine’s 25 most influential Americans in 1996. He received eight honorary doctorate degrees, an International Man of Peace award, and an International Entrepreneur of the Year award. A dedicated family man with nine children, 52 grandchildren, and two great-grandchildren, he was also awarded with a Fatherhood Award from the National Fatherhood Initiative. He considered this to be the most meaningful award that he ever received.
Covey dedicated his life to helping people achieve their business and personal goals though books, workshops, and lectures. An international management icon, he shaped what business is today and what it strives to be. In The 7 Habits of Highly Effective People, Covey addressed tendencies that hold people back from achieving their best in life. While he admitted that, at times, he himself had trouble applying his concepts to everyday life, he no doubt achieved a great deal of success in his time.

Charlotte Cathro is a tax manager with the Holyoke-based CPA firm Meyers Brothers Kalicka, P.C.; (413) 536-8510; [email protected]

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Record Retention for Small, Closely Held Businesses

Patricia Murphy

Patricia Murphy

Now that 2011 has come to a close and tax returns have been filed, many businesses may be considering purging old files. All businesses produce a variety of records; however, maintaining these records is more than a matter of filing away a few important documents.

Determining how long to keep documents is a combination of judgment and state and federal limitations. Document retention in small businesses might not be as challenging as it is in large corporations, but the small-business owner has a bigger role in keeping track of records and ensuring that they are both retained correctly and properly maintained.

Determining how long to keep business and financial records can quickly become complex and confusing. However, business-record retention is important for several reasons, including potential tax audits, litigation, future sale of business, and succession planning. Establishing and following a record-retention schedule will go a long way toward ensuring that your company keeps the vital records it will need. Here are some things to keep in mind.

 

Tax Records

Although actual tax returns should be kept permanently (including cancelled checks from tax payments), the supporting documentation from previous years should be kept until the chance of an audit passes.

The IRS generally has three years to examine your return. This limit can increase to six years if the agency believes you under-reported income by more than 25%. No limit exists if you failed to file or filed a fraudulent return. As such, it is wise to keep tax records for at least seven years after a return is filed.

Special attention should be paid to records connected to assets (i.e. residences, real estate, stock purchases, etc). Keep records relating to property until the period of limitations mentioned above expires for the year in which you dispose of the property itself. You must keep these records to figure any depreciation, amortization, or depletion deductions and to figure the gain or loss when you sell or dispose of the property.

Generally, if you have received property in a nontaxable exchange, your basis in that property is the same as the basis in the property you have given up, increased by any money you have paid. You must keep the records on the old property, as well as the new property, until the period of limitations expires for the year in which you dispose of the new property.

 

Accounting Systems

Audit reports and financial statements from accountants, trial balances, general ledgers, journal entries, cash books, charts of accounts, check registers, subsidiary ledgers, and investment sales and purchases should be kept permanently. Other records, such as payable and receivable ledgers, bank reconciliations, bank statements, and cash and charge slips, should be retained for seven years.

For certain assets (residences, real estate, stocks, etc.), all statements, invoices, and purchase documents that substantiate cost should be kept, typically for seven years after the asset is sold. Depreciation schedules and asset-inventory records should be kept permanently.

 

Corporate Records

Small businesses that have a corporate structure also need to retain certain corporate records. All information for annual reports, articles of incorporation, stock ownership and transfers, bylaws, capital-stock certificates, dividend registers, cancelled dividend checks, and business licenses and permits should be kept permanently.

 

Employee Records

Small businesses that employ individuals other than the owner or partners should keep each employee’s records for the duration of employment. These records can then be disposed of beginning seven years after the date of termination. Payroll records should be kept for the following periods.

Permanently:

• W-2 forms;

• Payroll tax returns; and

• Retirement plan agreements.

10 Years:

• Workers’ compensation benefits;

• Employee-withholding-exemption certificates; and

• Payroll records.

Seven Years:

• Payroll checks;

• Time reports;

• Attendance records;

• Medical benefits; and

• Commission reports.

Three Years:

• Contractor information upon completion of contract; and

• Tip substantiation.

 

Insurance

Copies of all current insurance policies should be maintained in separate files and kept for 10 years after the policies expire.

 

Legal

Documents such as bills of sale, permits, licenses, contracts, deeds and titles, mortgages, and stock and bond records should be kept permanently, while canceled leases and notes receivable can be kept for 10 years after cancellation.

 

Storage of Documents

To save time and space, consider an electronic storage system to file your data. The IRS has accepted electronic supporting documentation for several years. All requirements that apply to hard-copy books and records also apply to electronic storage systems that maintain tax books and records. The electronic storage system must index, store, preserve, retrieve, and reproduce the electronically stored books and records in a legible format. All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS.

With the threat of identity theft, it is also good practice to shred all of the records you no longer need, especially those with personal information.  Shredders are an inexpensive means of destroying small amounts of information. However, a personal shredding service should be considered with a large volume of shredding.

The suggested retention periods shown above are not offered as a final authority, but as a guide to determine your needs. If you have any unusual circumstances or wish to delve further into record-retention rules and regulations for a specific industry, you should consult with your CPA, attorney, or other industry professional. This is especially important if you plan on destroying any important legal, business, or financial paperwork.

 

Patricia Murphy is a senior associate at the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3540; [email protected]

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Rank-and-file Employees on the Hook for Employment Discrimination

Amy Royal

Amy Royal

“A person’s a person, no matter how small.” — Horton Hears a Who, Dr. Seuss
This quote describes perfectly the general takeaway of a recent federal court decision finding that rank-and-file, hourly employees can be sued individually in an employment discrimination lawsuit brought under state law.
While Title VII, which is our federal anti-discrimination law, does not permit individual liability at all, our state counterpart, Mass. General Laws Chapter 151B, provides for it.  In fact, state courts interpreting Chapter 151B have found that supervisors and managers can be sued individually in an employment-discrimination lawsuit. Now, at least according to the federal trial court in Massachusetts (as well the MCAD), rank-and-file, minimum-wage workers can be sued individually for employment discrimination.

Why the Court Got It Wrong
First, Chapter 151B is a statute that applies only in the context of employment. The statute is further limited in its application to only those employers with six or more employees. By its very nature, Chapter 151B applies to employers and those ‘persons’ standing in the position of some authority at the employer, such as authority to discipline or terminate, authority to affect the terms or conditions of another’s employment, or some other supervisory-type authority. For persons with such authority, they are acting as if they are the employer. Indeed, the entire purpose behind Chapter 151B is to prohibit employment actions on the basis of discrimination.
While Massachusetts courts interpreting Chapter 151B have recognized that supervisors can be held individually liable by virtue of their position in management and the accompanying authority that comes with such a position, they have not held that such liability extends to a rank-and-file worker.
In the recent federal court case allowing for individual liability of rank-and-file workers, the court erroneously cited a Massachusetts Appeals Court case (Beaupre v. Cliff Smith & Associates) as grounds for its decision. That case is completely distinguishable: individual liability was imposed on the company’s top leader, its president and controlling shareholder, not a minimum-wage, rank-and-file worker.
Secondly, a plain reading of the statutory language simply does not provide for the individual liability of a rank-and-file worker. Chapter 151B, in pertinent part, provides as follows:
“It shall be unlawful … for any person to coerce, intimidate, threaten, or interfere with another person in the exercise or enjoyment of any right granted or protected by this chapter, or to coerce, intimidate, threaten, or interfere with such other person for having aided or encouraged any other person in the exercise or enjoyment of any such right granted or protected by this chapter.”
While recognizing that the Chapter 151B statutory language is broader than its federal counterpart insofar as it uses the word ‘person’ whereas Title VII does not, Chapter 151B language seems to allow for individual liability in the context of supervisory or management-level employment only, not a rank-and-file hourly worker. Linking the word ‘person’ to ‘coerce, intimidate, threaten, or interfere’ and to the exercise or enjoyment of a right connotes the actions of an individual possessing some level of control, power, or authority, or the appearance thereof. In other words, the statutory language implies that the word ‘person’ applies to someone with power to act or to influence in some way.
Furthermore, words such as coercion, intimidation, threats, and interference suggest that an individual has some level of power or influence over an employee’s exercise or enjoyment of a right. Therefore, a liberal construction of the statute, which is required and which in turn accomplishes its remedial purpose of prohibiting discrimination in the context of employment, is to extend liability to those individuals in positions of authority or perhaps even perceived authority, but not to a rank-and-file worker.
Third, in enacting Chapter 151B, our liberal Massachusetts legislature could never have intended to ascribe liability for employment discrimination to a low-wage, hourly worker who has no authority over a co-worker’s employment. Extending liability so broadly and under such circumstances would completely run afoul of legislative intent.
Fourth, as a matter of pure public policy, it would be patently unfair to hold a rank-and-file hourly worker (and low-wage earner) individually liable for discrimination in the context of employment. Such an interpretation would clearly offend public policy.

Why This Case Should Not Matter Anyway
This case was from a federal court, not our state court. As such, it has no mandatory effect on how our state courts should decide if faced with this same issue. Further, it was a trial court decision, not an appellate one, and no Massachusetts appellate court (or even federal appellate court covering Massachusetts) has ever decided this specific issue. While the federal court points to a case from the Massachusetts Appeals Court, as noted above, that case is completely distinguishable (it involved a company president who was sued, not a rank-and-file worker).
Although these are compelling reasons for arguing why this case should not matter, do not discount this case by any means. Until our state’s appellate courts are confronted with and rule on this issue, this decision, for now, will provide support to any plaintiff’s attorney who decides, for whatever reason, to sue a rank-and-file worker.

The Problems This Case Presents for You
Now, as the defendant employer, you have a non-management, rank-and-file worker as your co-defendant in a lawsuit. This worker very likely does not have the means and/or resources necessary to obtain separate counsel. Your options then become paying for an attorney for this worker yourself, having your labor- and employment-law attorney represent both of you, provided there is no conflict, or having the worker proceed pro se.
All three options create potential issues. When a rank-and-file worker represents himself, you lose a certain amount of control over the way the case progresses, the litigation may not be as efficient, the worker may become uncooperative, and/or the worker may default. While there are benefits to a joint representation arrangement, such as presenting a unified front, cooperation from the worker, and retaining more control over the direction of the case, issues and/or conflicts could arise down the road, such as with strategy or settlement. Hiring a separate attorney for the worker is obviously costly. These types of issues will need to be explored carefully with your labor- and employment-law counsel.

Amy B. Royal, Esq. specializes exclusively in management-side labor and employment law at Royal LLP, a woman-owned, SOMWBA-certified, boutique, management-side labor- and employment-law firm; (413) 586-2288; [email protected]

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The Research & Development Tax Credit

Kristina Drzal-Houghton

Kristina Drzal-Houghton

During these challenging economic times, manufacturers may be overlooking a significant source of revenue for hiring additional workers, expanding operations, and improving their bottom lines: the research and development (R&D) tax credit.
Large companies have banked on these credits for years, feeding a misperception that the credit is limited to high-tech, cutting-edge research companies, multinationals, or Fortune 1000 firms. However, when the credit was enacted by Congress, one of the important goals was to fuel innovation and hiring in the area which produces the most jobs in America: small and mid-sized companies. Recent changes to the credit have helped further this goal dramatically.
Over the past few years, Congress reduced the documentation and qualification requirements to make this credit accessible to companies outside of the Fortune 1000. Court rulings have also boosted eligibility and provided much-needed clarification. In the last two years, five major R&D tax-credit court cases added additional guidance in this area. All of these cases resulted in taxpayer-friendly outcomes that provide a clear, consistent, affirmative message toward estimation and costs that can be claimed. One case involving an automotive supplier had broad implications for companies in the plastics and manufacturing industry as a whole.
Specifically, the court ruled that a company could capture supply expenses incurred for the development of tooling and dies sold to the client. Another case reaffirmed this decision and expanded its applicability toward manufacturers developing products sold to clients. Specifically, the court ruled that the taxpayer could capture all of the expenses related to some of the unique boats the company developed. When viewed through the prism of the manufacturing industry, this applies to the tooling and prototypes sold to clients. An example could be the plastic injection mold developed to make a plastic car part.
Today’s manufacturer may not realize that their activities may entitle them to generous R&D tax incentives, and even if they do, the traditional notions of R&D may cause manufacturers to limit qualified research expenditures to activities associated with new-product and invention developments. However, in many cases, manufacturers spend a considerable amount of time and effort to develop product designs that achieve optimized manufacturing process performance. Furthermore, many manufacturers, including ‘job shops,’ conduct extensive activities to design and develop the manufacturing processes themselves to achieve specific project requirements or to stay ahead of competitors in the marketplace.
All these activities may require time and money both in the engineering department and on the production floor itself, which may be captured as qualified research expenditures leading to significant tax benefits. If you think you have to be a large public corporation developing products and inventions to be conducting qualified activities as defined by the Internal Revenue Code, think again.
Manufacturers with qualifying R&D activities are entitled to a 20% research tax credit (potentially equaling hundreds of thousands of dollars), subject to certain limitations for previous years. The credit is much more powerful than a deduction because it offsets taxes owed or paid, dollar for dollar, as opposed to just reducing a company’s taxable income. Even better, a business can obtain the credit for all open tax years — generally the last three years plus the current year. Any credits not currently utilizable can be carried forward 20 years.
To fully capture the eligible costs for this credit and defend your calculations should you be audited, you need a group of experts with either scientific or engineering experience to help qualify, quantify, and substantiate the credit. A company I’ve dealt with which has such expertise is an organization called Alliantgroup, a national, specialty tax-advisory firm. They provide businesses with a no-obligation assessment of their eligibility for tax credits. With recent changes to these incentives, they have been able to bring extra value to our clients, making this a win-win proposition for everyone.
A noted supporter of the R&D credit, former IRS Commissioner and Alliantgroup Vice Chairman Mark Everson, has urged manufacturers and their CPAs to educate themselves about the credit.
“Manufacturing is a foundational component of the American economy. The R&D credit can be a lifesaver for small and mid-size businesses, and in particular manufacturers. It is critical that businesses capture these funds.”
The U.S. Congress and many state governments realize how critical innovation is to the future of America’s competitiveness in the world, and the R&D credit is an important incentive to nurture that innovation. They also know that the companies engaging in these activities are supporting millions of high-skilled, well-paying jobs.
In addition to manufacturing, Brian Aumueller, director for Alliantgroup, has seen first-hand a variety of industries that are benefiting from the credit, including architecture, engineering, and contracting. He notes, “the broadened applicability of the credit has enhanced the opportunity for companies in various industries across the country — New England is no exception. In 2011, we have seen local companies capture over $16 million in credits, and expect that pace to increase in 2012 and beyond.”
The following examples illustrate how more businesses are taking full advantage of this important tax incentive program, resulting in a new stream of income in these trying economic times and saving jobs.
A contract manufacturer with $20 million in revenues realized a credit in excess of $400,000 due to changes in law that enable the costs related to plastic injection molds and tools sold to customers to be claimed.
Similarly, a tire-mold manufacturer realized about $60,000 in credits from the design of tire molds and the related costs of tire-mold prototypes.
For these and other reasons, the R&D credit will be around for a long time, and any company with relevant products or services would be smart to realize its benefits. By taking a strategic approach to R&D tax credits, businesses can realize significant cost savings benefiting the company, its employees, and the economy as a whole.

Kristina Drzal Houghton, CPA, is partner in charge of Taxation for Meyers Brothers Kalicka, P.C.; 536-8510; www.mbkcpa.com

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Law

Insurance Payments for Your Autistic Child

Dennis G. Egan

Dennis G. Egan


Having a child with autism creates many challenges, not the least of which is the potential financial impact on your family. Until recently, many families were burdened with a mountain of bills when attempting to have their child diagnosed with and treated for disorders within the autism spectrum. But, thanks to a new Massachusetts law, that is changing.
In August 2010, ARICA (an Act Relative to Insurance Coverage for Autism) was signed into law by Gov. Deval Patrick; it became effective on Jan. 1, 2011. This law requires health-insurance companies in Massachusetts to provide coverage with respect to the diagnosis and treatment of autism-spectrum disorders, regardless of the age of the individual afflicted by the disorder.
Despite what many believe, or at least have questioned, ARICA has no impact on the special-education services provided by school districts, as required under the Individuals with Disabilities Act and Massachusetts law.
Melissa R. Gillis

Melissa R. Gillis

To clarify, ARICA requires that health insurers provide payment for supplemental services, in addition to services provided by school districts, pursuant to a student’s individualized education plan (IEP). Services covered by ARICA include, but are not limited to, medication, counseling, psychiatric care, psychological care, physical therapy, speech therapy, and occupational therapy.
This law includes several significant factors that are noteworthy:
• Reimbursement cannot be sought for services provided by a school district in furtherance of a child’s IEP;
• School districts are prohibited from requiring that services otherwise provided under the child’s IEP be sought via private health insurance coverage; and
• Potential coverage under ARICA cannot be considered by a child’s IEP team when developing the child’s IEP.
There are, however, several exceptions to coverage under ARICA. For example, self-funded plans that fall under the auspices of ERISA are not required to provide insurance coverage. In addition, individuals who receive health care coverage under MassHealth or CommonHealth are not eligible for the coverage provided by ARICA. In addition, insurers may opt out of required participation if applicable costs to the insurance exceed 1% of its otherwise current costs.
As with any new legislation, the implementation of ARICA has progressed, and will evolve, in fits and starts as interested parties educate themselves and others with respect to the practical application of the law.
For example, health-insurance companies that fall under the requirements of ARICA may require a copy of the child’s IEP prior to making coverage decisions. As such, it is very important that the parents of a child covered by ARICA proactively inform the school district that all requests for their child’s IEP be directed to themselves as the parent of guardian. Remember that Massachusetts law prevents school districts from disseminating information relative to a child’s IEP to a private health-insurance provider without the parent or guardian’s informed, prior written consent.
As with any change, especially one of this magnitude, the key to successful transition is communication. You should contact your child’s school district to ensure that it is aware of the provisions of ARICA, as well as its effect on the services that the district provides. This discussion should include such issues as what policies the district has in place to ensure that your child’s confidential information is not shared with insurers without your written consent, as well as a review of the district’s continuing education of staff and administrators relative to ARICA. Parents may also request literature from the school district in order to ensure that the district has written procedures in place to ensure proper application of ARICA.
With your child’s best interests in mind, it is important to reach out to his doctors and therapists to discuss this new law and the impact that it has on services provided, both pursuant to your child’s IEP and privately. It is important that any services provided to your child by a doctor or therapist be properly coded when billed to avoid confusion, which can ultimately lead to additional costs and/or delays.
Communication with your health-insurance company is crucial — first, to confirm that the provisions of ARICA apply to your health insurer, and, second, to ensure that covered services are provided and billed appropriately. In addition, any questions with respect to co-pays and out-of- pocket expenses are best addressed prior to receipt of services.
Informing your insurer proactively that your child receives services that fall within the scope of ARICA, and requesting written information with respect to its compliance with ARICA, will reduce the likelihood that billing questions and issues arise. As with any issue, proper documentation of any and all services provided will assist in resolving any potential issues in a timely manner.
Luckily, a number of quality resources are available for those who have questions related to ARICA. The Commonwealth of Massachusetts Division of Insurance has published guidance with respect to ARICA, and many autism advocacy and support groups have held and continue to hold informational workshops.
If you need legal assistance when wading through the waters of autism-disorder diagnosis and treatment payments, make sure you consult with a qualified special-education attorney. n

Melissa R. Gillis, Esq. is an attorney with Bacon Wilson, P.C. in the special-education, domestic, and real-estate departments; (413) 781-0560; baconwilson.com/attorneys/gillis. Dennis G. Egan Jr., Esq. is an attorney with Bacon Wilson, P.C., concentrating in special education, business, and corporate law; (413) 781-0560; baconwilson.com/attorneys/egan

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When Companies Want to Know What’s Really Going On

You have likely seen the CBS television show Undercover Boss, where the chief executive officer and/or family owner of a large corporation goes undercover in their own company.
They pose as a new employee or trainee and spend one day with each of three or four different employees. Of course, the employees don’t know the $10-per-hour trainee is the CEO of the company, so they dish out personal stories, share complaints about the company, and even share ways they shortcut the company. The boss comes away from the experience suitably charmed by some, but almost always flabbergasted by what is really going on in their company day to day.
Doing an undercover assessment is a great idea, and can really improve your company whether you do it yourself or hire someone. But I can tell you from experience that what you see on television is only part of the story. Our firm has been providing this service for years to companies under 200 employees where everyone knows the boss. We go undercover as an employee, trainee, temp, or whatever the owner is comfortable with, and real life is a little different.
Like all good TV, things get edited. In the case of prime-time TV, all the boring stuff and dead time gets cut, and so does some really good stuff. In the real world, doing an undercover assessment is a little like surveillance. Actually, it’s a lot like surveillance. You watch and listen to a whole lot of nothing for what seems like forever, and then, suddenly, you witness something big.
As an undercover employee, you train with co-workers, hang out at the water cooler, go to meetings, and start to make friends. You typically learn a few things right away that help the company. But for the most part, it can stay pretty benign for weeks or even months. The reason varies, depending on the size of the company. For smaller companies, people are more cautious of what they say and do ‘outside the family’ and can maintain formality for quite some time. Small companies just tend to be too tightly knit for anyone to give dirt to a stranger right away or let them see the family’s dysfunction.
Three to six months is a magic time frame when people start to get tired of faking who they really are day to day. The bigger the company, the more likely there exist employees who feel removed enough that they never fake formality and always act and speak freely, but in a bigger company, you have to find them.
So now you know that real-life undercover assessments can be significantly longer and much duller than on television. But in real-life assessments, we also see some very serious issues that might be too much for television or too embarrassing for the CEO to publicly share. Of course, for our clients, it stays between the boss and the consultant.
Over the years, we have learned about various seedy activities performed by employees. We have seen employees engage in immoral behavior while requiring subordinates to watch guard. We have seen the most respected member of a management team threaten and assault the employees of an entire department as part of their natural management style. We have seen groups of employees in one department band together to undermine another department. We have seen employees purposely provide poor service to customers they didn’t like and brag with a sense of accomplishment after chasing them away. Extreme? Yes, but more common than you think.
On the less dramatic, but just as damaging, side are the bookkeepers who really don’t know how to keep the books, employees who get angry about the boss’s new car and retaliate by lowering their productivity, and the snoops who go through the boss’s desk and computer when alone and then brag about it. The part that should surprise and shock you the most is that the overwhelming majority of these examples involve the longest-term and most-trusted employees.
Why the long-term employees and not the new employees? The new ones can certainly pull some doozies, but they can’t get away with such nonsense for long. They haven’t been there long enough to have the support and/or fear of the other employees. They do something wrong, and the current employees sell them out.
Finding and correcting the issues above can have a huge impact on your organization. It can help avoid lawsuits, improve morale, and make the whole company more productive. But we find many issues that are far less dramatic, yet equally important, like inefficiencies, safety issues, and potential breaches in data security.
We always find improvement opportunities that increase the bottom line, and that is the true value of the undercover assignment, whether it’s real life or television.

Eric Egeland is the president of Capacity Consulting Inc., which provides strategic consulting for multiple industries, including insurance, real estate, education, energy, and Internet. He has personally created 10 successful startups, including seven insurance groups, and has consulted on hundreds of projects, closures, startups, plans, assessments, turnarounds, and reorganizations; [email protected]