Category Archives: Accounting

NC Adult Care Home Update

by Rachel Owens

The NC Department of Health and Human Services sent out a memo dated July 15, 2015 with the latest information regarding General Statute 131D-4.2 – the Adult Care Home providers and their reporting requirements.  To comply with these requirements ALL facilities that receive State/County Special Assistance funds are required to file a cost report.  Those facilities that have 7 beds or more are additionally expected to have Agreed-Upon-Procedures performed.  dhhs

For facilities licensed under Chapter 122C (mental health supervised living facilities) the reporting period is July 1, 2014 – June 30, 2015.  All other facilities are required to use the year end September 30, 2015 regardless of their fiscal year end.  These cost reports are due December 31, 2015.

More information is forthcoming about AUP instructions, and software.  Please continue to check our website and blog for additional information.

Langdon & Company LLP has extensive history working with the long-term healthcare industry. We offer a high degree of expertise and experience with the needs of Adult Care Home providers and would be happy to assist you in the timely filing of the Cost Report.  If you have questions, we will be happy to help you.  Contact [email protected] or [email protected]!

When Should I Start Receiving My Social Security Benefits?

by Leonora Bowman

Like all financial questions, the answer to this question is, “it depends.” social security

You can start drawing social security benefits based on your own work history as early as 62 and as late as 70. Currently, those of us, who are baby boomers, born between 1943 and 1954, 66 is our full retirement age.  The full retirement age increases 2 months each year until it reached 67.

There are several factors, which will help to determine when you should start drawing social security, the most important being if you and your family can financially afford to delay drawing social security until a later date.  For each month, after you reach your full retirement age, you will earn 2/3 of 1% delayed retirement credits, or 8% per year. You can only earn delayed retirement credits based on your work history.  By suspending receipt of your social security between 66 and 70, your monthly benefit will increase by 32%.  Obviously, if you can afford to do so, this is your best option.  Spouses and widows do not earn delayed retirement credits.

If you are married and the family can financially afford to do so, there are some choices you can make to optimize your family’s social security monthly benefit.

The first choice that can be made, once full retirement age is reached, is for the higher earning partner to file and suspend collection of his/her benefit.  This will allow two things to happen.  1) the spouse filing and suspending collection will begin to earn delayed retirement credits and 2) the lower earning spouse can begin drawing a spouse benefit, which may be higher than the amount he/she may have received based on his/her own work history.

File and restrict your benefit is another option that married couples can do if they are both over 62 and one is already drawing benefits.  The partner not already receiving benefits can file and restrict the benefit he/she receives to 50% of the spousal benefit to which he/she is entitled and allow his/her own benefit to continue to earn delayed retirement credits until he/she reach 70.  The partner choosing to file and restrict must have reached his or her full retirement age to choose this option.

Those who are divorced and were married to their former spouse for at least 10 years, are at least 62 and have not remarried, can elect to receive the divorced spouse benefit provided it is greater than the amount he/she would have received based on their own work history.

The Social Security Administration is a great resource if you have specific questions.  To determine which social security benefit path is best for you and your family, please contact Langdon & Company LLP or your financial advisor.

Leonora “Lee” Bowman ([email protected]) is a Manager in our Accounting Services practice.  She has over 25 years of experience in taxation and also specializes in multi-dimensional corporate accounting across various states.

Planning for College? Benefits of a 529 Plan

by Kendall Tyson

Most parents and many grandparents often worry about the increasing college costs for their children and grandchildren.  According to a recent article in USA Today, college tuition and fees have increased 1,120% since 1978.  Edvisors reports 70% of students borrow to go to college and take on an average $33,000 in student loans.

One way to help plan for upcoming college costs is to open a 529 plan.  A 529 plan is a qualified tuition program operated by a state or educational institution designed to help set aside funds for future college costs.  Under IRC Section 529, a qualified tuition program is exempt from income tax.  The earnings grow tax-free, and as long as the contributions and earnings are used for qualified educational expenses then the beneficiary does not report or pay tax on any distributions.

Almost every state now offers a 529 plan and the plan’s fund can be used to meet costs of qualified colleges nationwide.  A North Carolina resident can invest in a Virginia plan for a beneficiary who attends a Tennessee college, as long as the college is an eligible institution.  (Eligible institutions have been assigned a federal school code by the Department of Education).

Anyone can contribute to a 529 plan; the plan just needs a beneficiary.  While the contributions are not deductible for federal tax, the contributor is not subject to AGI limitations and contributions are considered a completed gift, which is excluded from the contributor’s estates.  The IRS even allows for contributors can elect to take contributions larger than the annual gift exclusion into account ratably over five years.

All distributions from the 529 plan must be used for qualified higher education expenses.  Qualified higher education expenses include the following:

  • Tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution;
  • Expenses for special needs services incurred in connection with enrollment or attendance
  • Room and board included for students who are at least half-time
  • Internet access or related services used by the beneficiary while enrolled at an eligible educational institution

Distributions from the plan will be reported a Form 1099-Q, Payments from Qualified Education Programs, showing the earnings and basis related to the distribution.  Any distributions not used for qualified expenses are included in income and subject to a 10% penalty.  Many individuals confuse the idea of using 529 funds to repay student loans.  Unfortunately, the repayment of prior year student loans does not meet the IRS definition of “qualified education expenses”.  Any distributions used to repay student loans are included in income and subject to the 10% penalty.

529 plans can also be rolled into another qualified tuition program for the same beneficiary or transferred to another beneficiary within the same family with no adverse tax consequences.

With the proper planning, a 529 plan can help ease the burden of increasing college costs with relatively low maintenance for the contributor.  For more information or help in finding a 529 manager or financial adviser, please contact our office.

Kendall Tyson ([email protected]), a Tax Manager at Langdon & Company LLP.  She specializes in physician/dentist practices, multi-state and nonprofit returns.

How Will the IRS and the States Handle Virtual Currency?

by Cody Taylor

bitcoinOver the last decade the Internal Revenue Service (IRS) has been faced with a brand new subject courtesy of our interconnected world: virtual currency.  Bitcoin is the most well-known but there are over 150 virtual currencies worldwide with some of the other larger ones being Litecoin, Darkcoin and Peercoin.  As these currencies have popped up and have become more popular the IRS needed to decide how to handle transactions conducted in these new currencies.  Bitcoin for instance is accepted at mainstream retailers such as Overstock.com, Dish Network and Expedia, among others.

The IRS issued guidance in the form of answers to Frequently Asked Questions (FAQs).  This setup tries to provide an overview for how transactions in virtual currencies will be handled for federal tax purposes.  What follows is an excerpt of the FAQs from IRS Notice 2014-21:

Q-1: How is virtual currency treated for federal tax purposes?

A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

Q-2: Is virtual currency treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws?

A-2: No. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.

Q-3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency?

A-3: Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, 3 measured in U.S. dollars, as of the date that the virtual currency was received. See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.

Q-4: What is the basis of virtual currency received as payment for goods or services in Q&A-3?

A-4: The basis of virtual currency that a taxpayer receives as payment for goods or services in Q&A-3 is the fair market value of the virtual currency in U.S. dollars as of the date of receipt. See Publication 551, Basis of Assets, for more information on the computation of basis when property is received for goods or services.

Q-5: How is the fair market value of virtual currency determined?

A-5: For U.S. tax purposes, transactions using virtual currency must be reported in U.S. dollars. Therefore, taxpayers will be required to determine the fair market value of virtual currency in U.S. dollars as of the date of payment or receipt. If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied.

Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?

A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency. See Publication 544, Sales and Other Dispositions of Assets, for information about the tax treatment of sales and exchanges, such as whether a loss is deductible.

The rest of IRS Notice 2014-21 and the remaining FAQs can be found at IRS Notice 2014-21 – Federal Taxation for Virtual Currencies.  At the state level the details of how virtual currency will be handled is still being worked out.  North Carolina currently has a bill in the state congress that addresses how the state wants to handle a number of issues associated with virtual currencies.  They even have a Virtual Currency Corner on the North Carolina Commissioner of Banks website dedicated to current virtual currency news and legislation.

If you have any dealings with virtual currency or might in the future, we would be happy to help answer any questions you may have.  Please contact our office for additional information.

Cody ([email protected]) is part of our tax staff at Langdon & Company LLP.  He focuses on high-net wealth individuals, and other various types of tax projects.

Financial Considerations Before Tying the Knot

by Dwayne Murphymarriage

There are a number of things to consider when getting married among them are various financial considerations. Below are just a few items to discuss with financial implications:

  • Discuss past financial issues and future goals such as:
    • Current income, debt and spending habits.
    • Career paths and goals – such as are there plans in going back to school, career changes or job relocations.
    • Children, how many, and if they will be in day care or if one parent will stay home and if they plan or want to go back to work at some point.
    • Whether you might have an older parent living with you in the future and all the financial costs that would be involved.
    • Retirement planning and goals – as in your current situation, what your end goal is and how you plan to get there. Then determine if you want to start a combined retirement account or keep your individual retirement accounts separate.
  • Discuss who will handle the finances:
    • While you may want to designate one of you to handle the finances, both of you should be aware of your goals, spending habits and investments. This will make both of you feel responsible for saving and want to help contribute.
  • Joint or separate accounts?
    • Joint Accounts
      • Trust is the key here as this is probably the most convenient as all the money goes in and comes out of one account. However, if one of you makes more money or has more debt than the other then it could seem unfair to share everything.
      • Another option is to share a common account as well as keep separate accounts. The common account would be for common bills and to save for common goals such as a house. The separate accounts would be for individual spending habits. The issue here is how much each of you will contribute to the joint accounts, especially if one of you makes considerably more than the other.
    • Separate Accounts
      • This could be the easiest solutions for people with large balances in accounts that would be a hassle to move and not having to worry about opening another credit card in both names. The issue here is who is responsible for what bills and for saving towards common goals.
    • Tax considerations
      • First, understand the tax brackets and how your new income will be affected. Then update your withholding form W-4 and applicable state form to adjust the amount of taxes withheld from your paycheck. This hopefully should keep you from getting a shock come tax time.

In conclusion there are a number of things to consider when getting married and lot of them have financial implications. Hopefully by discussing some of the items above it will help to achieve a healthy financial marriage.  Contact our office for additional tax advice.

Dwayne ([email protected]) is an Audit Senior with Langdon & Company LLP.  He mainly works with various types of non-profit associations.

The Importance of Separation of Duties

by Katie Anthony

It is important to have levels of separation of duties in your business. You may say that you are a very small business and cannot afford to have many employees. That may be true, in which case you can add approval and double sign-offs on items of significance as well as review of certain processes. You may be in a situation where you do not even have enough employees to do this. In such a case, it might benefit your company to set up a monthly or quarterly review by an outside accounting firm.

You may be asking why separation of duties is so important. A big reason is that although a greater number of frauds are perpetrated by employees low on the ladder, greater amounts are stolen by employees at the management level. The ACFE Report to the Nations on Occupational Fraud and Abuse: 2014 Global Fraud Study reports that employees committed 42% of occupational frauds but caused a median loss of $75,000, while executives committed 19% of occupational frauds with a median loss of $500,000. These high level employees are trusted and intelligent, so they are able to get away with the fraudulent activities for a longer period of time, enabling them to steal larger amounts of money.fraud triangle

There are three elements to occupational fraud, which are opportunity, rationalization, and pressure, as credited to Donald Cressey. He believed that these three elements must all be present for an ordinary person to commit fraud (Fraud Examiners Manual: 2014 US Edition).

Let’s start with rationalization. You may not think you are able to influence someone else’s rationalization. However, some people rationalize fraudulent actions by saying that they are owed what they are stealing from the organization because they feel underappreciated. You need to take steps to make sure that you pay your employees appropriately for their roles and that you do things occasionally to show your employees that you appreciate them. Employees sometimes even rationalize their behavior based on what they see employees higher than themselves doing. That means you! Keep in mind that your employees are watching you to set the tone of the business.

While you cannot remove pressures employees feel from those outside of your organization, you can make sure that you don’t put too much pressure on them from within. This means doing evaluations that are not only one-sided, but rather structured so that your employees can give feedback about their workloads and stress levels. If you overwork your employees they may feel pressure to take shortcuts that eventually lead to fraudulent actions.

Last but not least, is opportunity. Separation of duties and reviews can really help with this element. If employees feel that no one looks at their work, they may take that opportunity to begin stealing, especially if the other two elements of the fraud triangle are present. By adding separation of duties and reviews, you are filling a gap that will help keep your business healthy. If, despite all your precautions, one of your employees IS stealing, separation of duties and reviews will help catch them. The ACFE Report to the Nations on Occupational Fraud and Abuse: 2014 Global Fraud Study goes on to show that review is second only to a tip in discovering frauds in small businesses.

While no plan to prevent and detect fraud is perfect, each step you take will help. Langdon and Company LLP knows that you want to keep your business healthy and thriving. L&C can help you define the duties in your processes that need separation as well as provide review services for your organization. Contact our office today with any questions or concerns you have.

Katie ([email protected]) is an Audit Staff at L&C and works with a variety of clients.

SSARS 21: Statement on Standards for Accounting and Review Services: Clarification and Recodification

by Lee Byrd

Representing the most significant changes to the compilation and review literature in decades, the AICPA Accounting and Review Services Committee recently issued Statement on Standards for Accounting and Review Services (SSARS) No. 21. The guidance aids in drawing a definitive line between preparation and reporting services and is composed of four sections as follows:

  • Section 60 – General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services, provides a foundation for the other three sections and guides professionals on their responsibilities related to engagements performed in accordance with SSARS.
  • Section 70 – Preparation of Financial Statements, applies when an accountant is engaged to prepare financial statements but is not engaged to perform an audit, review or a compliation on those financial statements. Professional judgment should be used in determining the type of engagement requested by the client (i.e. whether the CPA is engaged to prepare financial statements or simply assist in their preparation). A report is not required for a preparation engagement but the CPA should include a legend on each page of the financial statements stating, “no assurance is provided.”
  • Section 80 – Compilation Engagements, applies when an accountant is engaged to perform a compilation engagement. The guidance provides new compilation report language, distinguishing this report from an assurance engagement report for audit or review services. CPAs may add additional paragraphs for explanatory purposes.
  • Section 90 – Review of Financial Statements, applies when an accountant is engaged to perform a review of financial statements. The accountants’ review report has been updated to require the use of headings in the report and the name of the city and state of the CPA’s issuing office.

Successful business group.CPAs are required to begin using SSARS 21 for financial statements with periods ending December 15, 2015 and thereafter; however, the standard allows for early implementation. The standard also requires a signed engagement letter for all SSARSs engagements, signed by both the CPA and management or those charged with governance. Additionally, while audit, review and compilation engagements require participation in a peer review program, preparation services do not fall within any of the aforementioned categories and therefore, are not subject to peer review.

Langdon & Company LLP‘s accountants are very familiar with this new standard and would be happy to answer any questions you may have.  Please contact our office for additional information.

Lee Byrd ([email protected]) is an Audit Manager at our Firm and has over 7 years of experience with a variety of clients.

Spring Cleaning: Document Retention Policies for Non-Profits

by Brittany Powell spring-cleaning-office

Determining what documents and files you need to keep can be a daunting task and all too often turns into a case of “I’ll keep this…just in case.”  Establishing a formal document retention and destruction policy for your non-profit organization can help prevent clutter from piles of unneeded documents.  In fact, a document retention policy is one of several policies that the IRS Form 990 asks specifically if a nonprofit organization has.

The IRS Form 990 instructions define a document retention and destruction policy as a policy that “identifies the record retention responsibilities of staff, volunteers, board members, and outsiders for maintaining and documenting the storage and destruction of the organization’s documents and records.”  As the National Council of Nonprofits points out in its article, “Document Retention Policies for Nonprofits,” a written document retention policy provides consistency in the document retention/destruction habits of both staff and volunteers.

So, as your organization is spring cleaning, what documents should you keep and what can be tossed?  The following categories are derived from the AICPA’s sample document retention policy and provide a guideline for how long certain documents should be kept.

Documents that should be kept permanently:

–          Audit reports

–          Correspondence regarding legal and important matters

–          Deeds, mortgages, and bills of sale

–          Determination letter from the IRS

–          Tax returns

–          Articles of Incorporation, Bylaws, etc.

–          Minutes of board meetings and resolutions made by the board

–          Retirement and pension records

–          Trademark registrations and copyrights

Documents that should be kept for 7 years:

–          Expired contracts, mortgages, notes, and leases

–          Payroll records and summaries

–          Personnel files for terminated employees

–          Timesheets

–          Withholding tax statements

–          Invoices (to customers and from vendors)

Documents that should be kept for 2-3 years:

–          Bank reconciliations and statements

–          General correspondence

–          Duplicate deposit slips

–          Employment applications

–          Inventory records

–          Correspondence with customers and vendors

These guidelines can help your organization begin establishing its own document retention policy and guidelines.  However, as we become a more technologically-driven society, it is important to be consider documents stored in the cloud or on a server and to have a back-up plan in place for your electronic documents.  Additionally, the National Council of Nonprofits points out in its article that organizations should give consideration to email records and how they fit into the procedures defined in the document retention policy.

If you have additional questions or would like additional information, please contact our office.

Brittany Powell ([email protected]) is an audit senior at Langdon & Company LLP and has experience with a broad range of non-profit clients.

The Why, Who, What and How of an effective audit committee for nonprofit organizations

by Meagan Bullochhands

The establishing and maintaining an audit committee is considered a best practice for nonprofit organizations.  An audit committee can greatly help the governing board perform their fiduciary and oversight roles over financial reporting, reducing risk and maintaining donor confidence.  Some organizations may utilize their finance committee as an audit committee.  What is important is not the form of the committee but the substance.

Q: Why should a nonprofit consider forming an audit committee?

A: In addition to Sarbanes Oxley and state requirements imposed for organization’s soliciting funds within certain states, the Form 990 asks if an organization has an audit committee.  Although, such a committee is not a requirement, the establishment of one is considered a best practice by the IRS.  As the Form 990 is a public document, answering “no” to this question may lead to funders questioning why the organization is not following a suggested best practice.  The American Institute of Certified Public Accountants’ (AICPA) Audit Committee Toolkit: Not-for-Profit Organizations, 2nd Edition (available at AICPA Store) lists numerous reasons as to why a nonprofit organization should consider forming an audit committee, including providing better: financial results, decision-making in terms of accuracy and quality of financial reporting; ability to build stronger relationships with stakeholders; as well as facilitating transitions in leadership.

Q:  Who makes the best audit committee members?

A:  Audit committee’s typically consist of 3-6 members with diverse backgrounds and experience all of which are considered “financially literate.”  To be financially literate, members should be able to read and understand fundamental financial statements and recognize when the numbers along with associated disclosures to not make business sense.  Additionally, the best audit committee members are fully involved and engaged with the organization and ensure that two-way constructive dialogue occurs at all times between all parties involved.  Members should also be independent in both fact and appearance.  To be truly effective, the committee must be able to resist any attempt by management to compromise financial reporting.  The following relationships are considered to impair independence:

  1.  An audit committee member who is or has been an officer or employee of the organization during the past 3 years
  2. A member who is an immediate family member of an officer or someone in management
  3. A member who has a direct business relationship with the organization in the past three years; such as a consultant

Q:  Who can serve as a financial expert on the audit committee?

A:  The inclusion of at least one financial expert is a highly recommended best practice.  The following attributed are deemed essential components of a financial expert:

  1.  An understanding of generally accepted accounting principles (GAAP) and nonprofit financial statements
  2.   The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves
  3. Experience preparing, auditing, analyzing or evaluating financial statements that are comparable to those of the organization
  4. An understanding of internal controls and procedures for financial reporting
  5. An understanding of the audit committee function
  6. A general understanding of nonprofit financial issues and specific knowledge of the nonprofit industry in which the organization operates

It is worth noting that an audit committee financial expert has no greater obligations or liability than any other members of the audit committee and board of directors who are not designated as financial experts.

Q:  What should be the mission of an effective audit committee?

A:  Simply put, the mission should be oversight.  Specifically, the following areas should be their main focus:

  1.  Financial reporting
  2. Risk Management

Audit function – oversight of and communication with independent auditors, both internal and external

Langdon & Company LLP will be happy to assist with your audit needs.  Please contact our office!

Meagan Bulloch ([email protected]) is an audit manager at Langdon & Company LLP focused primarily on non-profit clients.

College Tax Credits 2014

by Cody Taylor

college-debtThere is often confusion surrounding who can claim college tax credits and for how much.  The two college tax credits are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit.  You can only claim one of these credits per student on your federal tax return.  The American Opportunity Tax Credit is worth up to $2,500 per qualifying student for up to four years and is currently available through 2017.

Everyone wants to be able to claim a college tax credit but there are various rules, income limitations and exclusions that apply for each credit.  The source of the money used to pay for qualified tuition expenses matters in determining whether you can qualify for one of the college tax credits.  For example, 529 college savings plans are utilized by many taxpayers to plan for college expenses, but expenses that were used to calculate the tax-free portion of a distribution from a 529 plan may not also be used to calculate the American Opportunity Tax Credit.  There are ways to claim the AOTC in the same year as a tax-free distribution from a 529 plan is made, but it takes planning.

You should receive a Form 1098-T from your school in the mail.  This and other related costs (often textbooks) should be supplied to your tax professional along with your other tax information so that they can help adopt the best college tax credits for your particular situation.  Proper planning ahead of time can save you money in the long run.  A tax professional can help you discuss college tuition planning so that when the time comes for you or your child to go off to college, you will be able to claim the maximum credit allowable to you.

Langdon & Company LLP has a tax department full of experience to help you make the right choice for this deduction.  Please feel free to contact our office for more information.

Cody Taylor ([email protected]) is a tax staff who specializes in various issues related to individuals and their businesses.