IRS Increases Mileage Rate to 55.5 Cents per Mile

HOW LONG TO KEEP FINANCIAL RECORDS

You can't take everything with you, but the following are suggestions about how long you should keep personal finance and investment records on file:

HOW LONG SHOULD ONE HOLD ON TO BUSINESS DOCUMENTS AND RECORDS?  

When can business owners throw out financial statements, tax documents, receipts, etc?  Which business documents should be kept and for how long?

Many owners of small and home-based businesses struggle to maximize business operations and storage in a limited amount of space. One of the biggest space-guzzlers is the seemingly endless reams of paper that can quickly collect into unsightly piles, covering desk tops, equipment, and floors or take up precious room in file cabinets and drawers.

But just how long should one hold on to those company bank statements, tax records, receipts, contracts, and other business documents? Seven years? Three years? Moreover, which business documents should one keep in the first place?

Most people have heard that one should hold on to financial statements and other important records for at least seven years, and it is a good rule of thumb to keep in mind for any hard to classify records. But the truth is that the various categories of business documentation should be kept at differing lengths of time. Some business records can be kept for only three years, others indefinitely. The following is a breakdown of the major types of business documents and records and the recommended storage time for each:

• Business documents that should be kept for three years. Inactive insurance policies, general correspondence, purchase orders, employee applications and benefit records should be kept for three years. 
• Business documents that should be kept for seven years. There are numerous business records that should be held on to for a minimum of seven years. These include: employee agreements, business loan documentation, litigation records, as well as general expense reports and records including overhead expenses and professional consultation fees.
• Business documents that should be kept for ten years. Bank account records including bank statements, deposit slips, and canceled checks, accounts payable and receivable records, lease documentation, customer and vendor invoices and legal contracts are recommended to be stored for up to ten years.
• Business documents that should be kept indefinitely.  There are several business records that should never be discarded since they are necessary for business operations or must be available for legal purposes. These include: trademark licensing, tax records, general ledgers, payroll records, year-end statements, and records pertaining to retirement plans, property and vehicle titles including mortgage documentation, and any other business licenses and permits.

A Few Additional Points on Keeping Business Documents and Files

When sifting through and storing business records make sure to keep in mind the following three things:

1. Each state, county, and local government may vary on how long business records must be kept so business owners should do research beforehand by checking with the local court house, city office clerk, and the IRS or alternatively asking the advice of a qualified professional, such as an accountant or tax attorney.
2. Owner of multiple businesses should make sure that the records for each business are kept separately.
3. To prevent identify theft, business owners should be sure to discard sensitive business documents responsibly. The easiest way to do this is with the use of an inexpensive shredder available at most office supply stores.

Knowing which business documents to keep can help to ensure that the necessary business records are available and can clear up some much needed space in the process.

THE TAX RELIEF, UNEMPLOYMENT INSURANCE REAUTHORIZATION, AND JOB CREATION ACT OF 2010 - HERE'S WHAT YOU NEED TO KNOW Tax Rates As in 2010, the federal tax bracket rates for 2011 and 2012 will be 10%, 15%, 25%, 28%, 33%, and 35%. Existing tax rates for long-term capital gains and qualifying dividends are extended through 2012.  As a result, long-term capital gains and qualifying dividends will continue to be taxed at a maximum rate of 15%.  If you're in the 10% or 15% marginal income tax brackets, a special 0% rate will generally continue to apply. Alternative Minimum Tax AMT AMT exemption amounts for 2010 extended the increased exemption amounts to 2011.  Nonrefundable personal income tax credits will continue to be allowed to offset AMT liability in 2010 and 2011. AMT Exemption Amount 2010 2011 Married Filing Jointly $72,450 $74,450   Single or Head of Household $47,450 $48,450 Married Filing Separately $36,225 $37,225 Estate Tax Major changes, though temporary, were made to the federal estate tax.  For 2011 and 2012, the estate tax exemption amount (the applicable exclusion amount, renamed the basic exclusion amount) will be $5 million per person (the $5 million will be indexed for the inflation in 2012); the top transfer tax rate for these years will be 35%.  The $5 million exemption amount and 35% top estate tax rate will apply retroactively to 2010 as well, but for individuals who died in 2010, an election can be made to choose the estate tax provisions effective prior to the "Act" (i.e., no estate tax applies, but special modified carryover basis rules apply); an extended due date is provided for individuals who died on or after January 1, 2010, and before December 17, 2010.  For 2011 and 2012, when one spouse dies, any unused portion of that spouse's estate tax exemption amount may be transferred to the surviving spouse. One-Year Reduction in Social Security Payroll Tax If you're an employee, 6.2% of your covered wages up to the taxable wage base ($106,800 in 2011) is generally withheld for your portion of the Social Security retirement component of FICA employement tax.  If you're a self-employed individual, you pay 12.4% for the Social Security portion of your self-employment tax.  The "Act" implements a one-year 2% reduction in this tax.  That means for 2011, you'll pay the tax at a rate of 4.2% if you're an employee, and 10.4% if you're self-employed. Depreciation and IRC Seciton 179 Expensing If you're a business owner or self-employed individual, you may know that an additional 50% depreciation deduction has been available for qualifying property placed in service during 2010. The Act increases the bonus depreciation percentage allowed to 100% for property acquired and placed in service after September 8, 2010, and before January 1, 2012. The Act also extends bonus depreciation at the 50% level through 2012 (the 50% bonus depreciation will apply for property placed in service after December 31, 2011, and before January 1, 2013). For tax years 2010 and 2011, the Small Business Jobs Act increased the maximum amount that could be expensed under IRC Section 179 to $500,000 and increased the phaseout threshold amount to $2 million. For 2012, the dollar limit amount and phaseout threshold level were scheduled to drop to $25,000 and $200,000, respectively. This Act sets the IRC Section 179 expense limit for 2012 at its 2007 level--$125,000, with a phaseout threshold of $500,000--indexed for inflation. Education Provisions The Act extends the American Opportunity tax credit (known as the Hope tax credit before being significantly--though temporarily--modified by the American Recovery and Reinvestment Act of 2009). The American Opportunity tax credit's higher maximum credit amount, increased income limits, expanded applicability to the first four years of college, and potential refundability, available in 2009 and 2010, are extended through 2012. The current current rules that apply to Coverdell education savings accounts (e.g., $2,000 annual contribution limit, education expenses expanded to include elementary and secondary school expenses) are also extended through 2012. Without this change, the annual contribution limit would have dropped to $500 beginning January 1, 2011. For the student loan interest deduction, increased income limits and the suspension of the 60-month rule, which would have expired at the end of 2010, are extended for two years (the deduction was, prior to 2001, limited to interest paid in the first 60 months of repayment). The deduction for qualified higher education expenses, which expired at the end of 2009, is retroactively reinstated for 2010, and extended through 2011. Other Changes The “Act” prevents itemized deductions and personal and dependency exemptions from being reduced for higher income individuals for two additional years (2011 and 2012). The “Act” also extends "marriage penalty" relief, in the form of an expanded 15% tax bracket and an increased standard deduction amount for married individuals filing jointly, through 2012. Provisions Extended Through 2011 Include: The $250 above-the-line deduction for elementary school and secondary school teacher classroom expenses. Tax-free IRA distributions to charitable organizations by individuals age 70½ or older. The deductibility of mortgage insurance premiums. Provisions Extended Through 2012 include: Rules relating to the earned income credit. The child tax credit. The credit for child and dependent care expenses. The adoption tax credit and exclusion amount for employer-paid adoption assistance.   ** For a more in depth description of these and other changes that were made watch the short four minute video. www.forefieldkt.com/kt/htmlnl.aspx 2011 TAX TABLE 2011_TAX_TABLE.pdf TAX SEASON STARTS ON TIME FOR MOST TAXPAYERS; THOSE AFFECTED BY LATE TAX BREAKS CAN FILE IN MID-TO-LATE FEBUARY  IR-2010-126, Dec. 23, 2010 WASHINGTON — Following last week’s tax law changes, the Internal Revenue Service announced today the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well. To view the entire article go to:  http://www.irs.gov/newsroom/article/0,,id=233449,00.html TAX DEDUCTION RULES FOR HOLIDAY PARTIES

Entertaining your employees and their spouses with a holiday party can build company spirit, say thank you and celebrate the season all at once. The cost of the party is 100% tax-deductible and no business activity needs to take place. Make sure your accounting system has a category such as “Meals & entertainment-100%” to track the expenses. Add clients, patients, or other business relationships (vendors, professional colleagues, etc.) to the guest list and you'll still get a deduction, but it will only be for half the cost. The IRS allows a 50% deduction on entertainment expenses that include business relationships. However, in order to take the 50% deduction for business relationships attending your holiday party, you must prove that your party is directly related to the active conduct of your business or a bona fide discussion occurred during the festivities. Spouses of business relationships in attendance are also subject to the 50% deductible if, you have a business relationship with both the client and spouse. The “closely connected” rule makes the spouse’s attendance deductible. Under this rule, you have already established an entertainment deduction with your business contact and because of this deduction, you may also deduct to cost of entertaining the closely connected person (the spouse). Example: If you have 50 employees and 50 clients/business relationships in attendance at your holiday party, you divide the cost of the evening in half. You deduct 50% of the cost as 100% deductible (employees and spouses) and 50% of the cost as business relationships/spouses) subject to the 50% deduction. Overview – You may deduct the cost of your holiday party when: The cost is not lavish or extravagant; You meet the “directly related” or “associated” standard for business guests and prospects; You make proper allocation of costs to business guests and employees; and There are receipts, invoices, canceled checks, and charge card slips to verify the things you bought and support the monies you spent. Your home is also a clear business setting for a holiday party with the same deduction rules. If you are entertaining at your home you can have the company pay yourself rent tax-free for the use of your home. You can rent your home for up to fourteen days per year tax free. If you rent your home to your company for business purposes the rent will be a tax deduction to the company but not taxable to you personally. We hope this information is helpful. If you have any questions, please do not hesitate to call one of our team members.  SAVE TAXES FOR "QUALIFIED" NEW HIRES Save Up to $7,621 in Taxes for ‘Qualified’ New Hires As you may be aware, Congress recently passed the Hiring Incentives to Restore Employment (HIRE) Act. To encourage the hiring of workers by the private sector, the HIRE Act provides that an employer that hires a ‘qualified’ worker does not have to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. That’s a savings of up to $6,621 for employees that earn the maximum wages subject to Social Security tax ($106,800). In addition, if the employer keeps the employee on the payroll for 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000, to be taken on the employer’s 2011 income tax return. Guidelines Include: The employee must have been hired after February 3, 2010 and before January 1, 2011. The employee must have worked fewer than 40 hours during the 60 days prior to beginning work, and must sign a statement to that effect, Form W-11. The employee must be an additional hire, or if the employee is a replacement, it must be replacing a voluntary termination or an employee that was terminated for cause. The employee must not be related to the qualified employer or anyone owning 50% or more of the stock or other capital of the employer. What you need to do: Identify Qualified Employees. Obtain a signed Form W-11 from eligible employee. Setup Payroll system to track eligible employees. Handle quarterly Form 941 reporting correctly. Handle annual Form W-2 reporting correctly. Track employees that qualify for $1,000 credit in 2011. How we can help: Assist with identifying eligible employees. Assist with QuickBooks setup and accounting involved. Prepare your payroll to ensure you receive the tax savings available. We can prepare your quarterly reports and W-2 forms in compliance with new regulations.  Please call if you have any questions or need assistance (360-876-4491). We welcome the opportunity to help you grow your business. Circular 230 Notice: IRS regulations require us to advise you that, unless otherwise specifically noted, any Federal tax advice in this communication (including any attachments, enclosures, or other accompanying materials) was not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding penalties; furthermore, this communication was not intended or written to support the promotion or marketing of any of the transactions or matters it addresses. SMALL BUSINESS HEALTH CARE TAX CREDIT: FREQUENTLY ASKED QUESTIONS The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. The following questions and answers provide information on the credit as it applies for 2010-2013, including information on transition relief for 2010. Additional guidance on the credit is available in Notice 2010-44. An enhanced version of the credit will be effective beginning in 2014. The new law, the Patient Protection and Affordable Care Act, was passed by Congress and was signed by President Obama on March 23, 2010. Employers Eligible for the Credit 1. Which employers are eligible for the small employer health care tax credit? A. Small employers that provide health care coverage to their employees and that meet certain requirements (“qualified employers”) generally are eligible for a federal income tax credit for health insurance premiums they pay for certain employees. In order to be a qualified employer, (1) the employer must have fewer than 25 full-time equivalent employees (“FTEs”) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per FTE, and (3) the employer must pay the premiums under a “qualifying arrangement” described in Q/A-3. See Q/A-10 through 16 for further information on calculating FTEs and average annual wages and see Q/A-24 for information on transition relief for tax years beginning in 2010 with respect to the requirements for a qualifying arrangement. 2. Can a tax-exempt organization be a qualified employer? A. Yes. The same definition of qualified employer applies to an organization described in Code section 501(c) that is exempt from tax under Code section 501(a). However, special rules apply in calculating the credit for a tax-exempt qualified employer. An employer that is an agency or instrumentality of the federal government, or of a State, local or Indian tribal government, is not a qualified employer unless it is an organization described in Code section 501(c) that is exempt from tax under Code section 501(a). See Q/A-6. To view the entire article please view the link below URL: www.irs.gov/newsroom/article/0,,id=220839,00.html Document: 20100914135054.pdf FIVE-YEAR CARRYBACK OF NET OPERATING LOSSES The American Recovery and Reinvestment Act of 2009 allowed eligible small businesses to elect to extend the general two-year net operating loss (NOL) carryback period for 2008 net operating losses to three, four, or five years. An eligible small business was defined as a taxpayer meeting a maximum $15,000,000 gross receipts test. The provision applied to an eligible taxpayer’s NOL for any taxable year-ending in 2008, or if elected by the taxpayer, the NOL for any taxable year beginning in 2008. However, the election was allowed only with respect to one taxable year. The worker, Homeownership, and Business Assistance Act of 2009 provides for an election similar in nature to the NOL carryback provision in the American Recovery and Reinvestment Act: Businesses may elect to extend the general two-year NOL carryback period to three, four, or five years. The election is not limited to businesses that meet a specified gross receipts test. The election can be used for an NOL for a taxable year beginning or ending in either 2008 or 2009. The election can be used for only one year, however. Under the terms of the election, NOLs carried back five years would be able to offset up to 50 percent of the taxable income from the fifth year, but could offset all of the income from the other carryback years. Eligible small businesses that elected to carry back 2008 net operating losses under the provisions of the American Recovery and Reinvestment Act of 2009 can still elect to carry back a 2009 NOL under the provisions of this Act. The Act specifically excludes certain taxpayers. For example, a business in which the Federal government acquired an equity interest pursuant to the Emergency Economic Stabilization Act of 2008 is not eligible for the election. "MAKING WORK PAY" CREDIT In tax years 2009 and 2010, the “Making Work Pay” provision will provide a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns. Eligible individuals will receive an income tax credit for two years (tax years beginning in 2009 and 2010). The new credit, like other tax credits, will reduce a person's tax liability on a dollar-for-dollar basis. Wage earners who don't earn enough to pay income taxes will be able to claim the difference as a tax refund. For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes to be made in early spring 2009. These changes may result in an increase in the amount of take-home pay. The amount of the credit will be reported on the 2009 income tax return. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return filed in 2010. The new credit is the lesser of (1) 6.2% of an individual's earned income or (2) $400 ($800 in the case of a joint return). In other words, for individuals with earned income above roughly $6,451 ($12,902 for couples), the credit maxes out at $400 ($800 for couples). For the last half of 2009, workers can expect to see perhaps $13 a week less withheld from their paychecks starting around June. That reduction goes down to about $7.70 per week next year. Nonresident aliens do not qualify for this credit. Neither do estates, trusts, or individuals who can be claimed as a dependent on someone else's return. The credit is available in full only if AGI (adjusted gross income, with some modifications for highly specialized income) doesn't exceed $75,000 for an individual ($150,000 if you file a joint return). The credit is phased out at a rate of 2% of the eligible individual's AGI above $75,000 ($150,000 in the case of a joint return). So no credit is allowed for individuals with AGI of $100,000 or more, or for joint filers with AGI of $200,000 or more. Unlike the $600 per worker lump-sum rebates issued last year, the credit can be received as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return. Self-employed taxpayers can claim the “Making Work Pay” credit on their 2009 return filed in 2010. Self-employed individuals should evaluate their expected income tax liability and determine whether they want to make any adjustments in their estimated tax payments. Since the credit is based on taxable wages and thus unavailable to many retired people and others whose income does not come from wages, the new law includes a one-time payment of $250 to retirees, disabled individuals and SSI recipients receiving benefits from the Social Security Administration, and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans' Affairs. The one-time payment is a reduction to any allowable “Making Work Pay” credit. Similarly, a one-time refundable tax credit of $250 is provided in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable “Making Work Pay” credit. The IRS recommends that pension recipients evaluate their expected tax liability for the year and consider whether they need to make estimated tax payments or adjust their withholding on Form W-4P, Withholding Certificate for Pension or Annuity Payments. KEEPING GOOD RECORDS REDUCES STRESS AT TAX TIME Although most people won’t be filing their tax returns for several months, the dog days of summer are actually a great time to start planning for the tax filing season by ensuring your records are organized. Whether you are an individual taxpayer or a business owner, you can avoid headaches at tax time with good records because they will help you remember transactions you made during the year. Here are a few things the IRS wants you to know about recordkeeping. Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you are billed for additional tax. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return. Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:  Bills Credit card and other receipts Invoices Mileage logs Canceled, imaged or substitute checks or any other proof of payment Other records to support deductions or credits you claim on your return You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:  A home purchase or improvement Stocks and other investments Individual Retirement Arrangement transactions Rental property records If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:  Gross receipts:  cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC Proof of purchases:  Canceled checks, cash register tape receipts, credit card sales slips and invoices Expense documents:  Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments Documents to verify your assets:  Purchase and sales invoices, real estate closing statements and canceled checks For more information about recordkeeping, check out IRS Publications 552, Recordkeeping for Individuals, 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses. These publications are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).  TAX BENEFITS OF PUTTING YOUR CHILDREN ON THE PAYROLL As the owner of a business, you should be aware that you can save family income and payroll taxes by putting junior family members on the payroll. You may be able to turn high-taxed income into tax-free or low-taxed income, achieve social security tax savings (depending on how your business is organized) and even make retirement plan contributions for your child. Changes that took effect in 2008 which broaden the reach of the “kiddie tax,” make employment of a child age 18 (or if a full-time student, age 19–23) a way to save taxes on the child's unearned income, as explained below. Here are the key considerations. Turning high-taxed income into tax-free or low-taxed income. You can turn some of your high-taxed income into tax-free or low-taxed income by shifting some of your business earnings to a child as wages for services performed by him or her. In order for your business to deduct the wages as a business expense, the work done by the child must be legitimate and the child's salary must be reasonable. You can ensure that you are paying at least the minimum wage in your state by referring to the Department of Labor’s web site: http://www.dol.gov/esa/minwage/america.htm To demonstrate this tax saving strategy, suppose a business owner operating as a sole proprietor and is in the 35% tax bracket. He hires his 17-year-old daughter to help with office work full-time during the summer and part-time into the fall. She earns $5,700 during the year (and doesn't have earnings from other sources). The business owner saves $1,995 (35% of $5,700) in income taxes at no tax cost to his daughter, who can use her $5,700 standard deduction for 2009 to completely shelter her earnings. The business owner could save an additional $1,750 in taxes if he could keep his daughter on the payroll for a longer period and pay her an additional $5,000. She could shelter the additional amount from tax by making a tax-deductible contribution to her own traditional IRA. Family taxes are cut even if the child's earnings exceed his or her standard deduction and IRA deduction. That's because the unsheltered earnings will be taxed to the child beginning at a rate of 10%, instead of being taxed at the parent's higher rate. Keep in mind that bracket-shifting works even if the child is subject to the kiddie tax. The kiddie tax only causes a child's investment income in excess of $1,900 for 2009 to be taxed at the parent's marginal rate. It has no impact on the child's wages and other earned income, which can be sheltered by the child's standard deduction. In 2008, the kiddie tax was expanded to apply to a child who is age 18 or a full-time student age 19 through 23, if the child's earned income for the year doesn't exceed one-half of his or her support. Thus, in 2009 employing a child age 18 or a full-time student age 19–23 could also help to avoid the kiddie tax on his or her unearned income. For children under age 18, there is no earned income escape hatch from the kiddie tax. But in all cases, earned income can be sheltered by the child's standard and other deductions, as noted above, and earnings in excess of allowable deductions will be taxed at the child's low brackets. What about income tax withholding? Your business probably will have to withhold federal income taxes on your child's wages. Usually, an employee can claim exempt status if he or she had no federal income tax liability for last year, and expects to have none for this year. However, exemption from withholding can't be claimed if (1) the employee's income exceeds $950 for 2009 and includes more than $300 of unearned income (such as dividends), and (2) the employee can be claimed as a dependent on someone else's return. Keep in mind that your child probably will get a refund for part or all of the withheld tax when he or she files a return for the year. Social security tax savings, too. If your business is not incorporated, you can also save some self-employment (i.e., social security) tax dollars by shifting some of your earnings to a child. That's because employment for FICA tax purposes doesn't include services performed by a child under the age of 18 while employed by a parent. For example, let's say a sole proprietor who usually takes $120,000 of earnings from the business pays $5,700 to her 17-year-old child in 2009. The sole proprietor's self-employment income would be reduced by $5,700, saving her $165.30 (the 2.9% HI portion of the self employment tax she would have paid on the $5,700shifted to her daughter). This doesn't take into account a sole proprietor's income tax deduction for one-half of his or her own social security taxes. A similar but more liberal exemption applies for FUTA, which exempts earnings paid to a child under age 21 while employed by his or her parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting solely of his parents. Note that there is no FICA or FUTA exemption for employing a child if your business is incorporated or a partnership that includes non-parent partners. However, there's no extra cost to your business if you're paying a child for work you'd pay someone else to do, anyway. Retirement benefits. Your business also may be able to provide your child with retirement benefits, depending on the type of plan it has and how it defines qualifying employees. For example, if it has a simplified employee pension, a SEP contribution can be made for the child up to 25% of his or her earnings but the contribution cannot exceed $49,000 for 2009. The child's participation in the SEP won't prevent the child from making tax-deductible IRA contributions as long as adjusted gross income (computed in a special way) is below the level at which deductions for IRA contributions begin to be disallowed. For 2009, that figure is $53,000 for a single individual. Child Labor Laws. It is important to consider the child labor provisions of the Fair Labor Standards Act when employing your child. This Act limits the amount of hours and type of work a child can perform. Children 18 and older can work any job, even hazardous one, for an unlimited number of hours. Children 16 and 17 cannot work hazardous jobs, but can work an unlimited number of hours. Children 14 and 15 are limited to working nonhazardous jobs and can only work up to three hours on a school day and only 18 hours in a school week. There may be applicable state laws that would need to be considered as well. If you have any questions about how these rules apply to your particular situation, please don't hesitate to call. Also keep in mind that some of the rules about employing children (such as the maximum amount they can earn tax-free) change from year to year, and may require your income shifting strategy to change, too.   FRAUD AND THE NON-PROFIT ORGANIZATION In my career, I have participated on executive boards of nonprofit organizations; audited and consulted on internal controls for nonprofit organizations, and served as finance manager for a nonprofit organization. Nonprofits routinely replace board members and some day you may be asked to serve on the board of a nonprofit organization. Board members of nonprofit organizations have a fiduciary responsibility to oversee management of the organization. Among other duties, board members hold management accountable for maintaining internal controls over revenue, expenses, capital outlays and investments. To achieve this, effective internal control systems must be in place to both reduce the likelihood of resources being misappropriated and detect financial irregularities in a timely fashion. Participating on the board of a nonprofit organization differs from serving on the board of a publicly traded company because the nonprofit board member has no personal financial interest in the organization. If a publicly traded company performs poorly, board members have a vested interest in holding management accountable. As a result, management of publicly traded companies will work diligently to maintain efficiency, profitability, and stock value at the risk of losing their jobs. Since the nonprofit board member has no financial interest at risk in the organization, he or she may not be motivated to thoroughly question management regarding the financial performance of the organization. Board members of smaller nonprofits may not be educated with respect to financial reporting matters and as a consequence may not feel comfortable asking financial questions at board meetings. If you are currently a board member of a nonprofit organization with limited exposure to financial reporting, how would you know if the organization is at risk for experiencing financial irregularities (Fraud)? The following conditions are indicators that an organization’s accounting systems may be lacking sufficient internal controls to prevent or detect financial irregularities:   Organization is still using a manual bookkeeping system (inefficient and prone to clerical errors) There are numerous bank accounts and transfers between these accounts Financial statement reporting is not timely Financial statements contain obvious errors, such as negative or excessive balances in payroll tax accurals Inquiries regarding financial statement issues seldom are resolved Motions are made to accept financial statements as submitted without any discussion Bank overdraft fees, late fees and/or penalties appear on the profit and loss statements Assessments of internal controls by independent CPA are never performed Financial statements are overly confusing or contains either too much or too little detail Management is quick to make excusses for the condition of the financial reporting system (software problems, under staffed, etc.) A current accounting procedures manual does not exist One individual in the organization has control over most of the financial reporting functions Accoutning staff have little or no formal accounting training The financial manager has authority to sign checks Management owns a company that provides services to the organization As a nonprofit board member, you have every right to respectfully ask questions of management regarding the condition of the financial reporting system. If you are not sure if any of the aforementioned conditions exist, ask! Conversely, evidence that the financial reporting systems and internal controls are in place and/or operating properly include: Internally-prepared financial statements are presented in a timely manner Financial statements are provided to board members prior to board meetings early enough to allow adequate time to review and note questions Accounting procedures manual has been adopted Internal financial statements appear to be free from obvious clerical mistakes Requests for additional financial information are provided in a timely manner All bank accounts were reconciled within 30 days of month end All accounting staff have proper training and education Proper segregation of duties exist for all accounting functions Outside CPA attends annual board meeting to discuss pending issues affecting nonprofit organizations, status of tax filings, and provide an independent overview of the financial condition of the nonprofit If annual audits are required: Audits are completed within 12 months of year end Audit reports are "unqualified" No reportable conditions on internal controls are noted during audits Nonprofit embezzlement is common but seldom reported for fear of damage to the nonprofit’s reputation and the potential decline in donations. Remember, only trustworthy employees steal from nonprofits. Unscrupulous individuals never get hired in the first place. (Editor’s Note: Chris Mutchler is a CPA, Certified Fraud Examiner (CFE) and Certified in Financial Forensics (CFF). Mr. Mutchler works for Southard, Beckham, Atwater and Berry and can be reached at (360) 876-4491 or cmutchler@sbabcpa.com