Davidson / Pargman and Company

Certified Public Accountants and Advisors

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Employers shouldn’t rush orientation (or confuse it with onboarding)

Does your organization intend to hire new employees in the coming year? Given that some turnover is virtually inevitable, you may not have a choice. As you bring new staff members into the fold, it’s critical to get both orientation and onboarding right.

Wait a minute, aren’t those two things the same? Not exactly. Orientation is only the initial, short-term and administrative part of onboarding. Once new employees are oriented, there should be a long-term process in place to ensure they’re fully and inclusively integrated into your organization.

Prevent disorientation

Let’s focus on orientation. Many employers rush through this critical task — usually because they want to meet productivity goals. Unfortunately, that often leaves employees feeling disoriented, which, in turn, tends to diminish their comfort level with and loyalty to the organization.

Typically, people hope to find a “happy home” with a new employer. Cramming paperwork, introductions, tours (if it’s an on-site position) and lectures about organizational philosophy into one hectic day often leaves new hires overwhelmed, confused and even burned out from day one. It certainly doesn’t help them settle into their new digs comfortably.

You can reduce the pressure on new employees with an extended, step-by-step approach to orientation. This enables you to present critical employment information in bite-size pieces that new hires can more readily digest.

Take it day by day

To the extent possible, set aside one day solely for paperwork, security checks and other administrative matters. Doing so will give new hires plenty of time to fill out forms, read the employee manual, learn about policies and rules, and get up to speed on your benefits package. Then reserve another full day for tours of the workplace and introductory meetings — perhaps even lunch with their respective supervisors and coworkers, if feasible.

After new hires have spent about a week (that is, five business days) on the job, schedule at least one meeting to discuss items such as:

  • Organizational philosophy,
  • Compensation and benefits,
  • Incentive and wellness programs, and
  • Advanced training and career paths.

By this time, new employees will likely have at least a few substantive questions about the position as well as your organization’s policies and programs. Such meetings create the perfect opportunity to talk about these and other related subjects in detail. Be sure supervisors and HR staff are well-trained to hold these discussions and sell the strengths of your organization.

Get and keep the ball rolling

Precisely how long orientation should take will vary depending on factors such as your industry, the size of your organization and the specific duties of each position. An important overriding principle, however, is that it shouldn’t be rushed or improvised. Create a formal process and allocate sufficient time to carry it out. And from there, establish a long-term onboarding process to keep the ball rolling.

© 2023
TopLine Content Marketing Team

Don’t overlook taxes when contemplating a move to another state

When you retire, you may think about moving to another state — perhaps because the weather is more temperate or because you want to be closer to family members. Don’t forget to factor state and local taxes into the equation. Establishing residency for state tax purposes may be more complex than you think.

Pinpoint all applicable taxes

It may seem like a smart idea to simply move to a state with no personal income tax. But, to make a wise and informed decision, you must consider all taxes that can potentially apply to a state resident. In addition to income taxes, these may include property taxes, sales taxes and estate taxes.

If the state you’re considering has an income tax, look at the types of income it taxes. For example, some states don’t tax wages but do tax interest and dividends. And some states offer tax breaks for pension payments, retirement plan distributions and Social Security payments.

Check to see if there’s a state estate tax 

The current federal estate tax doesn’t apply to many people. In 2023, the federal estate tax exemption is $12.92 million (increasing to $13.61 million in 2024). But some states levy estate tax with a much lower exemption, and some states may also have an inheritance tax in addition to (or in lieu of) an estate tax.

Make sure to establish domicile 

If you make a permanent move to a new state and want to make sure you’re not taxed in the state you came from, it’s important to establish legal domicile in the new location. The definition of legal domicile varies from state to state. In general, domicile is your fixed and permanent home location and the place where you plan to return, even after periods of residing elsewhere.

When it comes to domicile, each state has its own rules. You don’t want to wind up in a worst-case scenario: Two states could claim you owe state income taxes if you establish domicile in the new state but don’t successfully terminate domicile in the old one. Additionally, if you die without clearly establishing domicile in just one state, both the old and new states may claim that your estate owes income taxes and any state estate taxes.

The more time that passes after you change states and the more steps you take to establish domicile in the new state, the harder it will be for your old state to claim that you’re still domiciled there for tax purposes. Five ways to help establish domicile in a new state are to:

  1. Change your mailing address at the post office,
  2. Change your address on passports, insurance policies, will or living trust documents, and other important documents,
  3. Buy or lease a home in the new state and sell your home in the old state (or rent it out at market rates to an unrelated party),
  4. Open and use bank accounts in the new state and close accounts in the old one, and
  5. Register to vote, get a driver’s license and register your vehicle in the new state.

If you’re required to file an income tax return in the new state, file a resident return. And file a nonresident return or no return (whichever is appropriate) in the old state. We can help you make these decisions and file these returns.

Make an informed choice

Before calling the moving truck to relocate in retirement, do some research and contact us. We can help you avoid unexpected tax surprises.

© 2023
TopLine Content Marketing Team

2024 Q1 tax calendar: Key deadlines for businesses and other employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2024. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. If you have questions about filing requirements, contact us. We can ensure you’re meeting all applicable deadlines.

January 16 (The usual deadline of January 15 is a federal holiday)

  • Pay the final installment of 2023 estimated tax.
  • Farmers and fishermen: Pay estimated tax for 2023. If you don’t pay your estimated tax by January 16, you must file your 2023 return and pay all tax due by March 1, 2024, to avoid an estimated tax penalty.

January 31

  • File 2023 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • Provide copies of 2023 Forms 1099-NEC, “Nonemployee Compensation,” to recipients of income from your business, where required, and file them with the IRS.
  • Provide copies of 2023 Forms 1099-MISC, “Miscellaneous Information,” reporting certain types of payments to recipients.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2023. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 12 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2023. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 12 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2023 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 12 to file the return.

February 15

  • Give annual information statements to recipients of certain payments you made during 2023. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. This due date applies only to the following types of payments:
    • All payments reported on Form 1099-B.
    • All payments reported on Form 1099-S.
    • Substitute payments reported in box 8 or gross proceeds paid to an attorney reported in box 10 of Form 1099-MISC.

February 28

  • File 2023 Forms 1099-MISC with the IRS if you’re filing paper copies. (Otherwise, the filing deadline is April 1.)

March 15

  • If a calendar-year partnership or S corporation, file or extend your 2023 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2023 contributions to pension and profit-sharing plans.

© 2023
TopLine Content Marketing Team

Tips for QuickBooks users: 5 mistakes to avoid during bank reconciliation

Reconciling bank accounts is critical to ensuring the accuracy of your company’s accounting records. The primary purpose of a bank reconciliation is to confirm that the transactions recorded in your bank statement match those shown in your accounting records.

Generally, bank accounts should be reconciled at least monthly. However, conducting weekly or daily reconciliations for accounts with a high volume of transactions can help uncover accounting errors and fraud quickly. Here’s a list of five common mistakes to avoid when reconciling bank accounts in QuickBooks® software:

1. Reconciling infrequently. When too much time elapses between reconciliations, it can complicate the process. Stale, undetected errors can create significant weaknesses in your financial records. It may also be harder to investigate discrepancies as memories fade regarding the specifics of unreconciled transactions.

2. Not reviewing every transaction. It can be tempting to skip smaller transactions to expedite the reconciliation process. Reconciling every transaction, however small, ensures the accuracy and integrity of your accounting records.

3. Relying exclusively on bank records. While QuickBooks allows users to import bank transactions, assuming every transaction is legitimate and accurate can be a mistake. For example, check payments issued to suppliers should match their invoices. Reconciling payments to source documents and bank records can uncover errors by financial institutions that processed the payments or alterations of the checks by the recipients, for higher amounts.

4. Routinely creating accounting entries to adjust for differences. Differences may arise despite your best efforts to reconcile transactions in QuickBooks with those shown on your bank statement. The software can create an entry to adjust for the difference. Use caution, as adjusting unreconciled balances can mask errors and fraud.

5. Not accounting for outstanding checks and deposits. Failure to keep track of checks and deposits that haven’t cleared or been posted to your account can complicate the reconciliation process. To avoid unreconciled items and the need to adjust for differences, gather unpaid and uncleared transactions before beginning a reconciliation and refer to them during the process.

Reconciling bank and credit card accounts can be time-consuming and tedious, especially if an account includes many transactions or your business operates many accounts. However, allowing accounts to be unreconciled can cause errors to multiply, impacting the accuracy of your financial records. Contact us for guidance on how to reconcile your accounts and how QuickBooks can help make the process more efficient.

© 2023
TopLine Content Marketing Team

Fortify your organization against employee fraud

Employee fraud is among the costliest threats faced by employers. While estimates regarding losses vary widely, fraudulent activities can go undetected for an average of 12 months and generate a median loss of $117,000, according to the most recent report of the Association of Certified Fraud Examiners (ACFE).

To fight fraud, your organization will need the ability to spot potential schemes and the knowledge to implement practical steps that will make it harder to commit. Here’s some guidance to help you evaluate the threats and take steps to mitigate the risks.

Evaluating the threat

The ACFE defines employee fraud as “using one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”

According to established criminal theory, employee fraud happens when a staff member has an undisclosed financial need (such as a gambling addiction), perceived opportunity to commit fraud (such as knowledge of weak internal controls in the workplace) and the ability to rationalize their actions (for example, “it’s a victimless crime”).

Three of the most pervasive types of employee fraud are:

1. Corruption. Here, a dishonest employee misuses influence over a business transaction to gain a direct or indirect personal benefit. Typical transgressions include bribery, illegal gratuities and economic extortion.

2. Asset misappropriation. In these cases, an employee abuses an employer’s trust to steal assets. Common schemes include cash skimming, check tampering, false voids, refunds and inventory theft.

3. Financial statement fraud.  This involves an employee deliberately misrepresenting an employer’s financial condition by intentionally misstating or omitting amounts or disclosures to deceive users of financial statements or other financial reports.

Mitigating the risk

Each form of fraud can exact substantial losses and take years for an employer to recover from. In extreme cases, fraudulent schemes can shut down operations completely. The good news is it’s entirely possible to set up safeguards that help deter fraud as well as mechanisms that will raise red flags if schemes do occur. These include:

Conducting a risk assessment.  Employees who commit fraud exploit vulnerabilities. A risk assessment evaluates your organization from top to bottom to identify the specific types of threats you face and the effectiveness of your current defenses.

Increasing the “perception of detection.” If dishonest employees believe that fraudulent activities will be uncovered quickly, they’ll be less likely to even try. Communicating the existence and effectiveness of internal controls, conducting frequent spot checks and audits, and having multiple “eyes on the problem” can increase the perception of detection.

Opening a fraud hotline. Most fraud schemes start small and grow over time. Establishing an anonymous reporting method for employees, vendors, customers and even the public at large will increase the chances that you’ll catch fraud before it inflicts substantial losses. This can involve an online portal or phone hotline.

Remaining vigilant

Most employees will never engage in fraudulent activity. Unfortunately, there are some who might want to give it a try. Remaining vigilant and investing in a robust fraud prevention program can help ensure they fail. Contact us for help evaluating your internal controls and devising actionable strategies to reduce risks.

© 2023
TopLine Content Marketing Team

Court awards and out-of-court settlements may (or may not) be taxed

Monetary awards and settlements are often provided for an array of reasons. For example, a person could receive compensatory and punitive damage payments for personal injury, discrimination or harassment. Some of this money is taxed by the federal government, and perhaps by state governments. Hopefully, you’ll never need to know how payments for personal injuries are taxed. But here are the basic rules — just in case you or a loved one does receive an award or settlement and needs to understand them.

Under tax law, individuals are permitted to exclude from gross income damages that are received on account of a personal physical injury or a physical sickness. It doesn’t matter if the compensation is from a court-ordered award or an out-of-court settlement, and it makes no difference if it’s paid in a lump sum or installments.

Emotional distress doesn’t count

For purposes of this exclusion, emotional distress is not considered a physical injury or physical sickness. So, for example, an award under state law that’s meant to compensate for emotional distress caused by age discrimination or harassment would have to be included in gross income. However, if you require medical care for treatment of the consequences of emotional distress, then the amount of damages not exceeding those expenses would be excludable from gross income.

Punitive damages for any personal injury claim, whether or not physical, aren’t excludable from gross income unless awarded under certain state wrongful death statutes that provide for only punitive damages.

The law doesn’t consider back pay and liquidated damages received under the Age Discrimination in Employment Act (ADEA) to be paid in compensation for personal injuries. Thus, an award for back pay and liquidated damages under the ADEA must be included in gross income.

Court cases

As you may suspect, the IRS and courts often decide that awards and settlements are taxable while many taxpayers feel they should be excluded from taxable income. For example, in one case, a taxpayer was injured while at a hospital. She sued for negligence but lost her case. She then sued her attorney for legal malpractice and was awarded $125,000. The IRS said the amount was taxable because it wasn’t for physical injuries. The U.S. Tax Court and the 9th Circuit Court of Appeals agreed. (Blum, 3/23/22)

In another case, the Tax Court ruled that married taxpayers weren’t entitled to income exclusion for a settlement the husband received from his former employer in connection with an employment discrimination / wrongful termination lawsuit. Although the settlement agreement provided for payment “for alleged personal injuries,” there was no evidence that it was paid on account of physical injuries or sickness. (TC Memo 2022-90)

Legal fees

You can’t deduct attorney fees incurred to collect a tax-free award or settlement for physical injury or sickness. However, to a limited extent, attorney’s fees (whether contingent or non-contingent) or court costs paid by, or on behalf of, a taxpayer in connection with an action involving certain employment-related claims, are currently deductible from gross income to determine adjusted gross income.

After-tax recovery

Keep in mind that, while you want the best tax result possible from any settlement, lawsuit or discrimination action you’re considering, non-tax legal factors, together with the tax factors, will determine the amount of your after-tax recovery. Consult with your attorney on the best way to proceed and we can provide any tax guidance that you may need.

© 2023
TopLine Content Marketing Team