By | Resources | 85 Comments

Frequently, time – and the value of it – comes into conversation. Everyone knows the famous equation “Time equals money” and in my profession I constantly find myself in the nexus of the two. As a young staff accountant at your local front-range sweatshop CPA firm, I was taught the importance of time management. In my current stage of the profession, I’m directly responsible for my own time and how it’s used as well as that of about 10 others.

The first thing that everyone needs to know about time for tax purposes is that it is irrelevant as it is not deductible. I hear all the time about how someone’s time spent on a non-profit board, volunteering at a local Church, etc is equal to $XXX, XXX in charitable contributions. The IRS figured this out long ago and they do not qualify the value of lost income in performing services or what would ordinarily be charged for those services as a donation as these things can be easily manipulated to the benefit of the taxpayer. With the amount of construction and real estate happening in the valley, I often hear the “value” of self-improvements on real estate as one thing, but a few questions later the actual costs paid end up being substantially less. And it’s these actual costs paid that constitutes the real figure that can be allowed as a deduction or improvement.

Since the first few years of my career were days spent targeting tasks in 15 minute increments, it helped me learn to focus on the limited availability of time, the difference between urgent and important and most importantly the value of time while not at the desk. Anyone can fall victim to leaving enough undone tasks to create a false sense of pressure on themselves, but the fallacy in this is that tomorrow will bring its own set of challenges; and fortune favors the prepared. In a world of deadlines, we must isolate what is urgent (wanted now) versus what is important (needed now) which is easily solved by clear communication. If the first two points are followed, the third will fall in line and there will be time for personal pursuits. Thankfully, “The Gods do not deduct from a man’s allotted span the hours spent fishing” (Babylonian Proverb). So, if you’re like me, you’ll live to be 125 years old.

Fraud and How it Occurs

By | Resources | 9 Comments

Small business owners face a lot of challenges. Daily operations, motivating people, selling their products and services, managing relationships, expense control, accounting, legal issues, managing human resources and taxes – the list is almost endless. With only 24 hours in a day, these challenges are often managed by prioritizing the “fire that burns the hottest.” It’s easy to let little things go, the ones that aren’t “squeaky wheels.” Among these are often the basic types of duties that someone you trust is handling or has been handling for years – keeping and reconciling the books, paying the bills, making deposits, etc, so you can focus on the important stuff – keeping people happy and making money.

Unfortunately, there are pressures people face that can lead them to make and rationalize decisions that can hurt others, organizations or even the business that they work for.

Accountants use the concept of the “Fraud Triangle” to assess this. The three key points are motivation, rationalization and opportunity.

Motivation, or pressure, is the leading circumstance. It could be caused by personal spending issues or unexpected medical bills. Other factors include divorce/infidelity, drugs/alcohol or gambling issues. The key point for employers to be aware of that they must be observant of employees who undergo stressful life changes or appear to be living beyond their means.

Rationalization is generally the next phase in the progression to theft. Once someone has an incentive, they must justify to themselves that it is ok to commit such an act. This often comes in the form of a feeling of contributing to the success of the company, yet not being considered for financial reward. It could also be a mentality of contributing to the owner’s lifestyle without consideration by the owner of that of their employees.

Opportunity is the ability to actually commit the act. This is unfortunate, but if you leave the lid off the cookie jar long enough, it is only a matter of time before someone sticks their hand in it. Whether checks are being entered to regular vendors in the accounting system that are actually personal bills of the perpetrator, copper wire goes missing from a jobsite or unusually high levels of cash out refunds or returns are being issued, people who have the motivation and have made the rationalization will jump at the opportunity.

These events are usually devastating to businesses. First, there is the loss of an employee who has been key to the company. Then there is the damage to the company’s reputation and morale as well as the emotional drain to the owner or management. There are a few simple things that business owners can do to mitigate these problems.

  • Be aware of the personal challenges that your employees face
  • Restrict access to check stock and credit cards.
  • Compare gross sales to cash collections
  • Review the unopened bank and credit card statements first and examine check signatures
  • Reconciling bank accounts is not just making sure everything has cleared, but also that it has cleared to the appropriate vendor
  • Review your vendor list and control how new ones are added
  • Examine your inventory controls – especially for goods that are easily salable online

The Association of Certified Fraud Examiners is a great resource and has issued their 2015 Report to the Nations on Occupational Fraud and Abuse which extensively studied the cost, damages and methods of detection and prevention. One key point that they make in their executive summary is that “The smallest organizations tend to suffer disproportionately large losses due to occupational fraud.” Businesses that consider this risk annually with external analysis can take large steps to mitigating this issue and protecting not only their investment in their business, but also the lives of their employees.


By | Resources | 12 Comments

One of the worst ideas I‘ve heard in a long time recently came across my desk. The premise of the scheme is to artificially inflate ones income by converting what is already post tax dollars to income by running payroll through a “dummy” Company. Apparently, you can submit two months of paystubs (real or not, I guess) and increase your borrowing base for qualifying for a mortgage. All the tax in’s-and-out’s aside – not to mention reducing the size of your own personal net worth pie – this is plain mortgage fraud. What’s worse is that he was advised of this scheme by his own “professional”. As a regular advice giver, this situation caused me to think about my three favorite quotes about advice:

  • “All that glitters is not gold.” This person is so blinded by the idea of obtaining a home that they are willing to disregard what are probably two of the most important things that someone can build – post tax net worth and integrity. You can apply this one to pretty much any hair brained investment scheme also.
  • “Never take advice from someone who does not have to live with the consequences.” In this scenario, this person is going to put themselves on the line legally and financially by borrowing more than they can afford (or at least what they tell me and the government about). The “professional” providing this advice gets paid and then can slink back into the shadows while this person will be alone to pick up the pieces when/if this scheme implodes.
  • Generally, the third quote is the only one that is left after the first two are ignored, the only one that can truly encapsulate the magnitude of a terrible idea – “How big of a crater do you want to make?”

How Much Does that iPad really Cost?

By | Resources | 362 Comments

Not long ago, I found myself evaluating the types, features and specifications of the various types of tablets on the market.  Like most buyers I considered how this was going to allow me greater convenience – and if it could do anything magical beyond what I was already aware.  Now, my intention was to have a business ready device, but I knew my reality would also mean loading it up with games, and that the kids might end up using it use more than I would.  When I had finally picked a model that I thought appropriate, cost was my next consideration.  $600 lighter, I was on my way to the cutting edge of technology to peruse email and surf the web (and possibly less raucous car trips).  I wondered though, to what degree do people understand what stuff like this really costs?

Let’s say that this revolutionary email machine would serve its intended purpose as a business tool (forget momentarily the mental images of my kids squashing zombies and my wife entertaining friends with vacation pictures); financially my iPad would qualify as a business deduction.  The Internal Revenue Service defines that a business expense must be “ordinary and necessary.”  Ordinary meaning common and accepted in my trade or business and necessary meaning helpful and appropriate.  This analysis would seem to conclude that it would be a deduction.  If we assume that I am in a combined federal and state tax bracket of 30%, this means that my $600 iPad only cost me $420 (excluding sales tax) as the deduction saves my tax cost of $180.

On the other hand, let’s assume this contraption gets commandeered by the wife and kids and becomes purely for personal use (think stacking candy and movies).  How much am I out of pocket for it now?  Assuming the same tax rates (excluding sales tax) as the previous example, that’s $857.  For me to be able to buy a $600 iPad, I have to make enough ($857) to be able to pay the tax ($257) to have the remaining amount ($600) available to spend. My iPad just doubled in cost.

Clearly, the cost of this to me is not the same depending on its intended use.  Unfortunately this applies to all areas of personal spending and tax deductions.  Think of tax deductions like a rainbow.  On one end, you have ice cream cones, running shoes and slick new skis – which have generally nothing to do with the production of income.  On the other end is boring stuff like business insurance, commercial welding equipment and specialized tools, which are integral to such.  Somewhere in the middle are vehicles (complexities of which deserve separate attention), cellphones and stuff from which people derive a personal benefit and also have a business application.

One of the best quotes I’ve heard about tax deductions is “It will work just fine until it won’t work at all.”  Make sure that you have your paperwork together if you want to roll the dice with the IRS.  I’m not trying to undermine that there is always plenty of healthy debate regarding specific transactions and circumstances that could appear personal which have business substance – just make sure that you understand what the real cost is to you.  As for my kids, we have some fairly quiet car trips – thanks to the library.  The wife got the iPad.