Friday, May 16, 2014

CPA Exam – A Big Hurdle to Overcome – Thank you, Dr. Borra!

It's CPA Exam Time.

After graduating from a college over two decades ago, my mission was to pass the CPA exam.

I was luckier than most in that I had a lot of time on my hands to study.  I was nervous about the entire process of taking the CPA exam (and new nothing about it...except most people did not pass the first time).

Then someone highly recommended Dr. Borra CPA review course.  It was a course that was given by a single person at a two different times/venues in the area.  Unlike other self study courses, you HAD to attend this course.  In fact, Dr. Borra recommended that students “double up” and attend both of the venues.

Dr. Borra used a sort of “Socratic Method of Teaching”.  By this I mean he was constantly calling on students to answer questions, stimulate thinking and drilling into our heads answers to test questions. 

Before taking the course, I thought I would probably take the exam a few times before eventually passing – that is what most people did. 

However, after enrolling in the class, I began to “up my game” by going to as many classes as possible after constantly hearing week after week that this test is passable in one shot…and I started to believe.

When it got closer to the test time, Dr. Borra brought in many people to give “testimonials”.  These were average people that would go up on stage and tell the class how they too passed the exam the first time.  These testimonials helped me to believe even more.  As a result of this belief, I studied even more.

Exam time!  After four long months of constantly studying and going to Dr. Borra’s class, I took the exam.  And, after three more months of waiting I got the results and I had PASSED THE ENTIRE EXAM.  Dr. Borra made me believe in myself and the power of self belief.  A few months later, I too went back and gave a testimonial.

Friday, April 18, 2014


Tax Season or "Busy Season" is that time of year that accountants live for and almost die for: the sleepless nights, the clients who call nonstop, the clients who know that this is a busy time but don't care, the complete focus, the copy machines that don't work, the list goes on.  

And, when the season is over, we CPAs cannot remember most of what has transpired - because it is a BIG BLUR!  However, there is lots of good that comes out of this time.

If you have just survived the 2014 busy season (or your accountant is a survivor), We've created fun tee shirts & coffee mugs to celebrate another victory:

Click this link to purchase busy season survival tee shirts & mugs


Monday, November 18, 2013

It's That Time Again…Budget Time for 2014

The fourth quarter of the year is usually the time when budget & plans get finalized for the following year. Setting a plan for the year is extremely important.

Budgets and plans are important for executive management to set goals. It is also important for employees to know the goals and work as a team to achieve.

Here are a few tips for setting a budget and/or plan:

1 – Use foreseeable/signed revenue. Businesses with signed contracts into the next year should use this as the main basis for the revenue plan.
2 – Know the sales cycle & be realistic. Make sure that, when budgeting for new revenue, the timeframe and amounts are realistic. For example, a company planning on receiving government contracts should probably not plan for new revenue in January if the contract process is not too far along.
3 – Be cognizant of receivable cycles. If the accrual based budget leads to a cash flow forecast, make sure the timing of when funds are received accurately reflects the customer payment terms. For example, the expected accrual revenue generated in January may need to be assumed collected in March or April (especially if your customers are large organizations).

1 – Use zero based budgeting. Many times, budgets are created using last year’s expense figures. This is usually not ideal. It is far better to start from scratch and focus vendor by vendor on setting a plan.
2 – Require lots of detail. The old adage: “the devil is in the detail” is true when budgeting. Make sure that the expenses are well thought out and lots of detail for each expense line item is documented.
3 – Create cost centers. Organize budgets based on cost centers and assign one employee for each center.
4 – Create “ownership” of budgets. Make people responsible for creating, tracking and authorizing the spending in their budget line item.
5 - Realistic & Agreed. Make sure that the final budgeted expenses are realistic and agreed upon by all parties before implementing.
6 – Incent employees to achieve (or beat) budget. Give financial rewards for employees who come in under budget.
7 – Report/Reward Regularly. After the budget has been approved, and 2011 is underway, make sure that the monthly results are regularly delivered to the team. Also reward the employees regularly during the year for favorable budgets.
8 – Allow for Change. Sometimes, events happen at an organization that makes the existing budget not achievable. For example, the company may bring on a extremely large project but also involve a lot more costs. Make sure that the plan is revised for the year and that the budget owner is responsible for the updated plan.
9 – Remember taxes. If a C-Corp, remember to include income taxes into your budget for March. Corporate tax payments are due by March 15th. If your company is profitable, this could be a large amount that will need to be factored into cash planning.
10 – Use financial metrics. Once finished, look to industry standards for budget reasonableness. If gross or net margin percentages look unusually high, they probably are too thigh - they probably reflect a cost that has not been accurately figured into the budget.

Monday, June 3, 2013

The Easy Answer (Tax Matters for Doing Business Overseas)

Here is another post written by John Garcia, CPA and Masters in Tax:

The Easy Answer

California CPA: June 2013

An Integrated Database Solution to Global Withholding Compliance 
By John P. Garcia, CPA & Timothy C. Hart, CPA
As more companies—even relatively small ones—go global, setting up businesses and customers is almost always the first order of business. Many of the administrative functions, such as tax compliance, follow later—sometimes much later. Often, foreign affiliates are created to facilitate business overseas. A myriad of business transactions flow from this global effort. These transactions often have tax consequences, which are not immediately apparent.

While there are many tax consequences that can result from a global business, we’ll address withholding taxes, which apply to many transactions, and the rules and the withholding tax rates are always changing.

For example, 23 of 30 Organization for Economic and Co-operation Development countries routinely apply withholding requirements on a final, or creditable, basis to payments of dividend and interest income to investors.

To gain insight on this dilemma, it’s necessary to discuss some of the real-world scenarios. This includes the risks and opportunities generally describing how withholding tax works on a global basis and describing why the integrated database approach is the best solution for withholding tax compliance.
Let’s use two typical intercompany scenarios.

The Intercompany Loan Balance
Your domestic company purchases product from a third-party manufacturer for ultimate delivery to a foreign subsidiary. The sale to the foreign subsidiary creates an intercompany payable between the domestic company and the foreign subsidiary. If this intercompany balance is not paid within a reasonable time frame, say 60 to 90 days, it may become a loan subject to interest.

The loan interest would be subject to withholding tax depending on the relationship between the domestic entity and foreign jurisdiction. Withholding tax on interest is often between 5 percent and 30 percent. Assume that the balance has never been paid and the foreign tax authority has commenced an income tax audit and is questioning the intercompany payable of the domestic company.

The risk: The auditor will determine that the intercompany balance is a loan, and assess an arms-length interest rate with an associated withholding tax. The auditor will also likely assess penalties and interest on the under withholding. This does not even take into account the U.S. tax exposure. Also, the auditor might be reluctant to allow an interest expense deduction.

The result is the foreign affiliate pays the withholding tax, interest and penalties, and the U.S. parent is left to claim a foreign tax credit on an amended return. Of course, this means interest income must be recognized as well. While it would seem this should all net out, the usual result is that the enterprise is a net loser.

The Dividend
As part of the company’s cash repatriation policy, the foreign subsidiary is required to send an annually determined dividend to the domestic parent company. The foreign accountant has withheld 10 percent withholding tax based on the treaty between the subsidiary dividend payer and the parent recipient. Two years ago the company was reorganized and a new entity was put into place between the domestic parent and the foreign, dividend-paying subsidiary. The treaty rate between the new entity and the foreign subsidiary is 0 percent. The foreign accountant is not aware of the new entity.

The opportunity: The taxpayer can request a refund of the withholding tax on the dividend that was incorrectly remitted to the tax authorities. Again, this may not be possible. And, again, the enterprise can lose.

What Creates a Withholding Tax Obligation?
Whenever an enterprise conducts business through a Permanent Establishment (PE) in a foreign jurisdiction (i.e. a taxable presence) and earns income in that jurisdiction, the enterprise is typically subject to an income tax on that income in the foreign jurisdiction. If the enterprise does not have a PE in that jurisdiction, the in-country payer of the income is typically responsible for withholding taxes on certain types of income paid to the foreign enterprise.

The typical streams of income that attract withholding tax are dividends, interest, royalties, capital gains, sales, management services, insurance and rental income. Even in relatively small multinational organizations these intercompany income flows and related withholding taxes can quickly become unmanageable, particularly when it’s a small organization operating in many jurisdictions.

To further add to the complexity, taxing jurisdictions are increasingly requiring that multinational organizations report these intercompany income streams annually. One example of this type of reporting requirement is the U.S. Form 5471, Schedule M—Transactions Between Controlled Foreign Corporation and Shareholders or Other Related Persons.

This form requires that U.S.-based multinationals report all of their intercompany income and expense streams. These income streams include sales of stock, services, rents, royalties, interest, dividends, insurance and loan balances. Canada also has a similar form: the T106—Information Return of Non-Arm’s Length Transactions with Non-Residents.

These types of tax forms provide a basic roadmap to withholding tax underreporting and refund opportunities around the globe. There are many ways for in-house tax personnel to mitigate these risks and discover hidden opportunities. The best way to approach this issue is through an integrated database solution.

Integrated Database Solution 
Under this centralized approach, a real-time database is accessed to develop a reporting mechanism to calculate the withholding tax obligations associated with the various income flows on a global basis, as well as provide related reports.

In a large, sophisticated organization this database may be an Oracle or SAP application. In less sophisticated organizations this could be a Microsoft Access Database or structured query language application.

Outside experts are not necessary in most situations, which reduces the cost of compliance. Withholding tax obligations are being reported both timely and accurately.

As a result, the organization incurs little interest or penalties associated with the withholding taxes because of timely and accurate compliance.
There are many benefits of implementing the integrated database solution, the first and most evident being the lower cost as a result of reduced need to use outside experts. Another benefit is that a properly designed database will generate reports that support the correct withholding tax reporting and timely filing on a global basis. These reports can be used as audit support for both the various tax authorities and for internal and external financial auditors. The database essentially serves as an internal control system.

Secondly, a central database can track foreign tax credits, related documentation and when tax credits will expire [IRC Sec. 904(c)].
Lastly, such a system reduces the risks of double taxation by properly reporting and paying withholding taxes, as well as providing the income recipient with documentation to claim foreign tax credits on a timely basis.

In addition to withholding tax compliance, an integrated database can be used as a management decision tool to determine the withholding tax costs of business realignments and other what-if scenarios.

For example, once the database is fully implemented, it will be possible to determine the withholding tax consequences of adding a legal entity to an organization. Some countries—the United Kingdom in particular—have very favorable withholding tax rates under their tax treaties with other nations. Consequently, it may be advantageous for a UK entity to have intercompany income flows versus an entity in another jurisdiction with less advantageous tax treaties. This structure would have a business purpose, as well.

A good tax practitioner knows that it’s far better to manage the business narrative. If there is no narrative in place the tax authorities will create their own, which will most likely not be in the taxpayers favor.

As discussed here, withholding taxes present both a tremendous opportunity and risk for multinational organizations. The goal of a forward-looking tax practitioner is to identify this issue and convince an organization’s stakeholders of the need to implement a proactive solution. This would include an integrated database solution, which will serve as a strong narrative in audit support and a powerful business decision tool.
John P. Garcia, CPA is a director of tax at Targus Group International and Timothy C. Hart, CPA is a semi-retired tax consultant.

Friday, April 26, 2013

Outsourcing vs Off-shoring

Here is an well written piece by Pat Nichols on the benefits of outsourcing.  Pat Nichols runs Transition Leadership International, a business that serves nonprofits dealing with turnarounds, mergers, and other major strategic changes:

Let me draw a distinction before exploring this further.  In our recent, troubling political discourse the term “outsourcing” has, oddly, become a synonym for “off-shoring” of labor.  By outsourcing, I mean contracting for the performance of functions that might otherwise be conducted by wage-earning or salaried staff.  Whether those contracts are domestic (as they are with the vast majority of nonprofit outsourcing) or international (as with much corporate customer service and some manufacturing) is an important consideration from an economic and, sometimes, ethical point of view but the position of an ocean isn’t relevant to whether a contract represents outsourcing.

Neither, for that matter, is the question of whether the contract is intended to be temporary or long term.

Stories of Success

In the organization I mentioned above, the biggest issues we faced were existential.   We needed to fundamentally rethink and update our understanding of the mission and the business model to serve it.  As is often the case, we had many constituents strongly resisting change to their beloved organization.

Staff wasn’t credible in getting these issues on the table because they hadn’t performed adequately in a couple of key managerial areas:  providing good customer service through the use of our database and producing timely and accurate financials.  I decided to outsource both functions to the same firm.  After years of frustration, we had both sets of issues materially resolve in less than 90 days, allowing us to get on with the rich strategic issues facing us.

This resolution simply would not have been possible had we chosen to hire a new CFO and a new database manager, asked them to diagnose the problems then retrain or hire key people and manage the new team to success.  We almost certainly would have doubled the time required.  And, in the instance above, we actually saved a bit of money.

Another client and I outsourced our messy accounting problems and, a month or so into the clean up, we lost the CFO.  If that CFO had been an employee we would have suffered a severe setback.  Instead, the outsourcing firm had a strong replacement in place within days and the transition was nearly seamless.

Yet another client was a highly visible start-up—in the news and in the rifle sites of a number of critics.   We outsourced everything initially, knowing that we would bring much in-house over time.  Most notably, we needed to build a communications strategy and function simultaneously.  Hiring a firm that knew our field was the crucial first step and it paid great dividends, not only in communications delivered but in bullets dodged!

Let me also knowledge that the decision as to whether to outsource must be adapted to management style and strengths, to short term and long term imperatives, to highly specialized skills or knowledge and, of course to culture.  Bringing or keeping functions in-house is often the right strategy. 

A Presumption in Favor of Outsourcing

Citing “fit” and “culture” too often is a disguise for valuing a misguided control over mission and is used to preclude serious consideration of this option.   In fact, I would argue that for an organization of $5 million a year or less, some form of shared services (including outsourcing, shared employees, an association management company, etc.) for back-shop operation should be the presumed best strategy.  Though that dollar standard is a bit arbitrary, smaller groups are very hard pressed to hire the quality of skills and experience they need in those back-shop areas and many, many organizations suffer real mission damage because of their operational weaknesses.  (By “back-shop” I mean, of course, accounting, database management, office management, human resources, etc.)

Though with larger organizations the presumption might be a bit softer, I think nearly all organizations should take a hard look at outsourcing options.  Even my recent clients, who have been in the $15mm to $60mm range, often find great value in having an array of skills, the bench strength and the occasional access to highly skilled, highly specialized personnel.

I hear other supporters of outsourcing suggest that it works well if limited to non-core functions.  But I would take issue even with that as a blanket limitation.

First, the startup I mentioned above felt that communication was a core, not a support function, and none-the-less found great value in outsourcing it initially.  Further, if the CEO function is not a core organizational function, it is at least THE core function in uniting mission with programs, with people, with fiscal resources, with reporting, etc.   And, of course, my kind of role, serving as interim CEO, is itself a form of temporary outsourcing.   Its value is well established in the corporate world and has grown remarkably among nonprofits during my 17 years in the field.  

Usually, people’s careers are disrupted by outsourcing decisions.   That is, I am persuaded, a bad thing.  However, underserving the mission for which an organization was created, and underserving the public that forgoes taxes on its efforts—those are worse things!  And, there are ways of managing these transitions humanely, even beneficially.  In some instances, for example, the outsourcing companies convert key personnel to their own payrolls.

So, the nut of this argument is that our commitment to mission requires us to take a hard look at how to manage our organizations as well as possible and that outsourcing almost always merits consideration.  With smaller organizations, I would urge a presumption in its favor.    To shy away from getting the best value available because of an impulse for greater control is a disservice to our organizations, our missions and, ultimately, the well-being of those we serve. 

Friday, April 12, 2013


It’s that time again for “spring cleaning” of company financial records. For those company pack rats, this can sometimes be major challenge. What to keep? What to store off site? What to destroy? Inevitably, most people will just throw their hand up in the air and decide to keep everything just one more year. Here are a few tips:

Create a Retention Policy and Stick to It: Designate one person to have the responsibility to determine retention periods to approve record destruction and the destruction method and to set record retention policies and procedures. Then, stick to the designated plan.

Make Sure Archived Records are Retrievable: Records are to be maintained in a safe and retrievable place for the duration of the retention period/policy created above. Where possible, all records should to be scanned and a PDF copy kept as the supporting documentation. Go paperless as soon as possible!

Soft Copy Records Should Be Useable: The physical ability to process/use retained records must also be maintained. If new computer systems are placed in service, any preexisting records should be converted to a format that is compatible with the new system.

Test Your Backup: Magnetic media should be tested on a sample basis at least once a year to determine whether information has been lost. Backups of magnetic records should be kept at a separate location from the primary records.

Clearly Marked Destruction Date: The destruction date shall be clearly marked in all records that are maintained at an outside storage facility. All file boxes should contain complete lists of their contents. Please note that a copy of all file box listings should be maintained by the Company. It is important to file records with similar destruction dates in the same file boxes. Here is a suggestion:

Description of Record -- Retention Period
Payroll Reports/Journals from Payroll Company -- Retain indefinitely
Copies of returns files (forms 940/941) -- 10 years
Forms W2s -- Retain indefinitely
Forms W4s -- As long as in effect/4 yrs thereafter
Human resource Files -- As long as in effect
Annual Audit Reports -- 6 years
Hard Copy Expense Reports -- 7 Years
Vendor Contracts -- Life + 2 years
Leases -- Life + 7 Years
Vendor Invoices -- 7 Years
Compliance certificates -- 5 Years
Availability certificates -- 5 Years
Customer Invoices -- 10 Years
Customer Contracts -- 5 Years
Voided Checks -- Destroyed After Audit
Canceled Checks -- 10 Years

This post also appeared on Denise O'Berry's blog here.

Monday, February 25, 2013

How can businesses make 2013 the best year ever?

Here is my advice:

1 - Get out of "hunker down mode". The economy seems to be picking up in many areas of business. A small business owner needs to know when to grow and when to retract. In my opinion, 2013 will be the year to begin growing again. This means considering hiring, spending on technology, raising prices, etc.)

2 – Raise Your Credit Line. Now may be the time to increase your company’s credit line. With increased revenue comes increased working capital needs. Also, with the Federal Government’s push to ensure that banks are lending to small businesses the timing is right to double (or triple your line).

3 – Look into strategic partnerships. When the economy grows, your company may want to increase it’s market share. Now may be the time to form a relationship or merge with another company in your field.

4 - Take advantage of the tax package. Tax incentives for buying equipment (Section 179) still exist and will help add to your bottom line.

5 - Use New Technology. We experienced the internet for the past decade. Now we have social media, smart phones and tablet PCs. Use this technology to your company’s advantage. Consider hiring a social media expert to help you company (e.g. our company published an iPhone and Android app to help companies and individuals know the tax rates).