Sandra Callanan CPA, Author at CironeFriedberg, LLP

IRS Extends a Roth Catch-Up Requirement

October 27, 2023 by Sandra Callanan CPA

The Secure 2.0 Act of 2022 included a provision that starting in 2024, any catch-up contributions by an employee who participates in a 401(k), 403(b) or governmental 457(b) plan and whose prior-year Social Security wages exceeded $145,000 would be required to be made with after tax dollars and deposited into a Roth account.

The IRS has announced an administrative transition period that extends until 2026 the new requirement that any catch-up contributions made by higher‑income participants in 401(k) and similar retirement plans must be designated as after-tax Roth contributions.

The administrative transition period will help taxpayers transition smoothly to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement, according to the IRS.

The IRS notice also clarifies that the SECURE 2.0 Act does not prohibit plans from permitting catch-up contributions, so plan participants who are age 50 and over can still make catch-up contributions after 2023, regardless of income.

The Treasury Department and the IRS say they will be issuing future guidance to help taxpayers, and the notice describes several positions that are expected to be included. As with most IRS announcements, the rules can be complex. Be sure to seek the advice of your experienced CironeFriedberg tax CPA to make sure you understand how this change may affect you.

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If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Darien) or email us at info@cironefriedberg.com.

Changes to Charities and Registrations in Connecticut

July 20, 2023 by Sandra Callanan CPA

The Connecticut Solicitation of Charitable Funds Act requires all organizations that solicit contributions for charitable purposes to register with the Department of Consumer Protection or claim a qualified exemption from filing.

There is good news for charitable organizations whose gross income is in excess of $500,000 but less than $1,000,000, whereby these organizations will not be required to have audited financial statements but can opt for review level financial statements instead.

Here are the changes to the statutes:

Section 16. Subsection (b) of Section 21a-190c of the General Statutes is repealed and the following is substituted in lieu thereof (effective from passage):

(b) [A] (1) For a financial statement that is initially due on or before July 1, 2023, a charitable organization with gross revenue in excess of $500,000 in the year covered by the report shall include with [its] the charitable organization’s financial statement an audit report of a certified public accountant.

(2) For a financial statement that is initially due after July 1, 2023, a charitable organization shall include with the charitable organization’s financial statement (A) an attestation that an audit report has been completed by a certified public accountant if the charitable organization had gross revenue in excess of $1,000,000 in the year covered by such report, or (B) an attestation that an audit or review report has been completed by a certified public accountant if the charitable organization had gross revenue in excess of $500,000 but not more than $1,000,000 in the year covered by such report.

(3) For the purposes of this [section] subsection, gross revenue shall not include grants or fees from government agencies or the revenue derived from funds held in trust for the benefit of the organization.

(4) The commissioner may, upon written request and for good cause shown, waive the audit or review report requirement under this subsection.

You can find additional information online at the Connecticut Department of Consumer Protection.

Cybersecurity: Essential for All Transactions

October 18, 2022 by Sandra Callanan CPA

Cybersecurity — especially data privacy — is one of the biggest problems facing businesses today. These security problems are compounded because every segment of every industry is affected differently, and each is subject to the risk factors peculiar to that segment. Grouping similar data together based on chosen parameters allows businesses to assess the privacy needs of each data segment they are holding. For example, the protections for public data don’t have to be as stringent as the protections for private data.

Protecting the privacy of the data with which they are entrusted is a universal business goal. The best way to get started is to answer the following questions:

What types of data does your business have (e.g., credit card information, health information, criminal history, biometrics)?
Which departments have access to that data?
Who are your data service providers and what are their credentials?
Which personnel can access the data?
What steps has your company taken to protect the data (e.g., encryption, back-up, internal controls)?

Federal and International Regulations

The United States has no federal law protecting data privacy. A number of states, however, are responding: at least 31 states have already established laws regulating the secure destruction or disposal of personal information. At least 12 states — Arkansas, California, Connecticut, Florida, Indiana, Maryland, Massachusetts, Nevada, Oregon, Rhode Island, Texas and Utah — have imposed broader data security requirements. Other states, including New York, are considering legislation.

California is a pioneer on the data privacy front. The California Consumer Privacy Act of 2018, which went into effect on January 1, 2020, is similar to the General Data Protection Regulation (GDPR). Companies that do business in California will be affected by this legislation.

At least some of the activity at the state level is in response to the European Union’s enactment of the GDPR. Any company doing business in a nation that has adopted the GDPR must comply with its consumer protections regarding data privacy. The GDPR covers many types of data, including the following:

Personally identifiable data (e.g., names, addresses, date of births, Social Security numbers)
Web-based data (e.g., user location, IP address, cookies, and RFID tags)
Health (HIPAA) and genetic data
Biometric data
Racial or ethnic data

The bottom line is that U.S. businesses operating in multiple jurisdictions must consider these categories, as well as any other categories pertinent to their industry, as they segment the data they are holding. Understanding the data they hold is essential to instituting the right level of privacy safeguards.

Three Steps to Securing Your Data

Understanding your data is the first step to securing data. The second step requires knowing the relevant laws and regulations your business must comply with.

The third step is to stay alert for any indications of a breach. The sad truth is that many data breaches go on for quite a while before they are discovered. The time lapse between hack and discovery allows hackers to continue accessing vulnerable data. That makes constant monitoring an important aspect of any data security program. Watching for the signs of a breach — such as an unanticipated spike in bandwidth usage — can indicate a problem.

By following these three steps, businesses can be sure they are doing their best to protect the data they and their data service providers hold.

401(k) Plans: Know the Rules

August 29, 2022 by Sandra Callanan CPA

If you offer a 401(k) plan — in any of its various flavors — to your employees, everyone should know the tax rules that govern them. Although the details can get very technical, you can learn the basics. To start with, many companies find that since a 401(k) plan is much prized by employees, it’s a good idea to not only offer one but also to match contributions. You even get encouragement to do so: Employer contributions are deductible on the employer’s federal income tax return. However, for tax-favored status, a plan must be operated in accordance with applicable rules. To qualify for the tax benefits, your plan must contain language that meets certain requirements of the tax law and be operated in accordance with the plan’s provisions. Employers make matching contributions based on employees’ elective deferrals. There are several types of 401(k) plans available to employers:

Traditional 401(k): This allows eligible employees to make pretax elective deferrals through payroll deductions. Any employer contributions can be subject to a vesting schedule. The employer must perform annual tests, known as the Actual Deferral Percentage and the Actual Contribution Percentage tests, to verify that deferred wages and employer matching contributions do not discriminate in favor of highly compensated employees.
Safe harbor 401(k): This must provide for employer contributions that are fully vested when made. The safe harbor 401(k) plan is not subject to the complex annual nondiscrimination tests that apply to traditional 401(k) plans.
SIMPLE 401(k) plans: This was created so that small businesses could have an effective, cost-efficient way to offer retirement benefits to their employees. A SIMPLE 401(k) plan is not subject to the annual nondiscrimination tests, and the employer is required to make employer contributions that are fully vested.

A plan that allows for vesting may require completion of a specific number of years of service for vesting. For instance, a plan may require an employee to complete two years for a 20% vested interest in employer contributions and additional years of service for increases in the vested percentage. If a traditional plan is top-heavy — has significant participation from owners or officers — the employer may be required to make minimum contributions on behalf of certain employees. The rules relating to the determination of whether a plan is top-heavy are complex. A plan is considered top-heavy when 60% or more of the assets in the plan are owned by key employees:

Anyone who owns 5% or more of the company sponsoring the plan.
Anyone who owns 1% or more of the company sponsoring the plan and who also earns more than $150,000 annually from the company.
Anyone who holds an officer position at the company sponsoring the plan and earns more than $185,000 from the company.

These limits may be adjusted from year to year. If you own more than one business, these rules apply to anyone who has an ownership stake in any of the related companies. The point here is you don’t want most of the plan money at the top of the company belonging to the key company leaders instead of the rest of the employee base. This is also applicable to the family of owners, so that any owners’ spouses and other immediate family members will count as key employees if they participate in the plan. The IRS requires top-heavy tests to make sure that no plan disproportionately benefits the key employees of your company. If top-heavy, you can bring your plan back into balance by making contributions to all regular employees. You also could add a safe harbor to the plan, for instance, offering a 3% automatic contribution regardless of whether employees want to contribute. This ensures that the plan treats all employees equitably, and this will satisfy any contribution requirements of the IRS. You report elective deferrals on the participant’s W-2 Form. Though the amounts aren’t treated as current income for federal tax purposes, they are included as wages subject to Social Security or FICA, Medicare and federal unemployment taxes. This is just a summary of a complex series of rules. Be sure to work closely with qualified professionals to make sure you are in full compliance at all times.

Retirement Plans for Medical Offices

July 24, 2022 by Sandra Callanan CPA

Planning for your future is paramount, regardless of what career path you’ve chosen. For doctors, it seems like retirement should be an easy path, but many medical professionals are not aware of the plans available to them. Before you make a decision that can impact your and your employees’ lives forever, it is important to understand the details. Here are some things you should know about choosing the right retirement plan for yourself or for your practice as a whole.

W-2 and 1099 employees – what do you have? Options for retirement are partially dependent on the classification of work. When you receive a W-2 from an employer, you are considered a permanent employee. An employer may provide benefits, and your options are more diverse than your contractor counterparts’. An independent contractor, or someone who files taxes with 1099 forms, is considered self-employed, and so will not have the luxury of a retirement package through an employer. But there are plenty of self-funded retirement plans available. It helps to talk with an accountant or financial planner, both for your sake and your employees’.
One of the most common retirement funds is a 401(k). Many employers will offer this type of account, and some may even match contributions. For independent contractors, there are Solo 401(k) accounts that can be a great way to save for the future in a more traditional and comfortable way.
SEP and SIMPLE IRAs. Another option for doctors managing a staff is to offer a SEP or a SIMPLE IRA. IRAs are individual retirement accounts that are easy to set up and maintain. Offering a SEP, or Simplified Employee Plan, will allow you to make contributions to the staff’s retirement funds. This is particularly good when you’re in an office with high turnover or if only a few of the employees qualify. A SIMPLE IRA, or Savings Incentive Match Plan for Employees IRA, allows a minimum contribution time of two years, compared with SEP’s one. The eligibility is more restrictive overall.
Profit sharing. It may seem like profit sharing isn’t appropriate in the realm of a medical office, but it can be a great way to encourage individual savings, growth and participation. This can be tied to individual production or, if you want everyone to be eligible for the program, it can be divided equally among your employees. It can also be calculated based on the employee’s individual pay. This is an affordable way to provide additional money that can be saved or used immediately, and it promotes a shared sense of ownership and increased productivity.

What retirement plans can you create for your practice to ensure your financial future? Careful planning now can help you create a retirement program good for you and your medical staff.

Future-Forward Manufacturing

June 24, 2022 by Sandra Callanan CPA

The economy has taken a tremendous hit as a result of the Covid-19 pandemic, and many small manufacturers are feeling an impact. But some manufacturers have pivoted to meet customer demand, and more may be able to do so if they can take advantage of (1) increased access to market trends and (2) technology. Even more opportunities may exist for manufacturers than are apparent at first glance.

Creating Opportunities Pre-pandemic, globalization made imported goods cheaper than U.S.-made goods. Manufacturers happily took advantage of that as they looked to increase their profit by buying cheap component parts. The pandemic changed that as it caused interruptions to the supply chain, resulting in a lot of pain for a lot of companies.

But this disruption also created opportunities. Clothing manufacturers, including high-end designers, turned to manufacturing items like masks. Manufacturers using 3D printing also stepped up. For example, NASCAR’s research and technology arm pivoted from using 3D printing of composite parts for stock cars to using it for PPE. Ford also switched gears and manufactured items ranging from respirators to testing kits. Small manufacturers began printing face shields.

These manufacturers all had one thing in common: they were able to find a way to meet the new demands of the marketplace. And they did this in the following ways.

Using Automated Processes Manufacturers used new technology to automate processes and make them more efficient. Many were already moving in this direction even before the pandemic. The JDA 2018 Intelligent Manufacturing Survey showed that many companies had been reprioritizing and refocusing their technology investments to meet quickly changing client needs. Survey respondents focused on inventory optimization solutions, integrated planning and execution technologies. The pandemic accelerated the need for improved forecasting and greater collaboration across the supply chain.

Being Innovative Innovation includes trying new ways of doing things, seeing “holes” in the process that need to be filled and finding new products that meet client demand. Everything has changed, and companies that don’t change — and that continue to do things the way they’ve always been done — are less likely to be able to meet the demands of a disruptive environment.

Making Smart Investments Making smart investments in the business is essential. But manufacturers investing in new technology or new markets face the problem of knowing how much to invest in something they haven’t tried before. Should they try a small-scale test project or go full steam ahead? How long will it be before the technology needs to be updated? It isn’t always easy to find financing for these innovations in an uncertain world.

Forecasting Cash Flow

Looking at cash flow in a period of unprecedented uncertainty is challenging, but some guidelines help:
To prevent unpleasant surprises, estimate cash flow on the basis of a worst-case scenario.
Review projections on a weekly basis over a 13-week timeline.
Closely manage accounts receivable.
Consider possible changes, such as PPP loan forgiveness, staffing changes and changes to pricing.

Manufacturers who are willing to take a hard look at their operations will find plenty of opportunities. The effects of the Covid-19 pandemic may be felt for a long time, and the earlier companies adopt new ways of remaining sustainable in an uncertain world, the better off they will be.

At CironeFriedberg, our experienced advisors perform audits and provide tax and advisory services for a wide range of privately held manufacturing, distribution, and retail businesses. Since our founding, we have provided services to many top industrial companies in our region and make it our business to stay abreast of tax and other regulations that may affect your operations and profitability.

Call us today for trusted guidance to help uncover more opportunities to improve your company’s ability to innovate. Learn more about our services.

IRS Extends a Roth Catch-Up Requirement

HAVE QUESTIONS?

Changes to Charities and Registrations in Connecticut

Cybersecurity: Essential for All Transactions

401(k) Plans: Know the Rules

Retirement Plans for Medical Offices

Future-Forward Manufacturing

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