Inside Public Accounting (IPA) presented its first ranking of the nation’s TOP 300 accounting firms—the only one of its kind. Stockman Kast Ryan + Co, LLP (SKR+CO), the largest locally-owned certified public accounting firm in Southern Colorado, has been named one of seven recipients of the inaugural Excellence in Firm Culture awards.

The award is based on the results of an assessment of 2,000 staff members and recognizes firms demonstrating excellence in 12 core qualities of culture as determined by third-party culture experts, CultureIQ.

“I’m so excited about this particular recognition because culture is an expression of our collective values, daily interactions and general environment,” SKR+CO Managing Partner Trinity Bradley-Anderson stated. “The survey results conveyed the trust, respect and appreciation that we each try to demonstrate every day at Stockman Kast Ryan + Company.”

The 12 core qualities measured in the Culture Assessment: Agility; Alignment; Collaboration; Customer Centricity; Empowerment; Engagement; Growth Development; Innovation; Quality; Recognition and Rewards; Trust and Integrity, and Work-life Balance.

IPA Excellence in Firm Culture award winners achieved at least 75% of the total possible score in the combined 12 core culture qualities as well as a minimum of 75% of the total possible employee Net Promoter Score.

IPA also considered the firms’ employee Net Promoter Scores (eNPS) in determining the winners. According to CultureIQ, the eNPS captures a snapshot of employees’ willingness to be ambassadors for the company by advocating employment there.

About Stockman Kast Ryan + Company

Stockman Kast Ryan + Co, LLP (SKR+CO) is Southern Colorado’s largest certified public accounting firm providing a variety of in-depth business services. Tax services for individuals include businesses, fiduciaries and nonprofit organizations, audit and accounting services. SKR+CO also offers outsourced controller and contract CFO services as well as accounting and bookkeeping services – customized to clients’ needs, estate planning, small/emerging business advisory services, business valuations and litigation support services. SKR+CO is a member of DFK International/USA, a worldwide association of independent firms. For more information on SKR+CO visit skrco.com.

About INSIDE Public Accounting

The Platt Group, based in Indianapolis, was founded in 2006 and is a highly regarded independent publication was formerly known as Bowman’s Accounting Report. IPA publishes two award-winning publications: the IPA newsletter and the annual IPA National Benchmarking Report, along with in-depth reports focused on IT, HR and firm administration. For more information, visit www.insidepublicaccounting.com.

We’ve previously published several articles in our blog, Practice Elevations, related to the need for adequate internal controls to prevent theft in medical and dental practices.  Because of evidence that theft is increasingly common in small businesses, including professional practices, with the amount of losses also on the rise, we are returning to this subject again this month.

The 2016 report of the Association of Certified Fraud Examiners (ACPE) share reveals some sobering statistics:

Medical and dental practices are particularly susceptible to fraud and theft. It is estimated that fraud and theft account for three to 10 percent of total health care costs in the United States.  Why are medical and dental practices particularly susceptible?  In many cases, the practice, due to limited staffing resources and the existence of long-term employees and centralized accounting functions, has not implemented or deemed internal controls to be necessary in the past.

What practice and business circumstances lead most frequently to employee theft?  Here are three elements that are usually present when employees commit theft:

What are some financial red flags that could indicate possible fraud or theft in your medical or dental practice?

What basic internal controls are a must for every medical and dental practice?

Where are the potential weak spots in your practice that need internal controls and extra attention from practice management?

Below are basic internal controls for each of the areas that need controls and extra attention from management:

Front desk internal controls:

Billing and collections internal controls:

Accounts payable internal controls:

Payroll internal controls

Stockman Kast Ryan + CO can help you take fraud prevention a step further by conducting an external review of internal controls. In addition, an operational audit may be commissioned to help ensure that the practice is enjoying efficient operations while minimizing the risk of fraud loss.

 

Contact our office today to learn more. 

Collections are the lifeblood of any medical or dental practice. But do you really know if you’re doing a good job of collecting receivables? Find out for sure by monitoring these three collections performance indicators:

1. Days in Accounts Receivable

To find out how long it takes to collect a day's worth of gross charges, add up the charges posted for a specific period of time and divide by the total number of days in that period. Then divide the total accounts receivable by the average daily charges. 

For instance, if you have charged $640,000 in the past 12 months, or 365 days, your average daily revenue is $1,753. Then, if your total accounts receivable today are $80,000, the days in accounts receivable is 45.6. That means it is taking an average of 45.6 days to collect your payments. Note that if this number is consistently high — or you notice a jump in the number of days outstanding from one month to the next — it could be sign of problems caused by anything from coding errors and incomplete documentation to claims rejections caused by patient registration errors. 

Recommendation: We recommend that you use a rolling average of 12 months of charges for this computation. The results will vary by specialty and payer mix, but a typical goal for days in accounts receivable is 35 to 40 days.  

Action: Determine how your practice’s days in accounts receivable compares with other practices using a source such as the Medical Group Management Association (MGMA) annual Cost Survey Report or Performance and Practices of Successful Medical Groups Report

2. Accounts over 90 days

The practice’s aging report, based on date of entry and NOT ”re-aged,” should be reviewed monthly. Obviously, the longer an account remains unpaid the higher the risk of it becoming uncollectable. So, it’s critical to measure the percent of your accounts receivable in each “aging bucket.” 

Recommendation: We recommend that you review a separate aging report for both insurance and patient receivables monthly, paying particular attention to outlier payers in the insurance aging report to spot any developing trends. Credit balances in accounts receivable should be investigated and manually added back to each aging “bucket” to get a clear picture of accounts receivable aging. An acceptable performance indicator would be to have no more than 15 to 20 percent total accounts receivable in the greater than 90 days category. Yet, the MGMA reports that better-performing practices show much lower percentages, typically in the range of 5 percent to 8 percent, depending on the specialty. 

Action: Consider establishing a target AR range for your practice. For example, you might shoot for having 60 percent of receivables fall into the 0-30 days bucket, 20 percent in 31-60 days, 5 percent each at 61-90 days and 91-120 days, and 10 percent falling over 120 days. 

3. Net Collection Percentage

This is the bottom-line number that reveals how successful you were in collecting the money you are entitled to collect. Add up your total collections and divide by adjusted charges (charges less contractual adjustments) to determine how much you have actually collected. For example, if your practice only collected $50 on a procedure contracted for $75, your net collection rate would be 67 percent (50 divided by 100 minus 25). 

Recommendation: We recommend that you use a rolling average of 12 months of net charges and receipts for this calculation. In general, a net collection percentage of 97 percent or higher will help ensure a healthy bottom line for the practice.

Action: If your net collection rate is lower than this, drill down and calculate the net collection rate by each of your payers to determine if the problem is coming from a particular source. If net collection percentage is consistently down across all of your payers, you’ll know that the problem is internal (e.g. your front-end billing process is resulting in rejected claims). 
 

Contact our office today for help in monitoring your practice’s collection performance.

It’s an age-old conundrum: determining whether a worker is an employee or an independent contractor. While it might seem like a simple question, it’s not. And the IRS is hot on the heels of any contractor who doesn’t understand the difference. 

For example, in the traditional employer-employee relationship, the employer is responsible for a number of tasks, such as withholding federal and state income taxes, paying unemployment taxes (FUTA), withholding the employee’s share of FICA and Medicare taxes, remitting the amounts withheld, and paying both the employee and employer portions of FICA and Medicare taxes.

Independent contractors are responsible for their own taxes. In addition to making estimated tax payments for their federal and state income tax liabilities, they’re subject to self-employment tax, which covers both the employer and employee shares of FICA. (They are, however, entitled to a deduction for the “employer’s” portion.)

Why the IRS prefers employee status

Because it’s easier and cheaper to collect taxes from a single employer than from multiple independent contractors, the IRS has a strong preference for employee status. If the IRS reclassifies independent contractors as employees, it can go after your company for back taxes that should have been paid, payroll and income taxes that should have been withheld, and penalties and interest.

Additional penalties may apply if the IRS finds that you intentionally disregarded your tax obligations. And, of course, your state may impose penalties of its own. Finally, “responsible persons” — including certain officers, partners and managers — could be personally liable for uncollected taxes.

Even if workers you treat as independent contractors have paid their taxes, you’re not necessarily safe. If the IRS finds they should have been classified as employees, it still may hit you with penalties equal to 20% of your tax liability.

Avoiding the consequences

The simplest way to avoid these consequences is to treat workers as employees unless they clearly qualify as independent contractors. The IRS typically examines and weighs numerous factors to determine whether a worker is an employee or independent contractor. These considerations indicate to the agency the degree of control exercised by the employer and the degree of independence of the worker.

For instance, the IRS looks at behavioral control such as instruction (employees usually receive detailed instructions about when, where and how to work) and training (employees often receive training on how to perform their job duties).

Other indicators can help determine the relationship

The type of relationship is also important. Does the individual receive benefits? Is he or she working for the business indefinitely? Are his or her services critical to the company’s ongoing operations? Affirmative answers to any or all of these questions would bolster an IRS case that the person in question is an employee, not an independent contractor.

Another important issue is financial control. The IRS will look for unreimbursed business expenses, which are usually incurred by independent contractors, not employees. Independent contractors often make significant investments in facilities and equipment as well. Employees don’t.

In addition, employees are usually paid by the hour, week or some other period. But independent contractors generally receive a flat fee or submit an invoice for services. So method of payment is a key consideration. Independent contractors will also often continue marketing themselves while working on a given project and risk suffering a profit loss on every job.

Ultimately, no one factor controls the outcome. You need to examine and weigh all the factors to determine whether a particular worker is an employee or independent contractor.

Stay on the right side of the IRS

If you are uncertain about the status of your workers, contact your tax advisor. He or she can help you determine which workers are truly employees and which are independent contractors. In the event that contractors are misclassified, your tax professional can advise you whether the IRS Voluntary Classification Settlement Program is a good option for you.

For additional information on determining status, see the IRS guidelines here.

 

One of the most common inquiries clients have for their accountants is “What documents do I need to save, and for how long?” Retaining, organizing, and filing old records can become a burden, both at the business and individual levels. As we all strive to achieve a more “paperless” process, how do we determine what warrants taking up valuable office and storage space and what does not?

Records should be preserved only as long as they serve a useful purpose or until all legal requirements are met. To keep files manageable, it is a good idea to develop a schedule so that at the end of a specified retention period, certain records are destroyed.

At Stockman Kast Ryan + Co., we have developed records retention schedules we think you will find helpful. Although it doesn’t cover every possible record, it does cover the most common ones. As always, please feel free to ask us should you have specific questions or concerns.

 

Identity Theft

 

If you’re like many Americans, you may not start thinking about filing your tax return until close to this year’s April 18 deadline. You may even want to file for an extension so you don’t have to send your return to the IRS until October 16. However, it can be in your best interest to file early. 

In an increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns. A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.

Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

IRS Safety Tips

Keep Your Computer Secure

Avoid Phishing and Malware

Protect Personal Information

Additional steps:

Find the latest tax tips at IRS Security Awareness Tax Tips.

Source: IRS tips Issue Number: IRS Taxes. Security. Together. Tax Tip Number 12

In the Accounting Services Department at Stockman Kast Ryan + Co, we take a balance sheet approach when closing a set of books. This means each account on the balance sheet (assets/liabilities and equity) is reconciled to source documents (bank statements, amortization schedules, payroll and sales tax returns, etc.) before closing the net income for the year. We view all the transactions during the year to capture any reclassifications that may need to be reallocated to a different account as well as reconciling expenses such as payroll. 

There are many things to take into consideration when finalizing a Year End Closing.

Here are some tips for closing your books:
 

  1. Make sure all cash/bank/checking accounts are reconciled. Pay special attention to stale checks or old deposits that have not cleared the bank and investigate the problem.
  2. Reconcile your Accounts Receivable and Accounts Payable. Make sure all invoicing and bills are posted (especially if you’re on an accrual basis — income/expenses are recognized when they occur rather than when received/paid). Be sure all payments have been applied to open invoices.  
  3. Reconcile all credit card accounts and statements. Expenses charged to a credit card should be dated when charged NOT when the statement is paid. For example, if you charged expenses in December but the statement doesn’t come until January, you can still capture those expenses in the current year.
  4. Get ALL cash receipts to post. If there were payments paid from the owner that related to business, they would be applied to their “Owner Contribution” account. That would reduce their personal cash payments and increase expenses.
  5. If you have loans on your balance sheet, request a year-end report with the balance from the bank or lending institution to make sure they match. If they don’t balance each other, it is typically due to interest expenses. You can create a journal entry, posting the interest to your expense account, thus adjusting the amount of your loan amount to the actual balance on the bank records
  6. Prepare and file 1099s. Hopefully throughout the year you have collected the W9 information on all of the contractors. If you have not, they need to be finalized and postmarked to the contractor no later than January 31st.
  7. Prepare and file W2s. This may be done by your payroll service provider, but if you prepare your own payroll reports the W2s need to be finalized and postmarked to the employee by January 31st.
  8. Print out a YTD General Ledger. Go through each account and review everything in it. Make sure that each cash and loan account (checking, receivables, payables, notes, inventory and fixed assets) has backup documentation to prove that their balances are correct. Review your income and expense accounts and verify that all of the transactions are posted to the correct accounts. 

Common information we will require from you to prepare your tax return:

Generally, we will make the final year-end adjustments to the balance sheet to zero out the owners’ distributions/draws for the upcoming year as well as to record depreciation. Occasionally, we have additional tax adjustments that may also affect your books.

 

We know that closing out your books for the year can be a daunting task. But taking the time to prepare now will likely save you both time and money later. “Clean” books make the tax preparation process that much easier and efficient. If you have questions regarding any of the suggestions listed here, please let us know. 

 

 

The wedding bells are ringing, waves are crashing onshore at your honeymoon in Hawaii, and then it hits you!  How is getting married going to affect my taxes? Okay, so maybe no one is thinking about taxes on their honeymoon, but it is something that every couple should understand. The tax system of the United States is setup so that combined tax liability of a married couple may be higher or lower than their combined tax bill if the couple had remained single.

This is where the idea of marriage penalty and marriage bonus comes from. The marriage penalty often affects taxpayers that have very high and very low incomes, and the marriage bonus affects several middle-income couples who have disparate incomes. The extent to which the marriage penalty or bonus affects a given couple depends on factors such as the level of their combined income, the proportion of their individual incomes being similar, and how many children they have.

A marriage bonus typically occurs when one individual with a higher income marries and files a joint return with an individual who has a much smaller income, and the additional income is not usually enough to push the combined income into a higher tax bracket. Married couples fall into the married filing joint tax brackets, which are wider in terms of income limits and result in a lower tax bill.

A marriage penalty occurs when two individuals with equal incomes marry and relates to individuals who have very low and high incomes. A high-income couple falls into this trap because income tax brackets for married couples at the top of the income tax schedule are not twice as wide as the equivalent brackets for single filers.  

An example is the 33% tax bracket, which for 2016 single filers starts out at $190,151, but for married filing joint filers it starts out at $230,451. Two high incomes when combined could easily put a couple’s income into a higher bracket than filing as single, thus resulting in a penalty.

Another item to consider for the marriage penalty with high-income earners is the new 3.8% investment income tax. This tax is imposed on single filers who have adjusted gross income of $200,000 or more and for married filers with gross income of $250,000.

Two individuals who both made $150,000 would not be subject to the net investment income tax if filing as single. But if these two filed as married they would be subject to the additional tax, which is the lesser of their net investment income or the amount of their adjusted gross income over the threshold, times 3.8%.

When else can a penalty occur?

A marriage penalty can also occur when two low-income individuals file as married. Two individuals who file single can be eligible for a large earned income credit depending on how many children they have to claim. The other advantage of claiming a dependent is the opportunity to file as head of household instead of just single. Head of household tax brackets are wider and there is also a larger standard deduction. Filing married eliminates the benefits of head of household and could potentially lower the amount of earned income credit available due to the combined incomes.

So what options do we have?

The idea of a marriage penalty or bonus causing a couple to tie the knot or to wait it out seems extraordinary, but it could affect one’s decision to work, work less, or not work at all. A married couple could have one individual who makes $40,000 and falls into the 25% tax bracket filing single, but who would fall into the 15% tax bracket filing married. The reverse could be true for the other spouse who didn’t work as single and would have been in the 0% bracket, but then married if they decided to work could possibly be in the 15% to 25% bracket.

Will the US ever change this policy?

There are ways to eliminate the marriage penalty and bonus, but it would require large changes to the US tax code. The US tax code is designed to be progressive in nature, but to also be equal in treatment among married and unmarried couples. If the United States adopted a flat tax and removed all provisions, then the marriage penalties and bonuses could be elmiminated. The United States could also eliminate the marriage penalty and bonus by keeping  the progressive tax structure, but requiring everyone to file single. Without a major overhaul of the United States tax code, solutions such as widening the tax brackets for high-income earners filing joint and a permanent extension of the marriage penalty relief of the Earned Income Tax Credit will have to suffice as potential short term solutions.

If you’ve been bitten by the net investment income tax (NIIT) in the past three years, you may be ready now to get more serious about exploring strategies to avoid or reduce your exposure to this complicated 3.8% Medicare surtax on investment income. Below are ten strategies to minimize the bite of this surtax in 2016 and succeeding years.

  1. Sell securities with losses before year-end to offset gains during the year from the sale of securities.
  2. Donate appreciated securities instead of cash to IRS-approved charities so that gains won’t be included on your return even though you will receive a tax deduction for the donation.
  3. Use installment sales or Section 1031 like-kind exchanges to either spread the gain recognition over several years or defer the gain on the sale of property. These two strategies work best for investment real estate.
  4. Invest more taxable investment funds in municipal bonds. Interest income from municipal bonds is federally tax exempt and also state exempt as well, if bonds are issued by your resident state. If you are subject to the NIIT, be sure to include the 3.8% in your municipal bond interest conversion calculation.
  5.  Invest taxable investment funds in growth stocks. Gains won’t be taxed until the stocks are sold, and growth stocks generally do not distribute dividends.
  6. Consider conversion of traditional IRA accounts to ROTH accounts. This idea is part of a long-term strategy and requires careful coordination with your tax and investment advisors, because the taxable income from the conversion does increase your taxable income and may result in more of your investment income being subject to the NIIT in the year of the ROTH conversion. In the future, though, this strategy could result in tax savings since the earnings and gains inside the ROTH will be exempt from both income tax and the NIIT when distributed.
  7. Invest in life insurance and tax-deferred annuity products. Earnings from life-insurance contracts and annuity contracts generally aren’t taxed until they are withdrawn. Life-insurance death benefits are generally exempt from federal income tax.
  8. Invest in rental real estate. Rental income is offset by depreciation deductions, reducing the amount of net investment income.
  9. Maximize deductible contributions to tax-favored retirement accounts such as 401(k) and self-employed SEP accounts
  10. If you are a cash basis self-employed individual or sole shareholder of an S-Corporation, consider accelerating business deductions into 2016 and deferral of business income into 2017.

Bottom-line, the NIIT is complex, and all strategies should be discussed with your tax and investment advisors before implementation to avoid other unintended tax consequences. Many of these strategies take time to implement as well, so start planning now. We can help you evaluate which strategies would be best for your particular situation, so give us a call soon to get started on your 2016 planning process.

Individuals

Charitable Deductions

Summertime means cleaning out those often neglected spaces such as the garage, basement, and attic for many of us. Whether clothing, furniture, bikes, or gardening tools, you can write off the cost of items in good condition donated to a qualified charity. The deduction is based on the property's fair market value. Guides to help you determine this amount are available from many nonprofit charitable organizations.

Charitable Travel

Do you plan to travel while doing charity work this summer? Some travel expenses may help lower your taxes if you itemize deductions when you file next year:
  1. You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status. 
  2. You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can’t deduct the value of your time or services.
  3. The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.
  4. You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.
  5. Deductible travel expenses may include:

    • Air, rail and bus transportation
    • Car expenses
    • Lodging costs
    • The cost of meals
    • Taxi fares or other transportation costs between the airport or station and your hotel

Renting Your Vacation Home

A vacation home can be a house, apartment, condominium, mobile home or boat. If you rent out a vacation home, you can generally use expenses to offset taxable income from the rental. However, you can't claim a loss from the activity if your personal use of the home exceeds the greater of fourteen days or 10% of the time the home is rented out. Watch out for this limit if taking an end-of summer vacation at your vacation home. 
 

Businesses

Traveling for Business

When you travel away from home, you may deduct your travel expenses – including airfare, train, bus, taxi, meals (generally limited to 50%), lodging – as long as the primary purpose of the trip is business-related. You might have some downtime relaxing, but spending more time on business activities is critical. Note that the cost of personal pursuits is not deductible.

Entertaining Clients

If you treat a client to a round of golf at the local club or course, you may deduct qualified expenses – such as green fees, club rentals, and 50% of your meals and drinks at the nineteenth hole – as long as you hold a "substantial business meeting" with the client before or after the golf outing. The discussion could take place a day before or after the entertainment if the client is from out of state. For information on what does and does not qualify, please contact us.

Using Your Home Office  

Home office expenses are generally deductible if part of a business owner's personal residence is used regularly and exclusively as either the principal place of business or as a place to meet with patients, customers or clients. The IRS provides an optional safe-harbor method that makes it easier to determine the amount of deductible home office expenses. These rules allow you to deduct $5 per square foot of home office space (up to 300 square feet). In addition, deductions such as interest and property taxes allocable to the home office are still permitted as an itemized deduction for taxpayers using the safe harbor.