Summing It Up

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U.S. Expats May Still Owe Taxes

us taxes

Many former American citizens who live outside the U.S are not aware that they still may owe U.S. taxes. To remedy this situation and collect back taxes, the IRS released the Relief Procedures for Certain Former Citizens in September 2019. It provides certain expats with relief for back taxes and the chance to comply with their U.S. tax and filing obligations.

No matter where American citizens live, they are liable for paying U.S. taxes. If living and working abroad, these individuals may be eligible for credits on tax payments made to foreign governments, but taxes are still owed to the U.S. government. Even if individuals decide to relinquish their U.S. citizenship, they still may have tax obligations to meet.

There are various reasons why expatriated citizens may be confused about their U.S. tax status and liability. The 14th Amendment to the U.S. Constitution specifies that all individuals born in the U.S. automatically attain U.S. citizenship at birth. This includes those who were born overseas to American parents and continued living abroad, and those born in the U.S. but who have lived elsewhere for most of their lives. These individuals are often considered “accidental Americans” and because they have lived outside the U.S. for all or most of their lives, they are not aware of their U.S. tax obligations.

Others who may qualify are those who have unofficially renounced their citizenship by taking up residency abroad and mistakenly assume they no longer owe taxes. The IRS warns that individuals who relinquish U.S. citizenship without complying with their U.S. tax obligations may face significant tax consequences.

New Procedures Ease Compliance

Highlights of the tax compliance program include:

  • Eligible individuals are those who relinquished their U.S. citizenship after March 18, 2010 and have not filed tax returns as a U.S. citizen or resident.
  • The net worth of eligible individuals must be less than $2 million at the time of their expatriation and when making their submission under these procedures.
  • Individuals must file outstanding tax returns with all required schedules and information returns for the year of their expatriation and for the five years preceding it.
  • If the total tax liability for the six-year period does not exceed $25,000, individuals are relieved of paying U.S. taxes.
  • Individuals who qualify for these procedures will not be required to pay penalties and interest.
  • The procedures are available only to those individuals who failed to file tax returns and pay taxes and penalties for the pertinent period due to “non-willful conduct” such as negligence, oversight or a good faith misunderstanding of their U.S. tax obligations.
  • The program is only available to individuals and cannot be used by estates, trusts, partnerships, corporations or other entities.

The IRS notes that these procedures are available for a limited time and it will announce a closing date prior to the end of the grace period. Expatriated individuals are advised to consult with a tax advisor if they are considering using these procedures to comply with their U.S. tax and filing obligations.

Freed Maxick Can Help 

Contact Freed MaxickDo you have questions about new tax procedures? Please contact Freed Maxick at 716.847.2651, or click on the button for a contact form.

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Gaining Real-Time Business Visibility With an Executive Dashboard

Executive Dashboard

There are many personal qualities and traits that distinguish successful business owners—but they all share one thing in common: Through whatever means possible, they can understand at any point in time how their business is performing based on growth projections, execution, profitability and capacity.

If you’re running a business, are you able to achieve these insights with the tools at your disposal?

If the answer is no, your business may be headed down a dangerous path—and you may not even know it. What to do? A first step is to consider the executive dashboard. If you currently use one, does it deliver broad insight on these areas? If you don’t have one, you should take immediate steps to put one in place.

An optimal executive dashboard should give you the information you need to answer four primary questions:

  • Are you growing?
  • Are you profitable?
  • Are you executing for your clients or customers?
  • Are you retaining and growing your client base?

Today, businesses are swimming in data both inside and outside the enterprise. While lots of it can be used intelligently, it’s difficult to cull valuable nuggets from the pile and assemble it in ways that deliver useful insights.

Moreover, much of the data available to your business looks backward (e.g., last month, last quarter, last year) at performance and other important metrics. As a result, you as an executive can’t plan for growth, monitor current progress or intervene to prevent the ship from going off course.

In our work with businesses of all sizes and scopes, we’ve defined four crucial elements of an effective executive dashboard:

1) Client/market-related data. This includes insight such as:
  • Client churn to what extent are you retaining, and keeping clients happy? It’s six times more expensive to acquire a new client than to keep an existing client. Most clients will never tell you of their concerns; rather, they almost always vote with their feet. Nearly all businesses are well served to build and nurture existing client relationships. Your ability to do so – as evidenced by client churn data – should by itself provide a valuable assessment of your business’ current performance.
  • Average purchase size say, for example, that an average sale for your company is $10,000. Recently, though, that figure has started to drop off. Including this metric on your dashboard is vital; first and foremost, it alerts you to the issue, and by extension, may provide insight on why that is happening. From this, you can plan remedial actions or be better informed when it comes time to forecast things like raw material purchases.
  • Shift(s) in products purchased – this can help you understand if your clients’/customers’ needs are changing. Maybe someone is buying steel components from you today, but what they really need is wires to connect those things together. Or, perhaps the volume of steel purchases is declining, and complementary products – nails, screws, grease, wire – is increasing. This could mean customers have over-ordered, or even found an outside supplier that’s cheaper for consumables. If volumes change, or what they buy from you changes, this metric alerts you to it.
2) Margin. If gross and/or net margins drop, but revenues remain constant, that could point to an increase in expenses, or a decrease in production efficiency. Again, your executive dashboard should provide the tools to help you understand how margins are changing and why. Are the reasons behind change seasonal, or due to unusual or unforeseen circumstances? Your dashboard should be equipped to allow you to click on a margin-related metric, see what’s happening in real time and understand what’s driving that issue.

People make purchasing decisions on three primary drivers: price, quality and relationship. Price is the first thing they’ll switch on, they will start to sample next on quality, and finally, relationships. If sales of your products are decreasing, that may be a sign that someone has undercut your prices.

3) Execution. Companies run in transactional ways with associated transactional activities. Dashboard metrics that track execution on key activities – e.g., product launches, lead generation/pipeline initiatives, product and service launches – offer both quantitative and qualitative measures of progress and success. Take lead generation, for example. An effective dashboard should quantify the number of active leads, measure that volume against established criteria, specify which deals are closing and so on. Some of these measures may need to be manually collected and are more subjective—but they still provide valuable insight into what’s working.

4) Talent. We include this last, but it’s far from the least important. Companies of all sizes and scopes face talent challenges—and meeting these challenges is in many ways an existential necessity. Talent metrics on an executive dashboard are crucial in helping you determine whether you have the capacity to deliver against your client commitments. They help you answer important questions such as:

  • Do we have enough people to meet our commitments?
  • Can we deliver on time and to the right level of quality?
  • Do we have the right skill sets?
  • Are our people producing effectively?
  • What does our hiring pipeline look like?
  • What is our “win rate” on hiring?
  • What is our staff churn rate (and what may be causing a higher churn rate)?
  • If we have vacancies, can we fill those in a timely manner with highly qualified people? If not, what does that do to our production backlogs?

Again, a properly designed executive dashboard should enable you to accurately gauge the effectiveness of the core drivers of your business at any given point in time, draw intelligent conclusions and determine the right course of action for you and your team. If you have an existing dashboard in place, I recommend that it includes measures for each element described above. If you’re looking to develop one, it’s best to consult an experienced business professional with data analytics capabilities.

Freed Maxick Can Help

Contact Freed MaxickDo you have questions about designing and deploying executive dashboards, or other business advisory issues? Please contact Freed Maxick at 716.847.2651, or click on the button for a contact form.

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Guide to 2019 Year-End Tax Planning


The Tax Cuts and Jobs Act (TCJA) of 2017 reduced tax rates for most individuals, introduced a new deduction for owners of sole proprietorships and pass-through entities, increased the standard deduction and, among other things, significantly increased the Alternative Minimum Tax (AMT) exemption and either limited or eliminated many other tax deductions. While the IRS continues to release guidance and update forms to reflect the changes, we offer the following tax planning guide that includes significant opportunities to minimize individual tax obligations.


Income from an investment held for more than one year is generally taxed at preferential capital gains rates. For 2019, the long-term capital gain and qualified dividend rates remain unchanged at 0%, 15% or 20%, based on statutory income brackets and adjusted for inflation. For example, the 20% rate applies when taxable income exceeds $488,850 (married filing joint), $461,700 (head of household) or $434,550 (others).

Planning Opportunities:

  • Consider holding capital assets for at least 12 months, as short-term capital gains are taxed at ordinary income rates.
  • Consider gifting appreciated stock or mutual fund shares to relatives in a lower income tax bracket (such as children or grandchildren), who will pay less or no tax on the long-term capital gains when the shares are sold.
  • Consider selling unrealized loss positions in your investment portfolio to offset capital gains recognized earlier in the year.
  • Consider investments in Qualified Opportunity Funds, which allow investors to defer gain recognition.


In addition to income tax, individual taxpayers with modified adjusted gross income (MAGI) of more than $200,000 per year ($250,000 if married filing joint; $125,000 if married filing separately) may be subject to net investment income tax. NIIT equals 3.8% of the lesser of (a) net investment income or (b) the amount by which MAGI exceeds the applicable threshold. Net investment income includes interest, dividends, capital gains, rental income (unless derived from ordinary business activities) and passive activities, less deductions properly allocated to net investment income.

Planning Opportunities:

  • Consider electing installment sale treatment so that gains are spread over a number of years. By spreading the income over multiple years, current year net investment income and MAGI may be reduced to minimize or eliminate the 3.8% tax for the current and future tax years.
  • Consider selling unrealized loss positions in your investment portfolio to offset capital gains recognized earlier in the year.
  • Tax-exempt income is not subject to the 3.8% tax. Consider switching investments to tax-exempt investments if it makes sense for your portfolio. State taxation of such investments should also be considered.


If you own a business, consider the following strategies to minimize taxes:

  • Defer income – If your business uses the cash method of accounting, you can defer billing and collections for products until year-end. If you use the accrual method, you can delay shipping products or delivering services.
  • Accelerate Expenses – If you are a cash basis taxpayer, consider accelerating expenses by paying for business expenses by year-end. Credit card payments are deductible in the year charged rather than paid.
  • Employ Your Child – If you are self-employed, consider employing your child to work in the family business. The child will be taxed at their rate on earnings (earnings are not subject to Kiddie Tax). Wages paid by sole proprietors to children age 17 or younger are exempt from Social Security, Medicare and federal unemployment taxes. Make sure wages paid are reasonable given the child’s age and work skills.
  • Home Office Deduction – The TCJA suspended the home office deduction for employees who work from home. However, this deduction still applies if you are self-employed and have a home office that is used primarily for business activities.
  • Acquire Assets – Acquiring business assets may be a good tax-planning strategy depending on your business situation. For assets with a useful life of more than one year, you generally must depreciate the cost over a period of years, depending on asset type. As a part of TCJA, the following favorable provisions were revised and made available for depreciating fixed assets, maximizing deductions:
    • Section 179 Expensing Election – This election allows you to deduct 100% of the cost of qualifying assets rather than recovering them through depreciation. The maximum amount that can be expensed for 2019 is $1.02 million. This amount is reduced (but not below zero) by the amount by which the cost of total qualifying property exceeds $2.55 million.
    • Bonus Depreciation – The TCJA establishes a 100% first-year deduction for qualified assets placed into service through December 31, 2022, with a recovery period of 20 years or less. This provision applies to both new and used property and was expanded to include qualified film, television and live theatrical productions. (For the period January 1, 2023 – December 31, 2026, bonus depreciation is scheduled to be gradually reduced.)


For 2019, medical expenses can be deducted to the extent the expenses exceed 10% of adjusted gross income (increased from 7.5% in 2018). Eligible expenses include health insurance premiums (if not deducted elsewhere on your income tax return), long-term care insurance premiums (subject to limitations), medical and dental services and prescription drugs. You may also deduct expenses paid for medical care of a child for whom you provide more than half of total support.

Planning Opportunities:

  • Since individuals generally use cash basis accounting, medical expenses must be paid in the year incurred in order to be deductible. Credit card payments are deductible in the year charged, rather than paid. Be aware, however, that prepayment of medical services in advance of the year services are actually rendered may not accelerate the deduction.
  • If possible, consider bunching elective medical procedures into alternating years (for services and purchases for which timing is within your control, without negatively impacting your or your family’s health) if it will help you exceed the 10% floor and if you have enough total itemized deductions to benefit from itemizing. 


For tax years 2018-2025, the TCJA reduces the limit on mortgage debt incurred after December 15, 2017, from $1 million to $750,000. Interest on debt incurred prior to December 15, 2017, but refinanced later, is deductible to the extent the new debt does not exceed the original debt. The TCJA also suspends the prior provision that allowed up to $100,000 of interest on home equity debt to be treated as deductible qualified residence interest.

Planning Opportunities:

  • Keep track of how and when you spend proceeds of a loan. For example, if you used a portion of your mortgage debt to acquire business assets, that portion is deductible as trade or business interest or as investment interest expense.
  • Elect out of treatment of debt secured by a qualified residence. This election allows you to characterize interest expense on home equity debt under the specified interest tracing rules and to preserve an otherwise nondeductible expense.


Year-end is a great time to make donations to qualified charities. Generally, cash donations to public charities are fully deductible up to 60% of adjusted gross income (AGI), and gifts of appreciated property or gifts for use by public charities are deductible up to 30% of AGI. This benefit only applies if you itemize deductions. For donations made during the year, be sure to get acknowledgment letters from the qualified charities for both cash and property (including stock donations) over $250. If you are not certain if a particular charity is qualified, you can consult the IRS website at http://apps.irs.gov/app/eos/ to search for the organization in question.

Planning Opportunities:

  • Consider bunching donations into alternating years if your total itemized deductions on those years would surpass your standard deduction. A donor-advised fund allows donors to make a charitable contribution, receive an immediate tax deduction and then recommend grants from the fund over time.
  • Donate appreciated stock to charity to avoid paying capital gains tax and get a fair market value deduction for stocks held for more than one year.
  • Sell depreciated stock and donate the cash proceeds to charity. You will receive a charitable deduction as well as a capital loss benefit on the sale of stock. Capital losses offset capital gains, and any resulting net loss in future years offsets a maximum of $3,000 in ordinary income for a married filing joint taxpayer ($1,500 for all other taxpayers).


Contributions to a traditional employer-sponsored defined contribution plan are typically pretax, therefore reducing taxable income. If you are an employee and your company offers a 401(k) plan, you should try to maximize your contribution to boost your retirement savings and save current year taxes. The maximum contribution to a 401(k) plan increased to $19,000 in 2019 (from $18,500 in 2018) and is scheduled to increase to $19,500 for 2020. Employees age 50 or older can also make an additional “catch-up” contribution of up to $6,000 (scheduled to increase to $6,500 in 2020.)

If you are self-employed, consider setting up a self-employed retirement plan (SEP) or some other type of retirement plan in order to maximize the allowable contribution each year.


Taxpayers who have reached age 70½ can donate up to $100,000 of traditional and Roth IRA distributions directly to qualified charities. The donation satisfies the minimum distribution requirement and is excluded from taxable income. A charitable deduction cannot be claimed for the contribution.


If you are covered by a qualified high-deductible health plan, you can either contribute pretax income to an employer-sponsored Health Savings Account (HSA) or make deductible contributions to an HSA you set up yourself. For 2019, the maximum contributions are $3,500 for single taxpayers (increased from $3,450 in 2018) and $7,100 for family coverage (increased from $7,000 in 2018). Taxpayers aged 55 or older as of the end of the tax year can contribute an additional $1,000. (This means HSA holders can contribute and reduce income by $9,000 if both spouses are over 55.) There is no “use it or lose it” provision with HSAs, as you can carry over unused balances from year to year. Consider paying for qualified out-of-pocket medical expenses with personal funds rather than HSA funds.  You can leave funds invested in your HSA to grow on a tax-deferred basis creating a pool of money to use for medical expenses later in life.


Amounts contributed to a healthcare Flexible Spending Account (FSA) are not subject to federal income, Social Security or Medicare taxes. For 2019, the maximum contribution is limited to $2,700 (increased from $2,650 in 2018). Historically, the “use it or lose it” provision applied to amounts contributed to a flexible spending account. However, there is a carryover provision which allows participating employees to carryover up to $500 of unused funds to the following year if your employer offers this option. Some employers may offer a grace period to incur eligible medical expenses, generally two-and-a-half months after year-end. Check with your employer for the rules on the established FSA plan.

Tax Situation ReviewIf you wish to discuss tax planning strategy for the new rules that are generally going into effect for the 2019 tax year, please call the State and Local Tax team at 716.847.2651 to schedule a complimentary Tax Situation Review. Or, click on the button, give us your contact information, and a member of our staff will connect with you to schedule a discussion.

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Retail Sales Tax Exemption: A Guide for Retailers and Buyers

sales tax image

If you’re a retailer, you are probably aware of your sales tax collection obligation to your state. If you’re a consumer, you expect to pay sales tax when you make a purchase.

What you might not know is that there are a multitude of transactions that are tax-exempt and not subject to sales tax, but due to the varying rules that surround them, sales tax-exempt transactions can be more burdensome to manage than collecting sales tax. Both retailers and buyers need to accommodate these unique rules to limit their sales tax liability.    

What is a Sales Tax Exempt Transaction?

It is important to note that all retail sales of tangible personal property are subject to sales tax unless otherwise exempt, not vice versa. In other words, as a seller, you need to default to collecting tax on a sale unless the buyer can prove that the transaction is exempt. This is generally accomplished by a sales tax exemption certificate that is unique to each organization. It is the seller’s responsibility to retain each certificate for each person they transact with.

Examples of Sales Tax-Exempt Products

Examples of products and services that can qualify for exempt-status include medical services, food and beverages, digital products, utilities, clothing, publishing, telecommunications, vending machine items, and government services. However, be aware that an exempt item in one state may not be exempt in another and it is ultimately the seller’s obligation to be informed.   

Selling for Resale – Resale Certificates

In general, products purchased for resale are exempt from sales tax. A resale certificate is a specific exemption certificate that releases a seller from its tax collection duties. It is important for a seller to confirm, even if a resale certificate has already been acquired, the intended usage of their products for each sale.

In a scenario in which a retail buyer uses the product internally, the seller may be liable for the tax if it is reasonable that they had knowledge that the sale was not for resale.

Retention and Record-Keeping for Sales Tax Exemption Certificates

While some jurisdictions’ exemption certificates can be held indefinitely, others expire after a set amount of time. The burden of retention and record-updating falls upon the seller.

To alleviate the burden, the Multistate Tax Commission (“MTC”) developed the Uniform Sales & Use Tax Exemption Certificate. This blanket certificate, accepted by nearly forty states, simplifies the retention requirement for sellers by reducing it to one certificate per customer. The form, as well as its per-state instructions, can be found on the MTC website. Additionally, there are several software programs available to the public that track taxability of customers.  

Taking Action Post Wayfair

Contact Freed MaxickFollowing the outcome of the Wayfair Decision, staying to-date on sales tax law is more consequential than ever. To learn more about retail sales tax exemptions and how they apply to your business, contact the SALT experts at Freed Maxick CPAs. Call me at 716.847.2651 for a discussion of your situation or click on the button for a “Contact Us” form.




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The Clock is Ticking: Why Contractors Should Comply With FASB’s New Accounting Standards

Contractor FASB

Companies who do business in industries like construction, manufacturing and real estate are heavily impacted by the new revenue recognition rules imposed by the Financial Accounting Standard Board (FASB), effective January 1, 2019 (for annual reporting – and in 2020 for interim periods). As these rules removed the ability to apply separate accounting rules to contractors, many companies may be unsure how best to proceed under the new rules.


The reason for the change in accounting standards stems from a need for an approach that more accurately portrays the transfer of promised goods and services. The new standards apply to any entity entering into a contract for the transfer of goods or services – or the transfer of nonfinancial assets – unless the contract falls within the scope of other accounting standards.

What the Accounting Change Means for the Construction Industry

When it comes to accounting for revenue recognition, the construction industry has long been held to separate accounting principles due to the nature of long-term contracts. That all changed when the Financial Accounting Standards Board (FASB) issued the new standard, Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. In issuing its new revenue recognition standards, FASB effectively swept away all preexisting GAAP in the area of revenue recognition, including the separate accounting principles specific to contractors.

The Five-Step Model

The new accounting principle will be achieved using the following five-step model:

  1. Identify the contract with a customer
  2. Identify the performance obligations
  3. Determine the transaction price
  4. Allocate the price to the performance obligations
  5. Recognize revenue with the satisfied performance obligation

Key Industry Considerations

There have been a number of interpretations regarding the new revenue recognition standard, and some of those can be misleading. With that in mind, here are a few clarifications:

  • Contrary to some assumptions, revenue recognition under the new standard will be similar to the percentage of completion method used today. The new standard allows for the use of input or output methods to determine the percentage complete.
  • Many construction contracts may have only one performance obligation—it will be up to contractors to evaluate each contract for separate performance obligations and document their conclusions.
  • FASB included language to allow contractors – in certain circumstances – to recognize revenue equal to the cost of uninstalled materials if the customer obtains control of the goods.
  • If the company has claims or unapproved change orders on a contract, the revenue associated is recorded based on the company’s estimate of the expected amount of claim that will be received, if it is probable that a significant reversal of revenue will not occur in the future.
  • Warranties purchased separately by the customer may represent separate performance obligations that require their own revenue recognition treatment. Warranties included as part of the company’s normal contract may represent additional costs to include in the company’s cost-to-cost revenue recognition method.

Despite these challenges, now is the time to become organized so that your business can be in compliance with the new standards. Delaying will only result in a greater time investment to make adjustments during a year-end audit or review.

Do you have questions about how to become compliant with the new revenue recognition standards? Please contact us directly at 716.847.2651.

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Self-Directed IRA Guide: How to Expand Your Retirement Investment Options with a SDIRA


If you’re looking for something more than stocks, bonds and mutual funds, a SDIRA might be for you.

Individuals seeking alternative investment options with their retirement account funds should consider opening a Self-Directed IRA (SDIRA) with a qualified custodian. Unlike traditional IRAs where you may be limited to investments in stocks, bonds, or mutual funds, a SDIRA allows you to take advantage of investing in alternative assets such as limited partnerships, LLCs, gold, real estate, notes and more.

Getting Started with a Self-Directed IRA

Once you decide that you would like to have the added investment options of a SDIRA, your first step is to choose a qualified custodian. There will be custodian fees that vary depending on the chosen custodian; all fees should be considered during the process of deciding to open an SDIRA.

Once the custodian is identified, you’ll want to rollover or transfer funds into the account. If you already have an existing traditional or Roth IRA account, you could simply transfer all or part of the account funds into the newly opened SDIRA. You could also rollover all or part of the funds from a 401(k) account with a prior employer.

After it’s set up, you will be able to contribute funds annually to the SDIRA account just like any other IRA, subject to the same traditional and Roth IRA contribution limits set annually by the IRS; the combined annual contribution limit for all of your traditional and Roth IRA accounts for 2019 is $6,000, or $7,000 if you’re age 50 or older. (Roth IRA contributions are subject to a further limitation based on your modified AGI for the year.)

There are additional options for rolling over SIMPLE and SEP IRA accounts into an SDIRA. Business owners who are otherwise eligible for a SIMPLE or SEP account and are interested in the benefits of an SDIRA should consult with a tax advisor on the specifics of this process.

Managing Self-Directed IRA Investments

Once your SDIRA account is funded, you are free to choose your investments and direct the account custodian to send funds. The most convenient way to invest through an SDIRA is to create a SDIRA LLC and then direct the SDIRA funds into the LLC checking account. Creating an SDIRA LLC gives you, as the account owner, checkbook control of the retirement account funds allowing for maximum freedom in making qualified investment decisions on behalf of the IRA.

You should hire an experienced legal professional to manage the creation of the LLC. It can be a relatively complicated process and there are many potential traps for the unwary. Once the entity is created, you will be responsible for tracking the investments made through the LLC.

Prohibited Self-Directed IRA Investments

While the SDIRA gives you significantly more freedom to invest than traditional retirement accounts, there are still some limits on what you can do with the funds.

There are many prohibited transactions that the account owner needs to be aware of when creating an SDIRA and subsequently investing the funds of the account. The majority of prohibited transactions stem from the involvement of a disqualified person in a self-dealing transaction.

Disqualified persons are defined as:

  • The account owner
  • A beneficiary of the IRA
  • Your spouse
  • Your lineal ascendants/descendants and their spouses
  • Plan service providers and fiduciaries
  • An entity in which anyone described above owns at least 50% of the voting stock/capital or profits interest, directly or indirectly
  • An officer, director or a 10% or more shareholder or partner of an entity described above

Types of prohibited transactions between an IRA and a disqualified person include:

  • Extension of credit or cash loans
  • Yielding a commission/fee for the purchase, sale, or exchange of assets
  • Transfer of IRA income or assets to, or for use by or for the benefit of, a disqualified person
  • Executing renovations/repairs on property owned by the account
  • Paying a salary or fee for service
  • Retaining account earnings
  • Covering account expenses

The above list of prohibited transactions is not all-inclusive. The best policy when it comes to SDIRA transactions is to verify with an experienced professional that it is not prohibited before acting. Once you execute a prohibited transaction, the IRS can declare that the account ceased to be an IRA as of the first day of that year and the IRA is treated as distributing all assets to the IRA owner at FMV. The account owner would be subject to income taxes and penalties as applicable.

Self-Direct IRA and UBIT: Is a SIDRA Subject to Unrelated Business Income Taxes?

There are some situations where the SDIRA may be annually subject to unrelated business income tax (UBIT). There are two principal situations where UBIT would apply:

  • The SDIRA invests in a business, either directly or through a partnership or LLC, that generates trade or business income
  • The SDIRA invests in a debt-financed investment property. The investment income included in UBIT is proportionate to the debt on the property

If one of these situations arises, the account will need to file an IRS Form 990-T and any applicable state tax return(s) to remit taxes due on the income. If either of these circumstances apply to your SDIRA, Freed Maxick could be engaged to identify and meet any income tax filing requirements. The implication of any required tax filings and taxes due on the SDIRA transactions is a very important preliminary consideration.

Freed Maxick Can Help

Contact Freed MaxickThe increased flexibility and benefits of a SDIRA may be a great option for your retirement investing needs. However, creating an SDIRA also leads to increased responsibility and risk for the account owner.

To learn more about the potential benefits of an SDIRA and the process of creating and maintaining one, please contact Freed Maxick at 716.847.2651, or click on the button for a contact form.

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Sample Federal Fund Procedure Manual Now Available for NY School District IDEA Grants

IDEA Grants

New Requirements for Documenting Internal Controls for Administration and Compliance Addressed

New call-to-actionAs a member of the Public School Accounting Committee of the NYS Society of CPAs, Freed Maxick’s Kathryn Barrett, CPA, Director participated in the development of the Federal Fund Procedure Manual for IDEA Grants secured by New York State School Districts. The New York Association of School Business Officials (ASBO) established a working group of CPAs and Business Administrators from across the state to develop this manual in response to SED audits of school district IDEA grants.  One of the primary findings of SED’s audits was the lack of written procedures for the IDEA grants. 

One of the key requirements under the Uniform Guidance is that an entity must have documented internal controls over grant administration and compliance. If your school district has not already formally documented procedures over grant administration and compliance this sample manual will help you create a customized and useful document that will serve as asset for your compliance efforts.

Users of this sample manual must modify it for their specific district circumstances. The manual was written so that it could be used for any grant with appendices that addresses compliance issues that are specific to each grant. Currently there is only one appendix that addresses the IDEA program. 

Connect with Us for More Information and Guidance

Please understand that this is merely a template and you will need to review and modify the document to that the documented policies and procedures are specific to you. Please feel free to share with your colleagues or let them know it is available from ASBO.

Contact Freed MaxickIf you have any questions or concerns, or want to discuss your Federal grant administration and compliance situation, please call me at 585-344-1967, or click on the icon to set up a confidential, no obligation discussion.

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ASC 842 Effective Date: FASB Finalizes Lease Accounting Extension for Private Companies

Deadline Extended

Many Companies Still Face Significant Lease Accounting Challenges

The Financial Accounting Standards Board (FASB) has finalized a one-year delay in the effective date of ASU 842 Leases for non-public business entities. The details of the proposal, including a description of affected entities, were described in a previous alert.

The new effective date for calendar-year-end preparers that are not public business entities would be Jan. 1, 2021. The effective date for calendar-year-end public business entities, employee benefit plans, and not-for-profit conduit bond obligors is Jan. 1, 2019, and would remain unchanged.

Even with the ASC 842 delay, many private companies still face significant challenges when it comes to building internal controls that will help them identify relevant leases and comply with the new rules. It’s likely that the best solution will be some combination of software and advisory services offered by your CPA firm.

The time to start considering an action plan for ASC 842 compliance is now. For more information on how the new lease accounting standard could impact your business, contact Katy Al-Khalidi at 716.847.2651 for a complementary discussion of your situation and a road-map to lease accounting compliance.



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Lease Accounting Software Selection

lease software

Financial Accounting Standards Board’s (FASB’s) new lease accounting standard ASC 842 may require new software for management and reporting purposes

Private entities got some relief from the Financial Accounting Standards Board (FASB) with the recent proposed extension of the effective date for ASC 842, the new lease accounting standard. Compliance has been challenging for many businesses because it involves both a substantive review of lease policies and portfolios (issues we’ve covered in previous articles) and a technical review of the software needed to effectively track and manage information related to leases.

This article is intended to help you understand and evaluate some of the options available in a very crowded marketplace of lease accounting software. To begin your analysis, ask yourself a couple of basic questions:

  1. Does your business’ current system track the information needed to meet the demands of reporting under the new rule?
  2. If not, do you want to implement a system focused solely on compliance with financial reporting requirements, or do you want a more complete lease management program?

Three Types Lease Accounting Software

Options fall into three basic categories.

  1. Excel: Many businesses have been tracking leases on spreadsheets that were created in-house and adapted as needs changed. For businesses with approximately ten or fewer leases, these sheets may continue to support compliance with the new standard, but they will always come with a higher risk of error. The data entry process and the use of formulas programmed in-house are just a few of the pressure points where spreadsheet solutions tend to break down.
  2. Lease compliance software: If your primary focus is compliance with the new lease standard, some software packages offer more targeted solutions focusing on helping you meet the reporting requirements of the new standard.
  3. Lease management software: If your business has a higher number of leases, or if you currently struggle to keep track of your leases, you might want to consider a software package that focuses more broadly on lease management, in addition to compliance with the new standard.

Factors to Consider When Selecting Lease Accounting Software

Just like any other software decision, there are several variables to consider when choosing which lease software is the best fit for your business.

  • Lease Accounting Software Cost: Prices will vary significantly based on what features you want to include in your system. Be sure to understand up-front if the price quoted includes set-up fees or if you will need to pay an additional amount to get your business up and running on the new program. Other terms to discuss include:
    1. Annual v. monthly fees-If you’re in a period of growth, it might make sense to avoid a longer-term commitment and to consider software packages that include upgrade options so that you don’t need to start over with a new vendor if you need additional features.
    2. Cost per user-How many people will need access to the system and how spread out geographically are they? Does the software pricing structure include thresholds where price jumps significantly with an additional user?
    3. Cost per lease entered-Another place to watch for threshold numbers where price jumps significantly when the number of leases entered increases.
  • Quantity of leases: If you’ve evaluated your lease portfolio and you’re still comfortably under ten leases, your existing spreadsheet process might be enough to support compliance with the new standard. There’s no bright line at which a business must invest in lease accounting software, but many will find that a quality software program can save time and improve accuracy even if they manage only a few contracts.
  • Type of lease: Software can vary widely in its ability to serve different types of leases. If your business leases a variety of assets such as machinery and equipment, office space and land, you want to make sure that any software you choose supports all of these types of leases. If you’re more focused on one specific type of asset, some vendors offer more targeted software programs designed to better accommodate one type of lease, such as real estate leases.
  • Lease PictureLease management functionality:
    • How effective is your current system of lease management?
    • Are you able to easily identify the number of leases in your system and look up the terms of any given lease?
    • Are you missing key deadlines?

If lease management is a strength for your business already, you may not need to invest heavily in software to improve in this area. However, if it’s an area where your business needs to improve, options for lease management software can include the ability to track items such as physical location of your leased assets, upcoming payments, lease extension or termination deadlines and more.

Connect with a Freed Maxick Lease Accounting Software Specialist

With all of these factors in play, choosing and implementing new lease accounting software can be extremely challenging.

Freed Maxick offers support in all phases of the process, from consultation on software selection to outsourcing of the initial data entry and even ongoing maintenance of your lease portfolio in the system.

To learn more about how we can help you evaluate and select the right lease accounting software, contact Katy Al-Khalidi, CPA at 716.847.2651 for a complementary discussion of your lease accounting situation and a road-map for compliance.

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ASC 842 Transition: Three Components Your Lease Accounting Transition Policy Must Include

ASC 842 Blog Crop

Understand and consider the different options available as you review your leases, but

Private entities subject to the Financial Accounting Standards Board’s (FASB’s) new lease accounting standard ASC 842 may get some deadline relief if a recently proposed effective-date extension becomes final, but implementation can still present a significant challenge regardless of the timeline. In order to make the process as smooth as possible, every affected entity should develop a lease accounting transition policy that includes three key things:

  • A materiality threshold
  • A plan to determine which FASB “practical expedients” will be used, and
  • A plan to determine the appropriate application date.

Note that while we recommend setting a transition date and determining which practical expedients you will adopt as you create your policy, the standard does not require that you determine the application date or expedients at the outset. Final decisions on these can be deferred so that information uncovered during the transition period can be considered. It’s important to understand and consider the different options available as you review your leases, but nothing becomes set in stone until the financial reports are issued.

ASC 842 Materiality Threshold

At the outset, management needs to set a threshold for materiality that helps those working on the transition quickly identify which leases need to be reviewed and which are too small to affect the bottom line. This is important, as it will eliminate immaterial contracts from further review and provide valuable time savings.

Practical Expedients for Lease Accounting

In order to help affected businesses with the transition to a new standard, FASB has approved a number of certain implementation shortcuts known as “practical expedients” that are meant to provide transition relief to entities. If your business is working to conform its financial reporting to the new lease accounting rules, you’ll need to review the list of expedients and determine a transition policy that makes sense for your particular circumstances.

Lease Accounting Practical Expedients 1-3: “The Package”

The first three expedients have come to be known as “the package” because an entity can only elect all three of them together or none at all. They are:

  1. An entity does not need to reassess whether any expired or existing contracts are, or contain a lease.
  2. For any expired or existing leases, management does not need to reassess its classification in transition if it was correctly classified under the previous standard (ASC 840).
  3. An entity does not need to reassess initial direct costs for any existing leases.

These three expedients can save a substantial amount of time at implementation. It is important to note that in order to make this election, an entity must have properly identified and recorded leases under ASC 840.

Non-lease Components

This practical expedient allows entities to combine amounts attributable to lease and non-lease components into a single lease component for evaluation for existing lease agreements at transition. Under the new rules, costs that aren’t attributable to the right to use the asset should be valued and recorded separately from the lease liability. For instance, if a copier lease includes a routine repair and maintenance agreement, that agreement must now be valued and recorded separately from the liability. Entities can elect to continue treatment of these costs under the previous standard for leases in effect at the time of transition.

Short-term Exclusion

If a lease is shorter than 12 months at the lease commencement date and does not contain a purchase option that the lessee is reasonably certain to exercise, the reporting entity can elect not to treat it as a right-of-use asset.


FASB’s expedients include the option to classify a lease at transition based on information that was not available when it was created. This can be helpful for businesses evaluating leases that have an option to extend, but there is a potential downside in that some leases may be reclassified from operating to capital.

Land Easements

The rules permit an entity to continue treating existing or expired land easements in the same manner they were accounted for under the previous standard.

Application Date

An entity must elect one of two modified retrospective approach methods to apply the transition provisions in the standard. Under the two methods, application date would be:

  • The later of
    • The beginning of the earliest comparative period presented in the financial statements or
    • The commencement date of the lease, OR
  • The beginning of the period of adoption.

Consider the Users of Your Financial Statements

For most of the non-public entities covered by FASB’s proposed extension, we recommend working with your accounting advisor to determine the path that gets you through the transition with the least complication. However, it’s important to remember that private entities might be dealing with a specific audience when it comes to financial statements. If a bank or stakeholder regularly relies on your financial statements, it is important to consider their requirements while reviewing your financial statements.  

Connect with a Freed Maxick Lease Accounting Specialist

Private companies subject to the ASC 842 transition will likely need lease accounting consulting support in order to comply even if FASB’s proposed extension is finalized.

For more information on how the new lease accounting standard could affect your business, contact Katy Al-Khalidi, CPA at 716.847.2651 for a complementary discussion of your situation and a road-map for compliance.

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