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Beware of the Gray Areas in Accounting
Beware of the Gray Areas in Accounting 1275 750 smolinlupinco

Recent high-profile bank failures have raised concerns about the reliability of accounting auditing standards. U.S. government agencies are still investigating the reasons behind the collapses of Silicon Valley Bank and Signature Bank earlier this year. 

However, it’s likely that these banks exploited some gray areas in the accounting rules to make them appear more economically secure in their year-end financial statements than they actually were. 

Learning from Enron

Andrew Fastow often speaks publicly about issues concerning financial misstatement. A convicted felon, Fastow has a unique experience with fraud: He was the CFO of Enron in October 2001, when it the company became famous for the largest U.S. bankruptcy case of its time. 

Fasto recently addressed the Public Company Accounting Oversight Board (PCAOB), which was established by the Sarbanes-Oxley Act of 2002 to prevent future scandals like Enron. He recommended that the PCAOB consider revising the accounting and auditing rules to deter corporate fraud. 

Rather than solely focusing on detecting deliberate fraudulent activities, Fastow urged the PCAOB to pay attention to the “fraud that arises from exploiting loopholes resulting from the ambiguity and complexity of the rules.” According to Fastow, this scenario played out in the Enron case, where misleading information was often a consequence of exploiting the complexities of the rules rather than intentionally reporting false numbers.

Compliance vs. reality

To illustrate how companies can exploit the complexities of accounting rules, Fastow provided a good example of how financial statements that are fully compliant with regulations can deviate from economic reality. 

Here is that example: In 2014, the average price of oil was $95 per barrel, and although the price hovered around $110 for most of the year and dropped to $50 at the end of the year, companies were required under the accounting rules of that time to calculate an average based on the price on the first day of each of the preceding 12 months. This calculation resulted in an average of $95 per barrel despite the market price being $50 when oil and gas companies issued their financial statements.

All oil and gas companies followed this rule, reporting reserves based on $95 per barrel even though the market price had dropped precipitously to $50 by the end of the year. Consequently, they massively overstated their economically recoverable reserves, a critical metric used by Wall Street when evaluating independent oil and gas companies. 

Fastow concluded that the prevailing mindset was that as long as the rules were being followed, the misleading nature of certain financial statements was deemed inconsequential.

A complex problem

A founding member of the PCAOB, Charles Niemeier, has acknowledged that resolving the issue of financial reporting fraud extends far beyond simply revising auditing standards. The challenge becomes even more daunting when dealing with financial reporting matters that rely on subjective judgments.

For example, accounting estimates can be based on subjective or objective information involving varying degrees of measurement uncertainty. Some examples of accounting estimates include allowances for doubtful accounts, impairments of long-lived assets, and valuations of financial and nonfinancial assets. While certain estimates may be straightforward, many are inherently subjective or intricate.

Another area prone to manipulation is the going concern assessment, which forms the foundation of all financial reporting, according to the U.S. Generally Accepted Accounting Principles. 

The accounting rules grant company management the final responsibility for determining whether or not there is substantial doubt about the company’s ability to continue as a going concern and disclosing the related information in footnotes. The standard provides management with guidance that aims to reduce the inconsistencies in the timing and content of disclosure commonly found in footnotes.

Misrepresentation of finances can occur in a variety of ways when executives seek to exploit the ambiguous aspects of financial reporting for their own benefit, particularly as regulations have transitioned from historical cost in favor of fair value estimates.

Have questions? Smolin can help

When making subjective estimates and evaluating the going concern assumption, it’s important to step back and ask whether your institution’s financial statements, even while they are in compliance with regulations, could potentially mislead investors. 

If you have questions about these issues, contact our team of professionals at Smolin, and we’ll help you understand the rules and assess current market conditions.

Which Vehicles Are the Most Tax-Friendly for Business Owners?
Which Vehicles Are the Most Tax-Friendly for Business Owners? 850 500 smolinlupinco

If your business is preparing to replace a vehicle or buy a new one, you should know that a heavy SUV might provide a more substantial tax break this year than what you’d receive from a smaller vehicle. 

The reason? Larger business vehicles are depreciated differently on your tax returns than smaller ones. 

Depreciation guidelines

Compared to other depreciable assets, business vehicles are subject to more restrictive tax depreciation rules. 

Depreciation deductions are automatically capped under “luxury auto” rules. If a taxpayer decides to use Section 179 of the Internal Revenue Code to expense all or part of the cost of a vehicle, these caps can apply here as well, allowing an asset to be written off in the year it’s placed into service. Included in these rules are smaller trucks and vans built on truck chassis. 

For most vehicles that are subject to these caps and begin service in 2023, the expensing deductions or maximum depreciation are as follows:

  • First tax year in recovery period – $22,200
  • Second tax year – $19,500
  • Third tax year – $11,700
  • Every subsequent year – $9,960

Typically, this extends the number of years it takes to depreciate the business vehicle completely. 

Caps on deductions

Caps on expensing deductions and annual depreciation for passenger vehicles don’t apply to trucks or vans that weigh more than 6,000 pounds. This rule also includes large SUVs, which can sometimes cost over $50,000, so from a tax timing perspective, you may be better off replacing your business vehicle with a heavy SUV to avoid the restrictions on smaller cars.

In most instances, you’ll have the ability to write off a substantive amount of the cost of a heavy SUV that’s used for business purposes by taking advantage of the bonus and regular depreciation beginning from the year you put the vehicle into service. Bonus depreciation is currently available at 80% but will be reduced to zero over the coming years.

If you opt to expense all or part of the cost of a heavy SUV using Section 179, it’s essential to be aware that as of 2023, an inflation-adjusted limit of $28,900 (up from $27,000 in 2022) applies separately from the caps listed above. 

Please note that for all assets you elect to expense in a year, there’s an aggregate dollar limit that applies. Once you’ve completed the expensing election, you’ll need to depreciate the rest of the cost under the standard rules without regard to annual caps. 

It’s also important to be aware that the tax benefits listed above are subject to adjustment for non-business use. Additionally, the vehicle won’t be eligible for expensing if the business use of the SUV doesn’t exceed 50% of total use, meaning it would be required to be depreciated on a straight-line method over a period of six tax years.  

Trust your tax questions to Smolin

If you have questions or would like assistance with your tax return, the CPAs at Smolin can help. Contact us for more information about how to get the most tax write-offs from your company vehicle this tax season.

how-do-auditors-evaluate-accounting-estimates

How Do Auditors Evaluate Accounting Estimates? 
How Do Auditors Evaluate Accounting Estimates?  1600 942 smolinlupinco

When businesses report their finances, they often use accounting estimates determined by management. For example:  

  • Allowance for doubtful accounts
  • Warranty obligations
  • Costs of pending litigation
  • Goodwill impairment
  • Fair values of acquired intangible assets

When auditors evaluate the amounts reported on these financial statements, how do they determine whether those amounts are reasonable? 

Methods used to evaluate accounting estimates

As part of their standard audit procedures, external auditors evaluate accounting estimates. These accounting estimates can be based on a combination of subjective and objective information, resulting in measurement uncertainty. 

Methods include: 

Inquiry

Auditors may inquire about underlying assumptions, or inputs, that were used for making estimates. They will use the information from these inquiries to determine whether the inputs seem complete, accurate, and relevant. 


Estimates based on objective inputs (i.e., published interest rates or percentages from previous reporting periods) are typically less susceptible to bias than estimates based on speculative, unobservable inputs—particularly if management does not have prior experience with similar estimates. 

Testing 

If and when it’s possible, auditors may try to recreate estimates determined by management by using the same inputs, or even their own. If the auditor’s estimate is significantly different from the estimate on the financial statement, they will ask management for an explanation. In cases involving complex items, an independent specialist may also be called in.

Auditors may also compare previous estimates to what occurred after the date of the financial statement, as the outcome of an estimate tends to differ from management’s initial estimate due to errors, unforeseeable circumstances, and/or management bias. 

While estimates that are consistently aligned with what happened later add credibility, those with significant differences may cause an auditor to become more skeptical of management’s current estimates, often necessitating additional audits. 

Updates to auditing processes

In 2018, the Public Company Accounting Oversight Board (PCAOB) published revisions to the requirements for auditing accounting estimates and using specialists (often to support accounting estimates made by management) in audits. 

These revisions were published in: 

Release No. 2018-005

Release No. 2018-005, Auditing Accounting Estimates, Including Fair Value Measurements, is a risk-based standard emphasizing the importance of professional skepticism and the attention to potential management bias among auditors when evaluating estimates made by management. 

Per the updated standard, auditors should consider both corroborating and contradictory evidence obtained during the audit. 

Release No. 2018-006 

Release No. 2018-006, Amendments to Auditing Standards for Auditor’s Use of the Work of Specialists, extends the auditor’s responsibility for evaluating specialists, requiring them to do more than simply obtain an understanding of their work. They must also perform procedures assessing the appropriateness of the company’s data, along with the assumptions and methods used. 

December 2022 analysis report

The PCAOB published a post-implementation review of these updates in December 2022. According to Interim Analysis Report: Evidence on the Initial Impact of New Requirements for Auditing Accounting Estimates and the Auditor’s Use of the Work of Specialists, approximately 33% of surveyed audit firms reported that the new requirements improved auditing practices. Other firms reported that the effects were limited, with no significant consequences on the audit process fees or hours. 

While the newer, more consistent guidance pertains to public companies, these effects filter down to private entity audits that use accounting estimates or depend on specialists. 

Accounting gray areas? Smolin can help. 

Because they involve a high level of subjectivity and judgment, accounting estimates and fair value measurements may be susceptible to misstatement. It can be particularly challenging to predict metrics that determine these accounting estimates. As a result, more auditor focus is required today than in previous, more stable accounting periods.  

It’s critical that you’re prepared to provide comprehensive documentation to support your estimates during the upcoming audit season. Need some assistance? Contact us to work with a knowledgeable accounting professional. 

5-reasons-to-outsource-your-accounting-needs

5 Reasons to Outsource Your Accounting Needs
5 Reasons to Outsource Your Accounting Needs 1600 941 smolinlupinco

CPA firms don’t just do audits and tax returns. They’re also available to help with your everyday accounting needs, from advisory services to payroll and sales tax filing. 

Is it time for your business to outsource its accounting needs? Here are five reasons you should hire a CPA. 

1. Professional insights

When you outsource your accounting to a knowledgeable CPA, you gain access to professional tax, legal, and financial advice. This helps your business remain compliant with rules and regulations while also avoiding costly errors resulting from misunderstanding complex policies. 

An accounting firm will offer you a second set of eyes, giving you the peace of mind that your company’s books accurately reflect your company’s performance. A CPA can also help streamline your accounting processes and assist you with accurately recording complex financial transactions. 

2. Scalable services

Your financial situation is bound to evolve, and a CPA will allow you to scale services up or down as needed. 

If you’re a start-up business, you won’t need to worry about outgrowing your bookkeeper or training them to take on more advanced accounting and tax tasks. And if you take on a major project—a new product launch or a merger with a strategic buyer, for example—your CPA has the knowledge and experience to guide you toward the best possible financial outcome. 

Additionally, if you unexpectedly lose your CFO, outsourcing can be a helpful temporary fix while you look for a suitable replacement (especially in today’s tight labor market). 

3. Cost-efficiency

By outsourcing to a CPA, you can save money on payroll taxes and insurance costs related to hiring an in-house accountant. Additionally, thanks to economies of scale with software purchases and usage, CPAs can likely provide some accounting service at a more affordable rate than your firm can on its own or with independent service providers. 

4. Convenience

When you delegate your accounting needs to a CPA, your team is freed up for other tasks such as marketing, product development, and more. Outsourcing will also free up resources for higher-value tasks—such as negotiating with prospects or focusing on client relationships—that can increase cash flow and optimize your organization’s efficiency. 

5. Confidence

When you involve a knowledgeable accounting professional in your business, you gain confidence with stakeholders if you plan to borrow money or solicit investment capital. 

When you hire a CPA, you also demonstrate that your business is committed to keeping accurate records and accessing the professional knowledge needed to handle complex matters. 

Outsource your accounting needs to Smolin

Could you benefit from outsourcing your daily accounting tasks? Whether you’re looking for a temporary or permanent CPA, we can offer a cost-effective service plan that works with—and adapts to—your current and future business needs. Contact us to get started. 

cash-tax-or-accrual-basis-whats-the-right-accounting-method-for-your-business

Cash, Tax, or Accrual Basis: What’s the Right Accounting Method for Your Business?
Cash, Tax, or Accrual Basis: What’s the Right Accounting Method for Your Business? 1594 938 smolinlupinco

One of the most critical aspects of running a business is having access to timely, accurate financial information. When it comes to tracking your business’s financial performance, there are several accounting methods to choose from—but how do you know what’s right for your situation? 

Here’s an overview of cash, tax, and accrual basis accounting to help you determine what’s right for your business. 

Cash basis

Startups and sole proprietorships often default to the cash method of accounting because of its simplicity. It also provides an immediate look at all available funds, which tends to suffice for small businesses with finances that aren’t overly complicated. 

While the recordkeeping process is easy, cash basis accounting can make it difficult to get an accurate picture of your finances, as transactions are only recorded when money changes hands. For example, if you bought a new computer using credit, you would only record it as an expense after paying for it in cash. (Note that this method is also not suitable for tax purposes.) 

You can often tell whether a company is using cash basis accounting by looking at its balance sheet, which won’t report accrual-basis items like accounts receivable, prepaid assets, accounts payable, or deferred expenses. 

Tax basis

Companies that want to minimize their tax liability may choose to use tax basis accounting, where transactions are only recorded when they relate to tax. With this reporting option, you use the same accounting method for both book and tax purposes. 

This can also be beneficial for businesses that don’t have complicated financial affairs and who don’t require up-to-date financial information. 

Accrual basis

As your business grows, it will have more complex reporting requirements. Larger companies may decide (or be required to) to use the accrual method of accounting, where revenue is recognized when earned (regardless of when it’s received), and expenses are recognized when incurred (rather than paid). This method matches revenue to corresponding expenses in the proper period, which helps with accurately evaluating growth and profit margins over time and against competitors. 

Businesses that issue financial statements under U.S. Generally Accepted Accounting Principles (GAAP) are required to use this accounting method—and most lenders and investors prefer this method due to its reliability for long-term financial planning purposes. 

An additional benefit of accrual basis accounting is that it can help manage cash flow. For example, timely financial data helps negotiate payment terms with suppliers, plan for significant expenses, and forecast future cash needs. 

Not sure which method is right for your business? Contact us

Choosing the right accounting method for your business is not a decision that should be made lightly. You need to consider your financial needs and accounting skills, and whether the methods used in the past have served you well. You may even choose to use a hybrid approach, incorporating elements from multiple methods. 

A knowledgeable tax advisor can help you find the right solution. Contact us to learn more. 

financial-reporting-tips-for-nonprofits

Financial Reporting Tips for Nonprofits
Financial Reporting Tips for Nonprofits 1488 875 smolinlupinco

Financial reporting isn’t just about profits. A lot that falls under the umbrella of accounting, from preparing budgets and monitoring finances to paying invoices and managing payroll tax—and nonprofits can certainly benefit from formal accounting processes. 

If you’re a nonprofit entity, consider whether your accounting processes are managed as efficiently as possible. Not sure where to start? Check out these helpful tips. 

Create invoicing policies and procedures

If you’re unsure of where to start, take a look at your invoicing. Do you have policies and procedures for monthly cutoffs of recording vendor invoices and expenses? 

One option is to require that all invoices be submitted within one week of the month’s end. Otherwise, you may spend valuable time waiting on weigh-ins from employees or other departments—and ultimately, delaying the completion of your financial statements. 

By reconciling balance sheet amounts each month, you may also be able to save time at the end of the year by catching and correcting any errors early. It’s also helpful to reconcile your accounts payable and accounts receivable ledgers to statements of financial position. 

An extra tip: when you have multiple invoices to process, it’s best to set aside a block of time to enter invoices and cut checks all at once. 

Streamline data collection

Accounting clerks and bookkeepers need a variety of information to enter vendor bills and donor bills into your accounting system. One way to make this process more efficient is to design a coding cover sheet or stamp to collect information on the invoice or donor check copy. This helps to route invoices pending approval into a folder that lists your nonprofit’s general ledger account numbers—that way, the person entering data doesn’t have to look them up every time. 

In your cover sheet or stamp, you should also include a place for invoice payment approvals. For example, multiple-choice boxes can be used to indicate the cost centers to which amounts should be allocated. 

Be sure that the invoice’s payment is also documented for reference, and that your development staff provides details for donor gifts before recording them in the accounting system. 

Make the most of your accounting software

If you’ve purchased an accounting software package, there’s a chance you’re not taking advantage of all the tools it has to offer. Have you invested enough time to learn the full functionality of your software package? If not, consider hiring a trainer to review all of its functions and teach you and your team shortcuts and other time-saving tricks.

It’s also helpful to standardize the financial reports that come from your accounting software, so you don’t have to spend extra time modifying them to meet your organization’s needs. Not only will this reduce input errors, but it will also offer helpful financial insight at any point—not just at the end of the month.

Your accounting software can also help you automatically perform standard journal entries and payroll allocations. For example, many systems can automate payroll allocations to certain programs or vacation accrual reports. That said, be sure to review any estimates against the actual figures every so often, and always adjust to the actual amount before closing your books at the end of the year. 

Monitor your processes

If they’re not consistently monitored, even the most robust accounting processes can become inefficient over time. Every so often, assess your processes for any tedious or labor-intensive steps that could be automated, or steps that don’t add value and could be removed altogether. 

Additionally, make sure that the department responsible for overseeing your finances—CFO, treasurer, or finance committee, for example—reviews monthly bank statements and financial statements promptly. The earlier you catch errors or unexpected amounts, the better. 

Need more tips? 

If you’re interested in learning more about how to improve the accounting function at your nonprofit, our knowledgeable advisors are here to help. Contact us to learn more.

5-ways-to-update-your-accounting-practices

5 Ways to Update Your Accounting Practices
5 Ways to Update Your Accounting Practices 1594 938 smolinlupinco

When you think about the internal workflows and processes of your business, are you able to pinpoint why you do things a certain way? If the answer is “because we’ve always done it that way,” it might be time to make some changes. 

In fact, with all of the new developments in the financial and accounting realm, sticking to those traditional methods may actually be costing your business in terms of efficiency and cash flow alike. 

Here are five ways to keep your accounting processes and systems up-to-date. 

1. Streamline the payables process

When it comes to managing your accounts payable, using traditional paper processes could be costing you valuable time (and money). With automated technology solutions, you can streamline the process to improve efficiency, reduce costs, enhance security, and even obtain early payment discounts. 

Automatic payables systems can scan invoices and post them automatically based on the purchase or invoice number. Then, the payables clerk—or whoever is responsible for reviewing the invoice—can cross-reference the invoice and approve it for electronic payment based on terms negotiated with the vendor. 

2. Implement daily reconciliation

Many accounting firms wait until the end of the month to reconcile their bank accounts—but it doesn’t have to be this way. By reconciling accounts on a daily basis using automation software, you can catch in-transit payments that have been cashed but not recorded. And by eliminating that crunch at the end of the month, you can speed up other monthly closings. 

This also keeps you from having to wait for standard monthly entries that remain the same—depreciation, prepaid expenses, and property tax or insurance accruals, for example. By starting your end-of-month closing process sooner, you can improve the accuracy and timeliness of your financial statements while also taking some of the pressure off of your accounting staff. 

3. Use p-cards

Consider issuing corporate purchase cards, or p-cards, to at least one employee in each department to cover travel and entertainment expenses, or small items under $100 or so. This way, your accounting department can make a single payment for multiple purchases, rather than processing multiple small-dollar checks. 

As an added perk, most p-cards offer points and cash-back rewards that your team can take advantage of when paying back expenses. 

4. Digitize your processes

When you go paperless, you can lower expenses, increase efficiency, and maintain compliance—all in a way that’s more environmentally friendly. And when you use an electronic document management system, you can save significant amounts of physical storage space and reduce the time it takes to create and modify documents. 

While you may not be able to go completely paperless, there are plenty of documents and processes that can be digitized: contracts, invoices, payables, payroll documents, and employee records, for example. 

Consider implementing document management software solutions to help you convert your processes from paper to digital. 

5. Make the most of your accounting software

With ever-changing policies and practices, it’s more important than ever to use your accounting software to help you stay compliant and financially sound. This could involve making better use of your current account system or switching over to new software. Keep in mind that, as your firm grows, you will likely need more advanced functionality. 

To optimize your accounting software, start by making a list of your requirements, from types of activities to reporting. Then, cross-reference those needs with your software features to ensure that they’re all being met. You’ll also want to prioritize remote access so that your team can securely access real-time project information from anywhere. 

Look for integrations with other software and platforms, too, such as timecard entry and project management software, or third-party payroll software that can be used with minimal manual data entry.

Ready to upgrade your accounting practices? 

If your accounting firm’s processes and systems have been the same for years, it’s likely time for an upgrade—and our knowledgeable accounting advisers can help. Contact us to learn more.

pros-and-cons-of-c-corporations-for-business-entities

Pros and Cons of C Corporations for Business Entities
Pros and Cons of C Corporations for Business Entities 1275 750 smolinlupinco

If you’re launching a new business venture, you may find yourself wondering which type of company to create—and more specifically, whether a C corporation is the right option for you given your unique situation and goals. There are many advantages and disadvantages of doing business as a C corporation that are important to consider. 

What is a C corporation?

As a C corporation, your business is treated and taxed separately from you as its principal owner (unlike with an LLC). This protects you from the debts of business while also allowing you to control day-to-day operations and corporate acts like redemptions, acquisitions, and liquidations. 

As an added perk, the corporate tax rate is currently 21%—lower than the highest non-corporate tax rate. 

How to ensure your corporation is treated as a separate entity

For your business to be treated and taxed separately from you as an individual, you must follow the legal requirements of your state. For example: 

  • Filing articles of incorporation
  • Adopting bylaws
  • Electing a board of directors
  • Holding organizational meetings
  • Keeping meeting minutes

Compliance with these requirements, along with the maintenance of an adequate capital structure, will keep you from risking personal liability for business debts.

Pros and cons of C corporations 

If you’re unsure whether a C corporation is the right legal structure for your business, it’s important to explore both sides of this model. 

Advantages

On a tax-favored basis, a C corporation can be used to provide fringe benefits and fund qualified pension plans. While subject to certain limitations, the corporation can deduct various benefit costs (such as health insurance and group life insurance) without negative tax consequences. 

When it comes to raising capital from outside investors, a C corporation also offers significant flexibility—it can have multiple classes of stock, each with different rights and preferences that can be tailored to the needs of an individual along with potential investors. For those who decide to raise capital through debt, interest paid by the corporation is deductible. 

Disadvantages

Since it’s taxed as a separate entity, all of the corporation’s items of income, credit, loss, and deduction are calculated at the entity level, arriving at taxable corporate profit or loss. This means that, for new businesses, one potential disadvantage of a C-corp is that losses can be trapped at the entity level and not deducted by owners (unless they expect to generate profits in the first year). 

Another potential disadvantage is that C corporation earnings can be subject to double taxation: once at the corporate level, and again when distributed to you. That said, this risk is minimal, since most corporate earnings will be attributed to your efforts as an employee and the corporation can deduct all reasonable salary paid to you. 

Not sure if a C corporation is the right choice? Contact us.

While a C corporation might be the appropriate choice at this time, you may be able to apply to become an S corporation in the future if it’s more appropriate for your business. 

If you have any questions or would like assistance exploring the best type of legal structure for your business, our knowledgeable advisors can help. Contact us to learn more. 

end-of-year-tax-planning-for-individuals

End-of-Year Tax Planning for Individuals
End-of-Year Tax Planning for Individuals 1600 941 smolinlupinco

As we approach the end of the year, it’s important to start thinking about ways to lower your tax bill for 2022. One of the first steps you can check off your list? Determine whether you’ll take the standard deduction or itemized deductions for the year. 

Because of the high standard deduction amounts for this year—$25,000 for joint filers, $12,950 for single filers and married couples filing separately, and $19,400 for heads of household—many taxpayers won’t itemize their deductions. Also, note that many itemized deductions have been reduced or eliminated under current law. 

Those filers that do itemize can deduct medical expenses exceeding: 

  • 7.5% of adjusted gross income (AGI)
  • State and local taxes up to $10,000
  • Charitable contributions
  • Mortgage interest on a restricted debt amount

Unless they exceed your standard deduction, however, these deductions won’t save you money on your taxes. 

Working around deduction restrictions

By applying a “bunching” strategy to either push or pull discretionary expenses and charitable contributions into a tax-advantageous year, some taxpayers may be able to work around deduction restrictions. For example: if you’ll have itemized deductions for this year but not next, consider making two years’ worth of charitable contributions at one time. 

Keep reading for more ideas on how to work around deduction restrictions. 

Postpone income until 2023

By postponing income until next year and accelerating deductions into this year, you can claim larger 2022 tax breaks that are phased out over various AGI levels. 

These include: 

  • Deductible IRA contributions
  • Child tax credits
  • Education tax credits
  • Student loan interest deductions

Postponing income may also appeal to taxpayers with changed financial circumstances who anticipate being in a lower tax bracket in 2023. That said, some individuals may find it beneficial to accelerate income into 2022, especially if they anticipate being in a higher tax bracket next year. 

Convert a traditional IRA into a Roth IRA

Eligible individuals may want to consider converting a traditional IRA into a Roth IRA by the end of the year—particularly those with IRA-invested stocks or mutual funds that have lost value. 

Note that this conversion will increase your income for the current year, potentially reducing tax breaks that would otherwise be subject to phaseout at higher AGI levels. 

Account for the NIIT

For high-income individuals, it’s important to consider the 3.8% net investment income tax (NIIT) on certain unearned income—3.8% of the lesser of net investment income (NII), or excess of modified AGI (MAGI) over a threshold amount.

That threshold amount is: 

  • $250,000 for joint filers or surviving spouses
  • $125,00 for married individuals filing separately
  • $200,000 for others

Your desired approach to minimize or eliminate that 3.8% surtax will depend on your estimated NII and MAGI for the year. Note that NII does not include IRA (or most retirement plan) distributions. 

Defer bonuses

If you anticipate a bonus coming your way this year, it may work in your favor to speak to your employer about deferring it until early next 2023. 

Make qualified charitable contributions from a traditional IRA

Those who will be 70.5 years of age or older by the end of 2022 should consider making this year’s charitable donations through qualified contributions from a traditional IRA. This is especially advantageous for those who don’t itemize deductions. 

As these distributions are made directly from your IRA, the contribution amount is not included in your gross income or deductible on your tax return. 

Account for annual gift tax exclusions

Gifts of up to $16,000 made to each recipient can be sheltered by the annual gift tax exclusion if they are given before the end of the year. 

Need more ideas? Speak with a tax professional

These are just a few of the ways that you can save taxes this year. Contact us to work with a seasoned tax professional who can help you determine the best next steps for your situation.

work-opportunity-tax-credit-how-can-you-benefit-as-an-employer

Work Opportunity Tax Credit: How Can You Benefit as an Employer?
Work Opportunity Tax Credit: How Can You Benefit as an Employer? 1600 941 smolinlupinco

In today’s tough job market, the Work Opportunity Tax Credit (WOTC) may benefit employers—particularly those who hire workers from targeted groups who often face barriers to employment. 

In September, the IRS issued updated information on the WOTC pre-screening and certification process. To meet the pre-screening requirements for job applicants, both applicants and employers must complete a pre-screening notice (Form 8850, Pre-Screening Notice, and Certification Request for the Work Opportunity Credit) on or before the day a job offer is made. 

Which new hires qualify employers for the WOTC? 

To be eligible for the WOTC, an employer must pay qualified wages to members of targeted groups. 

These groups include:

  • Temporary Assistance for Needy Families (TANF) program recipients
  • Veterans
  • Ex-felons
  • Designated community residents
  • Vocational rehabilitation referrals
  • Summer youth employees
  • Families in the Supplemental Nutritional Assistance Program (SNAP)
  • Supplemental Security Income (SSI) recipients
  • Long-term family assistance recipients
  • Long-term unemployed individuals

Note that the WOTC is generally limited to eligible employees who begin work prior to January 1, 2026. 

Additional WOTC rules and requirements

The WOTC is worth up to $2,400 for each eligible employee, with $4,800, $5,600, and $9,600 for certain veterans and $9,000 for long-term family assistance recipients. 

Additional requirements to qualify for the tax credit include: 

  • Each employee must have completed at least 120 hours of service for the employer
  • Employees must not be related or have previously worked for the same employer
  • Summer youth employees must be paid for services performed in any 90-day period between May 1 and September 15

Work with our tax professionals

There are some cases in which an employer may choose to not claim the WOTC—and some circumstances where the rules may not allow its allocation. Most employers hiring from targeted groups, however, can benefit from the tax credit. 


Contact us to work with an experienced tax advisor and determine the best next steps for your situation.

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