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Flipping Houses: Is it a Business or an Investment?

Are you a fan of house-flipping TV shows?

It seems there are dozens of these types of shows popping up on an array of cable channels. The basic idea of these shows is that people will buy a house at a low price, fix it up, and sell it for a profit. It sounds simple – buy low, sell high.

If you’re actively flipping houses, or thinking about getting started, a larger question is whether your house-flipping endeavor should be considered a business or an investment.

The answer to the question can have significant tax implications. The IRS considers several factors when evaluating your taxes on flipped houses. Let’s take a look at how different approaches affect the classification of a business or investment:

Business Factors

The IRS examines how many houses a person owns and how many they sell each year. The IRS will also review your finances to determine if flipping houses is your main source of income. If it is, your profits will be considered income and is taxed at your current tax rate. With the business classification, you’ll also be on the hook for an additional 15.3 percent self-employment tax. Some people may feel that’s just the price you pay if you’re doing something you love and are making money at it.

#house flipping #real estate taxes

Protect Yourself from These Tax-Related Scams

The advent of a new year means that everyone is gearing up for tax season. Of course, nobody likes taxes, except for maybe your CPA. It turns out that con artists also have an affinity for employing tax-related scams.

Here are some of the scams going around and what you can do about them:

Identity Theft

The Scam: This happens when a scammer obtains a Social Security Number and files a tax return in that person’s name. The taxpayer only finds out about the fraudulent filing once they electronically file a return and are advised by the IRS that a refund was already initiated. The IRS has made strides in recent years of identifying potentially fraudulent returns and informs the taxpayer – here’s the important part – by mail.

What You Can Do: If you become a victim of tax return identity theft, complete form 14039 available on the IRS website. Also, be sure to file a complaint with the Federal Trade Commission at identitytheft.gov. Follow up by reporting the fraud to one of the three credit bureaus.

Credit Bureau Contact Info:

Equifax, www.Equifax.com, 1-800-766-0008 Experian, www.Experian.com, 1-888-397-3742 TransUnion, www.TransUnion.com, 1-800-680-7289

#tax scams #identity theft #protect yourself online

Economic Damage Calculations Rely on Detailed Research

Anytime a person or business suffers a loss of income due to wrongful acts, they may be able to receive compensation related to the event.

Perhaps it was due to negligence on the part of an individual or third party related to performance of a business.

Determining the economic losses of a person or business can require a detailed analysis of a number of inter-related factors. A forensic accountant would focus on three areas when calculating a damage amount:

Cause of the event

A determination must be made for who is at fault related to the incident. This could be a person or perhaps a company with a history of poor safety standards.

But-for performance

Calculations will need to be made to ascertain what the profits or income would have been if the incident did not occur.

#damage calculations #forensic accounting #economic losses

Tips for Finding a Successor for Your Small Business

Photo Credit: © Copyright kim traynor

Deciding when and how to step down from your company can be a difficult decision.

To compound it, you need to find a suitable replacement to fill your shoes. Choosing a successor is not something you want to put off until the last minute. You don’t want to rush into it, so you need to give yourself plenty of time to find the right person to take over your responsibilities.

Here’s some helpful advice for choosing your successor:

How to Begin

The first decision you’ll need to make is whether to find your replacement within or outside the organization. An internal candidate can have in-depth knowledge of the company and its market. This will help ensure continuity within the organization going forward.

An external candidate can be a more difficult process. For many large companies, it can take almost three months of searching before they find a suitable leader. Bringing in someone from outside the company has its own pros and cons. They can bring in new ideas and a fresh perspective to the company. But there will also be a longer learning curve to get them up to speed on the business. Another area that can be affected is the company culture, which can be a good or bad thing. The new leader may be able to raise employee morale by allowing business casual attire. Or, they may decrease morale by instituting a traditional business dress code.

#succession planning #business planning #Kane Forensic

Money Laundering is a Real-World Problem

If you’re familiar with the TV show Breaking Bad, you’ll recall that the main character, Walter White, had a problem with his drug money. How could he funnel $80 million through his car wash business to make it look like the money was earned legally?

Moving money from an illegal activity through a legitimate business is known as money laundering.

Usually associated with mobsters or drug dealers, money laundering usually occurs with companies dealing with large amounts of cash, such as casinos, night clubs, and even the banking industry. The United States Sentencing Commission noted that over 81,000 people are convicted of money laundering in the U.S. every year. Some estimates put this kind of illegal activity at over $800 billion annually.

Can Takes Many Forms

There are several different types of money laundering to be aware of. One type is known as structuring, where the illegal money is deposited into a bank account in amounts under $10,000 in the hopes of avoiding detection. The criminals keep the deposits under $10,000 because banks are required to report deposits over that amount to the U.S. Treasury Department. Banks are also required to report suspicious activity, such as multiple deposits just under the $10,000 threshold. Many large deposits do have legitimate origins, such as someone receiving an inheritance or legal settlement.

#money laundering #forensic accounting

Combating Pretexting with Fraud Prevention

There are many types of fraud that occur with businesses.

I’d like to discuss one type in particular known as pretexting. Pretexting is a form of social engineering, which is defined as a person using the power of persuasion on an employee to trick the employee into divulging sensitive information on the company or a customer.

Gaining Trust

Pretexting is especially insidious because it preys upon a person’s good nature to help people. It also usually targets low-level employees, such as call center workers, receptionists, or bank branch employees who have access to sensitive information.

Oftentimes, the social engineer will first contact the customer to obtain personal financial information. The scammer will then contact a bank or other financial institution with partial information on the customer, and claim they couldn’t find their account number or need assistance with their account. The pretexter will try to get additional information, like a Social Security Number to steal money from an account or to open new credit cards in the person’s name.

#pretexting #business fraud #phone scam

Ex Post Alternative Dispute Resolution Provides a Path to Settlement

In a previous article, I discussed how an Ex ante Alternative Dispute Resolution (ADR) can help the parties involved avoid litigation through pre-determined expectations and compensation. Now, I’d like to discuss the features and benefits of an Ex post ADR.

The parties would agree to an Ex post ADR when there is no Ex ante ADR present and the parties would prefer to avoid a trial. A typical example of Ex post ADR would be a settlement reached between a plaintiff and an insurance company as the result of an auto accident. Obviously, the parties would not have met previously so an Ex ante ADR would not exist. Another example of Ex post ADR would be a divorce settlement where a pre-nuptial did not exist.

The types of settlements include:

Mediation – Mediation employs the use of a neutral third party to facilitate a resolution for the parties. It is usually a non-binding agreement. For instance, if the plaintiff is not satisfied with the mediator’s ruling, they may then choose to then go to trial.

Arbitration –Arbitration is usually a binding agreement that both parties must abide by. Just like mediation, it consists of a neutral third party who hears arguments from both sides and determines resolution.

While the plaintiff may obtain a smaller settlement than they would have received if they had gone to trial, there are still advantages to avoid litigation. The plaintiff would not incur court costs and pay less in attorney fees, which could lessen the disparity between an anticipated court judgment and the settlement amount.

#mediation #dispute resolution #arbitration

Consider an Ex Ante Alternative Dispute Resolution Before Problems Arise

Alternative Dispute Resolution (ADR) provides an option for resolving disputes between individuals and/or businesses outside of a courtroom.

Examples of ADR include arbitration and mediation. There are two types of ADR – Ex ante ADR and Ex post ADR. Today we’ll take a look at the features and benefits of Ex ante ADR.

Ex ante ADR is an agreement drawn up before any problems arise.

It is a forward-looking instrument used to set up reconciliation costs and procedures for pre-determined issues. It can be an effective tool in fostering greater cooperation between the parties involved. They have written expectations associated with the agreement that outline the requirements for satisfactory work. Incentives can also be included in an Ex ante ADR to encourage greater performance.

An ADR is a good option when there are technical issues associated with agreements that would not be easily communicated in a court of law.

For instance, two Internet companies would have a much better grasp of the complexities of software issues that may not be easily conveyed in a court setting. The companies would be familiar with an acceptable level of errors in software code and stipulate that in an Ex ante ADR. Errors above that limit would be subject to the agreed upon resolution outlined in the ADR.

#dispute resolution #mediation

Expert Help for a Healthier Divorce

Divorce is by its very nature a contentious and emotional process. Child custody, division of property and assets and determining responsibility for liabilities – there is so much room for disagreement and damage between parties. But there are experts who can help you minimize the emotional and financial damage divorce can bring and guide you to a quick and successful resolution.

When you’re going through marital dissolution, you need a team of experts ready to help with the circumstances of your particular situation.

Here’s a look at those you should consider adding to your divorce team:

Attorney: A divorce attorney is typically the first one you’ll call. Look for an attorney with a solid reputation and a specialty in marital dissolution. Ask their experience and success rate with issues that are important to you like sole custody or avoiding trial.

Forensic Accountant: Most divorces involve financial issues so we recommend hiring an independent financial adviser, like a forensic accountant, to help you divide assets and liabilities, determine income for child support and alimony and understand the tax implications of divorce. Forensic accountants are very important as you work toward a financial settlement.

#divorce #marital dissolution #forensic accounting

Valuing your Business: Intangible Assets

Business valuations can be difficult because there are so many factors to consider, and many of these factors are “intangible” in nature.

Meaning, assets that are not physical like property or financial like earnings. Examples of intangibles include staff talent, the company’s culture and its creative or intellectual property like patents and trademarks. Intangible assets often require an expert that can uncover these assets and determine their value.

A recent Forbes article discussed the hidden value intangible assets can bring to a business and defined four types of intangibles that we should consider when determining an expert business valuation for succession planning or sale of a business.

Human capital: Staff with unique talents or experiences and companies with a talented, successful management team increase business value.

Customer capital: If your business has deep, lasting relationships with customers that provide recurring revenue, you’re likely to receive more for the business than someone with a high concentration of new customers or with a majority of non-recurring revenue.

#intangible assets #business valuation #succession planning

4 Tips to Protect Seniors from Financial Abuse

June 15 was World Elder Abuse Awareness Day and according to the National Center on Elder Abuse, one in eight of the cases reported are related to financial abuse.

One study found that this financial abuse costs senior citizens an average financial loss of about $30,000 and more than 10% of victims said they suffered losses of $100,000 or more.

And financial abuse is notoriously underreported because of the victims’ embarrassment and fear of losing their independence and control over their finances.

Here are my tips to protect the seniors you love from financial abuse:

Find a professional: This same study found that seniors who had guidance and someone to discuss their finances with were much more likely to take preventative measures, report financial abuse, and get help for things they don’t understand. Unfortunately, finances can cause a lot of conflict in families and family members are often the perpetrators of elder financial abuse. I recommend that this guidance come from a professional, like a Certified Public Accountant.

#elder abuse #senior fraud #financial abuse

When to Hire a Forensic Accountant

Forensic accountants use a blend of accounting, financial analysis and investigative skills and experience to uncover the truth about money.

Often hired by insurers, attorneys, companies, creditors and divorcing couples, we provide expert, independent assessments of financial information in a wide range of situations. Here’s a quick look at just some of the things we do:

Determine Damages

When you hear in the news that someone sued someone else for millions of dollars in damages, that elusive number is usually determined with the help of a forensic accountant. We provide expert witness opinions in court cases regarding claims of lost profits or damages in cases involving breach of contract, personal injury, fraud, product liability, copyright or trademark infringement, etc.

Investigate Fraud

We can help companies trace funds and assist with asset identification. If a business owner or board of directors suspects fraud or doesn’t know where money is coming from (or going), a forensic accountant can get to the bottom of it.

#forensic accounting #fraud

What to Do if Your Ex Is Ruining Your Credit

When you marry, the “for better or worse” part of the vows also applies to your finances. Legally, for better or worse, your assets, debts and credit report become shared property. And when things go wrong, the last thing you need is to have your credit hit the skids too.

Bad credit can take years to make a recovery.

In fact, reports of late and missed payments will stay with your report for seven years or more, even if your ex was the one at fault. And lenders and debt collectors will hold you jointly responsible, long after your divorce is final. Divorce is messy and complicated, but with my help, your finances can rise above. Here are three things you should do if your ex is compromising your credit:

Get rid of all joint accounts.

Many married couples share joint credit cards. If you opened accounts together, you’re liable for them, even if you’re legally divorced. Even if the account responsibility is clearly defined in a divorce settlement, your credit can still be impacted if your ex defaults on the loans. I recommend canceling all credit cards that were opened in both of your names. This way, you won’t be responsible. Closing accounts can negatively affect your credit score in the short term, but it’s better to do it now than run the risk of problems later.

Apply for an individual credit card.

#bad credit #divorce

10 Audit Red Flags and Why You Don’t Need to Worry

I’ve never met a taxpayer who wasn’t worried about an audit, but the good news is you’re pretty unlikely to be audited. In fact, in 2015, less than one percent of tax returns were audited. There’s also a three-year statute of limitations on audits. So you can relax, your fears of having to pay up or produce receipts for obscure expenses claimed in 1999 are unfounded.

For the majority of those who are audited, it’s a simple paper audit where they receive a letter from the IRS in the mail, asking for supporting documentation or correction. The IRS does not call you or e-mail you to demand money – if this happens, it’s probably a scam.

Rumors abound about what might trigger an audit, from charitable and home office deductions to under-reporting income. Let’s take a look at the top 10 red flags for an audit and why you don’t need to worry about them at all.

Making errors. This is the top reason for the simple paper audit mentioned above. The IRS catches a simple error in data entry, math or reporting and this triggers an audit. These types of errors are usually accidental and easily corrected without penalty. In fact, the IRS and many state tax agencies will simply adjust the amount of your refund (if you’re getting one) by the amount of the error and send you a confirmation letter or send you a letter saying how much you owe after the correction.

Not reporting all of your income. The IRS cross checks your income sources with the 1099s and W-2s they receive directly from the payers with your social security number. If you fail to report income that the IRS knows about, it may look like you have income to hide, triggering an audit. Avoiding this one is as simple as keeping careful records of all income received (even cash) and reporting it on your income taxes. Don’t forget that everything counts – even payments received for jury duty.

Earning over $200k a year. This is a good problem to have, but the highest earners are simply more likely to be audited because there’s more gain for the IRS. It’s been reported by the IRS Taxpayer Advocate that those who earn $1 million plus have a one in 8 chance of being audited. And that’s a big face-to-face audit, not just a letter in the mail.

#audit red flags #avoid an IRS audit #tax help

Avoiding Ponzi Schemes

With thanks to Bernie Madoff and the recent TV movie about his life, the term Ponzi scheme has become a common phrase in the American vocabulary. But do you know what it means? A Ponzi scheme is a form of investor fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from the money invested by later investors. The bad news is that this form of investor fraud didn’t begin or end with Mr. Madoff. In fact, the whistleblower on the Madoff scandal recently warned of three ongoing Ponzi schemes – one even bigger than the $65 billion Madoff scammed. And since Madoff’s arrest, the U.S. Securities and Exchange Commission (SEC) has taken down over 600 Ponzi schemes, so they’re more common that you’d think.

When you understand the signs of a Ponzi scheme, they can be easy to spot. Here are the red flags the SEC defines to help investors avoid being a victim:

High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any "guaranteed" investment opportunity.

Overly consistent returns. Investment values tend to go up and down over time, especially those offering potentially high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.

Unregistered investments. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company's management, products, services, and finances.

Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.

#recognizing a Ponzi scheme #investor fraud #forensic accounting

Divorce Monday – Why Most Divorce Filings Happen in January

You’ve heard of Cyber Monday, Giving Tuesday, Black Friday and Small Business Saturday, but for divorce lawyers and forensic accountants, there’s a more somber holiday this time of year – Divorce Monday. Also called Blue Monday, the first Monday in January is the most popular day of the year to initiate divorce proceedings. In fact, the whole month of January sees more divorce filings than any other month of the year.

But why is there such a rush to divorce as soon as the New Year begins? There are several reasons people wait until January to begin the divorce process.

For families with children, the biggest reason to wait until January is emotional. Many parents want to give their kids one last Christmas together as a family. Another reason is that the holidays are full of work parties and events with friends and family and some couples want to delay explaining to everyone why their significant other isn’t in attendance. New Year’s resolutions also likely motivate some divorces. If your marriage is unhappy and struggling, the new year, new you mentality can tip the scales toward divorce.

#Kane Forensic Accounting #divorce

Ask the Expert: What is my Business Worth?

If you’re a Shark Tank fan, you know that one of the biggest points of contention between a business owner and potential investors is the valuation of the business. Is the value of a business based on historical revenue, intellectual property or a company’s potential in the marketplace? Not surprisingly, business owners, banks and investors tend to disagree over these things. Entrepreneurs focus on the amount they’ve invested to date and what they think the dreamy potential of the company is in the future. Financial folks look at sales numbers and profit and apply a rigid, one-size-fits-all formula.

The real answer is somewhere in the middle. A good business valuation depends on many factors and a thorough expert analysis of your business, your competitors and your industry as a whole. Here are a few questions to get you thinking about how to determine the value of your business:

What would it cost a competitor to build a similar business from the ground up?

Calculate what it costs to start a business like yours, including rent, materials, inventory and production, intellectual property, staffing and marketing. What was your start-up investment? This usually gives you the low number for the range of what your business is worth and can be a good starting point.

What have similar businesses in your industry sold for recently?

Similar to the way the real estate market looks at recent sales of similar properties to determine home values, look at sales of other businesses in a similar field. Compare your size to theirs to determine a value.

#Kane Forensic Accounting #business valuation #Orlando Accounting firm

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