A few times over the last couple of months I have written about the benefits of keeping all your financials on the up-and-up, whether this is how you handle the books of your business or when you file your taxes. And now, a recent study from Columbia Business School has looked at if it is beneficial to engage in financial reporting misconduct, even when you get caught.
The eye-catching headline from this report is that a quarter of the people who get caught still end up experiencing a net benefit (follow these links if you want to see how the news was treated by CPA Practice Advisor and Accounting Today). To me, however, it means that three-quarters of those who were caught did not experience a benefit, which means that the chances of coming out on the positive side are not good, even if they are a little better than your Powerball and Mega Millions chances.
Also noted in this report, though, is that there’s also only about a 25% chance of getting caught in the first place. I suppose that number would be about what I expected, and it speaks to why people could be willing to get away with such practices in the first place.
Combining these numbers means that more than half of perpetrators stand to benefit when you count those who are never caught. Just what these benefits and costs are, though, determine how one should really feel about this. For the purposes of this study, the benefits include salary bonuses and stock gains and the costs are things such as fines and forgone earnings. Essentially, its calculus is solely financial.
I am not saying this to demean the study in any way, but this view fails to give the whole picture, for shouldn’t there be a morality aspect in this? The study is still an interesting look at an interesting question, but there is more to the situation than finances.
The fact that morality does play a part means there are other costs involved. First, there is the emotion and worry one has to feel when wondering if they will get away with it or not. Second, those who are caught have more to deal with beyond the financial costs. The emotion and worry are then amplified many times. And once it is known, it will take a toll on work relationships, and is bound to bleed into one’s home and family life, too.
So yes, I’m not speaking from an academic viewpoint here, but I don’t think anyone involved in fraudulent practices is really “getting away” with anything. Instead, I believe there is value in sleeping soundly at night and working with people that you know are helping you be successful in the right ways. That is why I love the people I work alongside and the clients I work with.
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Recently, I have written in this space about how the IRS offers some relief to those affected by natural disasters in the form of relaxed deadlines. Of course, this is a small concession to those who lost property or businesses that lost information. This week then, I want to counsel on that final part, and how it doesn’t have to happen anymore.
I understand that many people are wary about keeping information in any type of cloud service. And sure, we hear enough stories about information breaches that caution is warranted. If you personally feel this way, however, I urge you to do a little research about the security offered by legitimate services. Chances are that unless you have invested significant time and money into your on-site security, it is not any better than cloud services. Obviously one cannot deny that you are opening yourself to a possible breach when you store information somewhere else, but you are already open to that possibility. The only way to prevent it is if you are keeping everything on a computer not connected to the internet. And in that case, how are you reading this anyway?
Even in that situation, however, you are not completely safe. In the case of actual physical theft, you then would be left with zero access to everything you lost. Or envision one of those natural-disaster situations that results in a flood that makes your electronics unusable. At that point, you may wish you embraced cloud services a little more.
Think of storing your information digitally not as opening yourself to a new point of attack, but ensuring against the points of attack you already have. For as I intimated before, it is impossible to say that you are completely safe if you work on devices that are open to the internet. After all, cyberattacks do not only occur on a grand scale.
Beyond the security aspects of embracing the cloud, it can also greatly enhance your business’s workflow. Even if you’re a solo entrepreneur, have you ever been away from the office and wished that you had access to some work information? Placing that information into the cloud can allow you that any-time, any-place access.
This can be even more beneficial if you work with a team. Then, when you are networked, you allow everyone who needs access to that information contact with it. If they make changes to that information, those alterations will be saved so that everyone gets the latest version. This removes the need to reconstruct or combine changes in the future or send updated files between workers (which would just be another place for a potential security breach anyway).
There are so many new tools to help with these workflows that it is impossible to give an overarching recommendation to everyone; different businesses will have different needs. Chances are, though, that there are many things out there that can help your business while remaining secure. I recommend everyone take the time to consider them.
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As of now, the deadline to file your 2017 taxes has passed, even if you filed for an extension. If this is news to you, then yes, that happened Monday. If you have yet to file, get on that quick to at least minimize the penalties and interest for which you may be liable.
This also means that now everyone is going to point their focus toward the 2018 tax filing season and just what the Tax Cuts and Job Act is going to make your tax return look like.
I feel like I am talking about this almost every week, but there seems to be news about it every week. The IRS is still figuring out how all the aspects of the reform bill will look in implementation. You can visit the agency’s news website and see that even this month amongst getting through the extension deadline and issues with natural disasters, the IRS also is moving to make small businesses aware of new rules that affect them and clarifying meals and entertainment deductions. There’s no reason to think these bouts of clarification and advice will stop before filing season begins (and seeing some come during the filing season is also a safe bet).
And if you want to know – the general rule now is that those deductions that fell under entertainment are no longer deductible. 50% of meals and beverages can still be deducted, as long as they are not “lavish or extravagant.”
Then there was this recent article from Accounting Today, where many tax preparers were asked about what questions clients had about the TCJA’s changes. It seems like this can best be summed up as “all of them.”
I think this stems from the fact that taxes are such an individual matter. If you’re filing a personal return or a business return, you will have different questions. If you are a small business, you will have different questions than if you are a big business. If you are a high-wealth individual, you will have different question than if you have an average income.
Even within those groups, the questions will change. How will your dependents and children affect the return? Will you still be able to itemize deductions? What is this SALT thing? And then there are pass-through deductions and what qualifies as a specified service, trade or business.
No matter who you are, chances are something in there reads like Greek to you – yet they all appear in the article as crucial issues.
You probably won’t need to worry about the parts you don’t know about, but the parts you do recognize are likely not going to work the same way they did last year. It is difficult to feel content in times of uncertainty, and the constant updates and changes mean that uncertainly won’t go away completely. There are some things that are known, though, and having that knowledge, and asking the questions that do concern you, is a good thing.
So if you have questions, let us help you get the best grip on your situation possible as we enter the final downhill stretch toward the 2018 filing season.
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I say it all the time, but taxes are never simple. It also appears that tax fraud criminal cases can also feel complicated.
Last week, the New York Times reported that the IRS’s criminal division only brought 795 cases last year in which tax fraud was the primary crime. That is an astoundingly small number. Heck, it’s plausible that in a week you could list 795 people whose names you come across in your personal circle that paid taxes.
At the same time, though, tax evasion is also the highlight of the criminal cases against two former associates of President Trump, Paul Manafort and Michael Cohen. So the number of people who face these cases is small, but it may not matter who you are, or how much money you have, when it comes to having charges brought against you. It can feel a little more daunting is everyone is vulnerable
Also in the Times last week came a lengthy report on President Trump himself and the history of his finances. It was so lengthy that any attempt at summation does it an injustice, but let’s just say it includes claims of tax schemes devised to not pay what the president’s family legitimately owed.
On the heels of this report, New York state and city officials said that they will look at those allegations. That’s not (or maybe just not yet) yet to the level of the IRS, but it is at least another possible high-profile case of tax dealings being investigated.
Now I am sure that there are a number of taxpayers (and their advisers) who use less-than-scrupulous tactics to get more money back from, or at least pay less to, the government. And with this small number of tax fraud criminal cases, and the ever decreasing number of audits as the IRS receives less and less funding, more people are probably getting away with it.
When I read about cases like those above, though, when things catch up to the cheats, I can only imagine how their heart must drop. When you abuse the tax system to that degree, you must know that what you’re doing is unscrupulous and that there is the chance it will catch up to you. You can make some moves to make things look okay on paper, sure, but that falls away when someone pays attention to it.
It is such situations that also make me wonder when I hear people talk about how the system favors the rich. The rich may be able to afford the people who can help them work best within the system, but even that service they pay for. And if they try to go outside of the legality of the system, they can get caught, too. I can understand envy of the rich, but it is not like they’re operating with different rules here.
Even those who don’t live with elite levels of wealth, though, can use the system to their best legal advantage and there are professionals also willing to help you do that. I can never say that this service will be cheap, but I pride myself in being committed to serving my clients to the best of my ability, and in a way where they don’t have to keep looking over their shoulder.
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I want to begin this blog with a general public service announcement. If back in April you got an extension for filing your taxes, you now have less than two weeks to complete that task. Six months goes by fast when you’re not paying attention, doesn’t it?
That’s about all I want to say on that issue. Yes, we still have some appointments open if you need one to work through this. And we will do all we can under this time crunch to make things work out for you in the best way possible.
Along with this looming deadline, though, comes a renewed thrust by scammers to work some tax schemes. It only makes sense (through their twisted logic), for the more general anxiety that already exists around taxes, the more vulnerable one could be to fall victim to these scams.
This led the IRS to send out a reminder on scam tactics. There does not seem to be any new ones out there right now, but a few things are worthy of reminders. The first is that if you get a call from someone claiming to be from the IRS, chances are really good that they are not agency employees. Your first contact from the IRS will almost always be by mail (and probably only would not be if you did not have a correct address on file). Moreover, if anyone claims they are from the IRS and demands immediate payment by some odd source like prepaid debit cards of money wires, then this is DEFINITELY not the IRS.
I want to put a bigger spotlight on email phishing scams, for this is something I have not discussed as much in the past. This probably comes from a personal bias where I find it pretty easy to weed out suspicious-looking emails, and they get quickly deleted, while the phone calls feel like more of an intrusion (and it seems like they’ve grown to where a majority of people have now received some sort of financial scam call). Those emails, though, while less obvious, could also be working under the radar.
Remember this general rule – if you receive an email from an unknown sender that contains attached files or internet links, do not click on them. We are sharing more and more things over the internet and this can be wonderful, but if you don’t know where something came from, chances are it is not good.
By clicking on such things, you open yourself up not only to computer viruses or malware that could make for an immediate problem, but you unwittingly may be putting something on your computer that is working behind the scenes to pull information you do not want exposed. General protection software thankfully does a pretty good job of keeping most of these things at bay, but some extra vigilance could mean they do not have to do as much work.
Finally, this time of year also requires being on the lookup for fake charity scams in the wake of natural disasters. This does not mean do not donate, but a quick Google search can help you vet potential places to send your funds and make sure they are helping where you want them to help.
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