A week after releasing a budget request that calls for significantly higher income taxes for wealthy individuals, President Obama today unveiled a proposal to revamp the corporate tax code, lowering the top rate but eliminating numerous credits and incentives.

As with the proposed tax changes in the President’s budget, this proposal is unlikely to be passed by a divided Congress in an election year, but it sets the stage for what will be a key issue in the November election.

Republican presidential hopeful Mitt Romney is expected to release details of his own proposed tax overhaul in the near future. He recently said he would push for a “flatter, fairer and simpler” tax code while also addressing “our entitlements and obligations.”

Obama’s proposal calls for the top corporate tax rate to be reduced from 35 percent to 28 percent – and 25 percent for manufacturers – and will eliminate “dozens” of tax breaks. There are so many tax credits and incentives currently available that many corporate taxpayers pay significantly less than 35 percent. Obama’s proposal also includes a minimum tax on the foreign profits of U.S. multinational companies.

“We want to restore a system in which American businesses succeed or fail based on the products they make and the services they provide, not on the creativity of their tax engineers or the lobbyists they hire,” Treasury Secretary Tim Geithner said in unveiling the proposal. “Some will say these proposals are too tough on business, and others will say that they’re not tough enough.”

Attrition is “the true silent killer” for modern companies, experienced human resources director Bill Bagley said. It strikes in tangible and intangible ways: Increasing costs for recruiting and training, a loss of efficiencies, and lowering workplace morale.

At Barnes Dennig’s most recent Distribution & Manufacturing Roundtable, Bagley discussed “Transformational HR,” a process companies can utilize to attract, develop and retain the best and brightest talent.

Among the action steps he suggested are:

• Compare organizational and departmental retention rates with industry averages
• Make a candid assessment of the quality of your staff
• Assess utilization, productivity and sales numbers to see how they have been impacted by turnover
• Create and implement a succession plan for the organization

Becoming an “Employer of Choice” involves creating an environment where talented employees can thrive. This is achieved not only by challenging employees but by providing them with the highest level of training, support, recognition and rewards. Motivating employees from different generations requires a nuanced understanding of the values and perspectives shared by each group.

Several attendees shared insight about how they had implemented flexible scheduling and job-sharing programs, accommodating the needs of their employees while simultaneously improving efficiency.

Twenty-six people from 22 companies attended the event. All respondents rated the content “very good” or “excellent.”

“Bill gave me some good ideas that I can apply at my organization and reinforced/affirmed some points I’ve been coaching my management team about,” one survey respondent wrote. Another wrote, “The content brought forth some topics that were perhaps new and different to some of the attendees. Certainly some things that were thought-provoking.”

For a copy of the slides from this presentation, contact your Barnes Dennig representative at (513) 241-8313.

Both houses of Congress passed a bill last Friday that will extend the 2 percent payroll tax cut through 2012, ending months of debate and saving hundreds of dollars for employees.

The employee portion of the payroll tax was reduced from 6.2 percent to 4.2 percent in 2011, then extended through February 2012. The new bill, which President Obama is expected to sign into law, will extend the 4.2 percent rate through December 31.

Employees will pay 4.2 percent on the first $110,100 of wages. Employers will continue to pay 6.2 percent on the first $110,100 of each employee’s wages, and the self-employed will be responsible for both the employee and employer portions (a total of 10.4 percent of the first $110,100).

The bill, called the Middle Class Tax Relief and Job Creation Act of 2012, also extends certain unemployment benefits and blocks a cut in Medicare payments to doctors. The payroll tax cut is expected to save the average American worker around $1,000 in 2012. The Congressional Budget Office estimates that it will cost the government $93 billion in lost tax revenue.

President Obama released a budget request Monday that calls for a significant increase in tax revenue, mainly at the expense of individuals making at least $200,000 per year in adjusted gross income or families making $250,000 per year. The budget has little chance of passing a divided Congress in an election year, but it gives some insight into how the administration will approach future budgets should Obama get re-elected.

The $3.8 trillion budget proposal would end the Bush-era tax cuts, raising income tax rates to pre-2001 levels and limiting non-charitable deductions. It also broadens the definition of “taxable income” to include certain municipal bond income, retirement plan contributions, and health insurance payments. Thus, more taxpayers will fall into the top tax bracket, and folks in that bracket will pay a higher rate of taxes.

According to U.S. Treasury estimates, the proposed tax changes would generate an additional $1.5 trillion in tax revenue over the next 10 years, most of it from the wealthiest 2 percent of taxpayers.

The budget calls for roughly $1 trillion in spending cuts, but it gave little detail about how those cuts would be enacted. It projects a federal deficit of $901 billion by the end of 2013.

Pinterest is the new online craze.  It began in December 2009, and last fall Time magazine declared it one of the “50 Best Websites of 2011.” By the end of December 2011, there were 11 million visits, primarily by women between the ages of 25 – 44 – a prime demographic to reach.

So what does this mean to nonprofits?  If you can visualize a story or interest for your organization, if your cause is considered hip or trendy, if you’re engaged on other social media platforms or if you’re looking to reap the benefits of local Search Engine Optimization (SEO), Pinterest is worth investigating.  According to the website, “Pinterest is a virtual pinboard. Pinterest allows you to organize and share all the beautiful things you find on the web. You can browse pinboards created by other people to discover new things and get inspiration from people who share your interests.”

Pinterest is currently invitation-only and it takes between 24 hours and two weeks to receive an invite once you’ve requested one.  Once you receive an invite, you can register via Facebook or Twitter.  And then you’re ready to start pinning.

But don’t just pin, repin.  Be useful, as users are looking for ideas and inspiration: create boards (set of pins) with specific purposes, follow users with similar interests with quality pins, follow back users who follow you and “like” pins or repin items that appeal to you.  Most importantly, let your supporters pin for you by adding the “Pin It” button to your blog or website so your users can create their own pin boards highlighting your cause.

Pinterest is not a place to blatantly promote your organization but rather capture the spirit of your organization while connecting to a community of potential donors or volunteers who share your mission.  So if you’re a museum, pin items for sale in your gift shop; a veterans organization, pin pictures of returning vets or military awards; or a daycare, pin projects completed or show-and-tell items.

The Internal Revenue Service created a new tool on its website that will make it easier to find and research certain information about tax-exempt organizations. The tool, called the Exempt Organizations Self Check, consolidates information that previously was housed in three separate databases.

The new tool offers expanded search capabilities and provides a more efficient way to research organizations that:

• are eligible to receive tax-deductible charitable contributions (Publication 78 data);
• have had their tax-exempt status automatically revoked because they have not filed Form 990 series returns or notices annually as required for three consecutive years (Auto-Revocation List); or
• have filed a Form 990-N annual electronic notice (e-Postcard).

Click here for more information.

Many non-profit organizations have found that PayPal offers a safe, convenient and unobtrusive way to solicit donations. It can be a great complement to traditional fundraising efforts, particularly at a time when staffs and budgets are stretched thin.

Your donors can reach PayPal from your website, make a contribution on a secure site, then return to your site. You and the donor receive a receipt, and in most cases you will have instant access to the money. There are no setup or maintenance fees, and PayPal offers a suite of services specifically for non-profits.

While PayPal is an inexpensive and easy-to-use service, it is also a loosely controlled method of moving money. For that reason, we recommend especially intentional and well-documented approaches to ensuring effective controls. We recommend you consider the following:

• Document the intended uses of PayPal and a related controls policy, including the importance of effective passwords
• Enforce a notification system that cannot be overridden by the person with the PayPal login ID and password. For example, create an email forwarding account that automatically notifies multiple employees (i.e., someone in accounting and someone in development) whenever a donation is received.
• Request that PayPal automatically sweep the balance in the account nightly.  This is a free service.
• Use a zero-balance bank account for receiving the money from PayPal.  Otherwise, money can be moved from the bank account into PayPal and then emailed anywhere.
• Request a remote identification device from PayPal that provides a unique number that is constantly changing, and store the device in a secure place.

For more information on our Internal Controls services, click here. For more information on our non-profit accounting services, click here or contact a member of the Barnes Dennig non-profit client service team at (513) 241-8313.

Employee theft was a prominent – and expensive – problem in 2011, but there are some noteworthy trends that can help you prevent similar loss within your organization.

Marquet International Ltd. has studied white-collar crime in the United States for the past four years, and its most recent report – The 2011 Marquet Report on Embezzlement – indicates that fraud remained a significant issue in 2011. The company examined 473 cases of white-collar fraud with more than $100,000 in reported losses, and its findings include:

• There was a slight 2% decrease in the number of cases from 2010.
• Non-profits, including religious organizations, experienced one-sixth of all major embezzlement cases.
• The average loss was nearly $750,000.
• Employees who held finance/bookkeeping and accounting positions committed about three-quarters of the incidents in 2011 and two-thirds of all cases from 2008-2011.
• The most common scheme involved issuing forged and unauthorized company checks. The second-most common scheme involved the theft and/or conversion of cash receipts.
• Nearly two-thirds of the cases involved female perpetrators. However, on average, male perpetrators embezzled nearly 25% more than females.
• Nearly 90% of the cases involved individual perpetrators, and most major embezzlers appear to have been motivated by a desire to live a relatively more lavish lifestyle, rather than driven by financial woes.

A majority of the organizations involved in these schemes had weak business and cash controls.  In economic uncertainty, preventing fraud with strong internal controls is cheaper and more effective than detecting a crime.

Beginning this year, corporations must report on their corporate tax return if they are required to file Form 1099 and whether they have filed all that are necessary. The IRS added the following question to the 2011 return in order to better track the 1099s that are not being filed:

a. Did the corporation make any payments in 2011 that would require it to file Form(s) 1099?

b. If Yes, did or will the corporation file all required Forms 1099?

You are required to file a 1099 for any service for which you paid more than $600 in the calendar year – including independent contractors, freelancers, lawyers and accountants.

If you have any questions or would like additional information, contact your Barnes Dennig representative at (513) 241-8313.

The Ohio charities and non-profits registration process has changed with the launch of the Online Charitable Registration System. The new system, which launched December 1, 2011, aims to eliminate the paper-based process of filing with the Ohio Attorney General. Moreover, the Online Charitable Registration System will increase transparency and accountability throughout the sector.  You probably have received correspondence from the Ohio Attorney General’s office regarding registration of your charitable organization online.

 This is a mandatory online registration.  All exempt organizations that were previously required to file will now have to annually file online and submit payments electronically.  Any organizations with year-ends ending after November 30, 2011, must register and file electronically.  Organizations that have not filed their forms but have year-ends prior to November 30, 2011, are encouraged to register and file using the new system.

Barnes Dennig has always prepared the Ohio filing for its clients during the Form 990 preparation process, and we will continue to do this on an annual basis. However, you must complete the initial registration for your organization.

Click here to register through the Ohio Attorney General’s office. For more information on the registration process and the new system, you can click here to download a user’s guide from the Ohio Attorney General.

For more information on this or any non-profit tax matters, contact your Barnes Dennig representative at (513) 241-8313.

A new accounting standard will require employers to disclose more information about their contributions to multi-employer pension plans. It will be a significant change for employers and plan sponsors in heavily unionized industries such as construction.

The new disclosures include:

• The amount of employer contributions made to each significant multi-employer plan and the total made to all plans.
• An indication of whether the employer’s contributions represent more than 5 percent of the total contributions to the plan.
• An indication of which plans are subject to a funding improvement plan.
• The expiration dates of any collective bargaining agreements and minimum funding arrangements.
• The most recent certified funded status of the plan, as determined by the plan’s “zone status.” If the “zone status” is not available, the employer must disclose whether the plan is less than 65 percent funded, between 65 and 80 percent funded, or at least 80 percent funded.
• A description of the nature and effect of any changes that affect the comparability for each period in which a statement of income is presented.

Previously, employers were required to disclose only their total contributions to all of the multi-employer plans in which they participated. The new standard, which was released by the Financial Accounting Standards Board last fall, will provide more information about the total commitment and risk associated with each multi-employer plan.

For private companies, the disclosures will be required for years ending after Dec. 15, 2012. For public companies, they will be required for years ending after Dec. 15, 2011.

Barnes Dennig Director Chad Martin, who has earned the designation of Certified Fraud Examiner, was recently quoted by the Cincinnati Business Courier as an authority on fraud.

The newspaper article details a lawsuit by a local car dealership against a former payroll clerk who is alleged to have embezzled more than $6 million over a period of nine years. Martin pointed out that the case is unusual in that the clerk allegedly worked in concert with other employees to steal the money. Most fraud cases involve only one person and significantly less money.

“They find a hole in the internal control system and they know their supervisor is not looking,” Martin told the newspaper.

According to the Courier article, the former employee allegedly issued extra paychecks to employees who then cashed the checks and split the money with her. She hid her activity from management by generating fraudulent spreadsheets for them to review.

The case is a reminder of the importance of strong internal controls, as Martin indicated to the Courier:

Normally the type of scheme alleged at [the dealership] should not be possible if one person handles payroll, a supervisor reconciles payroll reports with the cash flowing out of the bank account, and a controller or CFO reviews their reports and monthly financials, Martin said.

Supervisors often get lax with such routine functions, because they can be boring, Martin said, “but it’s an important control.”

If you receive an e-mail that claims to be from the IRS and asks you to provide personal and financial information, do not reply to the message, open any attachments or click any links. It is most likely a scam.

The IRS receives thousands of reports each year from taxpayers who receive suspicious e-mails, phone calls or faxes claiming to be from the IRS and asking for information such as a Social Security number, bank account number or credit card number. The IRS stresses that it does not initiate taxpayer communications through e-mail, and it never asks for detailed personal or financial information.

Also, please note that the official IRS website is www.irs.gov. If you receive a notification that claims to be from the IRS but directs you to a site that ends in .com, net or .org, do not click the link. 
 
For more information on these phishing schemes, or to report suspicious activity to the IRS, click here.

With a contentious summer of debate in the rear-view mirror and a presidential election on the horizon, we could see a number of tax changes in 2012, including the retroactive extension of a handful of incentives that expired at the end of 2011: state and local sales tax deduction, higher education tuition deduction, charitable distributions from IRAs, a deduction for teachers’ classroom expenses, the research tax credit, and multiple energy credits.

While Congress reconvenes with a full plate of tax issues to debate, it is a good time to recall the tax changes that were enacted in 2011. Among them are:

Temporary extension of the payroll tax cut. The employee portion of the Social Security tax was lowered from 6.2 percent in 2010 to 4.2 percent in 2011, and it will remain at 4.2 percent through at least February 2012. Click here for more information.

Repeal of certain 1099 reporting requirements. The healthcare reform of 2010 included expanded reporting requirements that threatened to overwhelm small businesses, so in April 2011 President Obama agreed to repeal two provisions related to IRS Form 1099. Click here for more information.

Expanded tax credit for hiring unemployed veterans. A portion of the Work Opportunity Tax Credit was expanded to allow a greater credit for employers who hire unemployed veterans. Click here for more information.

New tax credit for investing in Ohio small businesses. The InvestOhio credit is a dollar-for-dollar reduction in state income tax and can be carried forward for up to seven years. Click here for more information.

Expiration of a federal unemployment surtax. The 0.2 percent surtax, which had been tacked onto the 6 percent federal unemployment tax (FUTA) since 1975, expired July 1. Unfortunately for employers in Ohio and Kentucky, any savings were negated by a reduction in FUTA credit that took effect January 1, 2012. Click here for more information.

Increased tracking of offshore accounts. In an attempt to generate more tax revenue from American taxpayers with foreign accounts, the federal government stepped up enforcement of Foreign Bank Account Reporting and created separate reporting requirements through the Foreign Account Tax Compliance Act. Click here for more information.

Compliance program for misclassified workers. The federal government has increased its efforts to catch and penalize employers that improperly classify workers as “independent contractors” rather than “employees.” The IRS announced a voluntary compliance program that would allow such employers to properly classify their employees and avoid significant penalties. Click here for more information.

As always, the Barnes Dennig tax team will monitor legislative changes and keep you abreast of any that impact you and your organization. If you have any additional questions, please contact your Barnes Dennig tax representative at (513) 241-8313.

The economic environment today is characterized by significant uncertainty – demand questions, pricing unease, regulatory uncertainty, monetary expansion, and concern about European debt defaults.  There is a record $4 trillion U.S. in circulation, and savings rates are historically high. Businesses are holding over $1 trillion in cash reserves and short term investments.  Individual savings total nearly $600 billion. Across the board, we are storing our nuts in case there’s a hard winter.

Thomas J. Groskopf, CPA, CVA

The Federal Reserve has reacted to that anxiety by pumping more money into the economy. Whenever aggregate demand starts to increase, the money supply has to contract at the same rate. If it does not, inflation is inevitable. There are steps you can take today to manage the pain, including borrowing at a low, fixed rate; locking in rates for labor and goods; and negotiating favorable price indices with your customers to blunt the impact of potential inflation.

Economic downturns also increase the risk of fraud within your organization. Perhaps an employee is struggling to pay his bills because his wife is unemployed, or maybe an employee has become disenchanted with the company because she is working more hours for the same pay. You must remain vigilant about monitoring your assets and income.

Unlike portions of the European Union, the United States continues to be able to finance its deficits at record low rates of interest.  This appears unlikely to change in the foreseeable future. The market for U.S. bonds remains strong throughout the world.  As a result, the federal government has been able to subsidize the recovery with expansionist monetary policies. Our greatest export is the U.S. dollar. 

Eventually, though, even the United States must address its rising deficit, or it risks the same sovereign debt crises as certain European Union countries. In 2009, 13 percent of total federal spending went toward interest on the national debt; at the current rate, debt service will eat up more than 34 percent of spending by 2015, which will lead to significant spending cuts or increased taxes.

As always, we will monitor economic trends and legislative debates, and we will keep you abreast of any changes that might impact your organization. For more information, contact your Barnes Dennig representative at (513) 241-8313.

After considerable debate, Congress agreed late last week to extend a payroll tax cut that will save employees hundreds of dollars over the next two months.

The Social Security tax rate for employees was lowered from 6.2 percent to 4.2 percent in 2011, and the Temporary Payroll Tax Cut Continuation Act will keep it at 4.2 percent for the first two months of 2012 – meaning employees will pay 4.2 percent tax on the first $110,100 in wages.

The employer portion of the Social Security tax remains 6.2 percent, and self-employed individuals will continue to pay both the employee and employer share (for a total of 10.4 percent). There is no change to the Medicare tax; it remains 1.45 percent for employees and employers.

The Social Security Administration recently announced an increase in the Social Security wage base, from $106,800 to $110,100. Any wages above $110,100 are not subject to the Social Security tax, but they are still subject to Medicare taxes.

Leaders of both political parties have indicated they’d like to keep the employee Social Security tax rate at 4.2 percent for all of 2012. But in case they cannot agree on another extension and the tax rate returns to 6.2 percent on March 1, the Continuation Act includes a “recapture” provision that essentially prevents high-wage earners from accelerating their income in order to have the full wage base taxed at the 4.2 percent rate. Only the pro-rated portion of the wage base – $18,350, or one-sixth of $110,100 - will be taxed at 4.2 percent, and any wages beyond $18,350 will be subject to an additional 2 percent income tax. The “recapture” will be a moot point if Congress extends the tax cut through all of 2012.

In addition to the payroll tax cut, Congress is expected to consider extensions of other tax cuts that are currently scheduled to expire December 31, including the Research & Experimentation Tax Credit, bonus depreciation and a state and local sales tax deduction. As always, we will monitor the debate and keep you abreast of any changes.

For more information on the Temporary Payroll Tax Cut Continuation Act and how it impacts your organization, contact your Barnes Dennig tax representative at (513) 241-8313.

As we approach the end of the year and the final payroll run of 2011, there are a few tax credits, deductions and reminders you should be aware of before you begin processing W-2s. If you outsource your payroll services, your provider likely is aware of these issues, but it is worth keeping them in mind.

HIRE Act: The HIRE Act provided tax breaks in 2010 and potential tax credits that can be claimed in 2011. If a business or non-profit hired a qualified employee and that person remained employed for one full year, the employer can claim a credit worth up to $1,000 on its 2011 income taxes. Click here for more information on the HIRE Act.

Unemployed veterans: Recent legislation expanded the tax credit for hiring unemployed veterans, increasing the value of the credit and extending it through 2012. Click here for more information.

W-2 “add-backs”: Companies may offer a number of fringe benefits that are taxable to their employees/shareholders and must be included in the recipient’s wages unless the law specifically excludes them. Among the most common are:

• Personal use of a company car.
• The cost of group-term life insurance premiums beyond $50,000 worth of coverage. For greater-than-2% shareholders of an S Corporation, the entire cost of group-term life insurance must be included in the recipient’s wages.
• The value of accident and health benefits for greater-than-2% shareholders of an S Corporation are included in the recipient’s wages. However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the recipient’s wages subject to Social Security, Medicaire and FUTA taxes.
• Employer-paid health savings account (HSA) contributions for greater-than-2% shareholders of an S Corporation should be included in the recipient’s wages or treated as distributions. Additionally, shareholders of an S Corporation are not eligible for pre-tax contributions to an HSA.

Finally, it is always worth remembering to maximize your Meals and Entertainment deduction. Click here for more information.

For more information on these issues, or to discuss other tax-planning ideas, contact your Barnes Dennig tax representative at (513) 241-8313.

In an effort to catch U.S. taxpayers who are hiding assets in unreported offshore accounts, the federal government passed the Foreign Account Tax Compliance Act (FATCA) in 2010, and it created new reporting requirements that you should be aware of as 2011 draws to a close.

FATCA requires that taxpayers with more than $100,000 worth of “specified foreign financial assets” must report those assets to the IRS on Form 8938. In addition, foreign banks must report to the IRS regarding accounts held by U.S. taxpayers, and those banks are subject to withholding on certain types of payments if they do not comply with the new reporting requirements.

U.S. citizens with bank accounts in other countries have long been required to file reports of those accounts; FATCA filing requirements are in addition to Foreign Bank Account Reporting (FBAR) requirements. The IRS has stepped up its enforcement of FBAR in recent years, particularly with Swiss banks, pressuring them to disclose information on their U.S. account holders.

Click here for more information on FATCA and Form 8938, or contact Barnes Dennig Senior Tax Accountant Lisa Gentile. The IRS is expected to release guidance by the end of the month. It is possible FATCA could be expanded to require U.S. businesses to file, but for now it only covers individuals.

Barnes Dennig Director Jay Rammes will be the featured presenter at Allied Construction Industries’ Taxation Fundamentals class on Friday, December 9. Click here for registration information.

Jay Rammes, CPA

Jay leads Barnes Dennig’s construction client service team, so he has direct experience working with progressive, local construction and real estate companies. Among the topics he will discuss at ACI are accounting methods for short- and long-term contracts, entity selection, depreciation strategies, income tax, and sales and use tax.

Jay recently authored a whitepaper on the value of an insightful budget for contractors.

We are pleased to announce that Brian Harvey has been promoted to Principal within the firm. In this role, he will oversee client engagements with an emphasis on providing insight beyond the numbers.

Brian Harvey, right, has been promoted to Principal.

Brian has been with Barnes Dennig for more than a decade and has become an integral part of the leadership of the firm’s Construction / Real Estate Client Service Team and Employee Benefit Plan Audit Team. He has served leadership positions within the local construction industry – including his current role on the Board of Directors at Ohio Valley Associated Builders and Contractors (ABC) – and he has authored articles for publications such as the Journal of Construction, Accounting & Taxation. His accounting experience and knowledge of the construction and real estate industries make him a decided asset to the firm’s clients.

For the previous six years, Brian served as a Senior Manager and Team Leader for one of the firm’s five client service teams. He was responsible for coordinating and reviewing all of the team’s assurance activities, planning and executing accounting and tax engagements, and training and mentoring staff. He also serves on the firm’s Accounting and Auditing Quality Control Committee.

Brian is a graduate of the University of Cincinnati, where he earned a BBA in accounting and finance. In addition to serving as Secretary at ABC, he participates on the Education Committee for the Construction Industry CPAs/Consultants Association (CICPAC), and he is a board member and treasurer of First Step Home.

When your primary concern is simply surviving, it’s tempting to pay less attention to the routine fundamentals, such as preparing a realistic budget and following through on it. In fact, difficult times make attention to the basics more important than ever – which means now is a good time for contractors and sub-contractors to take a fresh look at their budgeting practices.

An up-to-date, credible budget is a valuable management tool that allows you to respond properly whenever conditions change. And it is essential for preparing competitive yet realistic bids, which in turns affects your margins and, ultimately, your ability to get work.

Here are six basic steps a contracting or subcontracting business should follow:

1. Assemble Your Budget Team
2. Be Sure Your Accounting Systems Are Up to the Task
3. Get an Updated Picture of Costs
4. Develop a Revenue-Driven Budget
5. Develop a Profit-Driven Budget
6. Monitor and Respond

For more information on each step, click here to download my whitepaper, “Budgeting for Success in the Construction Business: A Six-Step Plan for More Effective Budgeting.”

The budget exercise described in the whitepaper will strengthen your management team by making them more sensitive to your cost structure and more familiar with what drives profitability. But the budget’s real value is its use as a management tool. Having a practical, effective budget – and then managing your business to meet that budget – will help you navigate more effectively through the challenges that construction-related businesses will continue to face in the coming years.

Ohio and Kentucky employers should be aware that their federal unemployment taxes (FUTA) will increase for 2011 – effective retroactive to January 1, 2011, and due by January 31, 2012.

Because Ohio and Kentucky did not repay loans from the federal unemployment fund in time, their state FUTA credit will be reduced from 5.4% to 5.1%, which means employers within each state are now responsible for an additional 0.3% in federal taxes. This change is especially significant for business with a large number of employees.

Kentucky businesses also face increased tax liabilities due to the increase in wage base from $8,000 to $9,000 in 2012, meaning they must pay state unemployment tax (SUTA) on the first $9,000 of each employee’s wages. The Ohio wage base will remain unchanged at $9,000, and the federal base remains unchanged at $7,000.

The reduction in FUTA credit essentially negates a previous reduction in the tax. A longtime FUTA surtax expired June 30 and has not been reapplied, so the federal unemployment tax rate dropped from 6.2% in the first half of the year to 6% in the second half of the year. After applying the 5.1% state credit, employers in Ohio and Kentucky will owe 1.1% in federal unemployment taxes from January 1 through June 30 and 0.9% from July 1 through the end of the year.

The credit will shrink further in future years for any state that still has unpaid federal loans. As of November 2, Ohio owed more than $2.3 billion in unpaid federal loans and Kentucky owed $948 million.

In all, employers in 20 states will see their 2011 FUTA tax increase because their state has unpaid federal loans.

For more information on how the change in FUTA will impact your business, contact your Barnes Dennig representative at (513) 241-8313.

As non-profit organizations explore new ways to generate revenue and meet the growing need for their services, they can take advantage of a resource their for-profit colleagues have utilized for years: tax credits.

There are credits available for economic development in distressed areas, preserving historic buildings and improving energy efficiency, among others. A non-profit organization that wishes to expand, renovate or replace its current facility could fund up to 40 percent of the project by utilizing a variety of federal and state tax credits.

Barnes Dennig Tax Director John Michel recently partnered with Steve Kenat and Dale McGirr, Sr., of GBBN Architects to present a seminar on this topic. For an overview of their presentation – “Using Tax Credits to Help Fund the Facilities Needs of Non-Profit Organizations” – click here to download the slides.

St. Aloysius Orphanage received $19 million in financing via tax credits that will be used to renovate two buildings and build a multistory addition, which should allow St. Al’s to serve an additional 200 children. The United Way previously underwent a $16 million renovation that was funded in part by utilizing the New Markets Tax Credit.

By utilizing the many available credits, an organization might be able to afford a renovation or expansion without implementing a capital campaign or taking staff and funds away from its programs. It is an important consideration at a time when organizations are facing ever-tighter budgets and an increasing need for their services.

In an attempt to spur the growth of small businesses, the state of Ohio will offer a 10 percent tax credit on qualifying investments in recognized small businesses. The InvestOhio credit is worth up to $1 million, and state officials believe the program will generate at least $1 billion in new private investment.

Investors who wish to claim the credit and small businesses that wish to benefit from the investments must first register with the Ohio Business Gateway. Investors and small businesses that are accepted into the InvestOhio program can begin applying for the credit in early December.

Only individuals and pass-through entities are eligible to claim the credit, which will be a dollar-for-dollar reduction in Ohio income tax and can be carried forward for up to seven years. A C-Corporation that wishes to invest in a small business might consider establishing a new legal entity that would be eligible for the credit.

In order to qualify as an Ohio small business, a business must have less than $50 million in assets or $10 million in annual sales. Plus, at least 50 employees or 50 percent of the business’s total employee population must be based in Ohio.

The small business must reinvest that capital within six months of the qualifying investment, and the investor must hold his or her ownership interest in the small business for at least two years. The Ohio Department of Development is authorized to issue up to $100 million worth of credits through June 30, 2013.

For more information on the InvestOhio program, or to discuss other tax-planning ideas, contact me or your Barnes Dennig tax representative.

The Senate unanimously passed legislation yesterday that expands and extends the veteran portion of the Work Opportunity Tax Credit (WOTC), increasing the value of the credit for hiring eligible veterans and extending it through 2012. The House of Representatives is expected to pass the bill next week, and President Obama will likely sign it into law soon thereafter.

The amount of the credit will range from $2,400 to $9,600 per eligible hired veteran, and it will be available through December 31, 2012.

The bill does not extend the core WOTC program, but it includes the following provisions for businesses that hire military veterans:

• For a veteran who is entitled to compensation for a service-connected disability and who has a hiring date which is not more than one year after having been discharged or released from active duty, the amount of the wages subject to credit is $12,000 – potentially a $4,800 credit.
• For a veteran who is unemployed for at least six months during the year prior to being hired, the amount of wages subject to the credit is $14,000 – potentially a $5,600 credit.
• For a veteran who is entitled to compensation for a service-connected disability and is unemployed for at least six months during the year prior to being hired, the amount of wages subject to the credit is $24,000 – potentially a $9,600 credit.
• For a veteran who is unemployed for at least four weeks during the one-year period prior to being hired, the amount of wages subject to the credit is $6,000 – a credit of $2,400.

The amendment also includes a “simplified certification system” which requires the state work force agency (SWA) to certify that the veteran received unemployment compensation for the statutory periods of unemployment that are listed for each category. Note that the language used specifically mentions the SWAs, an integral part of the national WOTC infrastructure, as the certifying agency.

We will continue to monitor the bill as it reaches the House and White House, and we will keep you abreast of any changes. For more information on this or any other tax issue, contact me or your Barnes Dennig tax representative.

Whether your company has a staff of 10 or 1,000, some of the employees are entrusted with handling cash or other assets. It is a significant responsibility regardless of the size of your budget, and the pressures are magnified during times of economic stress.

There are plenty of recent, local examples of what can go wrong when an individual has unchecked access to assets, incentive to steal and a rationalization for doing so: the union president, the CEO, the accounting manager, the county auditor, the bank executive.

This is International Fraud Awareness Week, which makes it a perfect time to examine your company’s system of checks and balances. After all, it is cheaper and more effective to prevent a fraud than detect a crime.

Barnes Dennig Director Chad Martin is a Certified Fraud Examiner, and he wrote a whitepaper on “Deterring, Detecting and Reporting Fraud.” Click here to download the paper and read more about Barnes Dennig’s Forensic Accounting Services. Chad believes the most efficient way to prevent fraud is to establish a culture of integrity within the organization, and he offered the following advice:

• An organization should have a policy of hiring and promoting individuals with high levels of integrity, especially for positions of trust and in areas where fraudulent activity is most commonly found. If the proper tone is set and the right culture is created, it can lessen the pressure that employees might feel to commit fraud and lessen the opportunity for fraud, as co-workers are more likely to hold each other accountable.
• Management should communicate the company’s ethical values orally and in writing by using a code of conduct, and the code of conduct should be reiterated regularly to all employees.
• Strong internal control can prevent or quickly detect most types of theft and fraudulent financial reporting.
• Taking swift action to terminate and prosecute perpetrators may deter other employees who might consider committing fraud.

Republican Presidential hopeful Rick Perry introduced his tax plan Tuesday in the Wall Street Journal, and it raises more questions and concerns than it answers. Specifically, Perry promises to “scrap the current tax code” with a “flat tax” that is not flat and will not scrap the current tax code.

The highlights of his plan include:

• Individuals will be given a choice of paying a 20 percent tax rate or their current income tax rate. Families earning less than $500,000 per year will still be able to claim deductions for mortgage interest, charitable contributions and state and local taxes. The personal and dependency exemption will increase to $12,500.
• Individuals will be exempt from paying tax on dividends, capital gains and Social Security benefits.
• The corporate tax rate will be lowered to 20 percent – and temporarily lowered to 5.25 percent on foreign earnings.
• Multi-nationals would be subject to a “territorial” tax system rather than the current “global” tax system, meaning they would only be taxed on in-country income.

Perry’s plan does not address the many tax credits that U.S. corporations currently claim, nor does it explain how to calculate income for “flow thru” entities (sole proprietor, partnership, S Corp, LLC) that have business-related expenses in order to generate revenue. If Perry intends to eliminate the credits and deductions, then tax liabilities will skyrocket. If he intends to keep the credits and deductions, then he is not scrapping the current tax code.

And when he refers to a “flat tax,” he is actually describing a single tax rate. Most of us would consider a “flat tax” to be a tax on gross receipts with no deductions and no credits. Perry’s plan allows some deductions and does not address credits. It seems he is more interested in using the buzzword than truly creating a flat tax.

The IRS recently announced a Voluntary Compliance Program for employers who have improperly classified workers as “independent contractors” rather than “employees.” It is an opportunity for some companies to save a significant amount of money in potential taxes, penalties and interest.

Under the terms of the Voluntary Compliance Program, the employer will pay a penalty of just more than 1 percent of the wages paid to the workers over the most recent tax year, and the employer agrees to treat the workers as employees for future tax periods. In exchange, the employer will not be liable for employment taxes, penalties or interest from previous years.

The program is open to all businesses, non-profits and government entities that are not currently under an IRS audit. Organizations must meet certain minimum requirements and apply to the IRS for acceptance into the program.

In recent years, the IRS and Department of Labor have increased efforts to find and penalize companies that misclassify workers. The IRS has estimated that misclassification costs the government more than $1 billion per year in unpaid taxes.

If you believe your company might benefit from the voluntary compliance program, Barnes Dennig can help. Our tax professionals can advise you on the impact of participating and file the necessary forms with the IRS.

For more information, click here to read the IRS’s official announcement or contact your Barnes Dennig representative at (513) 241-8313.

For more than 30 years, Steve Hube has been instrumental in advancing the vision that Barnes Dennig’s founders had for the firm. He worked with Bob Barnes and Al Dennig, he knew the passion they had for providing exceptional client service, and he recognized how to instill that passion in succeeding generations even as the firm grew from a small office to the fifth-largest accounting firm in Greater Cincinnati.

“I understand the important role that people play within a business and how that relates to client service,” Hube said. “My philosophy is to surround myself with the best and brightest folks to chart a course for the future.”

Steven P. Hube, CPA

Because he has lived that philosophy so well – while also demonstrating technical expertise and leadership within the accounting industry – Hube was a natural choice to become the third Managing Director in the firm’s 46-year history. He will succeed Bill Cloppert in that role effective January 1, 2012.

Cloppert will continue as a Director within the firm. He has served as Managing Director – which is the equivalent of CEO – since 1988, when he succeeded Bob Barnes. During Cloppert’s tenure, the firm has grown from around 20 employees to nearly 100.

“The past 23 years have been very satisfying and challenging,” Cloppert said. “The culture Bob Barnes and Al Dennig established of superior client service and developing and treating employees with respect has continued on. Steve has worked in this atmosphere for 30 years, and I am sure he will carry it on into the future.”

Hube has been with Barnes Dennig since 1981 and has been a Director since 1990. He has played a key role in the management of the firm during that time, while also establishing himself as a leader within the industry. He served as chair of the Ohio Society of Certified Public Accountants’ Peer Review Acceptance Committee for five years.

“I want to build on the values that we have established here at Barnes Dennig,” Hube said.

Hube has been a member of the firm’s Executive Committee for the past six years, and he has played a leading role in all Human Resources initiatives since becoming a Director. During that time, Barnes Dennig’s employee retention rate has consistently been much higher than the national average within public accounting, which provides stability and peace of mind for the firm’s clients.

For the past 30 years, large manufacturers, pharmaceutical companies and software developers have benefitted greatly from the Research and Experimentation Tax Credit. Recent legislation has made it accessible to contractors, architects, engineers and smaller manufacturers, and pending legislation would make the credit permanent.

If research and innovation are part of your culture, it is worth your while to consider the Research and Experimentation (R&E) Tax Credit. Barnes Dennig representatives are available to discuss how it could be applied to your business.

The credit was created in 1981 as a temporary measure to jump-start the manufacturing industry, and it has been extended numerous times; it is currently in place through the end of 2011. Legislative changes over the years have allowed companies to claim the credit for a wider variety of activities, and the Alternative Minimum Tax “patch” that is in place for 2011 makes the R&E Credit valuable to middle-market companies that would not have benefitted in the past.

A contractor could quality for the credit if it has invested time, money or other resources on experimentation to improve a product or process. That could mean designing a unique HVAC system for a new building, testing new materials or streamlining an internal process – things you might shrug off as “just part of the job.”

The Obama administration has proposed expanding and simplifying the R&E Credit and making it permanent. Senators Max Baucus (D-Montana) and Orrin Hatch (R-Utah) recently introduced a bill that would raise the value of the credit even more and make it permanent. The US Treasury Department estimated that a simpler, permanent R&E credit would provide more than $100 billion in credits over the next 10 years and lead to at least an additional $100 billion in private-sector spending on research.

For more information on the R&E credit and how it might be applied to your business, contact a Barnes Dennig representative at (513) 241-8313.

Healthcare costs continue to rise, even as more and more data is available. Consumers and providers who are able to recognize trends in the data and implement changes in behavior have an opportunity to limit the inflation.

Organizations that are not proactive are at risk, because the overall health of the American workforce is declining as sharply as healthcare costs are rising.

That was one of the key takeaways from a recent seminar co-hosted by Barnes Dennig and USI Insurance. Craig Osterhues, an executive on loan to the Greater Cincinnati healthcare community, explained how and why costs have risen so dramatically, and he described ways that healthcare providers, employers and employees can bend that trend. Five local business leaders then discussed initiatives that have helped manage their companies’ healthcare costs.

 “If we don’t get healthcare figured out, it’s going to kill the economic engine of any given region,” Osterhues said. “We’re kind of at that tipping point. … It is becoming unsustainable. The alarm bells are going off across the country. It’s a big deal, not just for employers, but for communities.”

Osterhues has been working with local government, corporate and healthcare leaders on ways to improve health, improve care and lower costs in Greater Cincinnati, and he outlined steps they are taking to do so:

• Increase and improve the primary care that is available to consumers.
• Healthcare providers collect and share better data, eliminating wasted time and effort.
• Consumers become more engaged in the process, understanding the costs, risks and rewards of their behavior.

“Hopefully the work we’re doing with the broader stakeholder group is laying the groundwork for you guys,” Osterhues said.

The panelists – two from companies with more than 100 employees, three from companies with fewer than 100 – discussed strategies that helped them control costs. Among the ideas they suggested were:

• Take on some risk in exchange for lower costs.
• Understand your true cost drivers and closely manage the enrollment process.
• Whenever possible, negotiate with insurance brokers and healthcare providers for discounts.
• Educate employees and incentivize them to make healthier and cost-efficient choices.

Click here for more details on the panel discussion.

Barnes Dennig Staff Accountant Logan Conner is playing Santa Claus this Christmas, and he could use some elves.

Logan Conner

Logan will spend the holidays in Africa with his sister, who is studying in Senegal, and he is collecting used soccer equipment to distribute to area children during his visit. More information is available at www.cleats4kids.com, including details on how you can contribute to his efforts:

We are looking for used soccer cleats and balls that are still in good condition.  Shoes and balls are the focus because these are the two most important and often most expensive things necessary to play the game. With that being said, if people have other soccer related equipment they would like to donate we will definitely take it and ensure it gets to a kid who needs it.

In addition to equipment, Logan is accepting donations via PayPal to help with shipping costs.

Logan graduated from Xavier University in 2009 and joined Barnes Dennig in January 2010. From September 2010 until January 2011, he served a five-month secondment with PKF Ampersand in Paris where he gained experience working with IFRS and other international business and accounting issues. Logan returned to Barnes Dennig in 2011 and is a member of the Wholesale / Distribution Client Service Team, where he assists with both the audit and tax functions.

President Obama’s proposed jobs bill includes hiring incentives for non-profit organizations, but the incentives are smaller than those offered to for-profit entities – and the accompanying tax increase could make wealthy individuals less likely to contribute to non-profits, an unfortunate side effect at a time when government contributions also are shrinking.

The American Jobs Act would limit itemized deductions for wealthy individuals to 28 percent of income, down from the current 35 percent. Opponents of the bill argue that such a cap will cause individuals to contribute less, which in turn will cause non-profits to cut costs and staff, thus negating the benefits of hiring incentives. One report estimated that the bill would cost non-profits between $2.9 billion and $5.6 billion in lost revenue.

Plus, the incentives for non-profit organizations are smaller than the incentives for for-profit companies. Where a for-profit company could receive an income-tax credit worth up to $4,000 for hiring a long-term unemployed worker, a non-profit would receive a $2,600 payroll-tax credit. And where a for-profit company would receive an income-tax credit worth between $2,400 and $9,600 for hiring a military veteran, a non-profit would receive a payroll-tax credit of between $1,560 and $6,240.

In a document released by the White House, the administration explained that the difference in dollar amounts reflects the different tax liabilities between for-profit and non-profit entities. “When these factors are considered, the value to a non-profit is similar to the value claimed by a for-profit firm,” the document reads.

The non-profit coalition Independent Sector said it will lobby President Obama to remove the cap on deductions and “make the full value of these tax credits available to nonprofit organizations.”

A recap of our 2011 Wholesale/Distribution Annual Seminar, by Barnes Dennig Senior Accountant Tyler Duff:

A successful distributor should plan for profit, take it off the top and maintain a net profit before taxes of at least 30 percent. To get there, Dr. Don A. Rice said, it is important to measure every business activity, train employees to generate profit and reward them for doing so.

Don A. Rice, PhD.

Dr. Rice, an experienced executive and educator in the distribution industry, highlighted five practices of successful distributors:

• Make a healthy profit.
• Offer a level of customer service that makes them ecstatic, not simply satisfied.
• Train all employees how to serve customers and generate profit.
• Measure every business activity.
• Take the necessary actions to meet your goals. 

It was the focus of Dr. Rice’s recent presentation – “Planning and Managing the Distributorship for Greater Profit” – at the 15^th Annual Wholesale/Distribution Seminar, sponsored by Barnes Dennig, Key Bank and Martin & Associates. 

Dr. Rice recommended the DuPont Model of financial analysis, which calculates return on investment and allows a business to easily measure the profitability of each area of the company. He challenged all attendees to “run” the numbers and enter their company’s financial data into the ROI calculator to determine what areas they must improve. He suggested designating one individual at the executive level to constantly monitor profitability.

The next step, Dr. Rice said, is to use that information to educate and incentivize employees. Whatever their role, they should understand precisely how they can improve the company’s profit, and they should be rewarded when they succeed.

“Your managers need to think like owners,” he said.

Sixty eight executives from local companies attended the seminar at the Cintas Center, and 89 percent of survey respondents rated the content “very good” or “excellent.”

“It was great to receive some practical tools to help evaluate our business,” one attendee wrote. “It was also good to get a different perspective. Now the challenge will be to convince others in the organization to look at life differently.”

Three Ohio state senators recently introduced a bill that would repeal elements of the state’s alternative energy requirements, reneging on a commitment the state made only three years ago and potentially hurting a growing industry.

State Bill 216, which was introduced by State Sen. Kris Jordan of Powell and co-sponsored by Sen. Bill Seitz of Cincinnati, would repeal the requirement that 25 percent of the state’s consumer electricity come from alternative energy sources by 2025.

The so-called “25 by 25” provision was a key component of Ohio’s 2008 energy law – SB 221 – which was a priority of then-Governor Ted Strickland. Thirty nine states have similar provisions, known as renewable portfolio standards (RPS). Current Ohio Gov. John Kasich recently hinted that he supports a rollback of Ohio’s “25 by 25” RPS.

Supporters of SB 216 argue that the cost of alternative energy is too high and the industry has not created enough jobs, so the 25 percent requirement is hurting the state’s economy. But the “job killing” rhetoric is misplaced when discussing renewable energy such as solar and wind. The cost of producing such energy is falling as the technology improves; meanwhile, public utilities are relying on decades-old plants that will need to be upgraded or even decommissioned, which will not be free of cost to ratepayers.

As it is written, SB 216 would not only kill future projects, it would penalize projects that are currently up and running – projects that were started in the wake of SB 221, when Ohio’s leadership advocated investing in the alternative energy industry and offered incentives to do so. Many solar adaptors rely on recouping their investment by selling Solar Renewable Energy Certificates (SRECs) to the public utilities, which in turn helps the utilities reach their quota of renewable energy. If SB 216 shrinks or removes the quota, it would essentially remove the incentive that was promised to those solar adaptors.

Ohio has a viable solar energy/manufacturing industry, notwithstanding the recent high-profile bankruptcies of solar companies in California and Massachusetts. Production and installation costs are falling precipitously, and rooftop solar panels have created long-term energy savings and short-term income for a wide range of for-profit and not-for-profit organizations.

Besides the obvious environmental benefits, Ohio’s RPS has spurred a strong new industry that is not raising electricity costs.

A local Ohio State Senator plans to introduce a bill into the Ohio General Assembly that clarifies Ohio tax law regarding real property owned by a tax-exempt organization and used for non-exempt activity, and Barnes Dennig has proposed language to be incorporated into the bill. Specifically, the proposed bill refers to “solar arrays” which are designed to generate electricity on-site and make that electricity available to the host organization for a charge.

Currently, Ohio law is unclear as to whether an array owned by a for-profit enterprise and hosted by a non-profit organization would threaten the host’s real property exemption, and the lack of clarity could slow Ohio’s growing alternative energy industry.

The solar arrays are installed on existing rooftops, above parking lots or on idle land, and the non-profit host imposes a modest charge on the for-profit entity. The non-profit also receives reduced energy costs. Because it controls the host’s operational costs, the arrangement is often viewed as supporting the mission of the non-profit, and thus the non-profit maintains its exemption from real property taxation.

This arrangement is used by social service organizations; non-profit medical organizations; organizations that provide housing for the poor, the elderly or children; public and private schools; government agencies and tax-exempt religious organizations. The uncertainty in current Ohio law could potentially stop similar alternative energy projects from moving forward.

It is an even more sensitive consideration considering the recent successful legal challenges in Ohio to the real property tax exemptions enjoyed by municipally owned golf courses and convention centers operated by for-profit organizations.  The issue was not cut-and-dry before those challenges, and it is much less certain today.

Clearly, conventional practices in the past have not been considered detrimental to the real estate tax exemption enjoyed by many organizations.  Such uses include assets owned by public utilities or commercial amenities such as ATMs, shoe shine stands and vending machines that are situated on exempted real estate, whether or not the for-profit is assessed a charge by the host.  The “host” still requires a roof and parking to accommodate its operations – the roof and parking lot weren’t installed for the purpose of hosting a third party’s assets.

In the case of a non-profit that hosts assets on excess land, it might not be as easy to defend the tax exemption. In such cases, it might be wise to consider re-parceling the land, so as not to jeopardize the entire exemption.

President Obama recently proposed legislation that would reward companies for hiring new employees, while essentially raising taxes on the wealthiest individuals. The American Jobs Act of 2011 would lower payroll taxes, offer tax credits for hiring long-term unemployed individuals and extend 100 percent bonus depreciation, while also limiting deductions for high-income individuals, among other offsets.

In a speech Monday at the White House, Obama said the bill would help reduce the federal deficit by $3 trillion over the next 10 years. “We can’t just cut our way out of this hole,” he said. “It’s going to take a balanced approach. If we’re going to make spending cuts … then it’s only right that we ask everyone to pay their fair share.”

Republicans have criticized the bill as “class warfare.”

Much of the $3 trillion in savings will come from reduced military spending in Afghanistan and Iraq, as well as changes in Medicare and Medicaid. The White House estimates that the rest of the savings would come from increased revenue – by creating more jobs and raising taxes on high-income individuals.

Tax considerations in the American Jobs Act of 2011 include:

Payroll tax cuts. The bill would reduce the employee-side payroll tax to 3.1 percent in 2012, down from 4.2 percent in 2011 and 6.2 percent in 2010. It also would lower the employer-side payroll tax to 3.1 percent on the first $5 million in wages paid in 2012, and it would provide a 100 percent payroll tax credit on any increase in payroll taxes from 2011 to 2012 (up to $50 million in increased wages).

Tax credits for hiring individuals who have been unemployed for at least six months, as well as unemployed veterans. The credit for hiring a long-term unemployed individual will generally be $4,000, and the various credits for hiring unemployed veterans will range from $2,400 to $9,600.

Extending 100 percent bonus depreciation through 2012. It is currently set to expire at the end of 2011.

A cap on itemized deductions for high-income individuals and families. Obama’s plan defines high-income individuals as those with an adjusted gross income (AGI) of at least $200,000 and married couples with a combined AGI of at least $250,000. His proposal would limit the value of all itemized deductions to 28 percent for high income individuals. The White House estimates that this will raise $400 billion in additional tax revenue over the next 10 years.

Obama will be in Cincinnati on Thursday to lobby for the bill.

Our tax specialists will continue to monitor the situation and keep you abreast of any changes.

Barnes Dennig Tax Director John Michel will discuss tax credits and incentives for contractors at the upcoming Buckeye Construction Conference, presented by the Cincinnati chapter of the Construction Financial Management Association.

The Conference is September 14-15 at the Millenium Hotel in downtown Cincinnati, and Michel’s presentation will be Thursday, September 15. Visit cfmacincinnati.org for more information.

Michel is well-versed in alternative energy credits and other tax-advantaged financing. He has 25 years of experience offering tax advisory services to companies of various sizes and across multiple industries, and he leads Barnes Dennig’s Renewable Energy Services team.

Although the picture to the right might suggest otherwise, we are not blind to the needs of our clients or staff. In fact, the picture underscores how important vision is to everything we do at Barnes Dennig.

Our vision is to be the firm of choice for progressive organizations within our market and the employer of choice for talented professionals seeking a rewarding career. We do that, in part, by making a concerted effort to foster a sense of teamwork within the staff and to encourage leadership at all levels. The end result, we hope, is that we become better advisors to our clients.

With that in mind, members of our Non-Profit Client Service Team recently participated in a team- building exercise at Camp Joy in Warren County. In addition to offering entertaining and educational experiences for underserved children and families in the area, Camp Joy offers leadership and development programs for area businesses and schools.

“I knew we were a good team, and it was confirmed during the fun and challenging day we spent at Joy Outdoor,” said Robert Ramsay, a Manager on the non-profit team. “The time was a great investment in our group. It is so important that we work well together and those leadership activities cemented existing relationships and helped new ones to grow.

“Everyone who went wants to go back for more.”

For manufacturers and distributors who want to get more out of their property, the current issue of our quarterly Manufacturing & Distribution e-newsletter includes two insightful articles.

The cover article for this issue is titled “The Five Keys to Being Green” and offers tips for becoming more energy efficient and environmentally savvy. For instance:

1. Look out. When it comes to being green, one person’s trash truly is another’s treasure. Is your company creating waste that could be used productively by another? If so, pass it along rather than send it to the landfill. For example, one global manufacturer of hygiene products gives its shrink wrap waste to another local manufacturer for use in plastic toys. And a large food manufacturer donates its fruit and vegetable scraps to a local zoo for animal feed.

2. Look in. Changing practices or processes can be challenging, but the payoff can be huge. For example, a national producer of potato chips built a new manufacturing facility using 22 percent recycled materials. The new plant uses 30 percent less energy than industry standards, and waste heat generated from the manufacturing process is used to heat the buildings. Skylights and windows improve lighting conditions and supplement conventional lighting during the day, which reduces overall electricity consumption.

Another article in this issue is titled “Make the Most of Your Space” and includes four low-cost options for manufacturers and distributors who are facing space constraints but are not ready to commit significant capital to an expansion or renovation.

The full list of articles – as well as archived issues – is available at barnesdennig.com/newsletters.

Bill Bagley, Human Resources Director at Barnes Dennig, has 30 years of experience in recruiting, training and senior-level coaching. He has a catalogue of stories about climbing the corporate ladder – or falling along the way – and he recently shared a few for an article in USA Today titled “Like it or not, perception and appearances matter.”

Bill Bagley

Bagley discussed a senior manager who had the expertise and personality to become a partner in his firm but was held back by his appearance – pants that did not fit, scuffed shoes, old shirts and oversized glasses.

It fell upon Bagley to pass on the word to this man: You will never make partner because of the way you appear to others.

“I told him I was telling him this because I wanted him to become a partner — not to hurt him. Once he got over the initial sting, he thanked me.”

Then Bagley drove to a well-known men’s store that caters to professionals and picked out a business and casual wardrobe.

…

When it comes to younger workers, clothes also make a difference. Bagley’s advice on what to wear: Look at the leadership who’s making decisions about your future.

To those who counter — saying, look at Bill Gates, who dresses any way he wants — he points out that when Gates was addressing Congress on issues related to his business practices, he wore a nice suit and tie. Why? He was appealing to his critical audience, the people who were making decisions about his future.

Bagley leads Barnes Dennig’s Human Capital Advisory Services. He covers personal substance and professionalism, among other topics, in his Strategic Partner Training program.

We are pleased to announce the promotions of eight tax and accounting professionals.

The following individuals have been promoted to Manager:

• Patrick Frambes, CPA, Non-Profit Client Service Team
• Kaitlin Newkirk, CPA, Wholesale/Distribution Client Service Team
• Heather Steinke, CPA, Manufacturing Client Service Team

As Managers, Patrick, Kaitlin and Heather will lead client service engagements in providing audit, tax and financial insight to Barnes Dennig’s clients. Each has demonstrated exceptional technical and client-service skills and has proven to be a valued resource for the firm and its clients.

The following individuals have been promoted to Senior Accountant:

• Tyler Duff, Wholesale/Distribution Client Service Team
• Jon Enders, CPA, Manufacturing Client Service Team
• Dan Holthaus, CPA, Real Estate Client Service Team
• Chad Kolde, CPA, Construction Client Service Team
• John Strittholt, the Real Estate Client Service Team

As Senior Accountants, their responsibilities include performing audits, preparing financial statements and tax returns, managing staff-level accountants and co-ops, and working on team-related, community and marketing efforts. They were promoted in recognition of their client-service skills, knowledge of the respective industries they serve, and experience as engagement administrators.

Even though there are signs of optimism that the construction industry is starting to recover, the true turnaround likely will not occur until the fourth quarter of 2012 or early 2013, William Geisen and Susan Argo of Graydon Head said at Barnes Dennig’s most recent contractor’s roundtable.

Due to the slower-than-expected recovery of the construction industry, credit availability is still quite tight.  Banks are still taking a beating due to increased government regulations that came along with the Troubled Asset Relief Program (TARP).  Due to the struggles of the industry, the construction portion of a bank’s portfolio is always looked at first, which causes additional pressure to the bank on all loans to construction companies.  As these pressures mount, there has been a severe tightening by the banks on availability of loans.  When loans are made, credit enhancements (i.e. guaranties) are included along with increased fees and interest rates.

Geisen, Argo and Barnes Dennig Director Jim Donnellon shared the following tips for contractors to proactively strengthen their relationship with their bank in this time of credit crunch:

1. Share timely and accurate year-end results
2. Determine a break-even analysis
3. Know the amount of backlog that is bonded vs. unbonded
4. Know how fast the backlog is running off
5. Use backlog and run-off analysis to project year-end results

It is also important to project where your company is going and what your expectations are.  Take the information you have today and proactively translate its impact on current year-end results and long-term plans.

Along with the banking industry, the surety market has undergone a change the last couple of years due to the construction industry performance.  There has been a more stringent oversight by sureties to reduce loss ratios.  They are increasing reporting requirements for companies while reducing the bonding capacity.

What can owners of construction companies do now to handle the depressed industry?  The most important item is to develop a sound business plan by managing overhead, maintaining strong liquidity, minimizing hard debt load and maintain discipline in the market.

The next Barnes Dennig contractor’s roundtable will be on safety.  It will be held in October.

Every contractor is aware of the uncertainty of the construction industry going in, but the challenges facing contractors today are unprecedented. As a construction company owner, you may feel as if you’re attempting to cross a wide, rushing river, and you have no idea how you’re going to get to the other side – or how long the journey might take.

Chris Hartle, CPA

Success is rarely an accident. A successful adventurer starts out with a clear idea of where he wants to go and a map that shows the best route to get there. Like a physical map that helps you navigate around sand bars and rapids to reach a geographic destination, a strategic plan lays out the path to achieve your business goal.

While strategic planning might seem like a luxury a small business owner can’t afford, the time spent assessing the environment and your organization’s strengths may actually be the highest yielding investment you can make. For contractors who take the time to evaluate where they want to go and how to get there, the rewards are many – not the least of which is the hope it can provide contractors and their employees by giving them a sense of control over their destiny.

To read more about how contractors can benefit from strategic planning, click here. Barnes Dennig Senior Manager Chris Hartle, the team leader for our Construction Client Service Team, wrote a white paper entitled How Contractors Can Navigate Back to Profitability. It includes the four primary areas to address in a strategic plan, four key benefits, and five steps in the process.

A note from Tax Managers Cheryl Ganim and Agnes Spoelker: 

In an effort to generate more revenue, many state tax departments are focusing attention on self-assessed use tax. It is a particularly challenging issue for contractors, because Ohio Sales and Use Tax rules for construction contracts are becoming increasingly complex.

For more information, click here to read our latest whitepaper on the subject.

Ohio levies Sales and Use Tax on transfers of tangible personal property and certain taxable services, unless an exemption or exclusion applies. The Ohio sales/use tax treatment of personal property purchased by a construction contractor depends on whether the property is transferred to the owner of the contract and whether it is incorporated into realty, or whether it remains personal property after installation or is deemed consumed by the contractor but not incorporated into real property.

Under Ohio sales and use tax rules, if tangible personal property is incorporated into real property through a construction contract, it is not considered a sale of such tangible personal property. The construction contractor is the consumer of the tangible personal property and must pay sales or use tax when items are incorporated into realty. The contractor pays tax on materials and charges no sales tax to the contractee (owner) on either labor or materials used in fulfilling the construction contract.

When tangible personal property is permanently affixed to real property but primarily benefits the business conducted on the premises rather than the realty, it is considered a “business fixture” and retains its status as personal property. In these cases, the contractor must charge the contractee (owner) sales tax on the materials and labor.

Construction contractors must pay sales or use tax to the state in which the materials ultimately are affixed to real property.

A federal unemployment surtax expired last week after 35 years, providing business owners some modest relief in the face of rising state unemployment taxes. It is expected to save businesses about $14 per employee per year, for an overall savings of about $1.4 billion per year.

David L. Phelps, CPA

The 0.2% federal unemployment tax (FUTA) surtax expired July 1. Employers are still responsible for the 6% permanent FUTA on the first $7,000 paid annually to each employee. For the calendar year 2011, employers must separately track FUTA taxable wages paid before July 1 and those paid after, since the tax rates will be different for each period – 6.2% from January 1 through June 30, 6.0% from July 1 through December 31.

For employers who are required to make quarterly FUTA deposits, the payment due July 31 will be based on wages earned through June 30, so it must be calculated using the 6.2% rate. The payment due October 31 will be calculated using the 6.0% rate, barring further legislation.

The FUTA surtax was enacted in 1976 as a temporary measure to provide unemployment benefits in the wake of a recession, and it was extended eight times. It is possible Congress will again extend the measure, reinstating it retroactive to July 1 – but Republican leaders have been adamant about reducing taxes and almost certainly would oppose any attempt to restore the surtax.

“The death of any tax on jobs – no matter how big or small – is a historic moment and one to be celebrated,” said Dave Camp, R-Michigan, the Chairman of the Ways and Means Committee. “The fact that it has taken 35 years for this ‘temporary’ tax to expire clearly illustrates the dangers of higher taxes – once in place, they are unlikely to ever go away. We need employers paying more salaries, not paying higher taxes. And when the surtax expires, job creators will get a little and long overdue relief.”

As the White House and Congress continue their debate about raising the government’s debt ceiling, one of the issues on the table is a repeal of “last-in, first-out” accounting, which would essentially mean a multi-billion dollar tax increase on companies that utilize the accounting method.

Bill Cloppert, CPA

President Obama and other Democratic officials have argued that repealing last-in, first-out (LIFO) accounting would simplify the tax code and raise revenue that will help offset an increase in national debt. Republican officials – as well as organizations such as the National Association of Wholesale-Distributors – have argued that a repeal of LIFO would harm businesses and hurt the economy at a time when jobs already are scarce.

If LIFO is repealed, companies currently utilizing LIFO would have to revalue their inventory based on the first-in, first-out (FIFO) method and pay tax on the difference. The NAW and other outlets estimate that it will cost those companies $72 billion in taxes.

In an e-mail sent this morning to its members, the NAW wrote, “We need everyone interested in protecting LIFO to call the White House – now – to let them know that LIFO repeal would seriously hurt their businesses, not just the rich, and would harm economic recovery and cause job loss. … If we produce only a small number of calls, the White House will assume that LIFO use is not widespread and that it only impacts the oil and gas industry and a few large corporations. We need to tell them that LIFO repeal would harm hundreds of thousands of businesses, mostly small and mid-sized companies.”

Democratic leaders have argued that a LIFO repeal would impact only a limited number of companies, mostly large energy companies. In a press conference Wednesday, President Obama said, “The tax cuts I’m proposing we get rid of are tax breaks for millionaires and billionaires; tax breaks for oil companies and hedge fund managers and corporate jet owners.”

Government officials face a deadline of August 2 to increase the nation’s debt limit or risk being unable to pay its bills. The current limit is $14.3 trillion, and the government reached that limit last month. There is some debate about whether the Aug. 2 deadline can be moved and how high the debt ceiling should be raised, but leaders of both parties have made it a priority to negotiate a deal in the near future.

Barnes Dennig professionals will monitor the situation and keep you abreast of all tax and accounting issues that are impacted by the negotiations.

When the Form 990 was revamped three years ago, it was intended to create more transparency and more accountability for organizations across the country. There is no doubt it has created more work for the leaders of those organizations.

In its ongoing attempt to make the form more relevant  – and with the added goal of making it easier to complete and understand – the Internal Revenue Service has invited public comments on certain issues related to Form 990.

Specifically, the IRS welcomes feedback about reporting compensation to key employees and leaders of an organization – compensation directly from the organization and compensation through a management company or leasing company that is owned or controlled by the organization. The IRS has received complaints that the new rules allow some highly paid individuals to avoid disclosing their full compensation.

The IRS also welcomes comments on activity codes, reporting revenue from governmental units, reporting on audited financial statements, and more. The complete list of topics can be found here, along with more details about this process.

Comments are due Aug. 1 and can be e-mailed to Form990Revision@irs.gov using “Announcement 2011-36” in the subject line. We encourage you to copy your Barnes Dennig representative on the e-mail; your comments will help shape our official comment on the issue.

As always, we will monitor the situation and keep you abreast of any changes that result from this process.

Ohio Governor John Kasich recently unveiled a plan to exclude the gain on sale of an Ohio business interest held for 2 years or more from the State’s income tax. The details are not yet known, but the matter has been referred to a tax writing committee in the Ohio General Assembly. 

We will monitor the legislation closely. 

Tax Director John F. Michel, CPA

Perhaps the more obvious questions include:

1. What will be the effective date of such a law? Most laws enacted in Ohio are effective a certain number of days after the Governor signs a bill into law. In certain cases, the effective dates can be made prior to enactment if the law is determined to clarify an existing law. That won’t likely be the case in this instance.

2. Will the law apply only to sales of interests that occur two years after the effective date of the law – that is, limited grandfathering?

3. Will the law only apply to interests acquired after the effective date and held for at least two years? What is to be the treatment of a sale of an interest where the acquisition of the interest took place over several years? Dividend reinvestment plan? 

4. If qualified gains are to be excluded, will Ohio deny recognition of losses on qualified interests sold?

5. Will the gain exclusion be subject to a limitation?

6. How will the eligible interest be defined, as sale of stock? Sale of membership interest in an LLC? Sale of partnership interests?

7. Many transactions are structured as a sale of assets as opposed to a sale of business interests. If the sale of substantially all of the business assets (presumably those sourced to Ohio) would not qualify for a gain exclusion, would that fundamentally change the way deals are structured for sales of businesses? Would certain transactions deemed to be asset sales for federal tax purposes qualify when the form of the transaction is a sale of an interest? That would include so-called federal Section 338 elections and certain dispositions of LLC and partnership interests where the entity holds certain asset types.

8. Would a redemption transaction qualify? That means the company makes a distribution to an owner in exchange for some or all of the interest that owner holds in the company. Redemptions are treated as taxable events for federal income tax purposes.

9. How is an Ohio company to be defined? Substantially all of its assets, employees, or revenue are associated with the State?

10. Presumably, the gain exclusion would be passed through to an investor in a fund structured as a pass-through entity (i.e. an LLC or partnership). What about the sale of an interest in a mutual fund or a real estate investment trust (a hybrid pass-through)? Does the mutual fund or REIT need to meet an Ohio source test (i.e. a look through to its asset portfolio, or the location of the employees of the mutual fund or REIT)? Because REITs and mutual funds distribute their gains in the form of taxable distributions, when these types of investment structures pass through gains that are not taxable in Ohio, will they disclose such information to their investors?

Forty six years ago, Bob Barnes and Al Dennig formed an accounting firm on the belief that respect for employees and passion for client service are the twin pillars of a successful business. Each is possible because the other is present.

As Barnes Dennig has grown into the fifth-largest accounting firm in Greater Cincinnati, we have made it a priority to maintain our respect for employees and passion for client service. They are the foundation of many of the programs we have initiated, internally and externally.

With that in mind, we are proud to draw your attention to Sunday’s edition of The Cincinnati Enquirer. For the second year in a row, Barnes Dennig was recognized as a Top Workplace in Greater Cincinnati, a sign of how well we have fostered a culture of honor and growth within the firm.

We hope it is evident in our work. Ultimately, the value of a confident employee is the quality of work he or she produces for clients, and our clients’ appreciation is the award we treasure most. We realize that in order to be a trusted advisor, we must always be attentive to their needs.

In the meantime, please indulge our moment of satisfaction with this recognition.

We were selected a Top Workplace based on the results of a voluntary survey of our employees by Workplace Dynamics and Enquirer Media. The 22-question survey covered six basic elements: the direction of the company, the execution of its stated goals, the opportunity for career development, working conditions, management, and pay and benefits.

From top to bottom, we make a sincere effort to be respectful of the needs and talents of our co-workers, because we believe it will translate to respect for our clients, their needs and their possibilities.