The American Institute of Certified Public Accountants (AICPA), and more specifically the AICPA Assurance Executive Committee (ASEC), recently issued TSP Section 100, a new set of Trust Services Criteria that apply to SOC 2, SOC 3, SOC for cybersecurity engagements, and supersedes the 2016 TSP Section 100A.
When is the change effective?
SOC 2 reports can be issued under the 2016 guidance through December 14, 2018. However, any report issued on or after December 15, 2018, will be required to use the new 2017 Trust Services Criteria. However, early adoption is permitted.
What changed and why?
Formerly referred to as Trust Services Principles and Criteria, the name of the new guidance has been changed to the Trust Services Criteria.
The principal reason for issuing the updated guidance was to more closely link the TSP with the Committee of Sponsoring Organizations (COSO) 2013 Integrated Framework. This is most commonly recognized by the business community as the framework of choice to assess the design and operating effectiveness of an entity’s internal control over financial reporting. The TSP, like COSO, is used to evaluate internal controls and, more specifically, controls over security, availability, processing integrity, confidentiality, and privacy. According to the AICPA, one of the key benefits of this update was to more closely link these two essential frameworks. Additionally, the AICPA noted that the updated TSP framework allows for cybersecurity risks to be better addressed and allows for a more flexible application.
COSO Internal Control – Integrated Framework
COSO is comprised of 17 principles which are organized into 5 categories:
- Control Environment
- Communication & Information
- Risk Assessment
- Monitoring Activities
- Control Activities
As noted more specifically in COSO Principle No. 12, “The organization deploys control activities through policies that establish what is expected and procedures that put policies into action.” By more closely linking the COSO Integrated Framework with the TSP as well as the addition of what is now referred to as the “supplemental criteria,” the new TSP augments the COSO principles in terms of evaluating internal controls over security, availability, processing integrity, confidentiality, and privacy. Particularly, TSP Section 100.5 defines the supplemental criteria as follows:
- Logical and physical access controls: The criteria relevant to how an entity restricts logical and physical access, provides and removes that access, and prevents unauthorized access
- System operations: The criteria relevant to how an entity manages the operation of system(s) and detects and mitigates processing deviations, including logical and physical security deviations
- Change management: The criteria relevant to how an entity identifies the need for changes, makes changes using a controlled change management process, and prevents unauthorized changes from being made
- Risk mitigation: The criteria relevant to how the entity identifies, selects, and develops risk mitigation activities arising from potential business disruptions and the use of vendors and business partners
Points of Focus
Part of the COSO and TSP integration included the adoption of points of focus into the new TSP. Points of focus provide guidance and examples of important characteristics that should be considered for each control criterion. While the points of focus are new to the TSP, they have always been a part of the COSO Integrated Framework.
The TSP does not require each point of focus to be addressed, however, management should customize particular points of focus, or identify and evaluate other characteristics, based on specific facts and circumstances applicable to their system of controls. As any SOC auditor will freely admit, the application of the TSP involves judgment, and that will be crucial when reviewing the points of focus as they will not all be applicable or suitable for each service organization.
The 2017 Trust Services Criteria can be purchased from the AICPA store (which can be accessed by following this link here). Additionally, click here to download a mapping of the 2017 Trust Services Criteria to the 2016 TSP from the AICPA’s website, including the updated points of focus for each criterion.
One of the fastest growing industries in the United States, and around the world, is the cannabis industry. It is estimated that by 2025, the worldwide market could reach over $50 billion dollars. The United States has long been a leader in the industry, but Canadian and European markets are gaining traction quickly.
Regardless of where you stand on the issue of medical or recreational marijuana, the industry is likely here to stay. Things are moving quickly as states posture themselves to reap tax revenue from both medical and recreational marijuana. It is not often that an entire industry is born.
Business challenges include raising capital, banking and insurance, strict state regulation and oversight, income taxation…oh, and the fact that the industry is in violation of federal law. Previous administrations had taken a soft approach to state legalized marijuana enforcement, but the current administration has reversed that stance, once again leaving the industry in turmoil.
For those looking to break into the industry, you will have to be well-funded, patient, ready to deal with incredible and constantly changing local and state bureaucracies, stiff competition, heavy risks, complex organizational structures, complicated recordkeeping, legal and social opposition, and, of course, taxation.
Our Experience
Not every tax professional is willing to represent clients in this industry or to learn the complex rules related to state and federal taxation. At DiSanto, Priest & Co., we understand the rules and work with other legal and business professionals to assist you in evaluating your options, consulting on organizational form, payroll and banking, and customizing recordkeeping to ensure maximum tax benefit while working through local and state regulations that are, in many cases, antiquated and unprepared to handle this new, dynamic industry. As with anything that is new and different, there are as many questions as answers.
At DiSanto, Priest & Co., we are currently working with multiple clients directly and indirectly in the industry from care-givers, growers, and cultivators to complementary industries like extraction and compounding. We understand the unique federal and state tax law related to the industry and can quickly get you started on the right foot. This is a tight-knit community that regularly shares knowledge on processes, vendors, regulations, and professional representation.
Our partner, Bill Pirolli, heads the division and has over 40 years of tax and business consulting experience. He was previously appointed to the prestigious National Conference of Lawyers and Accountants where marijuana issues were front and center on the agenda, including the study of nuanced federal and state law, providing both white papers and testimony before Federal officials. Contact us today for more information.
We receive regular checkups to monitor, maintain, and improve our health. But did you know that you should do the same for your company? Financial statements provide the vital statistics necessary to track a company’s health. Investors use financial statements to research potential investments, bankers base lending decisions on a company’s financial statements, and valuation experts utilize financial statements to determine a company’s worth. By routinely scrutinizing your financial statements, you can monitor and improve your company’s performance and, ultimately, its value.
A comprehensive financial analysis employs ratios to measure a company’s past and current operations, allowing you to compare its results to others in its industry. This type of review offers insight into the historical growth, profitability, debt capacity, and overall liquidity of the subject company in the context of its industry. All such factors can be important indicators of a company’s ultimate value and provide useful information to business owners and managers who want to more effectively and efficiently manage their operations.
You can perform your own financial checkup for your business. To begin, obtain a history of your company’s financial statements; five years’ worth is usually a good base. Next, convert the financial statements to common size. Common size financial statements are simply your company’s financials expressed in the form of percentages rather than dollars. A common size format readily identifies trends and growth patterns. Additionally, since industry benchmark data is often produced in this format, it makes it easier to compare your results with the competition. Industry benchmark information can be obtained from a commercial vendor, your accountant, or, depending upon the industry, from trade associations.
Next, financial ratios are calculated. There are a number of ratios to choose from – some of the more common ratios measure liquidity, debt coverage, leverage, and operating and profit performance. Their relevance is dependent upon your company, its operating characteristics, and the industry. Bankers and accountants can be especially useful in identifying the more pertinent ratios.
The information gathered thus far is analyzed and compiled on a trended, composite, and industry basis. The results of this analysis, when performed regularly, help you to monitor and recognize the vital statistics necessary to maintain the success and growth of your business. The benefits of this assessment include:
Competitive Advantages & Disadvantages
An industry assessment enables you to identify your company’s strengths and weaknesses and acquire valuable information on the competition.
Budgeting & Forecasting
Studying trends and growth patterns is a very effective preliminary step in preparing internal budgets and forecasts.
Strategic Planning
Recognizing specific performance measurements (company and industry) will help to set goals and objectives for the future (e.g. increasing sales, gross profit margins, and net income).
Acquisition Opportunities
Knowledge of key performance measurements assists in the evaluation of a proposed sale, merger, or acquisition.
Focus
Greater awareness of the interrelationship of the financial statements and a complete understanding of financial operations allows you to focus on the areas important to the growth and success of your business.
Regardless of whether you perform, or your accountant performs, a financial analysis is akin to your annual physical examination…it is crucial to understanding your company’s health – past, present, and future.
Our partner, Leah Szlatenyi, directs the Bentley Consulting Group, LLC and has over 25 years of tax, financial advisory, and business consulting experience. As a former member of the American Institute of Certified Public Accountants’ (AICPA) National Business Valuation Committee, Leah has extensive knowledge in the evaluation of an organization’s financial health, business planning and forecasting, and strategic implementation.
Is your company future ready? We are living in an incredible time of rapid change around the world. Technology, regulation, global economics, political uncertainty, business transformations, generational shifts; and there is no end in sight.
Planning for Market Shifts
We have always dealt with change but never has change come so rapidly. Your smartphone is only 10 years old. How has it changed your life and your business? Artificial intelligence, virtual reality, augmented reality, online commerce, blockchain, Bitcoin, driverless cars, and more. Are you ready for those changes to your business or organization? Will your organization be disrupted by the likes of Uber, Air B&B, Amazon, and others – or will you be a disruptor by creating the next big thing?
Like so many of us, we go through our business day focusing on the present and dealing with the past, but what about the future? Is your organization properly positioned to seize new opportunities and navigate upcoming threats? Have you addressed succession in ownership, management, and on the shop floor? What will your organization look like in three, five, and ten years? These are difficult questions that many simply put off.
Strategic Planning Engagements
Your financial advisor can certainly assist in projecting financials like revenue, profits, taxes, cash flow, and future capital needs, but, in some cases, they can also help you dream about the future of your organization through a formal Strategic Planning Engagement.
The process of developing a future strategy can be daunting, especially for smaller family-owned businesses or organizations with limited resources. The best way to accomplish this goal is to use an outside facilitator who understands the process of long-term planning and the business challenges that all U.S. companies face, serving as a neutral voice in building consensus.
Our partner, Bill Pirolli, has decades of just such experience. Not only has he been on the front lines with his clients for over 40 years as their trusted business advisor (as well as serving in management positions in DiSanto, Priest & Co.), he has also led dozens of strategic planning retreats for accounting and law firms, private businesses, and non-profit organizations.
About Bill Pirolli
Bill has been a volunteer to the accounting profession and business community for over 20 years. He has been the President and Chairman of the Rhode Island Society of CPAs (RISCPA), the Central Rhode Island Chamber of Commerce, and the American Institute of Certified Public Accountants’ (AICPA) Private Company Practice Section. He has held many other committee positions and is currently appointed to the United States and International Board of Directors of the AICPA, an organization with over 650,000 members in 189 countries. Through these experiences, Bill has participated in many strategic organizational visioning projects and learned the best practices for developing a future-proofed strategy.
Get in Touch
Contact us to see how strategic planning can propel your business into the future.
As we continue to welcome in the first quarter of 2018 and the new tax bill, let’s take a quick look at what has changed and what remains the same.
Federal
Thanks to the Tax Cuts and Jobs Act, beginning in 2018, the exemption for Gift, Estate, and Generation Skipping Transfer (GST) tax has increased. The amount that can now be left to heirs, tax free, will be approximately $11.2 million per person and $22.4 million for married couples. Furthermore, the annual gift tax exclusion has been raised from $14,000 to $15,000 beginning in 2018. The 40% tax rate for estate, gift, and GST tax remains the same. In addition, the basis step-up rules, adjusting assets passing from a descendent to fair market value at date of death, does not change.
Rhode Island
For descendants dying on or after January 1, 2018, the estate tax threshold will be raised an additional $22,500, changing from $1,515,156 in 2017 to $1,537,656 in 2018.
What is happening in our neighboring states?
Connecticut
On October 31, 2017, Connecticut increased the individual exemption up from $2 million to $2.6 million in 2018. This will increase again to $3.6 million in 2019 and will match the federal Estate, Gift, and GST Tax Exemption in 2020.
Massachusetts
Massachusetts’ exemption remains unchanged at $1 million. In fact, Massachusetts and Oregon are now tied for the lowest estate tax exemptions in the nation.
As part of the 2018 tax reform, significant changes were made to the ability of businesses to deduct meals and entertainment expenses. The changes took effect January 1, 2018, and, as such, there are steps you should consider taking now to ensure compliance with the new provisions.
Prior Law
Previously, expenses for meals and entertainment were generally 50% deductible provided the taxpayer was able to demonstrate the expenses were ordinary, necessary, and directly related to their trade or business. There were certain circumstances under which 100% was deductible, including employer-operated eating facilities.
New Law – Entertainment
The Tax Cuts and Jobs Act completely eliminates an employer’s ability to deduct business entertainment expenses. This includes, but is not limited to, golf outings, sporting events, theater tickets, and sailing. Taxpayers may still be able to deduct 50% of meal expenses incurred at these events provided you are able to prove there was a substantial and bona fide business discussion associated with the activity.
New Law – Employer-Operated Eating Facilities
The Tax Cuts and Jobs Act has changed the deductible percentage of an eligible employer-operated eating facility from 100% to 50% for amounts paid or incurred beginning January 1, 2018 through December 31, 2025. For expenses paid after December 31, 2025, no deduction will be allowed.
Actions to Consider
In light of the above changes, there are many items taxpayers should consider. Some of the more notable items include:
- Establishing new general ledger accounts to track entertainment expenses disallowed under the new law to ensure these charges are separate from meals charges for which a 50% deduction is allowed
- Review substantiation requirements with respect to meals and entertainment expenses to ensure sufficient detail is provided on all charges
- Assess current policies with respect to employee business entertainment to see if any changes are warranted
The above summary provides highlights with respect to one area of the Tax Cuts and Jobs Act. If you would like to discuss how these provisions, or any other provisions related to tax reform, impact you, do not hesitate to contact us.
President Donald Trump signed into law the Tax Cuts and Jobs Act (TCJA) on December 22, 2017. This new law is the most significant tax law overhaul in 31 years and it affects corporations, pass-through entities, and individuals. Below is a summary of the substantial changes affecting businesses in real estate and construction. Unless otherwise noted, these changes are effective for tax years beginning after December 31, 2017.
- A new rule limiting like-kind exchanges to real property that is not held primarily for sale.
- The exception for small construction contracts from the requirement to use the percentage of completion method has been expanded to apply to contracts for the construction or improvement of real property if the contract:
- is expected to be completed within two years of the commencement of the contract, and
- is performed by a taxpayer that meets the $25 million gross receipts test.
- The R&D credit has been retained. However, for tax years beginning after December 31, 2021, amounts defined as specified research or experimental expenditures will be required to be capitalized and amortized ratably over a five-year period beginning with the midpoint of the taxable year in which the expenditures were paid or incurred.
- Bonus depreciation has been doubled to 100% and has been expanded to include used assets. This change is effective for assets acquired and placed in service after September 27, 2017 and before January 1, 2023. For property placed in service after December 31, 2022, the 100% allowance is phased down by 20% per calendar year.
- Section 179 expensing limit has been doubled to $1 million and the expensing phaseout threshold has been increased to $2.5 million.
- Qualified improvement property is now generally depreciable over 15 years without regard to whether the improvements of the property are subject to a lease or placed in service more than three years after the date the building was first placed in service.
- New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies, and S Corporations) and sole proprietorships. This deduction is available through 2025.
- New disallowance of deductions for net interest expense more than 30% of the business’s adjusted taxable income (exceptions apply).
- Section 199 deduction, also commonly referred to as the domestic production activities deduction, has been eliminated for tax years beginning after December 31, 2017.
- The rules regarding partnership technical terminations under Section 708(b)(1)(B) have been eliminated.
This is just a summary of the most significant TCJA provisions that will affect businesses engaged in real estate and construction. If you are interested in learning more about how these and other provisions of the new law impact you, please contact your tax advisor.
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA) into law. Included in the law, which contains the most significant changes to the taxation of corporations, individuals and passthrough entities in 31 years, are several noteworthy provisions related to taxpayers in manufacturing, distribution and retail, as highlighted below. Unless otherwise noted, these changes are effective for tax years beginning after December 31, 2017.
• Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017.
• Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023. The 100% allowance is phased down by 20% per calendar year for property placed in service after December 31, 2022.
• Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million.
• While the R&D tax credit was retained, for tax years beginning after December 31, 2021 amounts defined as specified research or experimental expenditures are required to be capitalized and amortized ratably over a five-year period beginning with the midpoint of the taxable year in which the expenditures were paid or incurred.
• Businesses would be exempt from the requirement to maintain inventories if annual average gross receipts for the three preceding tax-years do not exceed $25 million. This provision would allow businesses to: 1) treat inventories as non-incidental materials and supplies, or 2) follow the taxpayer’s method of accounting reflected in an “applicable financial statement” for the tax year, or if the taxpayer doesn’t have an applicable financial statement for the tax year, the taxpayer’s books and records prepared in accordance with the taxpayer’s accounting procedures.
• Taxpayers who meet the $25 million gross receipts test mentioned above would also be exempt from the uniform capitalization rules found in Code Section 263A.
Please note that this is just a brief overview of some of the most significant TCJA provisions. Contact your tax advisor to learn more about how these and the other provisions of the bill will affect you in 2018 and beyond.
SALT, (State and Local Taxes), has become a familiar term for business owners that operate in multiple states; however, taxes are not the only area of compliance that businesses that operate over state borders need to be concerned with.
Property managers that lease residential units or apartments need to be aware of the state regulations pertaining to landlord and tenant’s rights and obligations. Each state’s business regulation department provides guidance pertaining to the Landlord/Tenant relationship and just like state taxes, these regulations vary from state to state.
Some of the key topics pertaining to the Landlord/Tenant relationship are summarized below for the Tri-state area of Rhode Island, Connecticut, and Massachusetts. For more detailed information please refer to the individual state’s business regulations that can be located at the websites indicated at the top of the chart.
Landlord/Tenant Chart (RI, CT, MA)
Disanto, Priest, & Co. and its affiliates do not provide legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for legal advice. You should consult legal advisors before engaging in any transaction.
Wage-paying small businesses with minimal taxable income can now take advantage of their research credits sooner than was allowed under the previous tax rules. The Protecting America from Tax Hikes Act of 2015 allows qualifying small businesses to apply research credits against the social security portion of its federal payroll tax bill. Key facts about the election follow:
Eligibility
A qualifying small business for purposes of this election must meet the following two requirements:
- Gross receipts for the election year must be less than $5 million, and
- Must have no gross receipts for the preceding five-taxable-year period ending with the current tax year.
Making the Election
The election is made on Form 6765, Credit for Increasing Research Activities. Under a special rule for 2016, the IRS will allow a qualifying small business that has already filed its 2016 tax return to file an amended return by December 31, 2017 to take advantage of the election. The qualified small business can then start reducing their federal payroll tax bills for the first calendar quarter beginning after the date on which it filed its tax return.
Limits on the Election
Research credits can only be used to offset the employer’s portion of Social Security taxes. They cannot be used to offset the employer’s Medicare taxes or any FICA taxes that are withheld from employees’ wages. The maximum amount that can be applied against payroll taxes cannot exceed $250,000 annually.
For More Information
These are just the basics with respect to the payroll tax election. Your tax advisor can assist in determining the benefits of the election to ensure that you are maximizing all available incentives.