Issuu

Volume III

SAX FOCUS NEWSLETTER: VOLUME III

In This Issue MANUFACTURING & DISTRIBUTION CORNER

• The Impact of Tariffs & Duties in Today’s Economy

Written by: Stephen J. Ehrenberg, CPA, MBT

CONSTRUCTION CORNER

• Surety Requirements: Finding & Maintaining Your Surety Bonding

5 05

Written by: Christopher O’Keefe

HEALTHCARE CORNER

• Building A “Practice Crash Cart” Written by: Susan E. Reed, CPA, CFP®

NOT-FOR-PROFIT CORNER

• Form 990: It's More Than Just The Numbers For Not-For-Profits Written by: Maria Plucinsky, CPA

REAL ESTATE CORNER

• Reshaping Our Work Space: Is the Corner Office Dead?

Written by: Stuart Berger, CPA

TECHNOLOGY CORNER

• Password Security is Vital, But Harder Than You Think

Written by: Matthew Hahn

WEALTH MANAGEMENT CORNER

• Charitable Giving Under New Tax Laws: An Overview of Sensible Strategies Written by: Kyle R. Stawicki, ChFC®

The information contained within this newsletter is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax or financial advice from a professional.

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M&D CORNER

The Impact of Tariffs & Duties on Today’s Economy

Written by:

Stephen J. Ehrenberg, CPA, MBT

Director

Sax LLP sehrenberg@saxllp.com Sax Focus • www.saxllp.com Page 3

TARIFFS & DUTIES IMPACT

This year has been, to say the least, an eventful year for taxpayers across all industries. The passage of the Tax Cuts & Jobs Act (“TCJA”) in December 2017 provided opportunities for businesses and individuals to augment or modify their existing tax profiles. Taxpayers have had their hands full implementing the changes brought about by the TCJA, including the reduction in the top overall corporate tax rate of 35% to a flat rate of 21%, and the 20% qualified business income deduction, along with enhanced tax depreciation benefits and interest expense deduction limitations. However, in addition to the income tax impact associated with the provisions of the TCJA, businesses and their owners have been recently forced to consider the short-term and long-term implications of the potential increase in tariffs and duties on goods imported to the United States. Furthermore, actions taken by foreign jurisdictions to alter the tariffs and duties placed on goods exported from the U.S. must also be considered. THE FUTURE OF TARIFFS AND DUTIES Tariffs and duties are basically an additional tax placed on goods imported into a particular country. While planned increases in tariffs and duties surrounding steel and aluminum imported into the U.S. have received much of the attention from the press in recent months, these additional taxes are imposed on a number of different goods. The importer of record typically pays the tariff, with the end-user of the imported good generally impacted by an increase in cost. Be it a manufacturer or a construction company purchasing materials from overseas vendors or an individual buying the latest electronic gadget, the increase in costs is likely to wind up with the end-user. The U.S. federal government has sought to close the perceived competitive disadvantage due to relatively low-level tariffs and duties imposed on domestic imports, in comparison to the tariffs and duties imposed on goods exported to foreign jurisdictions. In recent years, there has been momentum surrounding a change from the worldwide taxation system presently in place in the U.S. to a territorial taxation system which limits the income subject to tax to that which is earned within its borders. While the border adjusted taxation system, which essentially taxes imports while exempting tax on exports, never came to fruition, a series of increased tariffs and duties were imposed (or planned to be imposed) on certain goods imported into the U.S. beginning in January 2018.

IMPACT ON THE ECONOMY While the needle is still moving in terms of where the import and export tariffs and duties will ultimately land, the global economy is clearly impacted. From a U.S. perspective, proponents of the tariff system argue that the economy benefits from the taxation of imports, as the increased duties that foreign exporters would face provides a competitive advantage for domestic providers who are not subject to similar fees. Opponents of the system argue that a tariff and duty system limits competition, as purchasers have a smaller supply of vendors to choose from. Irrespective of where you stand on this spectrum, one can certainly envision a future state of increased costs borne by the end-users and/or consumers of these goods. Additionally, the trade agreements in place between countries throughout the world have received expanded scrutiny, as the governmental agencies look to renegotiate current tariff and duty policies in place to avoid an increase in the scope and amount of these costs. WHAT’S NEXT? Since the idea of an increase in domestic tariffs and duties was first introduced, there has been a lot of political banter as nations across the globe have sought to negotiate or renegotiate trade agreements to stem the tide of higher costs to do business worldwide. With the threat of large increases to the tariff and duty system as a backdrop, we have seen the recent replacement of the North American Free Trade Agreement (“NAFTA”) with the U.S.Mexico-Canada Agreement (“USMCA”), signaling a significant shift in some of the trade policies and provisions shaping the global economy. While the USMCA is still awaiting ratification by the three countries and thus will not go into effect until early 2020, this agreement could be a precursor to renegotiated agreements with and between other countries. As the U.S. government, along with their foreign counterparts, weigh the consequences of trade agreements vs. tariffs and duties, the situation bears watching, as taxpayers across all industries will certainly be impacted.  STEPHEN J. EHRENBERG, CPA, MBT is a Director at Sax LLP and a member of the firm’s Manufacturing and Distribution Practice, providing 19 years of industry expertise in the areas of corporate, pass-through and individual tax compliance and consulting, as well as accounting for income taxes. He can be reached at sehrenberg@saxllp.com.

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CONSTRUCTION CORNER

Surety Requirements: Finding & Maintaining Your Surety Bonding Written by:

Christopher O’Keefe Manager

Sax LLP cokeefe@saxllp.com

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MAINTAINING SURETY BONDING Sureties are obviously very important in the construction world. As a recap, a surety bond is similar to an insurance policy in that the bond protects a party in the event of a loss. However, there is an important fundamental difference between the two. Unlike an insurance policy where the party purchasing the policy is protected in a loss, a surety bond is purchased by the principal (the contractor) for the surety to provide a guarantee to the obligee (the owner) that the principal will fulfill its obligations. Here are the most common types of surety bonds: 1. Bid bond – This assures the job owner that the contractor will enter into the contract at the price that was bid. 2. Performance bond – This assures the job owner that the job will get done, and that the surety is responsible for ensuring the contract is completed in its entirety and as expected. 3. Payment bond – This assures the subcontractors and suppliers that they will be paid for their obligations performed under the contract. A general contractor is required to obtain, at a minimum, both a performance and payment bond when contracted under the federal government or one of its agencies for at least $100,000. This is required under the Miller Act, and it protects both the owner of the contract, as well as the subcontractors that are hired to perform under the general contractor. Bonds can also be required under private contracts as well. With that, surety bonds are almost unavoidable. As an outsider, it does seem that finding the right surety and keeping it happy is a hassle to a contractor. However, it is important to note just how valuable the right surety can be for a contractor and its successful future. We will get into that later, but keep in mind that this story does have a happy ending. A contractor’s first step in obtaining a surety bond is to find a trustworthy surety bond producer who acts as an agent between the contractor and surety company. The producer will be in direct contact with underwriters from a number of different surety companies to identify the right surety company to fit the contractor’s unique and specific needs. The type of surety that is sought can vary depending on the types and size of jobs performed by the contractor. SURETY UNDERWRITER CHECKLIST When the producer finds a surety, there are many different aspects and details of the company that the surety underwriter will focus on when determining if the contractor is likely to fulfill its obligations under the bond. The contractor needs to first go through a pre-qualification for bonding, which requires the following be provided: 1. A breakdown of the organization structure of the contractor, which includes the responsibilities of the company’s key employees. An organized and structured company is more attractive to a surety as it demonstrates that controls are in place that can help to prevent misappropriation of assets or significant issues that could potentially affect the contractor’s working capital.

2. A business plan that states the company’s objectives, as well as the strategies through which it plans to achieve them. The plan also needs to include the type of work that the company is seeking, the geographical region in which its work is done, and potential prospects. The surety would like to know that the contractor has a business model with goals they will be able to reasonably achieve. 3. A description of the company’s succession or continuity plan, if any. This may seem like an unusual request, but this is important to a surety in the event that the company experiences the death of the owner or other key personnel. If the contractor loses someone who is crucial to the everyday activities of the company, the contractor is expected to have a backup plan to continue its business operations and fulfill its current obligations. A life insurance policy on owners or key employees can also be a plus as it can protect the surety from a loss in the event that the company defaults on its bond. 4. A history of larger jobs that the contractor has completed, as well as a current work in progress schedule that lists out the job owner, contract prices, expected gross profit, and approximate completion dates. If the surety has an understanding of the types of jobs the contractor is able to complete and the margin at which the jobs are completed, it can better understand how the contractor was able to perform on larger jobs in the past. 5. Supporting agreements for the company’s revolving line of credit. Cash flow is arguably the most important financial measurement of a company’s success, as a healthy bottom line doesn’t mean anything if the cash isn’t coming in. Cash flow can be strained for a number of reasons, and the company needs to be able to compensate if these deficits do occur in order to meet its short term working capital needs. 6. Letters of recommendation from owners, subcontractors, or engineers the contractor has previously worked with. This may almost seem too easy, but if a company has a good relationship with one of its owners or subcontractors, receiving a recommendation from that party can go a very long way in obtaining bonding. Contact information may also be provided when the contractor provides the underwriter with the owners for each outstanding job and its larger historical jobs. Underwriters could contact these owners to get a better idea of how well the contractor performed the work and if it met expectations. Third party verification of a company’s performance could be one of the most valuable tools in assessing its abilities to perform its obligations with future contracts. Although it was mentioned that cash flow is arguably the most important measurement of a company’s financial status, a surety needs a full understanding of all aspects of a company’s current and past performances. Although cash may be coming in, if the contractor’s job costs and overhead are consistently exceeding the revenue it’s earning on its work, at some point the cash is going to run dry. The contractor will be expected to provide at least two to three years of prior fiscal year-end financial statements. The surety will also require financial statements that have been given some level of assurance by a CPA. (continued on page 7)

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The following types of year-end statements may be provided: 1. Audited financial statements – A CPA certifies a professional opinion that the financial statements are in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which is obtained through substantive audit testing and highly effective analytical procedures. This is the highest level of assurance that can be provided on financial statements, and are generally required by the surety when the contractor is trying to obtain very large federal and state contracts. 2. Reviewed financial statements – A CPA will provide limited assurance that the financial statements are in accordance with U.S. GAAP by performing analytical procedures and an inquiry with company management. If the contractor is looking to obtain a bond in excess of $1 million, reviewed financial statements will generally be required by the surety. 3. Compiled financial statements – A CPA will provide no assurance over whether the financial statements are in accordance with U.S. GAAP; however, the CPA firm will express its independence in the accountant report, which will give the surety minimal assurance. Compiled statements can generally be accepted if the bond limit does not exceed $1 million. The underwriter may also request interim financial statements quarterly as prepared by management if this isn’t sufficient. If the underwriter is not satisfied with the company’s financial information but is still willing to offer bonding, a personal promissory and cash collateral may be required if the contractor is considered to be very risky due to its poor financial performance. The necessary assets must be in place to guarantee recovery in the event of a loss. The surety will also require that the contractor sign a personal or corporate indemnity agreement. This will further ensure that the obligee compensates the surety for any losses incurred as a result of its failure to fulfill its obligations under the bond. The obligee is expected to pay all damages possible before anything comes out of the surety’s pocket. SURETY BONDS FOR SMALL BUSINESSES This is admittedly a long-winded checklist that a surety underwriter must go through to offer a bond to a contractor; however, there are many contractors out there who will not meet these requirements and will therefore not be able to obtain bonding under private surety companies. This could be due to the small size of the contractor, or the fact that the contractor has not been in business long enough for the surety to gain comfort that it will perform the obligations under the bond. Hope is not lost for these contractors, as the Small Business Administration (SBA) was established to benefit small businesses and give them an opportunity in the marketplace by creating a level playing field. The SBA can guarantee surety bonds for smaller contractors, which gives sureties additional comfort that they will recover any potential losses under the bond.

SBA bonding can be very beneficial for small contractors hoping to get their names out in the marketplace and compete with larger contractors. In order to qualify for SBA bonding, a contractor must meet the following criteria: 1. The company must qualify as a small business, and the revenue threshold differs depending on the construction specialty performed by the contractor under the SBA size standards. The size standards vary based on the type of contractor: a. Companies in the business of constructing buildings and heavy/civil engineering construction, whose revenues do not exceed $36.5 million. b. Companies in the business of land subdivision and dredging/service cleanup activities whose revenues do not exceed $27.5 million. c. Specialty trade contractors whose revenues do not exceed $15 million. 2. Federal contracts pursued under the bond must not exceed $10 million, and non-federal contracts must not exceed $6.5 million. 3. The company should maintain a line of credit with a reputable bank. The SBA uses the available balance on the line of credit as additional cash for the purposes of calculating working capital, as this is considered additional “cash” for this purpose. It can be very beneficial to the company to request an increase in its credit line in order to boost its working capital, which can result in greater bonding limits. As promised, this story will end on a positive note. Although finding and maintaining surety bonding seems like a grueling process as the surety company must review the contractor’s financial data on a constant basis, there are several benefits that can be expected from finding the right surety. First, it’s important to note that a good surety bond producer, with whom the contractor has established trust, can make a world of difference in the search. A good relationship with the producer is more likely to result in a good relationship with the surety. When the contractor finds the right surety, establishing and maintaining a good relationship with it is crucial. Surety companies are very well connected in the business world with groups such as bankers and accountants, and the surety can be used as a reference for a contractor to get connected with these groups. The surety must understand the needs and objectives of the business and can then point the contractor in the right direction. The surety can also help to verify the funding sources of private contracts in order to give the contractor comfort that it will ultimately be paid. Remember that the surety and contractor should always be on the same team, and it all comes down to having that meaningful and trusting relationship. Although the process of obtaining a bond and meeting these requirements can be strenuous, contractors looking for bonding should understand that it is worth it to tough it out.  CHRISTOPHER O’KEEFE is a Manager in Sax’s rapidly growing Construction Practice. He specializes in audit and accounting services for contractors, as well as increasing their overall operational efficiencies and internal controls. Chris can be reached at cokeefe@saxllp.com.

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HEALTHCARE CORNER

Building a “Practice Crash Cart” Written by:

Susan E. Reed, CPA, CFP® Partner

Sax LLP sreed@saxllp.com

The

crash cart at your practice stands ready for all clinical emergencies. Just as you have protocols and prepare for a patient crisis, you also need to make sure your practice is ready to respond at a moment’s notice to the ever-changing healthcare environment. Legislation on the national and state level continues to reform the delivery of healthcare. New alliances are formed daily, with partnerships we would not have imagined even just two years ago. Private Equity is increasing its presence in healthcare, becoming the dominate force in anesthesia, dermatology,

pediatrics and urgent care centers. All the while, technology is advancing at unprecedented rates. To keep your practice relevant and equipped to stand the test of industry shifts, I recommend that you build a “Practice Crash Cart”. This cart will be a repository of data about your practice, your competition and the marketplace. This data will not only allow your practice to respond when change happens, but will allow your practice to be proactive in tailoring how you will react to the change.

PRACTICE DATA I recommend that your practice keep the following summary reports on an annual basis: I. MONTHLY FINANCIAL SUMMARY Reference A Month

Beginning A/R

Charges

Payments

Collectable Adjustments

Non-Collectable Adjustments

Ending A/R

Jan - 2018

5,205,194

3,485,140

(2,625,914)

(7,003)

(983,530)

5,073,887

Feb - 2018

5,073,887

3,314,861

(2,330,026)

(34,394)

(909,126)

5,115,201

6,800,001 These are DOS Charges

(4,955,940) These are DOE Charges

(41,397) Timely filing/no authorization etc.

(1,892,656) Contractual allowances etc.

Totals

Reference A is a sample report that is a 30,000-foot view of your practice with regards to charges, payments and adjustments on a monthly basis. Not only does it allow you to quickly spot trends or areas of concern, it also keeps vital practice data in an easy to retrieve and review report.

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PRACTICE CRASH CART II. KEY STATISTICS REPORT Reference B BILLING

PATIENT VISITS

PROCEDURES

# OF DAYS

# OF

Month

Charges

Collections

Adjustments

AR Balance

W/ PT’S

NOV’S

ROV’S

Proc 1

Proc 2

Proc 3

Proc 4

JAN

3,485,140

2,625,914

990,533.00

5,073,887

250

112

FEB

3,314,861

2,330,026

943,520.00

5,115,202

243

107

2018 TOTAL

6,800,001

4,955,940

1,934,053

134

493

219

127,075 Collections per patient day | 72.88% Collection Ratio Reference B is a report that drills down on your practice data to provide key statistics such as your practice collection ratio and collections per patient day. It also keeps track of new and recurring patient visits as well as the number of key procedures performed by your practice. You can also use both reports – Monthly Financials & Key Statistics – to analyze specific areas of your practice and get more granular with your data. For instance, a multi-specialty group can run these reports for specific specialties or by provider. They can also be run by payor, so that you spot trends or gaps before they become a significant issue. In addition to these reports, be sure you have: • All legal documents in one location and ensure the agreements are current • Up-to-date payor contracts along with a summary of reimbursement for the top 20 procedures performed by your practice • Current financial reports • Current productivity reports, including the number of wRVUs for each provider COMPETITOR DATA You should have a list of all the competitors in your geographic area. On a regular basis you should monitor what is happening with them, especially now when there is constant movement in the industry. Have they joined a hospital alliance that might affect your referral patterns? Have they added a new specialty that will make their practice more attractive to patients? You also want to keep track of national organizations to see if they are coming to your neighborhood, or if they are aligning with your competition. Your practice should strengthen any relationships that are vital to the success of your practice to prevent your competition

from stepping in. For instance, if your practice receives referrals from a primary care group, make sure you super please them by providing their patients with next day appointments as well as providing the referrer with timely patient notes. MARKETPLACE DATA There is nothing worse than being blind-sided by a change you didn’t see coming. The best way to avoid this is by understanding the market that you practice in. With this knowledge, you can look for opportunities or threats for your practice. Get key members of your management team involved to spread the workload. To understand what is happening locally, consider joining your local medical society. To understand what is happening within your specialty, consider participating in the advocacy section of your specialty society. By getting involved, not only will you gather important information and resources for your practice, but you can also be a force of change. IN CONCLUSION By having this data accessible in your “Practice Crash Cart” your practice will be ready to respond when opportunities or threats arise. Opportunities include practice alignments, participation in new payor programs or offering new services. Threats include competitors opening an office around the corner, regulatory changes or decreasing reimbursement. This collection and review of data will also allow your practice to be proactive, as you will be able to take corrective action before negative trends become a reality.  SUSAN E. REED, CPA, CFP® is a Partner with Sax and is Head of the firm’s Healthcare Practice. Susan is turned to by medical and dental practices to provide innovative and tailored solutions to combat industry challenges and acts as an operational consultant for clients focusing on but not limited to physician practice assessment, physician compensation, practice succession, taxation, strategic business planning and new practice set up. Susan can be reached at sreed@saxllp.com.

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NOT-FOR-PROFIT CORNER

Form 990: It’s More Than Just The Numbers For Not-For-Profits Written by:

Maria Plucinsky, CPA Partner

Sax LLP mplucinsky@saxllp.com

If you’re a tax-exempt organization, I’m sure you’ve felt the shifting times. There is increasing competition for funding, with new laws in place potentially leaving less to go around. Also, nonprofits are under increased scrutiny by the government and by the public to deter abuse of their tax-exempt status. It is now more important than ever to stay informed, compliant, and strategic in your next moves forward. Form 990 is the tax return for not-for-profits and means so much more than just the numbers. This form is an “information” return in every sense of the word. The IRS demands transparency with full disclosure of a tax-exempt organization’s activities as it requires Form 990 to be open to public inspection. Even though the IRS imposes strict guidelines, Form 990 can be a great tool to attract donors, volunteers and board members, and provides information to banks, creditors and service providers. It is an opportunity to market programs and fundraising efforts, but most importantly, it can be used to tell the reader a story about the organization.

current obligations. The IRS requires a not-for-profit organization to report on its exempt and other activities including contributions and income producing activities, program service activities, investment activities, fundraising activities, finances, governance, compensation paid to certain persons, and compliance with certain federal tax filing requirements. A not-for-profit is required to report on annual activities including its results from operations, and its program efficiency. Program efficiency is the percentage of revenue spent on program services. This is a key factor looked at by donors wondering what percentage of their donation will likely be spent on program services. Form 990 has several areas dedicated to showcasing an organization’s mission, program accomplishments, and governance policies to a reader so they can determine if it all aligns with their objectives. The words used to describe a mission and program accomplishments should be very powerful and informative to peak the reader’s interest.

INFORMATION PROVIDED BY A NOT-FOR-PROFIT Currently, many organizations compete for the same charitable dollars from individual donors. Form 990 presents a snapshot of an organization’s financial position including its ability to meet

(continued on page 11)

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IT'S MORE THAN JUST THE NUMBERS

TIPS & NOTES ON ELEVATING THE COMMON “CORE” NARRATIVES Form 990: Part I, Summary, Line 1: Briefly describe the organization’s mission or its most significant activities for the year. A not-for-profit can choose what it wants to highlight here. Often this area is used to communicate the official mission statement. This section is located near the top of the first page, so it is important to be as compelling as possible to grab the reader’s interest right out of the gate. Note: If possible, try to fit the entire description/mission statement in the space provided to avoid continuation onto Schedule O, unless necessary. Not every reader will look for the continuation of the narrative. Form 990: Part III, Statement of Program Accomplishments, Line 1: Briefly describe the organization’s mission. Many organizations use the same narrative in Part I, Line 1 and Part III, Line 1. Unfortunately, this is not necessarily correct. The narrative in Part III should specifically detail how the organization fulfills its mission. For example, “conducting food drives to feed the homeless”, “providing housing services to the elderly”, “providing shelter for stray dogs”. Note: The organization does not need to limit itself to the assigned lines in this section as any overflow will continue onto Schedule O. However, it is important that the key items to address are listed on the main page in case the reader does not follow the continued narrative. Form 990: Part III, Statement of Program Accomplishments, Lines 4a-4c: Describe the organization’s program service accomplishments for each of its three largest program services, as measured by expenses. The narrative must include: a description of the program service accomplishments through specific measurements (i.e.: an approximate number of clients served, days of care provided, or publications issued) in addition to the program’s objective for both this time-period and the longer-term goal. Note: This is where a not-for-profit will want to showcase program accomplishments with both quantitative and qualitative information.

GOVERNANCE POLICIES: Form 990: Part VI, Section B. Policies, Questions 10a-16b: This section requests information about the internal policies and procedures of the organization. These policies are not required by the IRS, however, being able to answer “yes” to the questions are a good reflection of the organization’s governance abilities and best practices. Items such as conflict of interest policy, whistleblower policy, document retention policy, or an executive compensation policy, if not already adopted by the organization should strongly be considered. FORM VARIATIONS & DEADLINES The basic Form 990 is at least 12 pages long, plus Schedules A through R representing 16 additional schedules – some are always required, some are only required if applicable. Smaller organizations may qualify to file Form 990-EZ, if annual gross receipts are less than $200,000 and net assets at year-end are less than $500,000. Organizations may qualify to file the e-postcard, Form 990-N, if gross receipts are less than $50,000. Whichever form applies to your organization, non-compliance with those filing requirements could subject the organization to significant penalties and/or loss of tax-exempt status. All 990 forms are due by the 15th day of the 5th month after the organization’s accounting period ends. (May 15th for a calendar year taxpayer). Automatic 6-month extensions are available if timely filed before the original due date. Since a not-for-profit organization’s financial statements are not always readily available, some members of the public rely on Form 990 or Form 990-EZ as their primary or sole source of information about a particular organization. Copies of an organization’s Form 990 are easily accessible at no cost though a nonprofit information service known as GuideStar USA, Inc. at www.guidestar.org. How the public perceives an organization and/or whether or not a donor commits funding to the organization can be determined in such cases by information presented on its return. Make sure you are informative. Make sure you are accurate. Make sure you are compelling. Remember, when “telling the story”, the organization’s numbers and narratives may count equally.  MARIA PLUCINSKY, CPA is a Partner at Sax LLP and a member of the firm’s Not-for-Profit Practice. She has over 30 years of experience in public accounting, with a focus on not-for-profit organizations and closely-held businesses. Maria can be reached at mplucinsky@saxllp.com.

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REAL ESTATE CORNER

Reshaping Our Work Space: Is the Corner Office Dead?

Written by:

Stuart Berger, CPA Partner

Sax LLP sberger@saxllp.com

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RESHAPING OUR WORK SPACE

The

discussions continue in the real estate world revolving around the future of our work space, and particularly, what we do when Millennials and Generation Z’s want their work environment and their play environment …. at the same time. Do they truly want it all? Times are indeed changing, and the workforce is now made up of four generations: Baby Boomers (born 1946-1964); Generation X (born 1965-1980); Millennials (born 1981-1996); Generation Z (born 1997-2010). With these different generational mindsets come different approaches and priorities to the work space which we can see mirrored in the current trends of office buildings today. To put it into perspective, I myself am a Baby Boomer. When I began my career, there weren’t many options as to the type of office environment I could choose from when I entered the workforce, nor did I give much thought to the amenities I preferred, or aesthetics I found most pleasing. Accounting firms, and the majority of other corporate office buildings at the time were typically all the same – limited amenities, perimeter offices, cubicles in the center, and no desktop computers, but rather an endless supply of pencils. That is one stark difference between then and now. Those entering the workforce today give significant thought to their office location and what is has to offer. I attribute this changing mindset to the shifting importance of a work-life balance for the younger generations and the recognition that our jobs are where we spend much of our time and because of that, they must meet our personal needs. What do the new generations taking over the workforce want in an office space? I believe a primary answer to this question is quality of life. A number of components are baked into that – convenience, comfort, sustainability and well-being. • Convenience. The new generations coming in are accustomed to our advancing technology, and the ability to provide and access information at any time and from virtually any place. Gone are the days when we must be tied to our office desk to complete our responsibilities. This ability to work from anywhere gives us more balance between our work lives and our personal lives, which is vital to success in both areas. • Comfort. Trends have shown that amenities are desired that enhance our working lives such as workout facilities, baristas, access to dining, and fun activities nearby. New office spaces are being developed to be much more accommodating, and more of a place where a professional would choose to spend their time without the pressures and formality of the traditional or “outdated” office. • Sustainability and Well-being. In addition to a demand for flexibility and freedom, we see Millennials demand personal wellness and sustainability opportunities as well. With that, we now see a shift to emphasize good quality working environments. This includes being environmentally sustainable by going green, and providing wellness functions like “Zen rooms”, childcare, and laundries.

What is the Real Estate Industry doing to meet the needs of the new generations? This new and growing “want list” for the incoming workforce must be addressed. Developers with vision and creativity have been taking the 70’s and 80’s office campuses and creating the worklive-play concept – and truly transforming them. However, we are still figuring out what exactly these new professionals need. • Potential Trends. Office campuses are being developed as “one-stop-shops” for young professionals looking for the convenience of everything they need in their personal and work lives, in one spot. As time moves along, more developers are taking down old office buildings and taking advantage of the high demand in multi-family housing and constructing apartments within office campuses. • Possible Misconceptions. It was thought that the newer generations favored collaborative space and open-office concepts. In fact, today’s average allocation of space per employee is close to 150 square feet, down from 225 feet in 2010. However, I’ve seen a number of critics to this design, and trends actually moving away from this relatively new thought process. Some recent studies have suggested that more and more employees are unhappy with the lack of privacy and the noise that occurs in the open space environment. Many resort to wearing earbuds during their work hours. • Our Own Findings. We have taken our own internal poll and posed the question as to what layout is most desired. To our surprise, the majority of our employees (approximately 50% are Millennials) mentioned wanting amenities, and collaborative areas that promote interaction among employees from all levels and departments within our firm. However,when it came to their individual workspace, the majority of employees preferred higher cubicle walls for added privacy without interruption. All in all, the ideas behind private office space is rapidly evolving and care should be exercised when designing the future office space. Is the corner office dead? According to our firm’s own staff, the corner office is still a symbol of success in one’s career. While it is often said that the pendulum swings too far in each direction and history repeats itself, I believe the private office will be with us in the future. However, I also believe the amount of time one is expected to work in that said corner office will drastically change. As technology makes every facet of our lives more convenient, that is expected to apply to our office space and work environment as well. Developers can no longer rely on cookie cutter spaces to entice people to fill the offices – we are in a time of innovation, creativity, and meshing our work and home lives. It is on the real estate industry to factor this evolution into all new office space moving forward and address the changing times. STUART BERGER, CPA is a Partner at Sax LLP and the founder of the firm’s Real Estate Practice. For more than 30 years, he has provided industry-specific tax and advisory services, with a special emphasis on helping family owned companies and investors realize their full profit potential and maximize tax benefits. He can be reached at sberger@saxllp.com.

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TECHNOLOGY CORNER

Password Security is Vital, But Harder Than You Think. Written by:

Matthew Hahn Chief Technology Officer

Sax Technology Advisors mhahn@saxtechnology.com

Did you know that 73% of small businesses have been victims of a cyber-attack? Passwords protect against unauthorized access, like your house keys, and is an important key to your overall protection. However, password security is harder than most think. Unfortunately, most technology cannot differentiate you from anyone else. So, someone getting your password allows them access to your data and information as if they were you. This applies to your password credentials that you use online to protect access to your applications, data or other resources. You need to ensure you are using the strongest passwords to protect yourself where it makes the most sense. Let’s work to address this important barrier between you and the bad guys so you can protect your personal information, and the sensitive information of your company and clients. It’s worthwhile to brieﬂy explain how basic passwords work: Instead of storing a user’s actual password, web sites, applications and devices store what’s called a “hash” of your password or in other words, encryption. The hash is a computed representation of your password.

When you choose a new password, the system takes your input and runs complex mathematical computations to get an equally complex string of characters that no longer resembles your password and may not even have the same number of characters. When you go back to that system or application later and give it the password you created, it runs the computation again and compares that to the hash. The reason for this complex process is to prevent hackers from getting your password from the system you log in to. Why is password security so difficult? Hackers have evolved beyond someone at a computer typing in different password combinations. The bad guys have computers too, and they use complex computer programs to guess password combinations extremely fast. How fast? How about three hundred billion guesses per second using a high-powered computer. Get a few computers to work together and a 10-character password can be guessed in roughly 37 seconds. Because password values are stored and computed using commonly acceptable mathematical practices, password values can be pre-computed by just about anyone. When hackers get Sax Focus • www.saxllp.com Page 14

PASSWORD SECURITY unauthorized access to a website or a company’s network, they can then get everyone’s password very easily. They collect ﬁles or database records that contain hashed password values and match them up to a pre-computed list. 76% of business breaches were carried out by compromised user accounts. Unfortunately, choosing a complex password is not enough when it comes to password security. With hashing and encrypting becoming stronger, and users creating passwords that are impossible to crack, hackers also update their tactics to get through. One way that hackers have stepped up their game is by using what is now called phishing emails. These emails are designed to entice you to click a link that brings you to a website that looks and feels like the real thing but is really a fake site that a hacker created to get you to type in your username and password. Once you type in your information, the fake site may redirect you to the real site so you never know anything bad ever happened. These emails are beautifully crafted and trick some of the best security minded people in the business. Hackers have also developed ways of tracking keystrokes to obtain passwords as you type them. To do this, they design malware and viruses to infect computers with software looking for passwords (called Keyloggers). The malware could potentially search specifically for passwords to bank accounts, hotel and reward accounts, retirement funds, securities and trading accounts or any other accounts that have access to money that they can steal, use to purchase equipment or to sell. You don’t know where that password has been! It’s unfortunate, but we can never be too careful with passwords. Users can’t always trust the system, website, or application they are using to keep passwords and information safe. Therefore, we must be very careful with how we use and reuse passwords. Once a hacker gets a username and password combination they will try to use it everywhere. If you use the same username and password combination for your email, banking, social media, and work computer then it only takes one of those resources to fall victim to an attack to be subsequently broken into all of your accounts. With that, it is important to create a unique password for each account, so if one password is stolen, the rest will remain safe. Only when using a secure computer connection is it acceptable to use password keepers or trustworthy applications to store your passwords. These resources can be installed on your smartphone, computer or even be a web-based application. Also, some services allow synchronization between all your devices. What can we do to best secure our passwords? Make it hard to crack. A basic password that consists of only a combination of entries from a 26-character repertoire (a-z) is much easier to crack than if the range of characters of 52 (a-z and A-Z) or 62 (including digits too) is used. The higher range of characters make passwords more complex and much harder for high powered computers to figure out. Having complex passwords will signiﬁcantly decrease a hacker’s chance of getting your password.

We encourage you to create a long (10+) character password using a combination of each of the following: • Uppercase characters (A through Z) • Lowercase characters (a through z) • Base 10 digits (0 through 9) • Non-alphanumeric characters: ~!@#$%^&*_--+=`|\(){} []:;”’<>,.?/ Create a new method for generating secure passwords that only you know. It’s not difficult to come up with your own system of creating complex and secure passwords that combines a variety of characters. One possibility is to start by thinking of a phrase such as: I Love 3 scoops of ice-cream. Then condense the phrase keeping capitals to: IL3SofIC. This gives you a nice complex password that is 10 characters, uses upper and lower-case letters as well as numbers and symbols. Want to make it even more complex? Add a hyphen between the increment and use the phrase twice, for a complex 22-character password: IL3SofIC-1! Il3SofIC. Now that’s a solid password. Be aware of threats to your password security so you can combat them. Remember, usernames and passwords are not just for accessing data, they’re also authentication mechanisms that identify you as an authorized user. You must maintain control over your data and information. To do this: 1.) Never click a link in an email that you did not expect or from someone you do not know. 2.) Never share your password with anyone. Not only does sharing your password violate the integrity of the authentication process, but also violates the terms and conditions of the services, company or application you are using. 3.) DO NOT send your password via e-mail or give it out over the phone to anyone, ever (even if they say they are from technical support)! How can Sax Technology Advisors help? A missing security patch presents a core reason for network security breaches by giving hackers access to password databases. Sax Technology Advisors is your cyber security alarm system that expertly monitors your network, alerting you to intrusions or credible cyber security threats by providing fully automated network monitoring, threat detection, downloading and deployment of missing patches while keeping installed antivirus software up-to-date. We also emphasize the importance of educating ourselves and our business staff on security awareness – how to identify a phishing email, how to combat threats on a daily basis, and what to do if you are compromised. We ﬁx vulnerabilities before they are exploited and are the security experts at your side if incident response is needed. For more information on password security, or anything related to cyber security overall, feel free to reach out to a Sax Technology Advisor at (973) 554-6050 or visit www.saxtechnology.com to schedule an initial network assessment.  MATTHEW HAHN is the Chief Technology Officer at Sax LLP and Head of the firm’s newest arm, Sax Technology Advisors – a Cybersecurity and Managed IT practice. Matt has over 25 years of experience in the technology industry, and his proficiencies cover all areas of technology business solutions. He can be reached at mhahn@saxtechnology.com.

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WEALTH MANAGEMENT CORNER

Charitable Giving Under New Tax Laws: An Overview of Sensible Strategies

Written by:

Kyle R. Stawicki, ChFC® Partner-in-Charge

Sax Wealth Advisors kstawicki@saxwa.com

Now that the 2017 tax season is a wrap for most Americans, it’s time to start contemplating how the 2017 Tax Cuts and Jobs Act (TCJA) will impact your current and future tax plans. One of the frequently asked questions we’ve been fielding is on charitable giving: How can you keep giving, and get a little back on your taxes? Following are four practical possibilities to consider for charitable giving under the TCJA rules. 1. Stagger Your Giving Technically, you can still itemize charitable deductions. However, it’s now much more difficult to benefit from doing so annually. The TCJA not only restricts or eliminates several other formerly itemizable write-offs, it essentially doubles the standard deduction to $24,000 for couples filing jointly and $12,000 for single individuals.

As a result, many families who used to itemize and realize tax benefits from their deductible donations will usually decide they’re better off taking the standard deduction instead – even though it means they’ll receive no tax benefit for their charitable giving that year. In February 2018, the National Council of Nonprofits estimated that the higher standard deductions would effectively put the charitable deduction “out of reach of more than 87% of taxpayers.” A possible work-around is to stagger your giving and other deductible expenses. For example, you may be able to double up your charitable giving every-other year, in an effort to itemize in alternate years. In year one, give twice as much as you normally would if you can combine it with enough other deductibles to itemize and write off the expenses against taxes due. In year two, do what you can to minimize donations and other deductibles, and take the standard deduction instead and so on. Sax Focus • www.saxllp.com Page 16

CHARITABLE GIVING 2. Unload a Highly Appreciated Holding

4. Retirees: Donate Your Required Minimum Distribution

If you’re going to be donating anyway, consider doing so with highly appreciated securities like stocks, stock funds, property, or similar holdings that are worth considerably more than when you acquired them. If you sell a highly appreciated holding outside of a tax-sheltered account such as an IRA, you’ll pay capital gains taxes on the difference between its cost and its sale price, less expenses. If you instead donate it “in kind” to a non-profit organization (i.e., without selling it first), you triple its tax-wise potentials:

Again, if you’d be making charitable contributions anyway, it may well be tax-wise to donate your Required Minimum Distribution (RMD) as allowed by the IRS, instead of taking it as ordinary income.

1. Within the parameters described above plus a cap based on your Adjusted Gross Income, the holding’s full value is available to you as a charitable deduction in the year you donate it. 2. You avoid capital gains tax on the unrealized gain. 3. The charity is free to keep or sell the holding, also without incurring taxable gains. 3. Do a Donor-Advised Fund Here’s a quick take on how they work: 1. Make an irrevocable donation to a DAF sponsor, which acts like a “charitable bank.” The full amount of your donation is deductible in the year you fund the DAF. Plus, many DAFs accept in-kind holdings as described above (whereas not all individual charities can). 2. Over time, you advise the DAF’s sponsoring organization on when and to whom to grant the assets. The DAF sponsor has final say, but you can expect they’ll honor your request unless your intended recipient is not a qualified charity or there are other unusual circumstances. 3. Until the funds are distributed, the DAF sponsor typically invests the donated assets; any returns or appreciated value grows tax-free, giving your initial donation added impact. In this manner, a Donor-Advised Fund (DAF) can help you stagger your charitable donation deduction as described above, without having to stagger your usual annual giving. For example, you could fund a DAF with five years’ worth of anticipated donations, and then make annual requests that donations be made to your charities of choice across five years. This should allow you to itemize the entire DAF donation in year 1, and take the standard deduction the rest of the time. Plus, you can fund your DAF using appreciated holdings.

During your working years, there are many advantages to funding tax-favored retirement accounts. But, eventually – when you reach age 70 1/2, to be exact – you must begin taking RMDs from your tax-sheltered havens, whether or not you want to. There is a steep penalty if you fail to do so (with Roth IRAs being an exception to this rule). RMDs are taxed the year you take them at your ordinary income tax rate. You can avoid extra taxes and higher taxable income (which may impact your Medicare premiums and have tax ramifications on your Social Security income) by donating some or all of your RMD to charity. The IRS allows you to donate up to $100,000 annually in this manner. No New, But Possibly Improved Opportunities It’s worth mentioning that none of these four tax-planning possibilities are new; they’ve all been available well before the TCJA passed. The difference is, they may be more applicable to you under the new tax codes. As we always do with tax topics, we recommend touching base with your tax professional before making any big decisions. As a service to our clients, we are happy to arrange a group meeting among you, your accountant and a member of our firm to offer personalized advice and to best coordinate our efforts on your behalf. We’re also available for planning conversations or to answer additional questions you may have about your tax-wise giving goals. Feel free to reach out to a Sax Wealth Advisor to address any questions or concerns you may have. We can be reached at (973) 859-2199 or you may schedule a complimentary discovery meeting at www.saxwa.com.  KYLE R. STAWICKI, CHFC® is the Partner-in-Charge of Sax Wealth Advisors, a registered investment advisory firm and financial planning subsidiary of Sax LLP. Kyle has over a decade of experience as a Wealth Advisor and retirement plan fiduciary. He can be reached at kstawicki@saxwa.com.

In short, DAFs can be a handy giving tool. That said, they aren’t ideal for every donor, every time. Let us know if we can show or tell you more.

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