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August 1, 2022 by Cava Faulkner

If you own a small company where you personally know and interact with everyone who works for you, it can be hard to fathom that one of those people would ever steal from you. But the fact is, embezzlement happens all the time, even at small, family-owned businesses.

Indeed, according to a 2017 study on white-collar crime by the U.S. insurance company Hiscox, the majority of embezzlement (55%) occurs at companies with fewer than 100 employees. And because these companies are small, embezzlement can impact these organizations much more severely than a similar crime would a larger company with deeper pockets. The study found that the median loss for a single incident of embezzlement for small businesses is nearly $290,000—which could prove fatal for some companies.

Given the potential damage embezzlement can cause, we’ve highlighted some of the key factors associated with small-business embezzlement from the Hiscox study, along with offering suggestions for preventing such crimes and what you should do if you suspect someone is stealing from you.

The Usual Suspects

Like most other crimes, there aren’t any characteristics specific to all embezzlers. But the Hiscox study did find a few interesting commonalities among the most frequent perpetrators:

Embezzlement takes place at all levels, but executives and those in management are the most frequent culprits.
Women are slightly more likely to embezzle (51%) than their male counterparts.
Embezzlers are typically in their mid- to late-40s.
Embezzlement can occur in any department, but most incidents (37%) occur in finance or accounting.
Embezzlers are most likely to be individuals who mostly work alone.

Common Schemes and Scams

For those with smarts, particularly in bookkeeping and accounting, there are numerous ways to skim money. The most common method is also one of the easiest—theft of funds. Making up 34% of all cases, this typically involves the transfer of their employer’s cash or deposits into a bank account they control.

The second most popular method is check fraud, whereby an embezzler forges or alter’s checks, which accounts for 22% of cases. About 14% of incidents involve vendor invoicing and false billing. Here, the perpetrators alter or forge invoices from real vendors, or they make up fake vendor companies, invoice their employers, and route the payments to their own accounts.

Credit card fraud accounts for about 10% of cases and is most often committed by managers, who make personal purchases on company cards or issue themselves unauthorized cards. Other, less common embezzlement methods include property/merchandise theft, payroll fraud, and fraudulent loans taken out in the company’s name.

Notably, embezzlement rarely involves a single big score. Most incidents entail fairly small amounts of money being stolen over a period of several years. In fact, more than a quarter of embezzlement cases lasted for five years or longer.

Embezzlement Prevention

To protect your company, Hiscox suggests implementing a system of checks and balances, such as having more than one staffer involved in every financial transaction. Since most embezzlers fly solo, this alone can significantly reduce your risk.

Additionally, business owners—or at least someone outside of the normal bookkeeper—should regularly review the company’s bank statements, credit card invoices, canceled checks, and other financial records. At the very least, you should do a monthly profit-and-loss review, looking for variances and checking into even small discrepancies. That’s something we often participate in with business owners who are part of our Creative Business Lawyer Strategy Plans®. Email us for more details.

Obviously, pre-employment background checks are also a good idea, especially for anyone involved with the business’ finances. But don’t let a clear background lull you into thinking they aren’t capable of stealing.

One of the biggest red flags to watch for are employees who seem to live well above their means, with lifestyles and purchases that aren’t commensurate with their salaries. Many times, the culprits can’t help but flaunt their riches, so keep an eye on employees who enjoy showing off wealth that doesn’t match their paychecks.

And though it won’t prevent embezzlement, company owners should always purchase adequate business insurance to mitigate the consequences of employee theft. Even if you catch the culprit red-handed, it’s rare for more than a fraction of the stolen funds to be recovered, and restitution—even when paid—will do your business little good if the missing funds cause your business to go bankrupt.

If You Suspect An Employee Of Stealing

If you suspect embezzlement, you should immediately document everything you know about the situation, and discreetly review financial, payroll, and personnel records for supporting evidence. Only share the investigation with one or two trusted individuals, and always on a strict need-to-know basis. Make a list of potential witnesses, but don’t discuss anything outside of your small investigative team until the final stages.

However, be very careful not to jump to conclusions and accuse someone without proof—this could irreparably tarnish the employee’s reputation, cause serious staff conflict, and even expose the company to liability.

If you do uncover theft, contact us to discuss your legal options and also inform your insurance carrier. Even though pressing charges may not get your money back, it’s often necessary in order to send a signal to other employees that such behavior will not be tolerated—but we can always help you make that decision.

Whenever you launch a business, you should consult with us to discuss the safeguards, systems, and insurance to put in place to prevent embezzlement. And if you suspect an incident has already taken place, contact us as soon as possible for advice on how to mitigate the damage and handle the investigation in a manner that will protect your company from liability and potential blowback.

We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule. Or, schedule online.

July 31, 2022 by Cava Faulkner

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July 29, 2022 by Cava Faulkner

Today, estate planning encompasses not just tangible property like finances and real estate, but also digital assets like cryptocurrency, blogs, and social media. With so much of our lives now lived online, it’s vital you put the proper estate planning provisions in place to ensure your digital assets are effectively protected and passed on in the event of your incapacity or death.

However, because many types of online assets have only been in existence for a handful of years, there are very few laws governing how they should be dealt with through estate planning. And due to their virtual and often anonymous nature, just locating and accessing some of these assets can be extremely difficult for those you leave behind.

Given these unique challenges, last week we discussed some of the most common types of digital assets and the legal landscape surrounding them. Here, we offer some practical tips to ensure all of your digital property is effectively incorporated into your estate plan.

Best practices for including digital assets in your estate plan

If you’re like most people, you probably own numerous digital assets, some of which likely have significant monetary and/or sentimental value. Other types of online property may have no value for anyone other than yourself or be something you’d prefer your family and friends not access or inherit.

To ensure all of your digital assets are accounted for, managed, and passed on in exactly the way you want, you should take the following steps:

1. Create an inventory

Start by creating a list of all your digital assets, including the related login information and passwords. Password management apps such as LastPass can help simplify this effort. From there, store the list in a secure location, and provide detailed instructions to your fiduciary about how to access it and get into the accounts. Just like money you’ve hidden in a safe, if no one knows where it is or how to unlock it, these assets will likely be lost forever.

2. Back up assets stored in the cloud

If any of your digital assets are stored in the cloud, back them up to a computer and/or another physical storage device on a regular basis, so fiduciaries and family members can access them with fewer obstacles. That said, don’t forget to also include the location and login info of these cloud-based assets in case you don’t have a chance—or forget—to back them all up.

3. Add your digital assets to your estate plan

Include specific instructions in your will, trust, and/or other estate planning documents about the heir(s) you want to inherit each asset, along with how you’d like the accounts managed in the future, if that’s an option. Some assets might be of no value to your family or be something you don’t want them to access, so you should specify that those accounts and files be closed and/or deleted by your fiduciary.

Do NOT provide the specific account info, logins, or passwords in your estate planning documents, which can be easily read by others. This is especially true for wills, which become public record upon your death. Keep this information stored in a secure place, and let your fiduciary know how to find and use it. Consider a service such as Directive Communication Systems to support you here.

It’s also a good idea to include terms in your estate plan allowing your fiduciary to hire an IT consultant if necessary. This will help him or her manage and troubleshoot any technical challenges that come up, particularly with highly complex and/or encrypted assets.

4. Limit access

In your plan, you should also include instructions for your fiduciary about what level of access you want him or her to have. For example, do you want your executor to be able to read all of your emails and social media posts before deleting them or passing them on to your heirs? If there are any assets you want to limit access to, we can help you include the necessary terms in your plan to ensure your privacy is honored.

5. Include relevant hardware

Don’t forget that your estate plan should also include provisions for any physical devices—smartphones, computers, tablets, flash drives—on which the digital assets are stored. Having quick access to this equipment will make it much easier for your fiduciary to access, manage, and transfer the online assets. Since the data can be wiped clean, you can even leave these devices to someone other than the person who inherits the digital property stored on it.

6. Check service providers’ access-authorization tools

Carefully review the terms and conditions for your online accounts. Some service providers like Google, Facebook, and Instagram have tools in place that allow you to easily designate access to others in the event of your death. If such a function is offered, use it to document who you want to have access to these accounts.

Just make certain the people you named to inherit your digital assets using the providers’ access-authorization tools match those you’ve named in your estate plan. If not, the provider will probably give priority access to the person named with its tool, not your estate plan.

Truly comprehensive estate planning

With technology rapidly evolving, it’s critical that your estate planning strategies evolve at the same time to adapt to this changing environment. We can help you update your plan to include not only your physical wealth and property, but all of your digital assets, too.

We know how valuable online property can be, and unlike many lawyers, we have the experience and skills to ensure these assets are preserved and passed on seamlessly.
Moreover, we can do this while respecting and protecting your privacy rights. Contact us today to get started.

Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.

July 28, 2022 by Cava Faulkner

2020 was a nightmarish year for many families. But thanks to recent legislation, you could see a silver lining in the form of major tax breaks when filing your income taxes this spring. First up, although it’s technically not a tax break, the IRS announced this week that the deadline for filing your 2020 federal income taxes has been pushed back from April 15 to May 17, 2021, which gives you an extra month to get your tax return handled.

The postponement applies to individual taxpayers, including those who pay self-employment taxes. But the extension does not apply to first-quarter 2021 estimated tax payments that many small business owners file. So if you file quarterly taxes, contact your tax advisor now if you haven’t already done so.

Additionally, the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020 provides individual taxpayers with several hefty tax-saving opportunities, many of which are only available this year. What’s more, President Biden’s new relief package, known as the American Rescue Plan (ARP), which went into effect in March 2021, not only offers additional stimulus payments to most Americans, but it also includes significant tax relief for those taxpayers who lost their job and had to rely on unemployment benefits in 2020.

While there are dozens of potential tax breaks available for 2020, here are 7 of the leading ways you can save big money on your 2020 tax return.

1. Stimulus Payments

As part of the CARES Act, millions of Americans received stimulus checks in 2020, and those payments were an advance refundable tax credit on your 2020 taxes. This means that no matter how much you owe (or get back) on your 2020 taxes, you get to keep all of the stimulus money and won’t have to pay any taxes on it.

Because the IRS didn’t have everyone’s 2020 tax returns when they issued the stimulus checks, they based the stimulus payments on your 2018 or 2019 returns, whichever one you had most recently filed. Using data from those years, the stimulus payments from 2020 phased out at an adjusted gross income (AGI) of $75,000 to $99,000 for singles and at $150,000 to $198,000 for married couples filing jointly.

Given that the stimulus payments were based on your AGI for 2018 or 2019 but technically apply to your 2020 AGI, you may find that your payment was either too much or too little. But there’s good news—even if your financial situation has improved since 2018 or 2019 and you received too much stimulus money based on your 2020 income, you get to keep the overage.

By the same token, if you received too little or only partial payment on your 2020 stimulus, you can claim what you missed in the form of a recovery rebate credit when you file your 2020 taxes. Not sure how this would work? Here are three scenarios where you may be entitled to additional stimulus money.

If your AGI for 2018/19 is higher than your AGI in 2020, you can claim the additional amount owed when you file your 2020 taxes this April.
If you had a child in 2020, but didn’t get the $500 credit for dependent children in your stimulus payment, you can claim the child when you file in 2021.
If someone else claimed the child based on 2018/19 returns, but you can legitimately claim that child on your 2020 return, you can get the $500 tax credit when you file in 2021, and the person who got it based on 2018/19 returns will not have to pay it back.

2. Unemployment Benefits

When the pandemic stalled out the economy, many Americans lost their jobs and were forced to rely on unemployment insurance to pay the bills. That said, unemployment benefits are generally taxable, so if you took them, without having taxes automatically deducted, you were looking at having to pay income taxes on that money when you file your 2020 return.

However, taxpayers who received unemployment benefits in 2020 were provided with significant relief with the passage of President Biden’s American Rescue Plan (ARP). Under the ARP, the first $10,200 of your 2020 unemployment benefits are tax-free if your annual household income is less than $150,000. The ARP doesn’t provide a different threshold for single and joint filers, so both spouses are entitled to the $10,200 tax break, for a potential total of $20,400, if both spouses received the benefits.

Note that if your unemployment benefits exceed $10,200 in 2020, you’ll need to report the excess as taxable income and pay taxes on the amount over the limit. And if your household income is over $150,000, you’ll need to pay taxes on all of your unemployment benefits just like you would before the passage of the ARP.

If you already filed your 2020 return and paid taxes on your unemployment benefits before the passage of the ARP made those benefits tax free, the IRS plans to automatically process your refund. This means you won’t have to tax any extra steps, such as filing an amended return, to secure the refund. The IRS will release further details on this issue in the coming weeks.

3. Waived RMDs

You are typically required to take an annual required minimum distribution (RMD) from your IRA, 401(k), or other tax-deferred retirement account starting in the year when you turn 72, but the CARES Act temporarily waived the RMD requirement for 2020. The waiver also applies if you reached age 70½ in 2019, but waited to take your first RMD until 2020, as allowed under the SECURE Act.

RMDs generally count as taxable income, so taking this waiver means that you may have lower taxable income in 2020 and therefore owe less income taxes for 2020.

However, there are a number of factors to consider, including the state of the market and your living expenses, when deciding whether or not to waive your RMDs. Given this, consult with us, as your Personal Family Lawyer®, or your tax professional before making your final decision.

Next week, in part two of this series we’ll cover the remaining four ways you can save big money on your 2020 tax bill.

July 27, 2022 by Cava Faulkner

As you’ve undoubtedly heard by now, the 2017 Tax Cuts and Jobs Act (TCJA) is the most sweeping change to the U.S. Tax Code in more than 30 years. And while the legislation provides many of the biggest breaks to large corporations, it offers numerous benefits to smaller businesses as well.

Due to the immense scope of the legislation and the fact that 2018 was the first year these cuts went into effect, many tax experts (and even the IRS) are still studying all of the changes the TCJA may ultimately bring about. Given this, you may have overlooked some benefits you could have taken advantage of in 2018—which you won’t want to miss out on in 2019 and beyond.

Though it’s impossible to detail all of the advantages the law might offer you in this post, here are 3 big breaks you should be aware of:

1. New 20% Qualified Business Income deduction

One of the TCJA’s biggest changes was dramatically lowering the tax rate for C corporations. Most large companies like those listed on the stock exchange are C corporations, and they saw their tax rate drop from 35% down to 21%.

If you run a small business, however, you’re probably not structured as a C corporation and won’t qualify. You’re most likely set up as a sole proprietorship, partnership, limited liability company (LLC), or an S corporation.

Recognizing this, Congress wanted to give these businesses a tax break, too. But since such businesses are “pass-through” entities, Congress couldn’t just lower their business tax rate, because the taxes paid by these companies pass through and are paid at the owner’s personal rate.

In the end, what Congress came up with was a straight 20% deduction on “qualified business income” (QBI). This means many small businesses will only be taxed on 80% of their net income, which can be a massive money saver.

That said, the 20% deduction is subject to some limitations, so not all pass-through entities will qualify, especially those with higher incomes. Schedule a meeting with us and/or a qualified CPA to see if your company can claim the 20% deduction on QBI.

2. New family-leave tax credit

Another new—but quite temporary—benefit for small businesses is the TCJA’s family-leave tax credit. Starting in 2018, if you offer paid family-leave benefits to your employees, you may qualify for a tax credit. This credit is specifically aimed at businesses that aren’t legally required to have a Family Medical Leave Act (FMLA) policy in place.

The tax credit only lasts through 2019, so if you didn’t claim it in 2018, you can still get it this year. There are some requirements to qualify, such as having a written family-leave policy and offering your team at least two weeks paid time off, so consult with us and/or your tax preparer to see if your company qualifies.

3. Increased caps on Section 179 deductions

Starting in 2018, the TCJA increased the cap on the Section 179 deduction from $500,000 to $1 million. Section 179 allows you to write off the entire amount you pay for qualified business equipment in a single year, rather than having to depreciate it over many years.

Most business property—new and used—such as cars, computers, software, machinery, equipment, and office furniture will qualify. TCJA also expanded Section 179 to include building improvements like HVAC, fire protection systems, and security systems. Real estate, however, does not qualify.

To take the deduction for 2019, the item must be purchased and put into use during the 2019 calendar year, and it must be used more than 50% of the time for business purposes. Additionally, the law caps total equipment purchases for the year at $2.5 million, making this incentive specifically aimed at true small businesses.

Take advantage of every possible benefit

Again, these three advantages are only a fraction of what’s potentially available under the new law. Even if you don’t qualify for any of these, it’s almost certain there are other tax savings you can benefit from. Be sure you consult with us to make sure you don’t miss a single one. Schedule a visit with us today.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.