Month: January 2023

Categories
General Tax

2023 Q1 Tax Calendar: Key Deadlines for Businesses and Other Employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2023. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. If you have questions about filing requirements, contact us. We can ensure you’re meeting all applicable deadlines.

January 17

(The usual deadline of January 15 is on a Sunday and January 16 is a federal holiday) Pay the final installment of 2022 estimated tax. Farmers and fishermen: Pay estimated tax for 2022. If you don’t pay your estimated tax by January 17, you must file your 2022 return and pay all tax due by March 1, 2023, to avoid an estimated tax penalty.

January 31

File 2022 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.

Provide copies of 2022 Forms 1099-NEC, “Nonemployee Compensation,” to recipients of income from your business where required.

File 2022 Forms 1099-MISC, “Miscellaneous Income,” reporting nonemployee compensation payments in Box 7, with the IRS.

File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2022. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.

File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security, and income taxes withheld in the fourth quarter of 2022. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)

File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2022 to report income tax withheld on all non-payroll items, including backup withholding and withholding on accounts such as pensions, annuities, and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

February 15

Give annual information statements to recipients of certain payments you made during 2022. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. This due date applies only to the following types of payments: All payments reported on Form 1099-B. All payments reported on Form 1099-S. Substitute payments reported in box 8 or gross proceeds paid to an attorney reported in box 10 of Form 1099-MISC.

February 28

File 2022 Forms 1099-MISC with the IRS if: 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is March 31.)

March 15

If a calendar-year partnership or S corporation, file or extend your 2022 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2022 contributions to pension and profit-sharing plans. © 2022

Categories
Tax

Are You Expecting a Tax Refund? Consider Direct Deposit.

Are you expecting a tax refund? With tax season officially underway as of Jan. 23, 2023, the IRS is encouraging taxpayers to streamline tax filing this year by having refunds directly deposited into their bank accounts. Although some people still like to receive a paper check, they should at least consider the advantages of direct deposit. It’s the fastest way to get a refund, even when filing a paper return. And it eliminates the risk of having a paper check stolen or lost in the mail. For more from the IRS about the advantages of choosing direct deposit, click here: http://bit.ly/3ZXXi1i

Contact us with questions or schedule a meeting with one of our tax experts.

Categories
Tax

IRS Announces Tax Season Begins Monday, January 23

Get ready to file your 2022 tax return! The IRS has announced that the 2023 tax season begins on Monday, Jan. 23. As always, taxpayers are encouraged to file well in advance of the April 18, 2023, deadline to beat the last-minute rush and help prevent tax identity theft. The IRS is expecting more than 168 million individual returns this tax season. Recently, it hired over 5,000 new customer service representatives, which should cut down on the long phone waits of recent years. Taxpayers who need an extension must file their requests by April 18, 2023. They will then have until Oct. 16, 2023, to file.

Contact us with your tax questions and for help preparing and filing your return.

Categories
Press Releases

ATA CPAs & Advisors Names New Partner

ATA CPAs & ADVISORS ANNOUNCES NEW PARTNER

Union City, Tenn. — ATA, a nationally recognized CPA and advisory firm, names Charles Peery as the newest partner. Peery helps lead the Union City, Tenn. office and has been with ATA for over seven years. Charles is a certified public accountant, specializing in tax and audit. In his new leadership role, Charles will be responsible for managing client relationships, helping guide those clients to future success, and also helping ATA team members further their professional careers. 

“Charles has shown great success in cultivating relationships with clients as well as being a rising community leader, said John Whybrew, Managing Partner of ATA. “I commend him on his growth and commitment to ATA.” 

“I am excited to be a part of a firm with such a long legacy of providing clients with professional excellence,” said Peery. “Our existing partner group, and those that came before, provided a great example of how to service our clients through intentional relationships and seeking continuous innovation. I look forward to what the future holds at ATA.” 

Peery received his undergraduate degree in business administration in accounting from the University of Tennessee at Martin in 2015. Peery has been married to his wife Kylie since 2013. Together, they have four children, Miloh, Madix, Carlisle, and Carisse, who keep them busy with church, school, sports, dance, singing, and pageants. 

Peery is the board chair and prior treasurer for United Way of Obion County, board member for the Obion County Chamber of Commerce, board of directors member for the Global Citizen Adventure Corps, and member as well as former board member of Kiwanis Club of Union City. Charles was recognized in the past as one of Obion County’s young professionals 31 under 31, he is a graduate of Obion County Leadership, and is a recent graduate of the WestStar Leadership Program.

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ATA PLLC

ATA is a long-term business advisor to its clients and provides other services that are not traditionally associated with accounting. For example, Revolution Partners, ATA’s wealth management entity provides financial planning expertise; ATA Technologies provides trustworthy IT solutions; Sodium Halogen focuses on growth through the design and development of marketing and digital products; Adelsberger Marketing offers video, social media, and digital content for small businesses; and ATA Employment Solutions is a comprehensive human resource management agency.

 ATA has 15 office locations in Tennessee, Arkansas, Kentucky and Mississippi. Recognized as an IPA Top 150 regional accounting firm, it provides a wide array of accounting, auditing, tax and consulting services for clients ranging from small family-owned businesses to publicly traded companies and international corporations. ATA is also an alliance member of BDO USA LLP, a top five global accounting firm, which provides additional resources and expertise for clients.

Categories
Helpful Articles

Tax-Wise Ways To Save For College

If you’re a parent or grandparent with college-bound children, you may want to save to fund future education costs. Here are several approaches to take maximum advantage of the tax-favored ways to save that may be available to you. 

Savings bonds 

Series EE U.S. savings bonds offer two tax-saving opportunities when used to finance college expenses: You don’t have to report the interest on the bonds for federal tax purposes until the bonds are cashed in, and Interest on “qualified” Series EE (and Series I) bonds may be exempt from federal tax if the bond proceeds are used for qualified college expenses. To qualify for the college tax exemption, you must purchase the bonds in your own name (not the child’s) or jointly with your spouse. The proceeds must be used for tuition, fees, etc. — not room and board. If only some proceeds are used for qualified expenses, only that part of the interest is exempt. If your modified adjusted gross income (MAGI) exceeds certain amounts, the exemption is phased out. For bonds cashed in 2023, the exemption begins to phase out when joint MAGI hits $137,800 for married joint filers ($91,850 for other returns) and is completely phased out if MAGI is $167,800 or more for joint filers ($106,850 or more for others). 

Qualified tuition programs or 529 plans

Typically known as a “529 plans,” these programs allow you to buy tuition credits or make contributions to an account set up to meet a child’s future higher education expenses. 529 plans are established by state governments or private institutions. Contributions aren’t deductible and are treated as taxable gifts to the child. But they’re eligible for the annual gift tax exclusion ($17,000 in 2023). A donor who contributes more than the annual exclusion limit for the year can elect to treat the gift as if it were spread out over a five-year period. Earnings on the contributions accumulate tax-free until the college costs are paid from the funds. Distributions from 529 plans are tax-free to the extent the funds are used to pay “qualified higher education expenses,” which can include up to $10,000 in tuition for an elementary or secondary school. Distributions of earnings that aren’t used for “qualified higher education expenses” are generally subject to income tax plus a 10% penalty. 

Coverdell education savings accounts (ESAs)

You can establish a Coverdell ESA and make contributions of up to $2,000 for each child under age 18. This age limitation doesn’t apply to beneficiaries with special needs. The right to make contributions begins to phase out once AGI is over $190,000 on a joint return ($95,000 for single taxpayers). If the income limit is an issue, the child can make a contribution to his or her own account. Although contributions aren’t deductible, income in the account isn’t taxed, and distributions are tax-free if spent on qualified education expenses. If the child doesn’t attend college, the money must be withdrawn when the child turns 30 and any earnings will be subject to tax plus a penalty. However, unused funds can be transferred tax-free to a Coverdell ESA of another member of the family who hasn’t reached age 30. The age 30 requirement doesn’t apply to individuals with special needs. 

 

Contact one of our experts if you would like to discuss these and other possible tax breaks.

Categories
Financial Institutions and Banking

Bank Wire

FDIC offers guidance on multiple NSF fees

Recently, the FDIC issued guidance to address consumer compliance risks associated with assessing multiple nonsufficient funds (NSF) fees arising from re-presentment of the same unpaid transaction. This issue often comes up when transactions are presented for payment that can’t be covered by a customer’s balance, the bank charges NSF fees and the merchant subsequently resubmits the transaction for payment.

According to the FDIC, if the bank charges additional NSF fees for the same transaction, there’s “an elevated risk of violations of law and harm to consumers.” This risk may arise, for example, because disclosures didn’t fully or clearly describe the bank’s re-presentment policy by explaining that the same unpaid transaction might result in multiple NSF fees. As a result, there may be a heightened risk of violating the Federal Trade Commission Act’s unfair or deceptive acts or practices (UDAP) provisions.

The guidance encourages banks to review their practices and disclosures regarding NSF fees for re-presented transactions and to adjust them if necessary. If violations are noted, the FDIC expects banks to make restitution.

Complying with the updated FTC Safeguards Rule

In December 2021, the Federal Trade Commission (FTC) updated its Standards for Safeguarding Customer Information (Safeguards Rule). It’s generally applicable as of January 10, 2022, with some requirements taking effect December 9, 2022. According to the FTC, the amended rule preserves the flexibility of the original while providing more concrete guidance. “It reflects core data security principles that all covered companies need to implement,” the FTC explains. Some institutions are exempt, including those that maintain customer information concerning fewer than 5,000 consumers.

Financial institutions — including mortgage lenders, collection agencies, tax preparation firms, and non-federally insured credit unions — should review their information security programs to ensure that they comply with the latest standards. A good place to start is the FTC’s publication, “FTC Safeguards Rule: What Your Business Needs to Know,” which you can find at https://www.ftc.gov/business-guidance/resources/ftc-safeguards-rule-what-your-business-needs-know.

Failure to safeguard data may violate consumer protection laws

In a recent circular, the Consumer Financial Protection Bureau (CFPB) confirmed that banks and other financial companies that fail to safeguard consumer data may violate federal consumer financial protection laws. The circular warns companies they risk violating the Consumer Financial Protection Act if they fail to have adequate measures to protect against data security incidents. It also provides examples of data security measures that, if not implemented, may trigger liability. These include multifactor authentication, adequate password management, and timely software updates.

© 2022

Categories
Financial Institutions and Banking

Should Community Banks Think About ESG Initiatives?

An increasing number of organizations — including many banks — are embracing environmental, social, and governance (ESG) initiatives. Although being a good corporate citizen may be its own reward, there’s evidence that responsible ESG practices may produce ample financial benefits.

What is ESG?

ESG generally refers to:

  • Environmental practices, including your bank’s use of energy, production of waste, and consumption of resources,
  • Social practices, including fair labor practices, worker health and safety, diversity and inclusivity, and other aspects of your bank’s relationships with people, institutions, and the community, and
  • Governance practices, including business ethics, integrity, openness, transparency, legal compliance, executive compensation, data protection, and product quality and safety.

Simply put, ESG means recognizing your bank’s impact on the environment and the people and institutions it interacts with.

Why should you care?

In recent years, pressure has been increasing on all businesses, including banks, to adopt responsible ESG practices. This pressure has been coming from a variety of stakeholders. For example, customers are increasingly considering ESG issues — such as product safety, environmental impact, and fair labor practices — when deciding which organizations to do business with. And many investors are making ESG a priority when deciding where to invest their capital.

Consider this: The U.S. Forum for Sustainable and Responsible Investment reported that from 2018 to 2020, the value of U.S. assets managed according to ESG principles increased from $12 trillion to $17 trillion. This represents one-third of all assets under management.

Another reason to adopt ESG practices is its potential impact on financial performance. A number of studies have shown that embracing ESG can lead to higher sales, reduced costs (including energy and compliance costs), and increased access to capital. Consulting firm McKinsey reviewed more than 2,000 academic studies of ESG and found around 70% report a positive relationship between ESG scores and financial returns, whether measured by returns on equity, profitability, or valuation multiples.

ESG also may improve a bank’s ability to attract and motivate talented employees — a significant benefit given the ongoing shortage of qualified workers. According to McKinsey, “A strong ESG proposition can help companies attract and retain quality employees, enhance employee motivation by instilling a sense of purpose, and increase productivity overall.”

Will ESG initiatives be mandated?

To date, ESG initiatives have been voluntary, but that could change as federal financial regulators are starting to pay more attention to ESG issues. For example, the FDIC and Office of the Comptroller of the Currency (OCC) have issued draft principles for managing exposures to climate-related financial risks. Although the proposals target larger banks, regulators have indicated that they expect community and midsize banks to develop climate-related financial risk management practices. The Securities and Exchange Commission has also proposed ESG disclosure requirements for companies it regulates. And the Federal Housing Finance Agency (FHFA) has added “resiliency to climate risk” to its list of institution assessment criteria.

Finally, although not yet required, an increasing number of companies are incorporating ESG information into their financial reports, combining nonfinancial and financial information into an integrated report. Many experts believe that these reports provide a more accurate picture of a company’s long-term value-creation potential. Banks should consider whether they should prepare this type of report or ask their customers to do so.

Can ESG initiatives benefit your bank?

Adopting ESG initiatives is viewed by many as a best practice, but it may very well be required — or at least strongly encouraged — by regulators in the future. Banks might benefit from evaluating the ESG impact of their activities and considering ways to incorporate ESG practices and initiatives into their operations.

© 2022

Categories
Financial Institutions and Banking

True or False? Assess Borrowers’ Financial Restatements

Businesses need to assess their financial status periodically in light of changing economic or industry conditions. This includes examining their financial statements to ensure the statements continue to be adequate, accurate and complete. Occasionally, business owners or financial officers may determine that the financial statements need to be revised or corrected. When your borrowers provide you with corrected or restated financial statements, be vigilant and double-check the numbers. It may be that the restatements simply correct an honest mistake. Alternatively, there may be fraud involved.

When a mistake becomes intentional

When Tom took over his aunt’s marketing company, the lender quickly discovered that Tom’s accounting skills hadn’t kept pace with his marketing abilities. The company engaged in various types of related-party transactions, including seller financing and a leasing arrangement with the previous owner. Tom also seemed unsure when to capitalize or expense supplies and equipment.

After two years of sloppy, delayed financial reporting, Tom’s lender recommended hiring an accountant for financial reporting and tax expertise. Shortly thereafter, the lender received an unwelcome surprise: The company needed to reissue its financial statements for the past three years.

Ultimately, the restatements revealed that Tom had overstated profits by more than $3 million over the last three years. When confronted with the news, he confessed that he’d been intentionally padding profits, because he didn’t want to disappoint his aunt.

The lender called the company’s $4 million line of credit. Tom was forced to confess his mismanagement to his aunt, who eventually left retirement to turn around the business.

When complex rules invite misinterpretation

Not all restatements result from misleading or unethical management. Often owners and managers just aren’t on top of today’s increasingly complex accounting rules — and honest mistakes or misinterpretations cause a restatement.

Restatements typically occur when the company’s financial statements are subjected to a higher level of scrutiny. For example, restatements may happen when a borrower converts from compiled financial statements to audited financial statements or decides to file for an initial public offering. They also may be needed when the borrower brings in additional internal (or external) accounting expertise, such as a new controller or audit firm.

The restatement process can be time-consuming and costly. Regular communication with interested parties — including lenders and shareholders — can help overcome the negative stigma associated with restatements. Management also needs to reassure employees, customers and suppliers that the company is in sound financial shape to ensure their continued support.

When errors become significant

Errors are a common cause of financial restatements. For example, borrowers sometimes make mistakes when accounting for leases or reporting compensation expense from backdated stock options.

Income statement and balance sheet misclassifications also cause a large number of restatements. For instance, a borrower may need to shift cash flows among investing, financing and operating on the statement of cash flows. Other leading causes of restatements are equity transaction errors, such as improper accounting for business combinations and convertible securities, and valuation errors related to common stock issuances. Preferred stock errors and the complex rules related to acquisitions, investments, revenue recognition and tax accounting also can cause restatements.

You can minimize your dependence on bad numbers by requiring independent audits for private borrowers. You also may request cost-effective internal control testing procedures for prospective and high-risk borrowers, such as those that engage in hedge accounting, issue stock options, use special purpose or variable interest entities, or consolidate financial statements with related parties.

Mistakes happen

Even the most well-managed business may slip up and make financial statement mistakes that need to be corrected. But some restatements are a warning flag — not just of potential fraud but of mismanagement or carelessness. When a borrower presents you with financial restatements, investigate the underlying cause to stay ahead of any potential problems.

© 2022

Categories
Financial Institutions and Banking

Monitoring and Managing Interest Rate Risk

For community banks, interest rate risk is a part of doing business, so it’s critical for banks to monitor that risk and take steps to control it. The “right” level of risk depends on several factors, including the size and complexity of a bank’s operations, as well as the sufficiency of its capital and liquidity to withstand the potential adverse impact of interest rate fluctuations.

Managing interest rate risk is particularly important in light of recent rate increases. The Office of the Comptroller of the Currency (OCC), in its Fiscal Year 2023 Bank Supervision Operating Plan, instructed examiners to determine whether banks appropriately manage interest rate risk through “effective asset and liability risk management practices,” noting that “rising rates may negatively affect asset values, deposit stability, liquidity, and earnings.”

Types of interest rate risk

In simple terms, interest rate risk means risk to a bank’s financial condition or resilience (that is, its ability to withstand periods of stress) caused by movements in interest rates. There are several types of interest rate risk, including:

Repricing risk. Banks experience this risk when their assets and liabilities reprice or mature at different times. Suppose, for example, that a bank makes a five-year, fixed-rate loan at 7% that’s funded by a six-month certificate of deposit (CD) at 3%. Every six months, when the CD renews, the bank is exposed to repricing risk. If the CD rate increases to 4% after six months, then the bank’s net interest income drops from 4% to 3%. Conversely, if the CD rate declines, the bank’s net interest income increases.

To gauge repricing risk, banks can compare their volume of assets and liabilities that mature or reprice over a given time period. The potential impact of fluctuating interest rates will depend in part on whether a bank is asset- or liability-sensitive. If it’s asset-sensitive — meaning assets reprice more quickly than liabilities — then its earnings generally increase when interest rates rise and decrease when they fall. If it’s liability-sensitive — meaning liabilities reprice more quickly than assets — then its earnings generally increase when interest rates fall and decrease when they rise. Some banks are neutral — that is, their assets and liabilities reprice at the same time.

Basis risk. This risk arises when there’s a shift in the relationship between rates in different markets or on different financial instruments. Suppose, for example, that an asset and a related liability are tied to the prime rate and the one-year U.S. Treasury rate, respectively. If the spread between those two rates widens or narrows, it will affect the bank’s net interest margins.

Yield curve risk. This risk arises from changes in the relationships among yields from similar instruments with different maturities. Suppose, for example, that a bank funds long-term loans with short-term deposits. A typical yield curve reflects rates that rise as maturities increase. However, if market conditions cause the yield curve to flatten or even slope downward, the bank’s net interest margins can shrink or even turn negative.

Options risk. Bank assets and liabilities often contain embedded options, such as the right to pay off a loan or withdraw deposits early with little or no penalty. The bank is compensated for offering customers this flexibility (typically in the form of higher interest rates on loans or lower interest rates on deposits). But granting these options creates interest rate risk. For example, if interest rates go up, deposit holders will have an incentive to move their funds into investments that enjoy higher returns. If rates go down, many borrowers will pay off their loans so they can refinance at a lower rate.

Another risk associated with rising interest rates is an increased risk of default by borrowers with variable rate loans.

Managing the risk

Banks can apply financial modeling techniques to measure and monitor their interest rate risk. If your interest rate risk is unacceptably high, consider strategies for mitigating it, such as:

  • Adjusting your bank’s mix of assets and liabilities to reduce interest rate risk,
  • Increasing capital to help the bank absorb the impact of fluctuating interest rates,
  • Reducing options risk by controlling the terms of loans and deposits, or
  • Using interest rate swaps or other techniques to hedge against interest rate risk.

Keep in mind that a key component of interest rate risk management is stress testing. (See “Stressing out about interest rate risk” below.)

Look at the big picture

This article focuses on interest rate risk, but it’s important to keep in mind that many of the risks banks face are interrelated. Thus, management of interest rate risk should be incorporated into a bank-wide risk management system.

Sidebar: Stressing out about interest rate risk

The Office of the Comptroller of the Currency (OCC) provides guidance on managing interest rate risk. The guidance urges banks to conduct periodic stress tests that include both scenario analysis and sensitivity analysis. Stress testing can help a bank manage risk by evaluating the possible impact of various adverse external events on a bank’s earnings, capital adequacy, and other financial measures.

Scenario testing examines the potential impact of various hypothetical or historical scenarios — such as rising or falling interest rates — on the bank’s financial performance. Sensitivity analysis estimates the impact of changes in certain assumptions or inputs into a financial model. It helps the bank determine which assumptions have the greatest influence on outcomes and fine-tune its assumptions accordingly.

© 2022