News and Events

As you have likely heard, late yesterday (March 19, 2020) Governor Wolf issued an order closing the physical locations of all Pennsylvania businesses that are not life sustaining. Canon Capital services are deemed to fall in this category, and we will be complying with the governor’s order effective immediately.

At the same time, we intend to continue providing services to the best of our ability. Our staff will be working remotely and will be accessible via phone or email as we endeavor to be responsive and care for you as clients and friends. To call, dial our main number – 215-723-4881 – and select the appropriate extension.

You may be concerned about the individual income tax filing deadline. Here’s what we know: as we communicated earlier this week, while the deadline for the payment of any tax due has been extended to July 15, the actual filing date for the tax return itself remains April 15. Our industry has been actively lobbying federal and state representatives on this matter and a bill has been introduced in the Senate to delay the filing deadline to coincide with the July 15 payment date. We are confident that this measure will be successful, particularly given the governor’s unprecedented closure order.

As always, we will make every attempt to work with you during this very challenging time, and please don’t hesitate to contact us with your questions and any needs you may have. We will update you as we learn more. In the meantime, we wish you and yours good health and safety.

You might be seeing reports of changes to the 2020 tax season deadlines. There is a lot of misinformation being reported and the IRS has not yet issued official written guidance. Here is what we know right now. Of course, we will keep you updated as information is confirmed.

Yesterday (Tuesday, March 17, 2020) Treasury Secretary Steven Mnuchin announced that the 2020 tax payment due date has been extended by 90 days, to July 15, 2020. As far as we know, this has not yet affected the filing date, which remains at April 15, 2020.

Here is what we know about the payment deferrals:

• Individuals may defer tax payments up to $1 million for 90 days (until July 15, 2020).
• Corporations may defer tax payments up to $10 million for 90 days (until July 15, 2020).

In the meantime, here are some additional resources for advice to help navigate this situation:

• Stay in touch with your lenders. Most lenders are working on some relief packages. Keeping a line of communication with them can help them to help you.
• Contact your insurance company to see if you qualify for relief under business interruption insurance.
• Contact your state and federal representatives and/or keep up with their newsletters/e-news. They will be a source for the relief that will soon be available.
• The U.S. Small Business Association has guidelines on relief and small business loan resources at SBA.gov.
• Our local Chambers of Commerce have been issuing resources and advice, regardless of membership status. Sign up for their e-newsletters.
• For local businesses, news outlets like Patch.com, Lehigh Valley Business, Montgomery News, and The Intelligencer, are good resources to keep up with local developments.

We will continue to keep you updated. If you have any questions, please call us (215-723-4881) or contact us online.

To Our Valued Clients and Friends,

By now we are all aware of and concerned about the impact of the COVID-19 virus. Given Governor Wolf’s recent closing of schools and other public spaces in Montgomery County, and with the overriding motivation to do our part to protect the health of our employees, our clients, and the community at large, we are taking steps to limit exposure to the virus. These procedures will be in place for 11 days beginning Monday, March 16, 2020, and longer if necessary.

We will prioritize phone and email interaction, as well as using e-signature capabilities and video conferencing where possible, to the exclusion of face-to-face meetings in either client offices or in our office. Employee-client office visits are now limited to those that are very essential, infrequent, and brief in nature. In addition, we will not engage in client appointments in our office during this period.

Our office doors will be locked at all times. While we prefer email or fax delivery, those visitors needing to drop information off may do so at the drop box by our main entrance, where we will provide envelopes for confidentiality. Anyone needing to pick up items will be admitted to the lobby only for a brief amount of time. Where requested, we will also mail items out to clients.

Please be aware that our staff continues to operate with a high level of awareness of the client experience and want to work with you to minimize the impact of this health emergency on all of us.

Thank you for your understanding and flexibility as we all deal with these extreme circumstances, and best wishes for health to you and your families.

To our valued clients,

Canon Capital has been monitoring the coronavirus-related events, focusing on the health and safety of our clients and our staff, and doing what we can to reduce any negative effects of the coronavirus on our broader community.

Recognizing the importance of continued communication in financial services, even in challenging circumstances, we would like to encourage a practice referred to as “social distancing”: reducing the probability of contact between persons not carrying an infection and others who may be carriers. Our goal is to do what we can to reduce disease transmission, and any negative results arising from such transmission, while still providing a high level of client service.

While we have not seen instances of coronavirus firsthand, we have developed procedures and contingency plans in the event of an expansion of the pandemic. We have initiated steps to make our office facility safer. We have a flexible employee work policy to accommodate employee illness or that of their families. As a result of leveraging technology, our employees can comfortably perform their roles remotely from their homes or other locations when necessary.

At this point we would like to stress that whenever possible, non-physical communication with us through our technology resources is the prudent approach. We encourage you to communicate via email and traditional phone interaction, particularly in the event you have recently traveled overseas. Video conferencing may also be an option in certain circumstances.

These are challenging times, and we want to encourage everyone to take reasonable steps for protecting their health. Thank you for joining us as we all do our part to help our community.

Please join us in congratulating our colleague Bradley C. Barnhorst, CFA on the recent release of Managerial Finance, Version 1.0, a textbook he co-authored with Dr. Amy K. S. Scott. This textbook will be used in the teaching of managerial finance, financial management, and corporate finance courses taught at the undergraduate level in two- and four-year colleges and universities as well as at the graduate level, including in MBA coursework.

The textbook is described as having “…an unusually robust integration of theory and practical application. Development of financial ‘intuition’ and the ability to successfully apply learning to new situations is the primary goal of the book. Consequently, the learning strategy first encourages students to understand concepts before equations and discussion of operations are presented. To support the development of financial intuition, each core theoretical concept is supported by numerically based applications. All theory and application are presented in the context of decision making within an ethical stakeholder model.”

Bradley is the Associate Professor, Chair of Finance Major, and CFP Program Director at DeSales University. We are grateful for his expertise and wisdom as Investment Committee Counsel here at Canon Capital.

We appreciate the sacrifice of time and work that went into the creation of this textbook and would like to thank Bradley and Dr. Amy K. S. Scott for this contribution to the education of the next generation of financial professionals.

Workers in the United States recently saw the first update to overtime eligibility salary levels in 15 years. Effective, January 1, 2020, this final rule under the Fair Labor Standards Act (FLSA) brings the following threshold changes to the salary and compensation levels to receive overtime pay:

• raising the “standard salary level” from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker)
• raising the total annual compensation level for “highly compensated employees (HCE)” from the currently-enforced level of $100,000 to $107,432 per year
• allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices
• revising the special salary levels for workers in U.S. territories and in the motion picture industry.

The Department of Labor (DOL) has advised that this change means that an estimated 101,800 workers will now be eligible for overtime pay.

Questions about this new rule and how it might affect your company’s payroll? We are happy to help. Call 215-723-4881 or contact us online.

We know how tempting it can be to cut corners in business, but cutting corners almost always leads to a problem further down the line when we must face the consequences of not having implemented something correctly the first time around. This same concept applies to your IT. If you cut corners with IT, the consequences to your business can be major. Here are three places where you never want to cut IT costs:

Equipment

You want to set up a wireless network, but you don’t want to spend more than $50. So, you spend that $50 and call it “good.” While this new router may deliver a wireless signal that reaches every employee, you could be making a mistake.

Routers are an ideal example of technology you want to put extra thought and money into. You want equipment that not only makes sense for your business’s network needs but that will also perform reliably and securely. Cheap routers aren’t known for their security features. You want something that will complement the firewalls or security software you have in place.

This same idea applies to all other equipment and software. You don’t want to put your data at risk if you’re buying cheap, potentially faulty equipment. Do research, ask questions and work with an experienced IT company to make sure your equipment is up to snuff.

Growth of Your Business

Whether you’re just getting started or you’ve been in business for a while, you always want to invest in hardware and software that will scale with your business. It’s safe to say that most businesses want to grow, which means adding more customers and more employees. When that’s the plan, scalability becomes a big deal.

Part of it comes back to the first point: cheap equipment isn’t typically designed with scalability in mind. It’s a quick-fix investment. It’s not made for the long haul. Where do you plan on being in five years? What are your growth goals? You need to ask these kinds of questions to determine what type of investment you need to make, whether it’s in billing software, customer service software, workstations or your network infrastructure.

If you don’t think about scalability, you’ll be hit by growing pains as soon as your business starts to increase. You’ll have to reinvest in technology, and as a result, you’ll be spending far more than necessary: once for the first investment (on non-scalable tech) and again for the second investment (to catch up with your growth).

Data Security

Just because your data is locked away in the back room doesn’t mean it’s safe. Small businesses are the biggest targets for cybercriminals because most small businesses skimp on data security, making it easier for cybercriminals to steal data and cause a lot of problems. To make matters worse, if you get hit with a cyber-attack or data breach, it can be incredibly difficult to recover, and many small businesses don’t.

You should invest in a mix of firewalls, malware protection, data encryption, data backups, password managers and, as mentioned at the start of this piece, good equipment that is designed with reliability and security in mind. This feels like (and can be!) an overwhelming amount of security to enable, and as you dive further into the topic of data security, you’re likely to have more questions. It is very hard to run a business and try to be a data security expert at the same time, so consider pairing up with an experienced IT company that specializes in security.

Whether you hire outside IT assistance or you invest in your in-house IT support, remember not to take shortcuts and reevaluate your plan at least once a year to determine the best level of security for your business.

Questions? Or maybe you’re not sure where to begin? Contact Kent Gerhart at 215-723-4881 x131 to arrange for your free Technology Review today.

I was reading an article on a recent tax court decision in which the court trial was borne out of an examination of an individual taxpayer.  One passage from the article read as follows:

“The IRS auditor analyzed the taxpayers’ bank statements and records to identify total deposits and asked the taxpayers where the deposits came from.  Deposits for which the taxpayers could not identify the source were classified as taxable by the auditor.”

There’s a lot to unpack here, but before we get started, let’s discuss some background items.

A few general facts

First, the fact that this case is an individual exam is irrelevant to you the reader.  As I teach in my classes, you and your business are one and the same.  Therefore, in any exam, an auditor will audit both you and your business.  Even if your business is a separate entity.  There is no hiding behind separate entities.

Second, any exam is going to carry on for multiple years; three years is the most likely scenario to start.  If you’re unfortunate, it will only grow from there.  Outside of certain circumstances, the IRS can generally audit any of the last three years filed.  So as of December 2019, the IRS can freely audit 2016, 2017, and 2018 returns.

Third, while I’m an accountant and have a different perspective, I know taxpayers generally don’t keep accurate “books and records” for themselves.  How do I know?  Easy.  Every time I go to the bank, the teller asks me, “Do you need a balance?”.  The accountant in me thinks this is quite possibly the worst question ever asked because the bank never has a correct balance.  However, it seems to be of great service to the general population because the bank keeps asking.  Thus, the fact that a bank, who never has the correct balance, is better than the individual’s own records tells me the individual must have less of a clue than the bank as to what their correct balance actually is.

Unpacking the details

With that background established, let’s start unpacking the passage in the article, kind of like you would  your favorite Bible verse:

First, the auditor analyzed ALL the taxpayers’ bank statements and records. So, if you have four bank accounts, you’ll be required to hand the examiner 144 statements (4 accounts for 12 months for 3 years).  No exceptions. Keep in mind, a lot of online banking services only go back one year and we as individuals don’t keep good records. Thus, you could very well need to pay for nearly all the statements to be reproduced. As of December 2019, the only statement available to us online for our 2016–2018 exam is December 2018.  Yikes, that’s a lot of bank charges!

Second, the auditor added up total deposits on the bank statements. An auditor will subtract transfers between accounts, which could be documented if they are done electronically.  However, if you’re writing a check from one account to the other, even a transfer may not be documented clearly.  After this, the auditor compared TOTAL ADJUSTED DEPOSITS to known income. It’s extremely important to know an examiner will ALWAYS do this analysis – either for a business or individual. They are looking for unreported income.

Next, the auditor was nice enough to ask the taxpayers where the deposits came from. Nice, huh? We all assume it would be the auditor’s job to figure out sources and amounts of income.  However, that’s a very bad assumption. We, as either businesses or individuals, need to know the sources for all our deposits.  It’s not for the IRS to figure out.

As a result, “Deposits for which the TAXPAYER could not identify the source WERE CLASSIFIED AS TAXABLE.” Think about that for a moment. EVERYTHING not identified was classified as taxable.  EVERYTHING. You’re probably thinking, “That’s not fair!”. It certainly isn’t. However, auditors have a godlike power. They can pretty much do anything they want. That’s just the way it is.

So, let’s think about this in terms of ourselves. We have already determined individually we don’t keep good books and records.  So that $350 deposited on 7/6/16.  What was that?  Don’t know? Bam! Taxable. That $890 deposit on 8/31/17.  What was that?  Don’t know? Bam!! Taxable. In reality, these could have been insurance refunds; redeposit of left-over cash you took on vacation; your kids’, family’s, or friends’ reimbursement for some expenses; mileage reimbursements; legitimate gifts; and on and on. ALL OF THAT IS NOW TAXABLE because you were too lazy to keep a simple check register. This is now rubbing salt in the wound after you had to pay to obtain the bank statements.

For rainy day Monday fun, I looked at my own records. While I do, in fact, know where and what all my deposits are for, I pretended I didn’t have good records, or any at all. I can prove my wages and account transfers.  But again, I’d have no way of remembering or proving insurance refunds, tax refunds, expense reimbursements from my kids, or my sister giving me cash as a reimbursement for my parents’ anniversary present, some small court settlements, etc. For one year, the total was $4,995. So over three years, that would mean $15,000. While $15,000 isn’t enough to rise to the level of fraud, it is enough to cause a lot of hurt. If we assume a fairly common tax rate of 24%, that would mean an examiner could assess me with an additional tax of $3,600 in an exam BEFORE penalties and interest. Now we’re taking sandpaper to that wound.  Again, all because I was too lazy to keep a simple check register.

Keep in mind, I did nothing wrong. I correctly reported all items of income and deductions correctly under the law. I just was lazy with my recordkeeping.  Now I’m out $1,440 – $3,600 for bank statement copies that cost me $10-$25 per copy, $3,600 in assessed tax, and hundreds more in interest and penalty. Lastly, I may want to have someone represent me in an exam. That could easily cost me another $3,000 – $5,000.  Remember, since I don’t have good records, the guy charging $200/hour is going to have more time than if my records were good. And after all this, I HAVE NO DEFENSE TO APPEAL THE DECISION.

Yes, this is very real and can happen.  I’ve seen it.  Remember, as you suspect with the IRS, you are guilty until proven innocent. What you don’t know can indeed tax you.

Brent Thompson, CPA has been with Canon Capital since 1998. He provides management advisory services, tax and general business planning, tax preparation, and financial statement preparation and review services for numerous businesses and their owners. He holds the Certified Management Accountant (CMA) designation and a Chartered Global Management Accountant (CGMA) designation. Brent is a member of the AICPA and the Institute of CMA’s.

This article is designed for general information only. The information presented should not be construed to be formal advice nor the formation of a client relationship.