Questions & Answers

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Why is Risk Management Important?

Risk management is important because it tells businesses about the threats in their operating environment and allows them to preemptively mitigate risks. In the absence of risk management, businesses could be blindsided by risks and possibly face significant losses. A properly implemented Enterprise Risk Management program supports better structure, reporting, and analysis of risks. Standardized reports that track enterprise risks can improve the focus of directors and executives by providing data that enables better risk mitigation decisions. No risk management program can get very far without an in-depth understanding of specific risks that an organization faces. That is why risk identification and assessment are important – as a way for the organization to get a handle of the universe of significant risks it faces and to determine how important each risk is to the achievement of overall goals. Although identifying and assessing risk are important, they are only the initial steps. It is rare that risk assessment projects are seen as the end of an overall Enterprise Risk Management process. For organizations to appropriately manage and mitigate their critical risks (that fall outside acceptable tolerance levels), organizations must act. An effective enterprise risk management program will also include the development of risk responses, controls, and monitoring activities. The overall risk management cycle includes the following ongoing activities: Identify the Risk Analyze the Risk Evaluate or Rank the Risk Treat the Risk Monitor and Review the Risk Conducting an enterprise–wide risk assessment brings together your organization’s key personnel to identify threats, critical risks and impacts that should be considered when pursuing the overall mission and objectives of the organization. SLK’s experienced team will work with your organization to facilitate interviews and workshops with the key individuals and departments within your organization to assist in identification, prioritization & planning of remediation activities for critical tasks.

What is Enterprise Risk Management?

Enterprise risk management is a domain of governance that deals with the operational, environmental, financial, regulatory, market, and other risks that affect the outlook and planning of organizations.

How can LerroSarbey assist with SOX 404 Compliance?

LerroSarbey can assist companies with implementation of SOX 404 through identification and documentation of relevant internal controls. In addition we can assist in developing and implementing test plans to determine the operating effectiveness of such controls.

What does SOX 404 mean by "Internal control over financial reporting"?

A process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Who must comply with the provisions of SOX 404?

Section 404 of the Sarbanes-Oxley Act states that internal control report requirement applies to most companies filing annual reports with the SEC.

What is meant by Sarbanes-Oxley section 404 (SOX 404)?

Section 404 of the Sarbanes-Oxley Act requires companies to file an internal control report along with its annual report. This internal control report must confirm management’s responsibilities related to establishing and maintaining adequate internal control over financial reporting. It also specifies management’s conclusion on the effectiveness of those controls at year end.

Can I deduct expensenses for my automobile?

Yes, the business use of one’s automobile may be deducted. Generally, one can deduct the business portion of actual car expenses or the standard mileage rate. The standard mileage rate for 2020 is 57.5 cents per mile. Actual car expenses that can be deducted include:

1. Depreciation
2. Licenses
4. Oil
5. Tolls
6. Lease payments
7. Insurance
8. Garage rent
9. Parking fees
10. Registration fees
11. Repairs
12. Tires

If you use your car for business and personal purposes, you must track your mileage and deduct only the business portion of actual expenses (or the standard mileage rate multiplied by business miles driven during the year).
1. One cannot deduct the cost of driving a car between your home and your main or regular place of work (commuting expenses).
2. However, if you work at 2 places in one day, you can deduct the expense of getting from one workplace to the other.

We recommend keeping a mileage and expense log to track business mileage each year.
1. One should record the odometer reading as of January 1 and December 31 each year to track total miles driven for the year.
2. The log should include the following data:
• Date
• Destination (City, Town or Area)
• Business Purpose for trip
• Odometer reading at start of trip
• Odometer reading at end of trip
• Total miles this trip
• Expenses relate to the trip (gas, oil, toll, etc.) – description and amount

Can I deduct expenses for my home office?

  • To qualify for the home office deduction, the space must be used regularly and exclusively for conducting business. You must also use this exclusive space as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction.
  • Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
  • Deductible home office expenses include:
  1. Real estate taxes
  2. Home mortgage interest
  3. Mortgage insurance premiums
  4. Depreciation
  5. Insurance
  6. Rent paid for use of property you do not own
  7. Repairs
  8. Security system
  9. Utilities and services (including electricity, gas, trash removal, and cleaning services)

Can I give tax-free gifts to family and friends?

  • The 2020 and 2021 annual gift exclusion amount is $15,000 per donee (gift recipient). A married couple can together gift up to $30,000 per recipient without having to file an annual gift tax return. If all gifts made during the year are “present interests” in the cash or other items gifted and the value gifted is equal to or below the annual gift exclusion, no gift tax return is required.
  • Tax-free gifts can be made to 529 plans (Qualified Tuition Plans). There are special provisions that allow one to elect to treat up to 5 times the annual exclusion amount contributed to a 529 plan on behalf of any one person as if it had been made ratably over a 5-year period. Thus, one can contribute up to $75,000 to a 529 plan in one year for each beneficiary. One must file a gift tax return Form 709 in the initial year of the contribution to make the election, but will not be required to file in the subsequent 4 years if there are no other gifts that would necessitate filing Form 709 in those years.

How much can I contribute to a traditional or ROTH IRA?

  • An individual can generally contribute to a traditional or ROTH IRA the lesser of their compensation for the year or the annual IRA limit. For the tax year 2020, the IRA limitation is $6,000 ($7,000 if age 50 or older by the end of the tax year).
  • An IRA contribution must be made by the due date (without extensions) of the tax return for the year of the contribution. For example, a 2020 IRA contribution must be made on or before April 15, 2021.
  • There are income limitations on the ability to make a ROTH IRA contribution, as well as limits on the ability to deduct a traditional IRA contribution if either the taxpayer or their spouse participates in a retirement plan at work. Please contact us for more details about these rules.
  • There are opportunities to work around the high-income limitation on the ability to contribute to a ROTH IRA. Please contact us for more details about these opportunities.

Am I required to make estimated tax payments?

  1. To be exempt from penalties for underpayment of taxes, an individual must generally meet the following requirements:
  • Owe less than $1,000 with their return
  • Made payments throughout the year either through withholding taxes, estimated tax payments, or some combination of the two for the lesser of the following amounts:
  1. At least 90% of the tax due for the current year, or
  2. 100% of the tax shown on their prior year's return. For taxpayers with adjusted gross income (AGI) above a certain level, this may be based upon 110% of the prior year's tax.
  • Here’s an example: Jane and John's Taxpayer had a total tax liability of $___ on their 2019 Form 1040, including Jane’s self-employment taxes of $___. Their 2019 AGI was $______. John’s withholding in 2020 is expected to be the same as in 2019, $___. Thus, to be “penalty proof” for 2020, Jane and John must make estimated payments totaling $___, so that the total of John’s withholding and their estimated payments equals 110% of their 2019 total taxes.

How are LLCs treated for tax purposes?

  1. Limited Liability Companies (LLCs) have a “default” treatment for income tax purposes, depending upon the number of LLC members:
    • If there is only one LLC member, the default treatment for the LLC is for it to be disregarded as an entity separate from its owner.
      1. Thus, if an LLC is wholly owned by an individual, the default treatment would be for the individual owner to report the LLC’s activities directly on Form 1040. The activity might be reported on Schedule C, Profit or Loss from Business, or on Schedule E Part I, Income or Loss from Rental Real Estate if the LLC owns rental property.
      2. If an LLC is wholly owned by a corporation or a partnership, the LLC is treated as a division of its owner, and the LLC’s activities are reported on the corporation or partnership income tax return.
    • If there is more than one LLC member, the default treatment for the LLC is for it to be taxed as a partnership. In this case, the LLC will file Form 1065 and issue Schedules K-1 to each of its members, the same as a general partnership or a limited partnership.
  2. Regardless of whether there are one or more members, an LLC may elect to be taxed as a corporation or Subchapter S corporation (as long as other requirements to be an S corporation are satisfied).
    • The LLC makes the election to be treated differently from the default tax treatment discussed above by filing with IRS Form 8832, Entity Classification Election.
    • An LLC electing Subchapter S status makes the election by filing Form 2553, Election by a Small Business Corporation.
    • The time of filing both these elections is important, and generally must be done within 75 calendar days following the requested effective date.
      1. There are some safe harbors for late elections, but they are not guaranteed to result in the desired effective date.