Five key business areas to review before 2018

These final two weeks of the year are usually filled with a hope that a few of those outstanding proposals will turn into sales commitments.

This is also a great time to reflect on the past year and prepare for the upcoming year. We’ve compiled five areas you should be spending extra time with during the holidays to ensure you are ready when the calendar turns.

Start with a baseline

In order to start your new year on the right foot, it’s imperative that you know exactly where you will end 2017.  This involves working with your accountant and thoroughly going through income statements, management accounts and cash flow analysis and level set your actual levels versus your original projections.  Doing this exercise not only helps to build a trend analysis, but also allows you to accurately finalize your 2018 budget.

Confirm your revenue projections

Once you have a firm grasp on where you are financially, it’s time to make sure your sales targets are achievable based on how you will end this year. If you’re like most businesses, sales planning started in early Fall, so tweaks will need to be made. Did you end the year as you projected? Will it affect next year’s business goals? Where are your sales numbers trending? How do these numbers compare to previous years?

Get a pulse of your customer base

In all reality, a customer survey should be done often. It’s the best way you can get direct feedback on your company, your product (or service), and receive ideas for how to get more customers just like them! It’s also a nice way to check in with your entire customer base and show them you value their input, especially if you don’t reach out to them on a regular basis.  Questions can focus on why they purchased, why they didn’t, and would they recommend your company.

Plan for new technology

It’s no secret that technology moves fast. Investing in the right technology, whether or not you are getting ready for a growth period, can help streamline your business processes, lower administrative costs, and most importantly, keep you competitive in the marketplace. Take a look at your business software packages, CRM, mobile devices, phone system, laptops and any subscription services that could help you better manage your business. Making updates to your technology platforms early will help ensure you get the most out of your investments.

Align your sales and marketing efforts

Even though you have defined your sales targets, it’s imperative that you know WHO your target audience is and how you can best reach them. The first step is to build a thorough customer profile that identifies the type of person (or company), their major pain points, and where they buy. From there, build out a thorough marketing plan that includes your top strategies, marketing channels you will be using, and your marketing budget. The size of your marketing budget should be a combination of how much your company can invest and how quickly you can acquire customers to build an accurate ROI analysis.  

We’re not saying these are silver bullets to your company’s success in 2018, but taking the time to review each area will help put the pieces together for a complete understanding of your business needs, immediate challenges and financial requirements.

If you need a resource to help you plan for next year, or have questions on how to succeed, reach out to us either by email,, or phone, 216-524-8900.

Four things businesses need to do now to protect themselves against cyber attacks

by: Louis V. Loparo, CPA.CITP

Cyberattacks targeting small businesses (SMBs) are becoming more prevalent every day.  According to Keeper Security’s “The State of SMB Cybersecurity” report, a staggering 50 percent of small and midsized organizations reported suffering at least one cyberattack in the last 12 months where the average cost of a data breach involving theft of assets totaled $879,582!  In fact, the global cost of cybercrime will reach $2 trillion by 2019, a threefold increase from the 2015 estimate of $500 billion.

We frequently get questions or are involved in conversations with our clients regarding the protection of their sensitive data. In the past year alone, we have seen a huge increase in security breaches, attempted theft of data and identity theft. As this becomes a bigger problem, it is critical to stay informed.

What are the most common cyber crimes and how you can help protect your business with minimal exposure?  We’ll discuss each below.

The three most common cybercrimes are:


Ransomware attacks have become more sophisticated. Historically, they have been delivered through spam emails that were easy to identify. They are now targeting industries and specific people. For instance, a financial advisory firm will get an email that states “Here are my investment statements for your review, let me know if you are interested in taking on a new client”. Once they click on the attachment or URL, the malware will begin to encrypt files on the local drive and possibly attempt to connect to network drives and do the same. Users usually are not aware they have been infected until it is too late. They will no longer be able to access the files and at some point will receive a message demanding a ransom payment in exchange for decrypting the files.  Organizations may end up paying the ransom if they do not have good backups and getting the data back is critical.


Phishing attacks rely on social engineering to gain access to sensitive data. It is an age-old scam of thieves tricking people into giving them sensitive information so they can gain access to sensitive data. The targeted data includes but is not limited to: email account access, banking usernames and passwords and personal info such as names, social security numbers, address and date of birth. Once they have the data it can be sold on the black market, used to hijack a bank account or used to gain access to more data. The term used for this kind of data is “PII”, or Personally identifiable information. Most states, including Ohio, have specific laws regarding the security of PII. According to the Verizon DBIR, 30 percent of phishing emails are actually opened, and 12 percent of those targeted click on the infecting link or attachment.

Data Theft

Data theft occurs when a cybercriminal gains access and steals sensitive data. The theft can occur by hacking into a system, stealing hardware or internal theft. Some of these crimes target larger organizations. Data thefts can be very expensive and damaging. Two widely publicized thefts include Target and United States Office of Personnel Management.


Now, we’ve compiled our list of the top 4 actions your business needs to take to help protect yourself and your data:

Examine your IT infrastructure

You may want to consider investing in a security audit. At a minimum, you should do an internal assessment to ensure all your machines are patched with the latest software updates, verify your firewall is working properly and all the updates are current, require complex user passwords and monitor systems using antivirus software.

Educate your users

Constant user education is required. Remind people of the value of the information they have access to and their responsibility to protect it. Most breaches stem from user carelessness or lack of education. At a minimum, on an annual basis, hold mandatory security classes and require users to read and sign off on the internal company policies. Continue to communicate to them the new scams and threats that arise throughout the year.

Be ready to respond to any incident

Have an action plan in place in the event that an incident occurs. The action plan can be written or verbally communicated. The important part is that the users know who to contact and how. That contact person or team will need to be knowledgeable and have the ability to make quick decisions to do everything needed to rectify the issue and minimize the damage. It is impossible to have a plan for every potential incident, which is why it is so important the right person is notified as soon as possible. If you don’t have this capacity within your organization, you should contract with an outside company that can meet your needs.

Purchase cyber insurance policy

Spending on cyber insurance has swelled, primarily in the U.S., from $1 billion two years ago to $2.5 billion in 2016. Experts expect dramatic growth in the next five years as the insurance concept spreads globally.  The last line of defense is the insurance policy. We believe a cyber-policy is a necessity for any business that has a computer connected to the Internet. From the potential cost of protecting clients whose data has been stolen, to the hours or days you could be shut down, the cost of a breach can be crippling to a SMB. We have been involved in numerous engagements assisting clients after a data loss and it is very costly.

So, the last question we hear is “could this happen to our business?”  The answer is yes and the chance continues to rise every day.  Of the 1,000 IT leaders polled for Invincea’s “2016 Cyberthreat Defense Report,” three-quarters reported that their networks had been breached in the last year, and 62 percent said they expect to suffer a successful cyberattack at some point this year.  Although we don’t provide IT services, we do consult with our clients very frequently about their technology issues, and often, their concerns with protecting their accounting data.
Concerned about the possibility of cyber attacks at your business?  Contact us and let’s talk!

IRS Steps in Against Identity Theft

By: Heather R Cunningham

Over the past several years, tax-related identify and refund fraud has become much more prevalent.  Identity thieves file tax returns using stolen social security numbers and claim false refunds.  They often file electronically and early in the year before the IRS is able to verify the information being submitted, and before the real taxpayers have a chance to file their returns.  Then, when the individual whose social security number has been falsely used attempts to file, their return is rejected because the IRS only allows one return to be filed per social security number.  Once this happens, the taxpayer is forced to file their return on paper, completing additional forms and procedures with the IRS to verify their identity, which delays the processing of their return and receipt of any refund.

The IRS is developing techniques to combat this tax-related fraud.  One way is by using a pilot program that began during 2015.  As part of this program, the IRS has started working with several large payroll companies to develop methods to help verify W-2 information.  The IRS developed a program which generates unique codes for the payroll companies to report on the W-2’s they prepare.  This unique code will then be entered into tax software when the individuals prepare their tax returns.  In order for that return to be accepted by the IRS the codes on the w-2 must match what was generated in the IRS’s system.  Since identity thieves will not have access to the w-2 codes when filing their false returns, the codes won’t match, the return will be rejected.

During the first year of implementation, the program was used for 1.5 – 2 million W-2’s.  The IRS plans to have it expanded to anywhere between 24 and 50 million W-2’s for the 2016 tax year.

As we all know of someone who has been the victim of some form of identity theft, it is good to see the government taking steps to prevent it.

If you have questions or concerns, contact us or call us at 216.524.8900

Businesses should utilize these tax-saving strategies before it’s too late!

by: Franco DiLiberto, CPA

The end of the year is quickly approaching and that means businesses and business owners should be thinking about taxes.  Businesses have many money-saving strategies at their disposal and many times it’s just a matter of scheduling a meeting with an advisor to discuss options.  As always, the sooner you can initiate these strategies, the better as the holidays will be here soon.

It’s for this reason, that we have put together our list of the Top 5 tax-saving strategies that businesses should be considering:

  1.  Defer Income and Accelerate Deductions

Businesses need to evaluate their current and future tax situation to decide whether or not to defer income or accelerate deductions. If possible and reasonable, deferring income and accelerating deductions for business owners is an effective way to reduce taxable income for the current year.  If you expect to be in a similar or lower tax bracket in 2017, you may want to consider delaying billings and sending invoices to customers until 2017.  

In addition, paying off and prepaying certain bills for cash basis businesses is another way to lower income in the current year.  

  1.  Make a Purchase to Utilize Section 179 and Bonus Depreciation

Yes, the highly popular accelerated depreciation methods of Section 179 and bonus depreciation offer tremendous tax savings for businesses.  The Section 179 deduction was permanently extended in 2016, and bonus depreciation was extended through 2019.  

Section 179 allows businesses to expense the cost of new and used qualified property that is purchased and placed into service in the current tax year.  Bonus depreciation is a 50% depreciation deduction on qualified new property purchased and placed into service in the current tax year.

The maximum Section 179 deduction allowed for 2016 remains at $500,000 and phase out limitations occur if asset purchases exceed $2 million.  For instance, buying a heavy SUV, pickup truck, or van before year end is an option for business owners to reduce their taxable income.  

To qualify for a full or partial Section 179 expense, the heavy vehicle must weigh over 6,000 pounds and be used at least 50% in the business.  Also, the vehicle can be bought outright or financed with certain leases and loans.

  1.  Utilize the “De Minimis Safe Harbor” Election

For tax year 2016, the IRS allows businesses to immediately expense the cost of tangible property below the threshold of $2,500 for businesses without an audited financial statement.  The threshold is $5,000 for businesses with an audited financial statement.  This threshold reduces the administrative burden for small businesses to comply with capitalization requirements.  In addition, this new tax relief allows businesses to immediately deduct assets that were traditionally capitalized, such as computers and high-end furniture.

Before year end, businesses should review their capitalization policies and consider documenting the $2,500 safe harbor election policy.  Also, assuming the safe harbor election is made, businesses should review their asset purchases to ensure that all items under $2,500 have been properly expensed rather than capitalized or included in Section 179 or bonus depreciation.

  1.  Research & Development Credit

The R&D credit was permanently extended in 2016, and it continues to offer tax incentives to business innovations.  Expenses associated with qualified research is eligible for this credit.  Qualified research is defined as developing or improving a business component with regard to its performance, functionality, reliability and quality.  The business component must be intended for sale, lease, or license.  Business owners should consider this credit and also be aware that, for 2016, small businesses with less than $50 million in sales may claim the credit against alternative minimum tax liability (AMT), which eliminates a major restriction on the use and applicability of this credit in the past.

  1. Ohio Business Deduction and 3% Business Tax Rate

For Ohio businesses, do not forget about the 100% business deduction for 2016.  The deduction is limited to $250,000 for single and married filing joint taxpayers and limited to $125,000 for married filing separate.  Eligible individuals for this deduction are owners and investors in Ohio businesses structured as sole proprietorships and pass-through entities, including partnerships, S-Corporations, and limited liability companies.  

In addition, Schedule E rental properties are eligible for this deduction.  Finally, any potential business income is taxed at a maximum 3% business tax rate, providing further relief to taxpayers.

Don’t wait until the end of the year to identify which options you would like to take for your business!  Whether you’re a current client or prospect, our team of experts will discuss the best options for your business.  If you have questions on any of these deductions or would like to discuss your specific business situation, contact us by email at or call at 216.524.8900.  

Surviving an IRS Audit

by: Graham Blackburn

Throughout history, people have harbored a certain degree of anger and fear for tax collectors.  The modern day IRS is not too different.  It’s a massive organization tasked with implementing a tax system that is simultaneously complicated and impactful.  The dreaded IRS audit is the primary source of fear, but with a better understanding we can help alleviate some of that angst.

First off, it’s important to know that audit rates are declining.  In 2015, the IRS only audited 0.8% of individual taxes, or about 1.2 million returns, with higher income taxpayers more likely to be selected.  This marks an eleven year low.  Small businesses, S-Corporations and Partnerships are seeing similarly low audit rates.  Being selected for an audit does not mean you’ve done anything wrong.  Often selections are simply at random.

If you do happen to get audited, it’s helpful to understand the basics of what that means and what transpires when the IRS comes knocking.  Essentially, during an audit, the IRS has one of their agents review part or all of your tax return, in person or via mail.  They request information to support the reported figures, checking to ensure the validity.  Audits, or the potential for them, are the reason we’re told to retain reams of tax documents years after returns are filed.  As a general rule, the IRS can audit any return within the last three years.  However, if there is substantial error found on the return (>25% misrepresentation of income) the time-frame extends to six years.  In the event of an audit, our goal at Hobe & Lucas is to assist you in dealing with the IRS agent, aiming for a determination that there should be “no-change” to the tax return.

After dealing with the IRS in past instances, I have a few thoughts and recommendations:

  1. Remember that it’s going to test your patience. Generally, the larger an organization, the slower it will operate, and the IRS is one mighty large organization.  Resolution is not imminent.  Lengthy periods of silence from the IRS doesn’t necessarily mean there are problems.  It just tends to take them a long time to process information and correspond.
  2. Understand your appointed agent. It might be easy to think of IRS agents as a tax-collecting robots, but I think it’s important to realize that they are people with varied knowledge, motivations and personalities.  IRS agents have objectives and are actually trying to complete a difficult objective.
  3. Respond in a timely manner. Ignoring letters and requests won’t make them go away.  It’s best to correspond as soon as possible to stay in the good graces of the agent, even though it seems hypocritical given the IRS’s slow response time.
  4. Try to stay confident and positive. To understate the obvious, tax law is onerous.  Different individuals have varied interpretation of the law.  In an audit situation, the agent might challenge certain aspects of the return.  Defend your position if you believe it’s correct.

Overall, tax audits are fairly infrequent occurrences, but the fact is that some audits are unavoidable.  It’s unfortunate to be selected for audit, but the whole process is – manageable – and therefore nothing to fear. Hobe & Lucas tax personnel are experienced and knowledgeable in complicated tax issues and compliance with them, and we’re here to help. Give us a call 216.524.8900 or contact us.

Savings Options for Special Needs Individuals

by: Jillian Strunk

About 15% of children in the United States have developmental disabilities, including Down syndrome, cerebral palsy, intellectual disabilities, among others. With the great advancement in medical care, these individuals now have the chance to live long and full lives. This creates the need to provide financial support for their future as independent individuals for a much longer period of time. Luckily, there is a growing list of options to save for special needs individuals without disqualifying them from their disability benefits.


529 – ABLE Savings Accounts

In December of 2014, the Achieving a Better Life Experience Act (ABLE) was passed. ABLE allows families and individuals with disabilities to maintain investment accounts for qualified disability expenses tax-free without losing eligibility for public benefit programs. They are similar to 529 College Savings Accounts and 401(k) retirement accounts. The money deposited into the account is invested in different options allowing the growth of savings for long-term care. The money can be withdrawn at any time and is not taxed so long as the funds are used for approved expenses, including basic living expenses like rent and utilities, employment expenses like job-training, and wellness expenses like health insurance premiums and adaptive equipment. In Ohio, the first state to enact ABLE, these savings accounts are called STABLE accounts. There are a few minor fees for account maintenance and an initial deposit of $50 is required, but enrollment is online and very user-friendly.


Nonprofit Pooled Income Special Needs Trust

Managed by nonprofit organizations, these trusts receive funds from many individuals and pool them together for investment. This pooled fund is managed by a trust adviser who makes decisions on the investments. Each individual investor is treated exactly the same. This means that when a trade is made, it is made for everyone in the pool, not just one individual. The larger amounts created by the pooled funds increase the potential for growth. Using distributions from the trust, the special needs individual can increase their quality of life without interfering with their eligibility for government benefits. The individual can use money from the trust account for services that are not paid for by insurance or government benefits, but which provide benefits to the disabled individual such as telephone service, cable tv, vacations, and adaptive equipment.  Be sure to check the rules of the specific trust before entering, as some have rules on the frequency of distributions and what happens to the remaining funds after death.


OBRA Trust

Named for the Omnibus Budget Reconciliation Act of 1993, OBRA trusts are first-person trusts. This means that the assets funding the trust come from, and belong to, the disabled individuals themselves, often from a legal settlement or an inheritance.  OBRA Trusts are not included as assets when determining public benefit eligibility.  Funds within an OBRA trust can be used for anything public benefits don’t cover.  These trusts have more regulations, but are beneficial if the disabled individual is expecting a sudden windfall of cash.  Upon the death of the individual, the remaining funds are used to reimburse the government for previously received Medicaid benefits.


Third-party Special Needs Trust

The most common type of trust used to benefit people with special needs, in a Third-Party Special Needs Trust a donor, such as a parent or grandparent, can set up a trust with the disabled individual as the beneficiary.  This allows individuals to give money to their disabled loved ones without impacting their eligibility for benefits.  A benefit to a third-party special needs trust is that distributions are not limited to a specific list of supplemental needs.   Another benefit to this type of trust is that the funds never belong to the beneficiary, meaning upon death, unlike first-party and pooled trusts, the government is not entitled to reimbursement for previously paid benefits.   The remaining assets in the trust can pass to other beneficiaries at the donors’ discretion.


Planning for the future of your special needs child can seem like a daunting task. These 4 options, among others, are available to assist in securing your child’s future without disrupting government benefits. Most trust accounts require the filing of federal Form 1041 and STABLE accounts require Form 1099-QA and Form 5498-QA to be include with the federal Form 1040. If you need help filing these form for your special needs child, call Hobe and Lucas for guidance! (216)524-8900

Grow Your Business through Benchmarking

by: Kevin Stedman

Experience counts when choosing an accounting firm. Not only should you trust that your accounting firm understands the rules and regulations that apply, but more importantly, that they understand your business and industry.

We have years of experience offering traditional accounting services like tax planning and preparation, accounting and auditing and business consulting. Perhaps one of our most valuable service offerings is leveraging our vast experience to help you understand and grow your business through benchmarking.  Benchmarking is the process of comparing your business’s performance metrics with those of competitors and/or the entire industry.

Over the years, we’ve gained extensive familiarity with various industries and business structures and have seen how powerful benchmarking is as additional support in managing your business. Being able to share that information with you to give a snapshot of how you stack up to your competition is one of the most important services we can provide.  We answer some of those hard questions, like:

  • Are your margins where they should be?
  • Are your employee wages competitive with your peers?
  • Are you paying too much for materials?

Getting answers to these questions is important to understanding your place in the industry, especially if you’re looking to grow.  Our benchmarking service is comprised of 6 simple steps:

  1. Define the focus areas – Look at a few areas of your business or a comprehensive review.
  2. Collect data from your company and your industry – Identify the trends and use our extensive resources and experience to define the industry standards.
  3. Analyze the data – Focus on the areas most critical to your growth that need improvement.
  4. Define an improvement process and establish goals – Create improvement goals and lay the foundation of how to achieve them.
  5. Implement and measure – Track your results and measure whether your goals are being achieved.
  6. Continuous improvement – Monitor and seek to improve the practices defined throughout the benchmarking process to communicate any issues should they arise.

Benchmarking may be a one-time practice, but we treat it as a continuous process at Hobe & Lucas. Using our resources and benchmarking services, we strive to make this process a little easier than you may have thought.

Not all businesses are the same, but understanding your industry can be a critical factor in your success. We know it can be difficult to take a step back when the daily grind is happening, so let’s work on it together.  We have the tools and experience to help you benchmark your performance the right way and find new opportunities to grow.  Contact us today to see if you would be a great candidate for our benchmarking service.  Fill out our form, call us at  216.524.8900 or contact your Hobe staff member to start unlocking this valuable information and get your edge back on the competition.

The IRS v.s. Identity Theft and Scams

By Bob Casmer

By now almost everyone has either experienced for themselves, or heard stories about someone they know being the target of an identity theft or scam.  It is no surprise that as technology has evolved over the past several decades and our reliance upon computers and the internet to handle all phases of our financial activity has increased, so to have the criminals upped their game to try and obtain information about us and gain access to our bank and credit cards accounts.

One particular technique used by criminals to obtain such information is through the guise of them being with the IRS. Those three small letters can strike fear into the hearts of many people, which is exactly what these criminals are counting on.   These scammers will often try contacting people via the phone or through the internet, claiming to be with the IRS. They further claim the person they are contacting is seriously in trouble with the IRS, owes significant back taxes and penalties, and needs to do something immediately or they could be subject to liens, more fines, and even imprisonment.  

These scammers are counting on these people being so worried that they don’t question the validity of the request and willingly hand over their personal information.

First of all, the IRS will never just call you on the phone with no prior contact.  The chief way the IRS initiates any review or contact with someone is via mail.  Likewise, they will not contact you via email.  In fact, the IRS is extremely averse to sending and receiving any information or records/documents via email and normally will not accept anything emailed to them.  They always ask that you fax or mail hard copies of documents to them. Receiving an email asking that you click on attached links or respond back to them with personal information is usually a dead giveaway that you are being subjected to some form of identity theft or scam.  In such instances, do not ever click on or open any links, nor email or send back any personal information in response to such requests.

If you get a phone call from a supposed IRS representative with no prior correspondence from them, it is likely a scam.  Do not give out any information over the phone, and be sure to ask the supposed agent for their name and IRS badge number.  A real IRS agent is required to give you that information anytime they talk with a taxpayer.  You can also ask for a call-back number and see how they respond.  If you have any doubts or suspicions, don’t give out personal or banking information.

It is very easy to contact the IRS yourself through their website at or by phone, to check and find out if the phone call or email, or even a suspicious letter you got, was actually legitimate.  You can also contact us at 216.524.8900 and let us know what you received.  We can help you quickly discern if you were the target of an identity theft scam.

Great news for Ohio Small Business

by: Devin Cunningham

Great news for the Ohio small business owners is in store for 2016! Currently, Ohio small business owners are able to deduct 75% of the first $250,000 of Ohio net business income. This Ohio Small Business Deduction is limited to $187,500 for married couples filing jointly and $93,750 for single filers and is taken on the Ohio individual income tax return. In 2016, the percentage deduction will increase to 100% of the first $250,000 of net business income. And, the 100% deduction will be permanent for the foreseeable future!  

This deduction results in significant tax savings for Ohio small business owners, specifically for those investing in pass-through entities.  Small business owners owning at least 20% of a Partnership, Subchapter S Corporation (S-Corp), Limited Liability Company (LLC) or a Schedule C can now retain a greater percentage of income from their Ohio business investments.  

The only entity type not eligible to receive the Ohio Small Business Deduction are Subchapter C Corporations (C-corps). In some cases, it may be beneficial for these entities to convert to S-Corps in order to capture these tax savings.  

Are you taking advantage of this deduction?

If you have questions or want to talk about planning for next year, give us a call at 216.524.8900.

Accounting for Your Wedding

by: David Baldoza, CPA

A client called the other day and told me she was planning to get married. “Congratulations!” I said. “Yes, thank you” was her reply, “but I need to know which will be better for our taxes – if we have the wedding this year or next.”

How romantic, right? But the decision to push the wedding date up or back a few months can potentially save (or cost) the happy couple a lot of tax dollars.

There are many variables that affect this calculation. The income of the future spouses is the most obvious, particularly if there is a large disparity between them. Filing status is another. Most unmarried people must claim Single filing status. But if they have children, as from a previous marriage, they may be able to claim the much-more-favorable Head of Household status. This option is unavailable if they’re married. Marital status can affect many other calculations on one’s tax return, like the alternative minimum tax (AMT) calculation, exemption and itemized deduction phase-outs, and the net investment income tax. State income taxes even need to be considered in a state like Ohio, which has a steep marriage penalty.

Preparing for a wedding can be a daunting process, but it makes sense to spend a few minutes with your accountant and let him or her run the numbers before you set a date. Even if the day is already fixed, you may be able to make some financial moves ahead of time to maximize your tax savings.