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Important Update: President Signs Red Flag Clarification Act into Law

Professional service providers such as attorneys, accountants, and doctors no longer fall within the definition of a creditor under the Red Flag Rule. The Federal Trade Commission’s (FTC) so-called “Red Flag Rule,” which requires all businesses that are potential identity-theft targets to develop plans to spot red flags and prevent theft, received much criticism for being too broad. But now there’s some relief: S. 3987, the Red Flag Clarification Act, which President Obama signed into law in December 2010. To recap, under the Red Flag Rule, the FTC had been interpreting “creditor” broadly by including organizations that defer payment for goods or services and bill clients later. This led to widespread concern that the Red Flag Rule would be applicable to entities not typically thought of as creditors, including law firms and health care providers. The Red Flag Clarification Act exempts such entities by revising the definition of creditor to exclude creditors “that advance funds on behalf of a person for expenses incidental to a service provided by the creditor to that person.” Essentially, the Red Flag Clarification Act limits the scope of the Red Flag Rule to creditors that regularly and in the ordinary course of business obtain or use consumer reports in connection with a credit transaction; furnish information to consumer reporting agencies in connection with a credit transaction; or advance funds to a person based on the person’s obligation to repay the funds. The legislation does include a provision that would allow other types of creditors to be subject to the Red Flag Rule if the agency with authority over the creditor (such as federal banking agencies) determines that the creditor has accounts that are subject to a reasonably foreseeable risk of identity theft.

Need A Break? Tax Law Extends Single-year Equipment Deduction Through 2011

When you acquire equipment for your businesses, you can deduct the entire cost in a single year, thanks to a tax break that’s been extended through the end of 2011. In the past, business equipment such as computers and machinery had to be deducted over a number of years. Then a new tax code provision was enacted to help spur economic growth. That provision, called Section 179, allowed taxpayers to deduct the cost of equipment as an expense rather than requiring the cost of the property to be capitalized and depreciated. In other words, single-year deductions were permitted — much to the benefit of small and medium businesses. The Section 179 deduction started out at $25,000, increased to $125,000 then $250,000, and finally ended up at $500,000. And many assets qualify for the tax break, including computers, software, office machines and furniture, manufacturing equipment, and vehicles that weigh more than 6,000 pounds. How does it work? Lets’ say you have a $600,000 profit and don’t want to pay taxes on that entire amount. At the same time, you need new computer equipment. You can buy that new equipment for $500,000 and only owe taxes on $100,000 of your profits. Section 179 was set to expire at the end of 2010, but it’s now been extended. The Tax Relief Act of 2010, signed on 12/17/10, allows business owners to take Section 179 deductions through the 2011 tax year. That means 2011 is a great year to consider purchasing equipment, because the immediate writeoff helps businesses such as yours keep more cash free for other purposes. “There is a big advantage to having that cash flow right away,” says Abe Schneier, a senior manager at the American Institute of Certified Public Accountants. “Even in the best of times, it is hard for many small businesses to borrow money for any sizeable investment.” Related articles: Equipment eligible for the Section 179 deduction

Red Flags Rules Apply to You—Yes, You

While many companies think the federal Red Flag Rule applies only financial institutions, if you invoice customers for your goods or services, it applies to you, too. Regulations designed to minimize identity theft went into effect in June of 2010. Are you complying with them? The federal government’s so-called “Red Flag Rule” requires all businesses that are potential identity-theft targets develop plans to spot red flags and prevent theft. Red flags include suspicious photo IDs, unverifiable addresses and Social Security numbers, and questionable account activity, to name just a few. While many companies think the Red Flag Rule only applies to financial institutions, it actually applies to all creditors — with creditors being defined as “businesses or organizations that regularly provide goods and services first and allow customers to pay later,” according to a Frequently Asked Questions guide prepared by the Federal Trade Commission, which will enforce the Red Flag Rule. In other words, if you invoice customers for your goods or services, you’re a creditor — and the Red Flag Rule applies to you. How can you comply? You’ll need to have a written policy that specifically addresses how you will prevent and handle identity theft. Other recommendations include data encryption, annual updates of your written policy, and staff training. While this may seem onerous, you don’t want to ignore the legislation. Fines are $3,500 per violation — and the threat of a lawsuit from customers whose identity has been stolen. Related articles Do You Comply with the FTC’s Red Flag Fule?

How You Can Comply with the Red Flag Rule

To comply with the federal government’s Red Flag Rule, you’ll need to have a written policy that specifically addresses how you will prevent and handle identity theft — and more. Regulations designed to minimize identity theft went into effect in June of 2010. Are you complying with them? The federal government’s so-called “Red Flag Rule” requires all businesses that are potential identity-theft targets develop plans to spot red flags and prevent theft. Red flags include suspicious photo IDs, unverifiable addresses and Social Security numbers, and questionable account activity, to name just a few. While many companies think the Red Flag Rule only applies to financial institutions, it actually applies to all creditors — with creditors being defined as “businesses or organizations that regularly provide goods and services first and allow customers to pay later,” according to a Frequently Asked Questions guide prepared by the Federal Trade Commission, which will enforce the Red Flag Rule. In other words, if you invoice customers for your goods or services, you’re a creditor — and the Red Flag Rule applies to you. How can you comply? You’ll need to have a written policy that specifically addresses how you will prevent and handle identity theft. Other recommendations include data encryption, annual updates of your written policy, and staff training. While this may seem onerous, you don’t want to ignore the legislation. Fines are $3,500 per violation — and the threat of a lawsuit from customers whose identity has been stolen. Related articles Do You Comply with the FTC’s Red Flag Fule?

National Cyber Security Awareness Campaign Challenge a Huge Success

The United States Homeland Security Department’s National Cyber Security Awareness Campaign Challenge was a huge success, with more than 80 security proposals submitted with the goal of increasing awareness regarding threats to cyber security. Out of the over 80 submitted entries, seven were chosen to receive awards at a ceremony at the White House recently. One noteworthy proposal was a 5k run dubbed “Trot Against Bots”, which aims to intentionally cause traffic jams to demonstrate the effect of security problems causing disruptions in internet traffic, bagging the Best Creative Approach award. Cisco Systems, Inc., also got a nod for their “Cybersecurity is Everyone’s Responsibility” Publicity and Marketing plan, which highlights the importance of using cyberspace responsibly as an individual compared to the shared effort of making the internet a safe place for all. Another notable proposal was the “Think Before You Click” campaign from Deloitte & Touche, LLP, which won the Best Iconic and Overall Structure. As the name suggests, the campaign aims to curb the pervasive habit of clicking links before analyzing the possible content of the website to be accessed or the file to be downloaded. Other winners include: Best Local/Community Plan – Securing Our eCity San Diego and MyMaine Privacy; Best Individual Plan – “Cybersecurity Starts Here: Home, School and Main Street” by Melissa Short; and Best Educational Plan – Pennsylvania State University’s “CyberLink Games”. Homeland Security plans to utilize the winning concepts and integrate them into their National Cybersecurity Awareness Campaign. Source: http://www.dhs.gov/files/cyber-awareness-campaign.shtm

Understanding March Madness and its impact on your company

It’s March again, and many hoops fans are once again in a frenzy – creating fantasy basketball drafts, watching streamed basketball games, and researching basketball trends, rumors, and other related information. That’s “March Madness” for you. Most of the activity of March Madness is internet based, with gambling and betting at an all-time high, especially as the tournament draws to a close with the Elite Eight Teams whittling down to the Final Four. Fans spend a lot of time watching streamed videos of games and gathering information on the tournament online, distracting them from their official duties and potentially wasting company bandwidth. How much does this impact your company? A lot, says the research. A 2008 Newsweek article reports that the March Madness phenomenon cost a total of $1.7B in lost productivity. And that’s not counting the high bandwidth consumed from all the video streams and the research activities. In more recent research findings reported by national outplacement firm Challenger, Gray & Christmas, the losses due to March Madness are expected to continue. “Those who insist there will be no impact are kidding themselves,” says John Challenger, CEO of the Challenger, Gray & Christmas. “It might be a slight drop in output, or it could be slow Internet connections as bandwidth is sapped by employees watching streaming feeds of the games,” he adds. If you’re concerned about your company’s bandwidth during this period and want to look for ways to better manage it, we’d be happy to discuss a possible roadmap. Sources: http://www.star-telegram.com/2010/03/17/2048029/college-basketball.html http://www.newsweek.com/id/124404

R-and-D Tax Credit Makes Technology Upgrades More Affordable

A one-dollar reduction in the after-tax cost of research and development creates an additional dollar of new spending in the short term and two dollars of additional spending in the long term, according to the Council of Regional Information Technology Associations (CRITA)—but what small business can afford R&D in times like these? Those who use the federal research and development (R&D) tax credit, perhaps. The R&D tax credit, first enacted under the Economic Recovery Tax Act of 1981, provides certain companies with a tax credit for R&D expenditures used to introduce new products and services, improve current products and services, or simply enhance processes. The tax credit reduces the cost of capital, thereby mitigating the risks of R&D investment and allowing companies to “push the envelope” in the development of new products and services. In other words, your company might get a tax break simply by making its products or processes better. The R&D tax credit likely applies to more companies than you think it does. Contrary to popular opinion, the tax credit is not just for scientific research done in a large laboratory setting. Thanks to recently relaxed regulations, it applies to companies of all sizes in many industries, such as manufacturing, technology, software, and engineering. Examples of small companies that could potentially use the R&D tax credit are a 10-person company that designs and manufactures disk drives for personal computers, or a five-person company that develops software for streamlining real estate companies’ billing operations. And the list goes on. Companies involved in any of the following activities may also be eligible for the R&D tax credit: Manufacturing new products, processes, or formulas Developing new, improved, or more reliable products, processes, or formulas Developing prototypes or models (including computer-generated models Designing tools, jigs, molds, or dies Applying for patents Conducting certification testing Testing new concepts and technology Trying to use new materials Acquiring new equipment Conducting environmental testingDeveloping or improving manufacturing processes Developing, implementing, or upgrading systems or software Building or improving manufacturing facilities Using outside consultants or contractors to do any of the above activities If your company is eligible, you can generally claim a 20 percent credit against your taxes for qualified expenses above a base amount. Qualified expenses include in-house costs for wages, supplies, and a percentage of any contract costs. However, you must provide certain documentation showing that your projects are not just part of the ongoing cost of doing business. That’s where the tax credit gets tricky. For example, unqualified expenses include (but are not limited to) internal-use items, such as the installation and customization of software used by your company internally. In one case, a company increased efficiency and reduced costs with an administrative software package. It claimed the R&D tax credit for the wages of its computer programmers and analysts working on the system during its installation and customization. The IRS denied the claim. If you think you may be eligible for the R&D tax credit, you may want to contact your accountant now. The credit has expired and been extended many times—most recently in October 2008, when President Bush signed into law a retroactive two-year extension of the tax credit, from January 1, 2008 through December 31, 2009. In some ways this is good news. Because it is retroactive to January 1, 2008, eligible companies can take advantage of a full year’s credit in a single quarter. However, if it’s not renewed again, you only have a year left to take advantage of the credit. Finally, note that you may also be eligible for an R&D tax credit offered by your state. Your accountant can provide you with more information.