Meet an owner: Elaine Renzi

Elaine is also a founder and managing member of the firm, has over twenty-five years of experience in public accounting. Her experience includes audit and accounting services for both for-profit and not-for-profit organizations and income tax planning and preparation for businesses, individuals and not-for-profit organizations.

Elaine graduated from the University of Massachusetts with a Liberal Arts Degree and from Bryant College with a Masters Degree in Business Administration. She is currently a member of the American Institute of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants, Inc.

Business and Nonbusiness Bad Debts by John Ratcliffe

It is virtually inevitable that all of us will at one time or another incur financial losses in our business and personal lives. One frequently occurring type of loss is a bad debt. Whether made in the course of business, or to a friend or relative, sometimes a loan simply cannot be repaid despite the best intentions of the debtor, and if there is little or no prospect that repayment can be made in the future you may have a bad debt. From a tax standpoint, the question is how to handle bad debts, and what steps to take to at least derive the maximum tax benefits available from them. Although this subject is fraught with complexities, we will outline the basic principles here to give you an idea as to whether the bad debt rules may apply to you.

The first step is ascertaining that a real debt exists. There must be a valid and legally enforceable obligation to pay you a fixed or "determinable" sum of money. Loans between family members, or other related parties such as corporations and their shareholders, are particularly scrutinized to make sure that they are really debts rather than disguised gifts, dividends, or contributions to the corporation's capital. Therefore, if you are contemplating a loan to a related party, you must ensure that you treat the transaction as a true loan by taking the steps that an arm's-length lender would take, such as putting it in writing and charging a reasonable rate of interest.

It then must be determined if, and when, the debt has become totally or partially worthless, that is, a bad debt. The problem here is that the IRS often requires taxpayers to play a guessing game. If a taxpayer claims a bad debt loss when nonpayment is only probable, rather than a virtual certainty, the IRS may disallow the loss as premature because there is some possibility of repayment in a later year. On the other hand, if the taxpayer waits until repayment is clearly hopeless, the IRS may maintain that the debt was really worthless in an earlier year and the loss should have been taken then. Because of potential statute of limitations problems, we generally recommend that the loss be claimed in the earliest possible year that it can reasonably be argued to be worthless. There are a number of facts which might indicate worthlessness, including the debtor's bankruptcy, but no one of them is decisive; it is the totality of circumstances that is determinative.

Once it is established that a bad debt exists, the business or nonbusiness nature of the debt decides the outcome. As you might expect, a business bad debt must be created or acquired, or become worthless, in the course of your trade or business. If you conduct a business in the form of a corporation, generally any debt held by the corporation is a business debt. Any debt not falling into the business category is a nonbusiness debt. A nonbusiness debt must be completely worthless before a loss can be taken, whereas a loss on a business bad debt can be taken when partial worthlessness can be established. Furthermore, nonbusiness bad debts are subject to the limitations on capital losses. Business bad debts, on the other hand, are deductible as ordinary losses in full against your other income.

As we said above, this is a complex topic and the preceding discussion can give only a rudimentary overview of all of the tax rules involved. If you are, or may be in a situation where these rules could affect you, please do not hesitate to contact us.

Another Season Passes by Carolyn Flaherty

Most New Englanders can relate to the awaking that public accountants, (particularly those living in New England), experience upon the passing of each tax season. For months we have been entombed in a winter hibernation necessitated by the harsh New England winter and always stalling spring; and for those of us in public accounting, also by our work. Due to shortened days and a heavy workload, for months on end, many of us drive to work in the dark and leave the office in the dark. If we are fortunate enough to have a window in our proximity; we occasionally see the sun.

In New England at least, we can feel comfortable with our pasty pallor and lack of vitamin D. As the deadline approaches we celebrate the rain and cold that clings to our area because it is much easier to concentrate when the outdoors is not calling us to come and play.

Then, the fated day arrives and a feeling like the first day of summer vacation settles upon us all. We are free. We leave the office with a smile instead of a sigh. For the first time in months we are not thinking of the piles of work waiting for us. We are not prioritizing deadlines. We can sleep. We can make plans. We can spend time with our families and savor the moments rather than think of what we “should” be doing. We see the world like someone who has just gotten a pair of glasses and looks in wonderment at the outline of individual leaves on trees rather than the familiar blur of green. All things are brighter and crisper.

We are fortunate that the date often corresponds with April vacation for our youngsters and many of us embark on much needed vacations, in search of sunshine and repose. It is also rather symbolic that as we emerge, the days have begun to lengthen, crocus and tulips are rising from their winter sleep, the Red Sox are back on the field and the world is blossoming all around. Almost as if the world around us is celebrating as well.

I myself find that the energy I have poured into the tax season is now an available resource for the rest of my life and I rapidly throw myself into spring cleaning, landscaping, and a much needed return to physical fitness. As the energy ebbs so does the arrival of summer come upon me and I come in to a routine that matches the flow of the season once again.

Most people would consider a career choice as a public accountant to be a safe and secure career choice with a great deal of potential for advancement and financial gain. All this is true. The career path can also garner a great deal of flexibility. However, I would place a large wager that no college professor or recruiting company ever advises that being a CPA will cause you to appreciate life and routine and simple freedoms the way it does each April 15th.

Starting a Business - What to Consider by John Ratcliffe

Before you start a new business, there are a number of preliminary decisions to be made. One of the first choices you will face, is the legal form in which you will operate the business. Should it be an unincorporated sole proprietorship, a partnership, a limited liability company, a regular corporation, or an S corporation? Each of these forms has both tax and non-tax advantages and disadvantages that must be weighed in conjunction with your own plans and personal situation.

Sole proprietorships, for example, are the easiest and cheapest business form to set up, and they can be operated with few formalities. However, they offer no personal liability protection and don't allow you to get many of the tax benefits that are available to corporate employees.

Partnerships offer many of the same advantages and disadvantages as the sole proprietorship, but they allow the business to be owned and run by more than one person. Also, the liability problem can be overcome to a certain extent by forming a limited partnership, but partners whose liability is limited cannot be involved in actively managing the business. Furthermore, losses from these partnerships may be restricted by the so-called passive activity rules.

A newer form of entity, known as the limited liability company, which is approved for use in almost every state, offers what many see as the best alternative for the typical small business. These entities can be set up to be taxed as partnerships, avoiding the corporate income tax, while the managing members' personal assets remain fully protected from business creditors. S corporations also offer liability protection, without a separate corporate tax. Like partners and sole proprietors, however, more-than 2%

S corporation shareholders are ineligible for tax-favored fringe benefits. Another potential drawback of S corporations results from limitations on the number and kind of permissible shareholders. These restrictions can limit an S corporation's growth potential and access to capital in some businesses. In others, however, an S corporation can be a key ingredient toward success.

What about regular corporations, known as C corporations? They do not have the shareholder restrictions that apply to S corporations, but they are subject to a double system of taxation. That is, their profits are subject to income tax at the corporate level, and are also taxed to the shareholders if distributed as dividends. But if profits are to be plowed back into the business to foster the company's growth, the tax price is usually lower than with an S corporation. And there are many situations in which the double tax can be substantially minimized. An advantage to this form of operation is that shareholder-employees are entitled to tax-advantaged corporate-type fringe benefits, such as medical coverage, disability insurance, and group-term life.

Besides the question of choosing a form of entity for your new business, there are many other tax decisions to be made, and much planning to ensure that you meet your income and payroll tax reporting and compliance chores properly. How will you handle your start-up costs? Will your workers be employees or independent contractors? Can you qualify for a home office deduction? Should you set up a qualified retirement plan, and, if so, what kind?

With our experience, we can help you come to the right decisions and implement them quickly so that you can concentrate on the success of your new venture.

Meet a Partner: John Ratcliffe, CPA

I am a founding member of Pavento, Ratcliffe, Renzi & Co., LLC and have been in professional practice since 1986. Before founding PRR in 2000, I was a partner in a firm in Lexington, Massachusetts. As my former partner moved on to retirement, I merged with a local firm in Franklin, Massachusetts and PRR was the result. I was very fortunate to associate myself with a group of individuals that share my business values. We have built PRR around the business values of Professionalism, Responsibility and Respect. These are not just words, but the very essence of our business practice.

I enjoy the diversity of my job and the people I work with and meet. I value the relationships I have established with my clients and enjoy helping them achieve their financial goals.

My professional experience includes business consulting, financial forecasting and auditing, government auditing, broker-dealer auditing, equine accounting, computer consulting and training, corporate, partnership and individual taxation. I am also the firm's Public Company Accounting Oversight Board (PCAOB) representative and a QuickBooks advisor.

I am a graduate of Bryant University, a member of the American Institute of Certified Public Accountants, Massachusetts Society of Certified Public Accountants, and the American Horse Counsel.

I reside in Seekonk, Massachusetts, with my wife, son and faithful companion Buddy, our miniature schnauzer. I have been an Assistant Scoutmaster for Seekonk Boy Scout Troop 1 since 2004. I enjoy working with the scouts and mentoring them as they progress in their scouting careers. In 2010 my son achieved the rank of Eagle Scout. I have been a board member of the Barrington Yacht Club in Barrington, Rhode Island since 2007 where I have held two board positions.

I enjoy the outdoors, I am an avid yachtsman and also a crew member for a local sail boat racing team. As we often say when on the water racing, "there is no "I" in Team" - this is also how we run our accounting practice. Every member is an integral part of the team developing a relationship with our clients based upon Professionalism, Responsibility and Respect.