business consulting
Sharing company financials with employees
Tuesday, August 2nd, 2011 | consulting | No Comments
You can increase your employees’ engagement with company financial goals by sharing some information about the company’s finances with them. This article from Inc. magazine shared by our LinkedIn friend Jonathan Patrick describes how this can work. Learn what to share and what not to share to increase buy-in. A company whose employees understand their roles in achieving the company’s goals can exponentially increase its potential for success.
Standard mileage rates change
Friday, July 1st, 2011 | consulting, tax | No Comments
The IRS has adjusted the standard mileage rates beginning July 1, 2011, in response to higher gasoline prices. The new standard mileage rates will apply through the end of 2011.
Mileage Rate Changes
|
Purpose |
Rates 1/1 through 6/30/11 |
Rates 7/1 through 12/31/11 |
|
Business |
51 |
55.5 |
|
Medical/Moving |
19 |
23.5 |
|
Charitable |
14 |
14 |
You have the option of tracking actual vehicle costs or using the standard rates to calculate your vehicle expense deduction. You may deduct parking fees and tolls under either method. Remember to write down your odometer reading today and at year-end to help track total miles for each half of the year.
You do keep a mileage log, don’t you? The IRS has been finding easy money by increasing audits of business mileage because many taxpayers do not keep adequate records. You may keep your mileage log in any format that is convenient for you. IRS dictates that the log should contain the number of miles (beginning and ending odometer readings are best) for each business trip, the destination(s), and the business purpose of the trip. Anything less, and the deduction may be disallowed. If you spend the day on the road going to multiple work locations, a daily total is adequate along with a list of the locations you visited.
Another business mileage trip-up relates to commuting miles. If you do not report expenses for business use of your home, you had better report commuting mileage with your business mileage deduction. IRS says that mileage from home to the first work location of the day and from the last work location to home is non-deductible commuting mileage. If you do have a home office, then your home office is your first and last work location, and all mileage to other work locations throughout the day is deductible.
For more details about business, medical, moving, and charitable mileage deductions, feel free to call or email us. As with all things tax-related, special rules abound related to company expense reimbursement plans, personal use of company vehicles, depreciation, and other vehicle-related issues. We can help bring you peace of mind by setting up a reporting system that will pass muster with the IRS.
Do you use a budget?
Wednesday, June 22nd, 2011 | consulting | No Comments
Does your company use a budget to plan ahead? Many small business owners manage their businesses day-to-day or week-to-week, wrapped up in the details. You probably have some sense of how you would like for things to work out in the future if this happens or if things go as you think they will.
Working through a budgeting, forecasting, and planning process helps you rise above the details so you can develop a broader view of where your company has been and where you want it to go. With a plan in place, you have the tools to chart a course toward your goals and to see when you are veering off course. A budget is not so much a snapshot as a process. As conditions change, or as new information warrants, you make adjustments to your plan that will help drive your company in the right direction.
Because of increasing volatility, budgeting and planning are becoming more difficult, as this article from CFO magazine points out. Traditional budgets are giving way to rolling forecasts that evolve rapidly with changing times, but by any name, the process serves the same purpose: “it still keeps people focused on the end game,” as one CFO put it.
As the old saying goes, you can achieve 80% of your goals if you write them down. We can help you develop a budgeting and planning process that’s the right fit for your company. It’s an important way to help you steer your company toward the success you envision. Mid-year is a good time to look back and ahead. Give us a call today.
Bureaucratic snafu resolved
Friday, April 29th, 2011 | consulting, tax | No Comments
We helped one of our clients solve a problem today by resolving a bureaucratic snafu. The issue relates to one of the many areas where the federal and state governments communicate with each other. For owners of heavy trucks, the state requires county clerks to obtain verification that the federal heavy highway vehicle use tax has been paid before issuing a new registration annually. This has been a standard procedure for many years to ensure that heavy haulers pay for the extra wear and tear their big rigs inflict on the nation’s highways.
For several years, our client has been resigned to the apparent requirement and has dutifully paid the tax because otherwise, the company could not get tags for their truck. We found out about the situation as we worked on an unrelated matter. We learned that this particular type of truck is exempt under federal tax code because it is not designed to haul loads. But the county clerk’s staffers refused to issue the tags until our client provided proof that the tax had been paid.
We did some research, pulled the documentation together, and called the county clerk’s office. At first the clerk was not aware that an exception to the law existed. After we explained the exception and the fact that our client’s truck met the requirements for the tax exemption, she called her colleague at the state level. She confirmed that indeed there is an exception and the state has a procedure in place to handle it that the county clerk’s office was unaware of until today. She now has an affidavit for our client to sign to certify that their truck is exempt so they can get tags for their truck.
The representative from the county clerk’s office called us back to let us know that she would immediately inform the staff and make the affidavit available to our client and all others who apply for tags for an exempt vehicle. We solved a problem for our client that saves them a significant tax cost each year.
If you own a heavy truck subject to the heavy highway vehicle tax and you file IRS Form 2290, check the instructions for the exemption rules or call us, and we can help you determine if your vehicles are exempt. This is just one of the many ways we go beyond the usual tax-and-accounting CPA services to help our clients solve problems.
Paperwork cloud lifts
Wednesday, April 27th, 2011 | consulting, tax | No Comments
A paperwork cloud has hung over business owners and landlords for much of the last year. A clause in the health care reform law (Patient Protection and Affordable Care Act) required businesses to report payments of more than $600 to corporations (not required under prior law) on Form 1099. It also added reporting of payments for goods. Then last summer, the Small Business Jobs Act extended the reporting requirements to landlords.
Together, these provisions threatened to dramatically increase the compliance workload of companies both issuing and receiving these documents. The extra load would have fallen disproportionately on small businesses, because they typically have less cushion to absorb such changes. Some suggested that the additional burden and its costs could stymie the economic recovery.
We brought you the news in posts here and here, but we did not post about the expansion in the Affordable Care Act because talk of repealing that provision had begun shortly after the act was signed into law. We had anticipated that the expansion of the requirements to landlords would stick, but we learned long ago that we stand a fairly high chance of being proven wrong when we try to predict the actions of Congress.
Late in tax season (when we were too busy to post about it) came the news that Congress had agreed on language to repeal the new 1099 reporting requirements, reverting to the rules in effect before the two new laws. For landlords, the repeal is retroactive to January 1, 2011 (when the new rules for this group of taxpayers took effect). The expansion under the Affordable Care Act was to have taken effect after December 31, 2011.
1099 reporting in a nutshell: Code Sec. 6041 generally requires payments totaling at least $600 in a single calendar year to a single recipient to be reported to IRS. Reporting on Form 1099 is required only when the payor is considered to be engaged in a trade or business and has made the payment in connection with that trade or business. The type of payment that most commonly triggers the reporting requirement is payment for services. Payments to corporations are exempt, and a number of other exemptions apply. Contact us to make sure your 1099 reporting is compliant.
Minimize capital gains tax
Thursday, March 31st, 2011 | consulting, tax | No Comments
When you sell an asset for more than your investment in it, the IRS says you must pay tax on the difference, called capital gain. For some years, the tax rate on such gains has been lower than regular rates if the asset is held for a long term (currently, more than one year). Hence the nickname, capital gains tax. The asset may be stocks, bonds, mutual funds, other assets such as equipment and real estate, or an entire company.
On the tax return, short-term and long-term capital gains and losses are accumulated in a specific manner to arrive at net short-term and long-term capital gain or loss from which the tax is calculated.
With good planning, there are several methods that you might use to minimize capital gains, and thereby minimize the tax you must pay on them. Here are six tips (with nods to Alan Haft, CPA Insider):
- When selling stock, specify which shares to sell. By choosing, you can decide the amount of gain or loss on the sale. This method can be used in conjunction with other sales to exercise some control over the net capital gain or loss amount reported on the tax return.
- Make all gains long-term. In 2010, short term capital gains are taxed at your ordinary income tax rate, which can be as high as 35% depending upon your income level. Long-term capital gains are taxed at a maximum of 15%, with additional breaks for lower-income taxpayers. So by holding onto your assets at least one year before selling, you take advantage of the lower tax rate on long-term gains.
- Use capital losses to offset capital gains. Short-term and long-term capital losses reduce their respective gains dollar-for-dollar. If you have more capital losses than gains, the net loss can reduce other income. This loss utilization is limited to $3,000 per year, but the excess loss can be carried forward to future years.
- Replace losing investments. If a stock or fund investment is depressed, you may sell it to lock in a tax loss. If you still believe it’s a good investment, wait 30 days before buying into it again to avoid the “wash-sale” rule. If you buy an identical stock within a period 30 days before or after the sale, the wash-sale rule prevents you from claiming a loss on the sale.
- Replace winners. The wash-sale rule does not apply when you sell an investment to lock in a gain. You may sell it and then buy it back immediately. You might do this if you have a loss to offset the gain, reducing the tax bill on the sale. When you buy the stock back at the higher price, you will pay less tax on future gains because your basis (the cost of the investment) is higher.
- Check mutual fund’s tax efficiency. If you invest in mutual funds, check a fund’s tax-efficiency ratio before investing. This is the percentage of total return you keep after taxes.
Another mutual fund idiosyncrasy is capital gains distributions. Funds may realize capital gains when they sell their underlying investments. During the financial meltdown, we saw large taxable capital gain distributions on 1099s even as mutual funds were losing value. Fund managers were forced to sell appreciated investments in order to redeem shares as investors pulled out of the funds. The resulting capital gains were distributed to all investors, who faced potential tax liability even though they remained fully invested and received no cash from the funds.
Tax impact is not the only criterion behind investment decisions, but it can play a part. By consulting with your CPA or an investment advisor familiar with tax implications, you can balance all factors to make the best decisions. Minimizing capital gains tax can be complicated, but with good planning, it can help you keep your money in your pocket and out of Uncle Sam’s.
Plan to maximize business tax incentives
Friday, March 18th, 2011 | consulting, tax | No Comments
Congress provided business tax incentives in 2010 in the Small Business Jobs Act and the Tax Relief Act. Strategically applying these business tax incentives together can be lucrative to businesses that are in a position to use them.
We’re busy this time of year preparing tax returns for our clients. But we’re not too busy to spend some time with them catching up on the year’s events and taking a look at the year ahead. That’s what separates us from the average accounting firm. Van and the staff are year-round resources to help our clients manage better and maximize the opportunities available to them. The new tax laws represent such an opportunity. Here are a few examples:
- If your corporation reports a loss and incurs research and development costs that generate a tax credit, the opportunity to carry this credit back five years may allow you to recover taxes paid in prior years.
- If the company had a net operating loss that is carried forward to 2010, the new law may allow you to reduce your tax bill by offsetting alternative minimum tax.
- A profitable company can use the depreciation incentives to defer taxes and positively impact cash flow in the current year, offsetting the impact of capital asset purchases that will help the company grow.
We’re still here after the tax return is done. We’ll listen and respond through all phases of your business to give you solutions designed to help you achieve your goals. If that’s the kind of pro-active approach you desire, call us to learn how we can help you.
Take action now to reduce taxes
Tuesday, November 23rd, 2010 | consulting, tax | No Comments
Year-end is the best time to take actions that have an impact on next spring’s tax bill. There’s not much you can do after the year is over. Take time to do financial projections through year-end and calculate your tax bill. Working with your accountant, you can identify actions to take that may reduce your tax or improve your financial position.
Although we are still waiting for Congress to act on several important tax issues, laws were passed earlier this year that change the calculations for many business owners. You still have time to arrange things to take advantage of these new provisions.
The Affordable Care Act introduced a tax credit that takes effect this year for smaller employers who pay at least part of their workers’ health insurance premiums. After determining whether your company is eligible and the amount of the credit, you can calculate how much net income (and taxes) will be offset by the credit.
The HIRE Act offers a payroll tax reduction for hiring new workers, starting with the second quarter of 2010. If you have not been taking advantage of this reduction, amend the prior returns and reduce the amount of your deposits in this final quarter for a holiday cash windfall. Beware, though, that the reduction may also reduce your payroll tax expense deduction and increase your income tax bill. If you keep those new hires on the payroll for a year, you get an income tax credit in 2011.
The Small Business Jobs Act, enacted in September, contains about a dozen and a half provisions that may affect your business’s tax situation this year and next. They include:
- Several adjustments to depreciation deduction limits for first-year write-offs and bonus depreciation for various types of property and vehicles.
- An increase in the up-front deduction for business start-up expenses if the business starts operation in 2010 only.
- An option to carry back business credits five years and recover taxes previously paid.
- Relaxation of the record-keeping rules for deducting cell phones. (Did you know you had to log every business call?)
- A reduction in self-employment tax for self-employed persons who buy health insurance for themselves and their families.
These provisions may affect you starting in 2011:
- Many rental income recipients must begin issuing Forms 1099 to service providers (e.g., plumbers, painters, etc.) to whom they pay $600 or more. (Some exceptions apply.)
- Penalties for failure to file information returns such as Forms 1099 have been increased substantially.
If you work through the projections and consult with your tax professional before year-end, you can make decisions that may save your company taxes and improve your financial position.
Guard against electronic funds transfer fraud
Monday, November 8th, 2010 | consulting | 1 Comment
Your business, like many others, may receive and pay out funds through electronic funds transfer (EFT) and automated clearing house (ACH) transactions. Such transactions include converting paper checks to electronic payments, wiring funds, and paying taxes electronically. The frequency of EFT fraud and the size of losses have increased as cybercriminals are targeting small and medium-size businesses who have inadequate protection.
Unlike consumers, who are well-protected against ACH fraud, businesses must notify their banks within two days of a fraudulent ACH transaction or the business may be liable for the loss. Wire transfer fraud demands detection within hours. So discovering and responding to unauthorized EFT is time-critical.
Typically, a business establishes the means to conduct online EFT transactions with a financial institution. The bank has controls in place that authenticate the computer being used to initiate the process. If the computer is not recognized, another layer of security is activated, such as a security question. Once the authentication process is completed, the bank assumes that the transaction is legitimate because it originates from the authenticated computer.
The cybercriminal subverts the authentication process by installing malicious software hidden in an email attachment, web browser download, or file transfer. This malware captures keystrokes to log bank account information, credentials, and online activity such as EFT transactions. The user is usually unaware that the computer has been compromised. Then the criminal hijacks the victim’s computer to conduct the fraudulent EFT transaction, which the bank’s system sees as legitimate because it recognizes the computer. The criminal transfers most or all of the funds in the account by wire transfers under $10,000 each to avoid currency transaction reports that would detect the activity.
The bank is required to make its best effort to recover the funds, hopefully by reversing the transfer. The business often has no recourse against the bank because the bank’s security system authenticated the victim’s computer. Thus the payment order appears to be legitimate, and the bank is protected by the Uniform Commercial Code, especially if the fraud can be traced to a security breach in the victim’s computer (the malware or hijacking program). Wire transfers are difficult to recover because they are instantaneous. ACH transactions usually take longer because of the intermediary clearinghouse used to complete the transaction, thus increasing the possibility of intervention.
You can take a number of steps to minimize your risk of EFT fraud:
- Install firewall, antivirus, and malware protection on all computer systems, especially those used for online banking.
- Dedicate a computer for online banking with robust authentication features.
- Reconcile EFT transactions daily.
- Use a dedicated bank account and make sufficient “just-in-time” deposits into that account before a transfer occurs.
Contact us to learn more about these and other internal controls to safeguard your business against various forms of fraud, from within or outside your company.
Art of Negotiating a Business Transfer
Wednesday, September 8th, 2010 | consulting | No Comments
Negotiating a complex transaction like the sale or purchase of a business requires technical proficiency, sensitivity to the motivations behind statements from both sides, and creativity. A potentially great deal can be lost by focusing too much on the bottom line. The artful negotiator finds common ground, engages the parties on both sides of the transaction, and listens carefully for their real desires and needs. These undercurrents reveal opportunities to craft an agreement that might not be possible by traditional means.
Van recently assisted in the purchase of a service business that had been appraised significantly below the asking price. By listening carefully, examining financial data, using his intuition and offering options and advice, Van helped both sides talk about what they really wanted from the deal. The seller was ready to retire, and he wanted a steady income stream for years to come. The buyers saw potential to grow the business because of their strong ties to the community, but traditional bank financing was not a good option in this era of tight credit.
In the successful agreement, the seller is financing the deal. This bypasses the problems posed by traditional financing methods and gives him a regular income stream at a level the buyers feel is manageable. It’s a workable deal that might not have happened without the intuition and creativity that Van provided.
This artful approach works for both the buyer and the seller and in other situations where a negotiated agreement is desired, such as a property settlement in divorce. In the end, everyone involved must feel good enough about the deal to commit to it by signing the agreement. In this case, a well-established business in the community will continue because of this successful transfer agreement.