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A Guide to Buying a Small Business

Determining How Much You Can Afford to Invest!

Before acquiring any business you must to determine how much of an investment your looking to make. When making this consideration it is important to consider not

only the the monetary value, but the amount of time and effort your willing to commit to your new business as well. Typically, the minimum down payment needed by a buyer is between 20% and 30% of the purchase price of the business. For example, if the business purchase price is $200,000 then in order to finance the business the buyer’s down payment needs to be $40,000 to $60,000. Obviously, you are always able to put down more, or purchase the business without obtaining lender financing.

In addition to that initial purchase price, possible expenses a purchaser needs to consider are the costs of inventory, supplies, escrow fees, license and permit fees, franchise transfer fee (if applicable), and other associated costs of acquiring the business.

And then you have to set criteria of desired business. Which includes location of business, type of business, price range of business, desired income of business.

Finding a Business to Invest In!

After you decide how much you are looking to invest and the type of business your looking to become involved with, You will need to begin to look for a business you can acquire that meet those criteria.

There are a number of ways to find businesses for sale. You can search business through one of the multitude of online business listing services, search local newspapers and trade publications, or go through local business brokers and sales agents. One often overlooked avenue is professional connections. Lawyers, Accountants, and other professionals often learn of business’s looking to sell even before anyone else does, so building a good report with these types of professionals can help you find the deals that not everyone knows about.

Understanding the Business and Making an Offer!

You have found a business that you want to purchase, now what? You will need to evaluate the business. While their are many methods of evaluating a business’s value most of them rely on determining the potential income stream and equity that business has the ability to offer. To learn more about how businesses are valued, click here.

You should sit down with the current owners and look at how the business is currently operating. Try to identify what the business is doing right and potential areas which could me improved, streamlined, or eliminated. Learn the businesses core values and philosophy and see if that is the right fit not just for your budget, but your personal business philosophy. While you can change the way systems operate when you take over, it is very difficult to change a businesses culture, so you want to make sure it is something you can grow with.

Only after you have done those steps can you make decision whether to pursue purchasing business or not. If the business seems like the right fit for your business philosophy and budget it is time to create Purchase and Sale Agreement. This document will have all of the details about when, how, and how much the business will sell for. It may also include things like agreements of former owners to stay on for a transition period, or other things you come up with.

When you are crafting an offer, make sure the document includes the following items: Your offering price, Initial deposit amount, financing terms, closing date. In addition to these fundamentals it may be advantageous to add things to the offer such as loan approval contingencies, lease information and lease transfer approval from landlord, requirements that the buyer be able to obtain all necessary licenses and permits, required franchise information (If your dealing with the a franchise), the buyer’s Satisfaction of books and records, how closing costs are to be allocated, a buyer training session with seller (Or stay on provision), guarantees on the business equipment and fixtures, information on inventories and supplies amount, non-compete agreements, and any other important details that pertain to your deal. This offer is now your starting point.

Negotiating with the Seller!

Now that you have crafted your offer it is time to present your offer to the seller. When you present the offer know you will likely be countered. Know your sticking points and where your willing to make concessions. No is the time to negotiate the price, terms, and conditions. It may take several rounds of going back and fourth to get the right deal but eventually, with any luck, you will settle on a final price and terms of the deal.

Once you have arrived at your finalized terms you will need to dot the I’s and Cross your T’s. Obtain needed licences, secure any financing if needed, make sure leases or other steps are taken. You want to make sure everything is in order for the most important step in squiring a business.

Closing the Deal!

All of the terms have been worked out, financing has been secured, and everything is ready. Now is the time when you sign over the business, pay the seller, and handle any needed legal steps. Congratulations, your now the owner of your new small business.

Thieves Make Off With $64 Million in Bitcoin from NiceHash Hack! Miners and Investors May be Able to Claim these Losses as Theft and Casualty Losses.

As the world watched Bitcoins price soar to new heights last week, thousands of Bitcoins went missing from the popular mining application NiceHash. The company, which makes it easy for people to mine the most profitable “alt” coins and pays you out in Bitcoin, was robbed of over 4,700 coins at some time in early Wednesday morning, December 6, 2017. This not only left many in the crypto-currency community with their mining rigs running cold (the process of mining produces an immense amount of heat, so a cold miner is a broke miner), but it also left those same miners missing possibly thousands of dollars or more of mining profits. In addition, it left those who had money stored through the company’s wallet system high and dry. http://www.bbc.com/news/technology-42275523
The IRS has made it clear this year that it expects miners to report all income they receive from cryptocurrency, and based on this news, the IRS will be coming down hard on those who fail to report income. But reporting this income also means Miners will be able to deduct these kinds of losses on their tax forms as well. In the case of the stolen coin using the casualty and theft loss deduction.

Depending on your individual tax situation you may be able to claim the losses as either a personal return under Schedule A, or a business loss under Schedule C of the 1040 Form. https://www.irs.gov/taxtopics/tc515.

Personal Losses

If your tax situation requires you to claim any lost coins as a personal loss, you will be subject to the same deduction rules that apply to all itemized deductions for theft. To calculate the amount a person is eligible to deduct you must subtract $100 from the value of the loss then subtract 10% of your adjusted gross income (subject to a maximum of your adjusted basis in the coins). This number will give your allowable loss deduction. It is also important to note if this loss exceeds your total net income for the year, you’re eligible to carry over a net operating loss (NOL) on your return to future years even if it is not business income. (This is an exception to the general rule which exists for casualty and theft income.)

To record and report all this information to the IRS you will need to file a Form 4684 (Section A).

Another important thing to note is that as this deduction is an itemized deduction you can only take the greater of the combination of your itemized deductions or the standard deduction. Thus, this strategy may not make sense if your losses are small, or you can not combine the amount with other itemized deductions.

Business Losses

Losses which are considered business assets from the theft can also be deducted. Following a similar procedure of filing a Form 4684 (Section B), one can deduct the losses against their business income. One benefit of this method is that these deductions are not subject to the same value reduction and can be used to directly offset business income. If these losses exceed income, then you can carry over a NOL to subsequent years.

At the end of the day, the tax right off is never going to make up for the entirety of the loss from any theft. But with the IRS coming after the cryptocurrency market with a vengeance this year, it may help to take some of the sting away to know that Uncle Sam will cut you a small break.

 

UPDATE!!!

NiceHash has released a press release, and while no details were given it seems they may make whole the people whose accounts were drained. It will take time but we are working on a solution to ensure all users are reimbursed. “In an exclusive interview with WikiTribune, Marko Kobal, the CEO of NiceHash – a Slovenian-based crypto-mining marketplace – said that his company is “working on a solution to ensure that all users are reimbursed” for the $60m hack that took place last week.” This means you may not be able to deduct these losses. As of yet, it remains unclear as to whether the company will ever recover, but until more information comes out, a possibility exists that the coins will be returned or reimbursed by the company.

The bad news if this reimbursement goal is true is it will mean no Theft and Loss deduction can be used on the missing funds (Until we know for sure the money is stolen and not coming back). The good news, if this news is true, Nicehash patrons will have your missing Crypto-Coin back.

10 MISTAKES THAT CAN CAUSE A GOOD BUSINESS TO FAIL

By: Steven J Weil, PHD, EA, LCAM

According to the U.S. Small Business Administration, there are around 28.8 million small business located in America. Small businesses, which maintain fewer than 500 employees, account for 99.7% of all business in the US. Around 82% of small businesses fail due to cash flow problems, a US Bank study discovered. But, Dr. Weil says that cash flow isn’t the only issue that small businesses face. Below are 10 main reasons why business in America fail:

  1. Having too strong an attachment to sales at any cost.
    While everyone knows sales are important, what is often forgotten is that sales without profits serve no purpose. Every sale needs to contribute to the bottom line.
  2. Cash flow is the lifeblood of every business. If you run out cash, the business dies. It’s important to understand what cash you do or don’t have for a given undertaking. Your cash flow is impacted negatively when you are carrying accounts receivable for creditworthy but slow-paying customers.
  3. Know your true costs. A business owner who forgets to include costs because they are not paid at the time of a sale can quickly find the business in the red with unaffordable payments due.
  4. Understand your sales tax and other tax obligations. Failure to collect sales tax from a customer does not get you off the hook for paying that uncollected sales tax. By the time an audit comes about, your lack of knowledge could cost you tens or even hundreds of thousands of dollars.
  5. Be sure to follow all employment laws. Both the state and federal governments have a say in everything from minimum wage to overtime. Even if your employees agree to something less, you can and will still be held accountable to comply with the law. Failure to do so can create huge financial liabilities.
  6. Keep good records, and do keep business and personal information separate. Not only will you need to have books and records for your business at tax time, but having accurate books and records can help you spot developing problems before they drag your business under.
  7. Consult experts when the need arises. Guessing at the tax consequences, labor rules or meaning of a contract can cost you everything. When you are not sure, consult an accountant, attorney or whatever expert. One thing you can be certain of is that consulting an expert to avoid a problem will be a lot less expensive than using an expert to resolve a problem.
  8. Be careful about borrowing. Getting cash today by pledging credit card receivables or factoring can be expensive and rob cash flow that you will need to operate. Be mindful of the cost of any borrowing along with the repayment terms.
  9. Never risk more than you can afford to lose on just one customer. We have seen more than one business allow a “good customer” to run up a large account or place an order so big that failure to pay or a problem with the order can result in a catastrophic business failure.
  10. Never let just one customer be responsible for more than 10% of your total business. A business that has one or two customers that represent 50% of its total sales is not really a business; it’s a de facto employee without the benefits.

 

Quotes & Media

Media Quotes &  Recent Press

LifeLock – Tax Fraud: What You Need to Know 08/10/17

GoBankingRates – Know Before You File: Tax Breaks for 2017  01/17

Senior Outlook Today – Tax Strategies with Retirement in Mind 12/01/16

National Financial Educators Council – Teaching Children Personal Finance 01/16

CNBC – Smart ways to gift money during the holidays 12/14/15

MainStreet 02/09/15

FoxBusiness Web Site 02/11/15

Retailmenot Blog 02/19/15

Learnvest Web Site 04/14/15

SELFLENDER 09/28/15

Free Seminar

2016 – 2017 Tax Planning Seminar

Join us Wednesday, November 30th at 6:00 PM for a seminar on Tax Planning for 2016 and beyond.   We will cover year-end tax planning moves you can make to reduce your 2016 tax bill for both individuals and business.  Along with actions you can take there will be plenty of time for questions and even a look into our crystal ball of what effect the election will have on your taxes and what you can do about it.

Tax Seminar Picture

Space is limited so make your reservations early.  Call 954-563-1269 between 9AM and 5PM Monday through Friday to reserve your seat and a chance to attend this FREE SEMINAR.

New Economy

CHANGING BUSINESS MODELS AND METHODS

COMPLICATE 2016 TAX RETURNS

Bob Dylan said it best:  “The Times They Are a-Changin”!

In the business world, things are changing, sometimes faster than rules can be written.  Asked about what they do for a living, we hear from many clients that they are part of the new economy.  This new economy is ever changing and includes things like driving for Uber, renting out rooms or entire homes through Airbnb, buying and selling bitcoins and funding businesses using a crowdfunding site. Add to this sales made through eBay or Amazon.

While these new-economy income generators often provide extra income, they are also complicating the tax returns of those involved. Once popular multi-level marketing plans are being replaced by a number of income-stream possibilities. They help people make up for hours lost to employer cutbacks as well as a job market that is just not what it used to be.

It’s important to consider the tax consequences of these activities. Since many are so new, not every taxpayer or even every tax professional understands them. To make matters worse, the tax consequences can vary from person to person.

For example, if you rent out your home with Airbnb for 14 days or less during the year, the rent is tax free, and the expenses are not deductible. If you rent it out for 15 days, you must Airbnbreport all rent collected and provide services with the rental (such as cleaning, breakfast, et al.). The rental gets reported on Schedule C, making any profit subject to self-employment tax.  If the rental has losses, hobby loss rules may apply. Moving income off of Schedule C to the front of your 1040 and moving the expenses to Schedule A makes them (along with other miscellaneous deductions) subject to a reduction equal to 2% of your adjusted gross income. All this makes record keeping more important than ever and means that having a knowledgeable and qualified tax pro is imperative.

Enjoy driving and like to make a few extra dollars doing it?  Uber or Lyft might be good options for some extra income, but you will want to keep records of not only the miles you Logo Uberare paid for but also those you put on the vehicle while driving around between pick-ups and drop offs trying to get additional fares. You should also keep track of the hours spent so that you can show that you had a profit motive even if you don’t actually earn a profit.  You also need to track personal use vs. business use of your vehicle. One of the questions we are always asked is, “Which is better, the standard mileage rate or actual expenses?” The truthful answer is that we won’t know until we add up both and see which is best for you. This is why it’s so important to keep good records of all your expenses.

Many people are using a crowdfunding application to raise money for all manner of things, such as business start-ups, arts projects, presales of new products or services and even to Crowdfunding logohelp out someone who has suffered a medical or financial setback. What the money is raised for can have a huge impact on how it’s being taxed or even if it is taxed at all. Funds might be considered current taxable income, investment capital or even tax-free gifts. It all depends on how the money is raised and what is promised to those doing the actual funding in return for the funds received.

Bitcoins are a new digital currency based on a very complicated and involved system. Transactions are made with no middlemen – meaning, no banks! Their appeal is that Bit Coinsthere are no transaction fees and no need to give your real name. They may be virtual, but they are not tax free. They are taxable income at the time received if they are received from the sale of property or as payment for services, based on their fair market value (FMV) when received. Later, when converted to dollars or used for a purchase, there could be a taxable gain or loss depending on their FMV when exchanged.

At the very least the new economy brings new changes to both taxpayers and accountants. It requires complex choices and requires careful planning. It also requires a knowledgeable professional who understands the tax laws and as well as the activity you are participating in.

 

 

T & E Deductions

Business Travel, Meals, and Entertainment

A Deduction Checklist

Type of Expense Deductible Percentage

Travel                                                                                              100%    50%    0%

Local business travel…………………………………………………………….X
Out of town business travel and lodging…………….…….………..…………X
Travel as a form of education………………………………………………………..………….X
Investment seminar fees, travel, and meal expenses……….…..……..….…….………….X

Meals 

Business meals for yourself while away from home overnight on business……….X
Meal with employee, colleague, business contact, customer,
or client with business discussed before, during, or after……….……………………X
Meal with employee, colleague, business contact, customer,
or client with no business discussion……………………………..……….………..………….X
Lavish and extravagant portion of a business meal…………………….…………………….X
“Goodwill” or “quiet” business meal with no business discussion………….………………..X

Entertainment

Entertaining a client or customer, with significant business discussion …….……..X
Entertaining a client or customer, with no business discussion…………………………….X
Tickets to sporting or cultural event connected with significant
business discussion…………………………………………….…………………..…….X
Business gifts of no more than $25 per recipient……….…………………….X
Entertaining employees at a company picnic, Christmas party, etc…….….X
Samples and promotional items provided to general public for
business purposes………………………………………………..….…………..X

Reporting Business Travel and Entertainment

Generally, business travel remains fully deductible, but business meals and entertainment are only 50% deductible. Special rules allow workers under DOT hours of service regulations to deduct 80% for 2016.

It is the employer’s reimbursement policy that determines whether it’s the employee or the employer who must reduce meals and entertainment expenses before taking a deduction on the tax return.

If an employee is not reimbursed by his employer for business expenses, the employee must adjust his meal and entertainment expenses for the nondeductible portion. These expenses may be deducted on his tax return only if he itemizes and then only to the extent such expenses along with other miscellaneous itemized deductions exceed 2% of his  adjusted gross income. In this situation the employer gets no deduction.

If the employee is reimbursed by his employer under an “accountable plan,” the employee does not report the reimbursements as income nor does he report the expenses as deductions. The employer in this case deducts reimbursements paid to the employee
after making a reduction for 50% of meals and entertainment.

If the employee is reimbursed by his employer under a “non-accountable plan,” the reimbursements are includible in the employee’s gross income, are reported as wages on his Form W-2, and are subject to withholding and other payroll taxes. Employee business expenses paid under a non-accountable plan are deductible (by the employee) only as a miscellaneous itemized deduction subject to the 2% of adjusted gross income floor (and subject to the limitations on total itemized deductions for higher income tax-payers). Meal and entertainment expenses are subject to the 50% limitation.

A non-accountable plan is any plan that fails to meet the requirements of an accountable plan.

Deductible Travel Expenses

  • Travel by air, bus, taxi, train, or automobile
  • Lodging expenses
  • Baggage charges
  • Cleaning and laundry charges
  • Cost of temporary help during business travel (i.e. secretarial help or telephone answering service)
  • Reasonable tips
  • Expense of transporting sample cases or display materials
  • Telephone calls

Deductible Entertainment Expenses

  • Transportation to or from an entertainment event
  • Tickets for entertainment, such as a sporting event, theater, or concert
  • Nightclub cover charges
  • Catering charges and room rental for entertainment activity
  • Entertaining business clients at home

Deductible Meal Expenses

  • Food, beverages, taxes, and tips
  • Meals on business trips
  • Meals furnished to employees on the employer’s premises
  • Transportation to or from restaurant

Business Gifts

  • Limited to $25 per recipient

Substantiation Requirements

Business travel, meals, and entertainment expenses must be substantiated by adequate records. An account book, diary, log, expense record, or the like should be kept. The expense and the business purpose must be recorded at or near the time of the activity. Information that must be recorded varies with the kind of expenditure but generally includes the following:

  • Amount spent
  • Date, time, and place of expenditure
  • Business purpose of activity
  • Name and business association of individuals involved

In addition, a receipt or other substantiation is required for all lodging.