Overtime Exempt & Non-Exempt Employees as of December 1, 2016
What is New
Increased Minimum Pay Requirements for Exempt Employees
The U.S. Department of Labor issued new regulations, effective December 1, 2016 that increases the minimum compensation of overtime exempt executive, administrative and professional (“EAP”) employees to $47,476 per year or $913 per week to qualify as a salaried employee exempt from overtime pay.
Highly Compensated Employees (‘HCE”) Base Increased
The Highly Compensated Employee compensation base increases to $134,004 annually beginning December 1, 2016. To be exempt as a HCE, the employee must receive standard salary amount of at least $913 per week in addition to other compensation and meet a minimal duties test.
Compensation Amounts Indexed for Inflation
The new DOL regulations establish a mechanism for the automatic updating of the salary and compensation levels every three years to the required percentiles.
Who is Exempt from OT
Executives are Exempt if:
- They meet the minimum salary requirement of $47,746 per year, $913 per week AND;
- Their primary duty is managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise AND;
- They customarily and regularly direct the work of at least two or more other full-time employees or their equivalent AND;
- They have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
Administrators are Exempt if:
- The employee meets the minimum salary requirement of $47,746 per year, $913 per week AND;
- The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers AND;
- The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Professionals are Exempt if:
- The employee meets the minimum salary requirement of $47,746 per year, $913 per week AND;
- The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment AND;
- The advanced knowledge must be in a field of science or learning AND;
- The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
Computer Professionals are Exempt if:
- The employee must be compensated either on a salary or fee basis (as defined in the regulations) at a rate not less than $913 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour AND;
- The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below AND;
- The employee’s primary duty must consist of:
- The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications OR;
- The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications OR;
- The design, documentation, testing, creation or modification of computer programs related to machine operating systems OR;
- A combination of the aforementioned duties, the performance of which requires the same level of skills.
Outside Salespersons are Exempt if:
- The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer AND;
- The employee must be customarily and regularly engaged away from the employer’s place or places of business.
Highly Compensated Employees are Exempt if:
- They are performing office or non-manual work and paid total annual compensation of $134,004 or more (which must include at least $913 per week paid on a salary or fee basis) AND;
- They must customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.
Blue Collar Workers ARE NEVER Exempt:
The exemptions do not apply to manual laborers or other “blue collar” workers who perform work involving repetitive operations with their hands, physical skill and energy. FLSA-covered, non-management employees in production, maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers are entitled to minimum wage and overtime premium pay under the FLSA, and are not exempt under the Part 541 regulations no matter how highly paid they might be.
Non-Exempt Employees Must Be Paid Based On Actual Hours Worked:
Tracking of hours worked and overtime pay at time and a half is required for all workers that do not meet the requirements of one of the exemptions covered here.
Time and a half applies to hours worked in excess of 40 hours per week. Be sure to also check your states Overtime requirements as well.
Questions & Answers
Q. We currently pay employees every 2 weeks. Will our pay periods need to switch to every week?
A. No. Employers may still pay their employees on a biweekly basis. An employer’s overtime pay obligation is determined on a week-by-week basis, but they may pay their employees on a biweekly basis.
Q. I have an employee that works 50 hours a week on exempt status. He will be moved back to hourly, and will get a pay reduction. This will help us to maintain his current weekly wage. Is this something that we can do and be in compliance with FLSA.
A. Employers have a range of options for responding to the updated standard salary level. For each affected employee newly entitled to overtime pay, employers may:
- increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
- pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked;
- reduce or eliminate overtime hours;
- reduce the amount of pay allocated to base salary
Have More Questions
Call the experts at RMS Accounting we are here to make sense of it for you.
1) Don’t forget the 1099s. If you paid anyone that is not incorporated $600.00 or more during the last calendar year, you need to send them a 1099-MISC. Be sure the name on the 1099 matches the name on the checks you paid to them and that you include their Social Security Number or Tax ID. Just to make things interesting, you must also send 1099-MISC to anyone to whom you paid $600.00 or more for legal services even if they were incorporated.
2) If your business is incorporated, remember the due date of your corporate tax return this year is March 15th. If you can’t file on time, be sure to file for an extension. The penalties for being late can get quite expensive.
3) If you started your business in 2015, there are a number of important elections you need to consider: accrual vs. cash basis on your tax return, amortize vs. capitalize organizational expenses, election of inventory method, along with other important elections that can have a lasting effect on your business.
4) Doing business out of your home? You could qualify to deduct a home office. As long as you maintain a separate space that is used exclusively and regularly for business and your business does not have any other fixed location. This could reduce both income and self employment tax. But beware that if you are incorporated, this won’t work for you.
5) S-Corporation shareholders can’t deduct the cost of medical insurance paid by their Corporation if they own or are directly related to a 2% or greater stockholder. The good news is they can deduct 100% of the cost of medical insurance on their personal tax return, but to do so they must meet two tests: 1) The cost of said medical insurance must be included in their W-2 for the Corporation. (It is not however subject to FICA.) 2) The W-2 income must be greater than the cost of the health insurance.
6) If you put your children to work, be sure to pay them. A child can earn up to $6,200 before any income tax is due. If you are a Sole Proprietorship, payment to your children may also escape FICA; but even if you have to pay the FICA, because they are employees of your Corporation, it’s still a good deal for both you and the kids.
7) If you are not already incorporated, think about converting your business to a Subchapter S Corporation. This will reduce your liability, give you more control over the FICA taxes you pay, enhance business credibility and separate your business from your personal assets.
8) Choose your accountant carefully. Don’t look for the lowest fee. It’s much more important to get someone with not only the experience to assist you in finding every deduction and tax advantage available, but someone who also will be available to spend time with you learning about your business and teaching you how to get the most out of it.
Media Quotes & Recent Press
Seminars On Demand
Here are some recordings of past seminars conducted by RMS Accounting. While we realize the best way to experience these great learning opportunities is at a live seminar where you can participate and ask questions, we also know that it’s often not possible due to scheduling, time and distance to attend the live seminars. If after viewing any of the seminars you have questions just email us at email@example.com
Tax Strategies For Real Estate Professionals (this seminar is recorded in 3 parts)
Thought for Today – Before you buy a business it’s important to look under the hood and make sure all the working parts are as advertised. The process of doing this is call the due diligence process. During this process actual operating information for revenue, expenses and gross profits are compared to those that were represented by the seller or broker during the sales process. The outstanding liabilities are also reviewed along with possible undisclosed liabilities that could become the responsibility of the new owners. In over thirty years of doing due diligence work the one thing we know for certain is that buyers always do their best to paint a pretty picture but often don’t disclose what’s just below the surface.
Thought for Today – I know that we tell clients we can help them solve any tax problems and provide answers to any question, but no matter how good we are and how much we know, we don’t read minds and can’t tell you what an IRS notice means if you don’t provide us with a copy of the notice.
Thought for Today – A hurricane may blow away your tax records but that does not mean you will be defenseless should the IRS decide to audit you. Thanks to the Cohan rule, a taxpayer who’s records have been destroyed through no fault of their own can often use reconstructions and estimates to prove their deductions in the event of an audit. But be warned if you don’t have the records you must first be able to show that you made every effort to get duplicated from third parties such as suppliers and vendors. You must also show that you have made an effort to reconstruct your records.
Thought for Today – You know it’s time for a mid-year tax review if; your income has increased substantially or you expect your income to increase substantially, your income has decreased, you have sold a home or other real estate, have or are thinking about taking money out of a pension or IRA, are getting close to or thinking about collecting social security and or want to do everything possible to reduce your 2015 taxes.
Thought for Today – We know many people feel that their pets are members of the family, but that does not make vet bills deductible medical expenses.
Thought for Today – From the list of questions no one will believe people ask their tax professional we have; “Can I deduct the costs of my dog, as I get all my exercise by walking him and my doctor said that I should exercise?” Answer NO. While expenses for exercise programs, equipment (including dogs) and gyms are not deductible even when recommended by a doctor for general health or other non-specific treatment they may be deductible if prescribed for a specific medical condition like obesity, rheumatoid arthritis or other specific medical condition.
Thought for Today – Is your business sending the right message? Last night we decided to have dinner on Las Olas Blvd. As it’s no longer season, we dropped in to eat at Johnny V at 7:40, and were told that it would be at least 20 minutes before we could get a table, by a hostess who could have cared less. What we did not have were reservations and what they did have were 8 empty tables that I could easily see from the hostess stand. We found dinner at another local restaurant, there are plenty of choices on Las Olas. But what Johnny V may never know, is that they lost a customer that is a local and eats out at least 5 nights a week.
Thought for Today – One of the benefits of working with the right accountant is the ability to get a second opinion and review business strategies. Sometimes a view from the outside by someone that understands your business and deals with lots of other businesses, some like yours, some very different, can add a perspective that is very useful.
Thought for Today – Are you leaving money on the table with your current customers? Sometimes you can insure additional income by helping your customers and yourself. I recently had the water changed in my hot tub by my pool service, now I admit it had been way to long since I had done this and the cost was just $100.00. So why did it take so long? I just never got around to it and all it would have taken to generate an extra $200.00 per year from me by my pool company was to ask the simple question, would like us to schedule this for every six months. They would have been insured the revenue and I would have had the peace of mind to know that I no longer had to worry about taking care of getting this done.
Thought for Today – Important reminder: Your company data needs to be protected. There has been a lot in the news about protecting data from outside hackers. For most small business Chinese hackers and foreign intelligence are not the big problem. They need to be more concerned about unauthorized access and use of their data by an employee or insider. The best protection is to see that employees only have access to the information they need to do their job, and to make sure than all computers are locked or logged off when employees and supervisors are not at their desks. Remember a password and or access restrictions don’t do any good if computers are left logged on and unprotected allowing those without authorization to access them.
Thought for Today – Tax Myth, you only have to report income that you receive a 1099, W-2 or other tax reporting form on. If did not get a tax reporting document, got paid in cash or by bartering it’s not taxable. Fact — You are taxable on all income and the fact that you did not receive a tax reporting document is no excuse for failure to report income, even payments are received in cash or in the form of a barter transaction are taxable and must be included in your gross income.
Thought for Today – Tax Myth that can get you in trouble! — You’re citizen of the United States living abroad and have no assets and no income in the United States. You do earn income in your country of residence and pay all taxes due there so there is no reason to file a U.S. tax return. Fact–U.S. Citizens and resident aliens (those with green cards), must file a U.S. tax return and report their worldwide income if that worldwide income exceeds the U.S. filing threshold for the year. Certain foreign earned income can be excluded from taxation if certain conditions are met, but to get this exclusion you must file a return.
Thought for Today – Am I the only one that thinks it’s bad manners to send someone an email and not include your full name and a contact phone number? It’s hard to answer someone’s email when they don’t tell you who they are, or only include their first name, so you have no idea who they are.
Thought for Today – I had a prospective client ask me as part of the initial consultation, if I would lie to the IRS and or their suppliers for them. When I said No and told them if they were looking for an accountant that would lie for them they should leave now. Well they let me know that they would never do business with accountant that would not do “whatever was necessary to protect them and their business”. I just said I was sure you will get what you deserve as anyone that will lie for you will also lie to you and that’s not the kind of relationships we are looking for.
Thought for Today – While borrowing for the right reasons can help you grow your business, borrowing for the wrong reason can just as surely kill your business. Before you borrow make sure it’s for the right reasons and that it will add to your business cash flow not reduce it making things more difficult.
Thought for Today – Here are some things that clients say and what they mean. Client says, “I don’t have my information together yet but I should not owe any tax right?” Client means, “I need you to tell me that I won’t own any taxes so that I have someone other than myself to be mad if I do owe.” Client says “my return is simple.” Client means, “go easy on the fees.” Client says “my brother wanted me to ask you….” Client means, “My brother is too cheap to pay for help.”
Thought for Today – On the list of reasons never to get professional advice from a web site, is that anyone can publish anything and not only is the information often unchecked, but those who rely on it have no recourse when they are harmed by it. Take the case of the client that found information recommending adding her sons name to her bank accounts so that if something happened to her, he would be able to pay her bills. Surprise, her son had a judgment for failure to pay a debt and the account was levied leaving her with $20,000.00 less to pay her bills. The same thing could have easily been accomplished without the risk, by giving him a Durable Power of Attorney or setting up a Revocable Living Trust.
Thought for Today – It’s a funny thing that throwing money at a problem often won’t solve it. Paying attention to the problem makes it go away.
Thought for Today – There is no statute of limitations for the filing of tax return. If you were required to file a return, but did not file, it does not matter how long ago the return was due. The statute of limitations for tax returns does not even begin to run until return is filed. So if you are one of those who has failed to file past returns, the sooner you get them filed the better. Remember while you can’t go to prison for failure to pay taxes owed, failure to file a return can be a criminal matter and jail time is a possibility.
Thought for Today – The first step to being the best you can be, is knowing what you are! In business this is not about your product or service it’s about knowing how you impact the market place and how you are perceived by customers and prospective customers.
Thought for Today – Did you know that if you buy a business and Florida Sales Tax is unpaid or underpaid by the seller for any period up to 36 months before you purchase, the state of Florida can hold you liable for the amounts unpaid or underpaid? This responsibility for sales taxes of the seller of a business by the buyer of the business is called successor liability and it just one important reason why you should include your accountant in the purchase of a business, before you agree to purchase the business not after the contracts have been signed and the agreement has been finalized.
Thought for Today – Under the heading of the funny things people say to their accountant. “I don’t know why you keep asking me for information. You are my tax guy and I hire you so I won’t have to deal with this stuff.” “If I knew making all this money would mean I would have to pay taxes, I would not have bothered.” “So explain to me again why I can’t deduct all my food and clothing, as work expenses. I have to eat to have the strength to go to work and my company won’t let me work nude so that are both work related expenses.”
Thought for Today – Business is about people and service. No matter how complex or simple the product, no matter how innovative or simple the idea, in the end a business is about serving the needs of people. Do this well and you will be rewarded. Do it poorly and you will struggle or disappear.
Thought for Today – Do you have procedures in place to protect your data? In today’s age the life blood of every business is data. Every business relies on: accounting data, customer data, product data, supplier data and other unique information that is stored on computers somewhere. It’s important that this data be backed-up regularly and that the back-ups be stored offsite and protected from loss. When is the last time you reviewed your back up procedures and made sure they were really working to protect your data?
Thought for Today – I have gotten a lot of calls lately from people that set-up LLC and Corporations and what to know. “Now what?” The best time to have asked this question would have been before they set up their new entity, not after. In some cases LLC have been sent up where Corporation and a Subchapter S election would have been a better choice and in others a Corporation was set up when a LLC would have been a better choice. The best time to speak to an accountant is before you take action not after.
Thought for Today – The U.S. Department of Labor takes the position that if an unpaid Intern does work that makes any kind of contribution to the employer, that wage and hour law applies and they must be paid minimum wage. While I am sure that the intent was to protect Interns from becoming slave labor, the result is less internships and hence less opportunities for those that need real world exposure and fewer opportunities for young people.
Thought for Today – Funny things heard around the accounting office; Client, “how come no one told me that if I made more money I would have to pay more taxes.” Accountant, “when I asked for his business records he said that he did not have records he kept all his music on his IPad.” Prospective client, “I don’t want to tell you what I need until after you tell me how much it is going to cost.”
Thought for Today – If you did not like last year’s tax bill now is the time to get to work on this year’s tax bill. Wait until the year is done, and all we can do is offer a tissue to help wipe away the tears!
Thought for Today – Every business has two kinds of customers. They are inside and outside customers. Inside customers are your employees, suppliers and others that your business depends on to be able to achieve its mission. They may not produce any revenue but they do determine your ability to operate and make a profit. They are a valuable part of your business and it’s important to treat them as such as they become the face and determine the attitude that your outside customers see. While your outside customers provide the cash flow and income to your business, it’s your inside customers that keep them coming back.
Thought for Today – In the movie “Field of Dreams”, they told us “if you build it, they will come”. However, this is not necessarily true. In business you have to tell them about it and keep telling them about it, if you want them to come. Advertising and promotion need to be an important part of your business plan.
Thought for Today – It might be time to get the kids on the payroll if you are a business owner. Putting your kids on the payroll can move income from your tax bracket to theirs and teach them the value of a dollar. In addition, as soon as the kids have earned income they can fund an IRA or better yet a ROTH IRA. Now you need to be able to show that the kids actually do some kind of work for your business and that what you pay them is reasonable for the work they do, but this should be easy–who’s kids today don’t know more about computers, the internet and social web sites than you do, so why not put them to work helping you with data entry or social marketing for your business. If your business is unincorporated and your children are under 18 you pay no FICA taxes on their wages and the first $6,200 they earn is tax free.
Thought for Today – Reading the fine print is important. Remember that there is a reason someone took the time to put it in that contract or agreement and that reason was probably not to benefit you. When in doubt cross it out.
Thought for Today – Why is that so many more people want us to tell them how to fix problems that could have been easy avoided if only they had called to discuss what they planned to do before actually doing it?
Thought for Today – This year we have seen more correspondence from the IRS and refund delays than ever before. Much of this correspondence is about IRS verifying credits and withholding that was properly claimed on tax returns. The requests are due to the amount of fraud that has taken place the last few years. In most cases, large refunds are being claimed. Don’t let one of these notices shake you. Simply forward it to your tax professional. The good news is that eventually you will receive your refund. The bad news is that it is just going to take a while for the IRS to get the additional information processed and your refund sent to you.
Thought for Today – Leadership is not about telling others what to do, it’s about showing them how it’s done and encouraging them to take risks and learn new things.
Thought for Today – Three very different business stages call for three different management emphasis. The three stages are the Start-Up, Growth and Transition. During Start-Up you are scrambling to figure out what your business is all about. Your plans need to be flexible as what you thought would happen is not always the case. This stage calls for being light on your feet and making sure that you keep a close eye on your capital to make sure you don’t run out of money before you become profitable. In the Growth stage, your business is established and you know the formula works; you need to just add more business while keeping expenses in line. This is the stage where you need to evaluate if you would be better off passing on some of your less productive responsibilities to others, so that you can spend more time on growing the business. It’s important to make sure that growth is controlled so that is does not out pace cash flow available. Protecting your brand and putting the systems in place to maintain quality and consistency are also important at this point. In the transition phase, you start planning how you will convert the equity you have built into dollars you can bank when you retire or move on to your next venture. There are many exit strategies to choose from. You could bring in a CEO to run the business for you and continue to collect dividends from profits generated. This could be a family member, trusted employee or someone from outside the company. You could sell the business and take a lump sum or installment payout, or you could close the business and sell of the assets. But whatever do, the only way to maximize what you will be is to start planning early. Most transitions require five years of more of planning to create the best results.
Thought for Today – Do you still experience the joy you got from your business when you were starting out? If you had to start over today, what would you change and what would you keep exactly the same?
Thought for Today – Do you track where your new business comes from? The best way to determine if your marketing dollars are doing the job you intended is to track where your new business comes from. It can be as simple as asking ever new customer “which one of our friends suggested you use us.” Recording this information can help you provide a proper thank you to those that refer you business, and to track which of your marketing efforts is working and which are not.
Thought for Today – Reasons people give for missing their tax appointment: “The dog ate my W-2.” “My husband left the information in the car at the airport.” “I did not want my husband / wife to be able to see how much I made.” “My mom handled my stuff.” “I knew that if I brought it in you would tell me that I owe taxes.” “I did not remember it was that time of year.” “I can’t get the computer to give me my information.” “I need to get the last three years together before I start working on this year.”
Thought for Today –Silly things people believe about taxes. “Getting a refund means I don’t pay taxes”. We in the tax profession call this blissful ignorance. Getting a refund means you are probably having too much withheld and giving the government an interest free loan all year. “When you get to be over 70 you won’t have to pay taxes anymore”. Truth is that there is no magic age where you no longer have to pay taxes, income taxes are based on income not age.
Thought for Today – On the lighter side here are some excuses we heard this year as to why client’s did not have their tax information: My paper work was stolen from my car. I did not know I needed to bring my information with me. I never go to the mail box, all I ever find is bills. I mistakenly used my tax information to get a fire started so I don’t have it. To avoid all these problems and more we are introducing a new app for your smart phone that lets you take pictures of your important tax documents and other information then store them in the cloud where you can access them any time. To download your free copy of our record saver app go to http://autokept.herokuapp.com/users/sign_up?share_token=lgKoTR_yBpe-
Thought for Today – Do you ask your customers for referrals? One of the best sources of business is happy customers. But getting the true benefit from this sleeping marketing machine means you have to let those happy customers know that you not only want their referral but that you need them to help you grow your business. When a customer has completed a transaction with you and is happy with the results of that transaction, it’s important to remind them that you need their help and would appreciate them referring their friends and relatives to you. It’s also important to let them know that know that they can be sure you will take the same good care of those they refer as you have taken of them.
Thought for Today – Be careful of the company’s that advertise how they can make your taxes go away for pennies on the dollars. While many true tax professionals may be able to help you work out a payment plan with the IRS, giving you some breathing room, no one can make what you own magically disappear allowing you to keep all your assets and your income intact. Worse yet, many of these firms will string you along taking your money, money you could have used to reduce what you owe. There are solutions to back taxes but none are easy or painless.
Thought for Today – It’s funny that how unreceptive we are to advice when we really need it and how receptive we become when we don’t.
Thought for Today –Yesterday I attended the sale at my wife’s parent’s home in Martinsburg MO. This was my first experience with something like this, where the possessions of a lifetime, their treasures are sold off. Events like this bring out many emotions and many types of people. Harold and Mildred, I am sure we’re looking down proudly as their children worked together to prepare for the sale and supported each other through the tears and small joys of the day. While the bargain hunters were out, so we’re the friends and family that came from far and near to offer support and share a story or memory. If there is a lesson to be learned here, it’s that a life well lived is not about the things you acquire, it’s about the people you touch, the memories you leave for others and the children, grandchildren and great-grandchildren that are all better people for the life lessons you taught them and which the will pass on to their children and their children’s children.
Thought for Today – A business without profits will never hire additional employees, contribute to charity or the community and will soon disappear from existence and memory. Profit is not evil it is the engine that drives our economy and makes life better for all.
Thought for Today – There is no better time to start a business than today and while the products or services you offer are important as is customer need, nothing is more important that a belief in yourself and the ability to see beyond what others see and tell you. Many a great company has been built from ideas others laughed at by a person with vision who was will to take great risks to see that vision through. Federal Express, Southwest Airlines, Office Depot, FaceBook, Google, GoPro ….
Thought for Today – It’s never too early to teach your children about money. At every age there are important lessons you can teach them. These lessons include: Money has to be earned and that what you earn limits or expands the choices you can make. Savings is an important discipline. Investing gives your money the chance to work for you and earning something adds to its value. Living on a budget means learning to spend less than what you make or have, as needing or wanting more has little to do with getting more.
Thought for Today – Often times we pay so much attention to how we want things done, that we fail to see the possibilities for improvement. In many cases, the how is much less important than the results. Allowing the people around you the freedom to determine how might just improve the process and the results.
Thought for Today – The reason we do not use hourly fees for bookkeeping and a number of other services is because in fairness to our clients they should not pay more because we work slower. A fixed fee means we get paid for the work required and completing it in a timely basis, not for the amount of time we spend. The incentive is on getting the work done and done right as we don’t get paid extra for redo’s or working too slow. Want to know more about how you can get more bang for your buck when it comes to bookkeeping give us a call.
Thought for Today – Your business is only as good as the people that work for you. Treat them like your greatest asset and provide them with the training and support necessary to help them grow and your business will grow along with them.
Thought for Today – Today I vow not to use the T word for at least a week.
Thought for Today – If you have not filed your tax return, an extension is available BUT YOU HAVE TO FILE FORM 4868 with the IRS. The form can be found on the IRS website at http://www.irs.gov/pub/irs-pdf/f4868.pdf and must be post marked today. Filing this form if you have not yet competed and filed your return filing. An extension will help you avoid the late filing penalty.
Thought for Today – In the back stretch now. If only all the clients pick up their returns and get the e-file forms back to us.
Thought for Today – Tax return still not out? Do not worry! Do not shout! Simply get an extension sent out!
Thought for Today – Identity theft victims are waiting a long time for their tax refunds. According to a new report from the Treasury Inspector it takes an average of 278 days during which time the taxpayers refund is delayed. With this in mind you may want to adjust your withholding and or estimated tax payments to reduce or eliminate a refund when you file your tax return. The best strategy may be to owe some tax and not get a refund when it comes time to file your return.
Thought for Today – So today a client asked “how much of my income do I have to report on my tax return?” When I said “all of it”, he asked “what is the worst that can happen if I only tell you about part of it?” My response “It all depends on how you feel about jail”. Remember that failure to pay your taxes means the IRS can levy your bank accounts and or seize your assets but lying about how much you make on your tax return could be considered criminal fraud, and get you 3 hots and a cot in the federal slammer.
Thought for Today – The best intentions sometime create the worst results. I don’t know how many times every year I have to explain to a client, that a parent or loved one adding their name to the deed on their home or deeding the home to them before death means that they will be paying a lot more tax on the sale of that home than if it had passed through an estate at death or been part of a trust. Property passed due to death gets a stepped up tax basis reducing the gain on sale while property transferred through a gift retains the tax basis of the person who gifted it.
Thought for Today – Tired of having to go through lots of receipts that look like your dog ate your homework every year at tax time? We have a new App that can help you scan your receipts and save them to a private folder for access over the internet. Simply shoot a picture of the receipt at the time of purchase and dictate a short description. Our App will save it for you, allow you to classify, then download it at tax time. The App is free–simply email us at info@RMSAccounting.com and put Tax App in the subject line.
Thought for Today – Don’t forget the identity thieves are out there looking to make what you have, theirs. The IRS does not email or call tax payers looking for information about you or any of your family members. Don’t click on links in an email asking you to verify something the IRS should know. Before you respond to those emails that say they are from your bank or credit card company, make a phone call to the bank or credit card company using a phone number you know and verify that they are not just a trap to get information.
Thought for Today – While we know just about everything there is to know about taxes and tax returns, we don’t know when you bought those stocks you have been holding onto forever and what you paid for them. When you sell a stock, the broker reports the sale to the IRS but it’s often up to you to come up with what you paid to purchase it along with when you purchased it. Without this important information you could end up paying more tax that you owe on the sale.
Thought for Today – Maybe it’s just me but this time of year as my email fills up with advertisement for accounting and tax conferences of every kind and in every place, all I can think about is that the last thing I want to plan right now is a week of conferences surrounded by accountants and tax professionals!
Thought for Today – Former client called yesterday asking for help. It seems that he decided that he did not need our help last year and filed his tax return using Turbo Tax. He recently received a notice from the IRS showing he owed a great deal of additional tax and wanted to know what to do? I asked if he had called Turbo Tax about his problem and he said that he had but they had not been any help. Then he asked me to see if I could help, as he just did not understand the notice and I have always dealt with any IRS correspondence in the past and taken care of it for him. When I told him I would be happy to help, but that I would need $500.00 retainer and that the fee was $250.00 an hour, he said in the past you did not charge me for handling this kind of thing. I had to remind him that in the past we had done his returns and that when he paid us to do his return we handled any problems, questions or audits for no additional charge.
Thought for Today – The only thing more expensive to undo than a bad partnership is a bad marriage. Both can end up with financial collapse and a transfer of assets to attorneys and accountants. Don’t rush into either with the idea that you can change someone or that if things don’t work out it will be easy to get out. If things do go bad, try to remember that those advising you may make more from conflict than from common sense and doing what is fair.
Thought for Today – The internet makes it much easier today to get information on business ideas, taxes and many other subjects. This ease of access to information comes with one big problems. The problem is the reliability of the information. Anyone, even those with bad intentions or misinformation can publish on the internet and with a little work what they publish can look like it comes from a reliable professional source. Before taking action based on something you find on line make sure to double and triple check it’s accuracy and remember internet research is never a substitute for reviewing a decision with a professional in the field.
Thought for Today – Client asked me how old do I have to be to stop filing taxes? She was not happy when I told her that she either had to have a lot less income or stop breathing to stop filing taxes, and that even if she stopped breathing someone else would still need to file her final return. The only way out of the tax system is poverty or death.
Thought for Today – Something you should know about those of us who spend our days doing taxes, we live in the past. When we ask you if there were any changes this year or how old your children are now, we really mean last year, as that what we are working in. Just call it the tax pro time warp.
Thought for Today – Same sex marriage is good news for many couples when it comes to inheriting a large estate, but may not be such good news when it comes to filing tax returns. Couples that are legally married must file income taxes using the filing status married filing joint or married filing separately and this often results in a higher tax bill than when each filed a return using the single filing status. If marriage is in your future, it does not matter if you are a same sex couple or a traditional couple, it’s a good idea to speak to your tax advisor before tying the knot.
Thought for Today – Buying or selling a business? A little planning can help insure a successful transaction. If you’re a seller, the planning should start at least a year before you are ready to sell. If you are a buyer, the planning should start before you start looking at businesses for sale. Spending a little time with your accountant to do some planning can mean the difference between success and failure.
Thought for Today – Having the right accountant on your side can make all the difference not only at tax filing time, but also throughout the year. The right accountant can help guide you when it comes to tax, business and investments, making sure that your actions have the results you intend.
Thought for Today – Under the heading of “I Told You So”, is the client who fired an employee for stealing, only to have the employee threaten to turn him over to the IRS because he was paying her in cash for sales that he was not reporting on his tax return. I have often told client two things; 1) Don’t underreport your income as it could be considered criminal fraud. 2) Anytime more than one person knows something, it is not a secret and may come back and bite you when you can least afford it.
Thought for Today – Over the years we have honed our skill set. While there is not a tax or accounting question we can’t answer, one of the skills we have been unable to develop is reading paperwork or tax notices you receive in the mail over the phone. If you get something you want to ask us about in the mail, please fax, email or mail us a copy before you call us about it.
Thought for Today – The good news about tax season is that we get to visit with so many clients that have become more like friends over the years and learn about all that has been happening in their life over the last year. The bad news about tax season is that all those good friends leave behind piles of work that we need to get done.
Thought for Today – Add to the list of bad negotiating tactics, showing up late for your appointment with your accountant with a box full of paper that looks like it came straight out of a land fill then asking for a discount on the tax preparation fee.
Thought for Today – Sometimes it pays to keep it simple. Before setting up multiple corporations or LLCs to help protect you from legal liability, it’s important to determine just how much additional liability they will protect you from and what the cost of this protection will be. Before setting up a new corporation or LLC, check with your accountant to make sure you understand all the costs involved.
Thought for Today – Corporate returns are due on the 15th of this month so if you have not filed your corporate return yet remember to file an extension on or before the 15th to avoid penalties.
Thought for Today – You may think that all of those that fail to file their tax returns owe taxes but you would be wrong. The IRS estimates that it has a billion dollars in refunds that are due to tax payers for 2011. To claim these refunds the tax payers simply have to file their 2011 tax return. But time is running out. Like Cinderella’s glass slipper, at midnight on April 15, 2015 the ability to claim a refund for 2011 disappears forever.
Thought for Today – Millions of people that are over 112 have social security numbers that show they are still actively working and earning wages! These senior employees seem to be the result of the Social Security Administration not matching up the death notices they receive with the active files. So who are all these working octogenarians? Seems they are often people that are present in the United States illegally and needed a Social Security number to get a job. So if you’re worried about making ends meet in your old age, don’t worry, as it seem the government see no problem in allowing you to just keep working even long after you are dead.
Thought for Today – What are you teaching your children about money? Do they know what it costs to live in the style they have become accustomed to? Do they understand the value of saving? Do they know that money is the result of hard work?
Thought for Today – All too often we find that clients let the tax tail wag the dog. While pay less taxes might be a good idea a better idea is getting and keeping more money.
Thought for Today – Lose your Social Security Earnings statement? Replacement Forms SSA-1099 and SSA-1042S are available online: A recent enhancement to the Social Security Administration’s (SSA’s) website allows individuals to obtain replacement Form SSA-1099 or Form SSA-1042S this tax season through an account created at www.ssa.gov/myaccount/. In addition, an online mySocial Security account may be used to track earnings, estimate future benefits, change an address, start or change direct deposit, or for those currently receiving benefits, request a letter with proof of benefits. Medicare enrollees may obtain a benefit verification letter, check benefit and payment information, verify earnings records, change an address and phone number, start or update benefit payment direct deposit. A mySocial Security account may be only created and used for an individual’s personal information. An account cannot be created or used on behalf of another person, even with written permission.
Thought for Today – When someone tells you that an investment or business idea is so good that you need to sign now without discussing it with your accountant or other advisors, it’s a sure sign that there is something that won’t stand up to further investigation.
Thought for Today – When you tell us, your accountant, what you have done after you have done it, there is little that we can do if your actions are going to cost you more or was a bad choice other than try not to let you see what we are thinking. It’s always best to remember to Ask before Acting.
Thought for Today – Do you manufacture a product in the U.S., do new construct, develop software, grow and harvest crops, extract gas or potable water? If so you may be eligible for the Domestic Productions Activities Deduction. The deduction is equal to a reduction in of the net income for qualifying Domestic Productions Activities Deduction activities of up to 3%.
Thought for Today – The second best answer you can get when prospecting is “no”. It definitively lets you know to move on and puts you one step closer to finding someone that will say yes. The worst answer you can get is “maybe” or “let me think about it”. It tell you nothing and leaves you to spin your wheels and waste your valuable time.
Thought for Today – Remember, if you are a U.S. citizen or a U.S. Resident you must report your worldwide income on your federal income tax return. On the bright side if you paid tax in other countries you are likely entitled for a foreign tax credit up to but not exceeding the lessor of the foreign tax paid or the amount of U.S. tax on your foreign income.
Thought for Today – Hint when someone wants to buy your business, it’s customary for them to make an offer in writing before you strip down to your underwear and show them everything you have got. While showing a little skin may be ok to get them interested, they don’t have to see everything you have until they make an offer and put up some money.
Thought for Today – Don’t take tax and business advice from those that are not qualified to give it. Way to many times I have told prospective clients that the workers they are treating as independent contractors are in fact employees and should be treated as such to avoid penalties and other liabilities only to be told that “it’s ok my friend treats his employees as independent contractors and it saves him money, he has been doing it for years.” My response is always the same, “just because he has gotten away with it so far does not mean he will continue too. Isn’t it better not to have to worry that you will be put out of business by penalties, unpaid employment taxes, overtime liability or worse injuries to a worker.” Most of the time this means that we have no chance of getting the business as they just don’t want to know what they should do or why. But at least once a year a few of these people show up at my office with letters from the IRS, Department of Labor or some other government organization looking for records and threating penalties for failure to comply, wanting my help.
Thought for Today – The reason for doing something or not doing should not be the tax consequences. While tax consequences may sweeten the investment or business deal, the quality of the investment or the value of the business deal should always be your primary consideration. Put another way, the amount of taxes you pay are far less important than the amount of money you keep.
Thought for Today – The best advisors are those that will tell you what they think, even when it’s not what you want to hear.
Thought for Today – Hint–The cost of preparing your tax return goes up if your information is a mess. Want the cost to go sky high, bring it in looking like trash wadded up in a box containing mold mildew and dead bugs.
Thought for Today – One of the great things about all of the do it your self-tax software is all the additional billing and revenue it creates for us out side of tax season. We make lots of money helping tax payers that though they would save a few bucks by using a do it your self-program answer IRS notices, handle audits and fix mistakes that they made on their tax return. If taxes were easy the guys that write the tax laws in congress would do their own returns, they don’t.
Thought for Today – I know that is sacrilegious for an accountant to say that all business and tax decisions can’t be based on the dollar cost or savings alone, but it is often true. Yesterday a new client wanted to know what he could do to eliminate the penalty that would result from his claiming his grown son as a dependent as his son did not have health insurance. He had determined that if he did not claim his son the loss of the exemption and elimination of the penalty would result in him paying an additional $50.00. My question was, if your grown son, without health insurance goes to the hospital and runs up a big bill, what are you going to say when the hospital comes looking to you for payment, you have claimed him as a dependent? My comment was paying an extra $50.00 to avoid being held responsible for an adult child that is not disabled but simply chooses not to work, seems like a no brainer to me.
Thought for Today – The good news is that it is easier to be a millionaire today than at any other time in history. The bad news is that a million dollars just does not go as far as it did at almost any time in history. The big secret that most millionaires don’t tell you is that getting into the club is a lot less about how much you make, than it is about how much you spend.
Thought for Today – The answer to Fridays you make the call question is: None of the taxpayer’s expenses for travel or living away from home for work are deductible. The tax code considers your home to be where you make your living. If you choose to live elsewhere and have to travel back and forth, the expenses of travel, food and lodging are not deductible. If the position was a temporary assignment the deductions may be allowed.
Thought for Today – You make the call. A taxpayer’s has a home in South Florida with his family. He takes a job in Atlanta and decides to commute back and forth from his job in Atlanta every weekend to be with his family in Florida. The taxpayer wants to deduct all of his cost of commuting to and from his job and the cost of lodging and meals while he is in Atlanta for business, can he deduct these expenses?
Thought for Today – Tax season is the only time that you will ever find people that overpaid celebrating getting their own money back as if they won the lottery.
Thought for Today – Did you know that anyone can hang out a sign and claim to be a tax preparer? Not only can they, but this time of year signs go up and offices open all over and many of them are staffed by people that only months ago were taking a beginners class on income tax preparation. Worse yet some of these people may not understand the importance of keeping your private information private. There are only three classes of people that can not only prepare your return but they can also represent you before the IRS, these people are Enrolled Agents, C.P.A.s and Attorneys. Enrolled Agents are the only tax specialists to derive their authority from the U.S. Treasury. Our Enrolled Agents are year round tax professionals, so no matter the time or year or the type of tax question, they are always here to help you.
Thought for Today – Yesterday a client called to ask a question about overtime rules. Our client wanted to know if they could avoid paying their employee time and half for working over 40 hours a week by having the employee agree to just get regular time for the additional hours. Much to our client’s disappointment I had to tell them no, regardless of any agreement to the contrary, the law is the law. If you need to know more about Overtime Rules and Exempt vs Nonexempt employees email us at info@RMSAccounting.com and we will send you a free booklet that will help you understand the rules.
Thought for Today – As we fight through the details of the Affordable Care Act “Obama Care” which includes additional work on every tax return this year along with possible penalties for those that do not have insurance, we want to know what you think. Should the federal government force everyone to purchase insurance coverage? Should what kind of insurance you purchase be dictated by the government? Is health insurance a right that everyone is entitled to or is it a choice that we are entitled to make on our own?
Thought for Today – There is nothing wrong with mixing a little pleasure with your business travel. For example choose that Vegas trade show instead of the one in Detroit. Then add a couple days on the end and get in a little time at the tables. Deduct the entire cost of the airline ticket, the hotel and meals for all business days. While you don’t get a deduction for the non-business days (unless staying over the weekend including hotel is less expensive then returning home Friday night) you get to deduct the plane ticket and hotel transfers. Want to deduct it all just work the trade show during the day and gamble at night. A little planning can save you some money and make the trip a lot more fun.
Thought for Today – The most important competition you will ever have is yourself. If you are better every day that you were the day before, you will be better than any competitor ever could be.
Thought for Today – There is a deadline for filing a claim for refund. Generally, the period for filing a refund claim, on an original return form 1040 or an amended return on form 1040X is the later of three years from the time the return was filed or two years from the time the tax was paid. However, if the claim is due to a death that occurred in a combat zone or from wounds, disease or injury incurred in a combat zone, the deadline for filing a claim is extended using the special rules for Combat Zones and Contingency Operation Extensions.
Thought for Today – When buying or selling a business, what you buy can make a big difference in the tax treatment for both buyer and seller. For example, If the business changing hands is a corporation, you could buy the assets of the business and place them in a new business entity such as an LLC or S-Corporation and depreciate them based on the purchase cost or you could simply buy all of the corporate stock in the existing corporation and continue to do business as the new owner / shareholder. In this case you would not be able to depreciate the assets based on what you paid for the business and would just continue with any depreciation remaining for the assets while capitalizing your investment as basis in the stock. For the seller, a sale of stock would avoid any recapture of depreciation and allow the entire sale to be treated as a long term capital gain. So what is good for seller may not be as good for the buyer. These deals are complicated and should not be attempted without consulting a qualified accountant.
Thought for Today – Thinking about buying or selling a business? Your first stop should be an accountant. Your accountant can tell you what to look for if you are buying, including information to gather before making an offer so that you will be able to evaluate not only the seller’s profitability but also the honesty of what you are being given. If you are selling, your accountant should show you how to get your business ready so that you put your best foot forward and you know what kind of information to share with a prospective buyer. Before you call your lawyer or broker call your accountant.
Do you spend your time during the business day on things that are urgent instead of things that are important? Important things add to your bottom line and increase the value of your business. Urgent things most often are nothing more than firefighting, they don’t add value they just prevent what you have from going up in smoke.
If you have a Florida Corporation, LLC or Partnership be sure to remember to file your annual report with the state of Florida. The state no longer mails out reminders or forms for filing your report. Filing is now done on line at www.Sunbiz.org. Reports must be filed before May 1 and reports filed after that date are assessed a late penalty of $400.
Safe Harbor for Buildings Owned by Small Taxpayers (those with annual gross receipts of less than $10 million) can deduct eligible building improvements provided that the total paid for repairs, maintenance and improvements the property during the year does not exceed the lessor of $10,000 or 2% of the properties unadjusted basis. To use the safe harbor you must file an election to do so for each property on which it will be used.
New rules for when costs associated with tangible property (stuff you can touch other than real estate) can be expensed as repairs rather than capitalized and depreciated over the life of the asset were put in place by the IRS for 2014 and beyond. In general these rules allow taxpayers to deduct amounts paid for repairs and maintenance to tangible property if the amounts paid are not otherwise required to be capitalized under Internal Revenue Service Code Section 263(a) or any other provision of the Code or regulations. In a nut shell this means if what you do does not add to the value and or the useful life you can expense it. There is also a new “Safe Harbor” provision that defines and allows routine maintenance to be deducted currently. Reg §1.263(a)-3(g)(1)
Every business reflects the owner or chief executive. If that person values doing the right thing the business will make doing the right thing for its customers and employees and important part of its core philosophy. If the owner or chief executive has respect for others the business will respect its employees, customers and vendors. A business becomes a mirror of its leader, so a good look at the leader tells you all you will ever need to know about a business.
Client told me yesterday that he did not know why I wanted to know about his business income. I had his 1099s and a friend told him that he only had to report income he received a 1099 for. I asked him what his friend does and he told me he was a plumber. It’s easy to get tax advice but it’s important to consider the source. Income received in a trade or business is income and it does not matter whether you get a 1099 or not.
I am often asked how I feel about online tax programs that advertise on TV and the big tax in the box companies that use part time people, often with little training, to offer cheap tax returns. The question always makes me smile, for if it was not for these anyone can do it options I would not have been able to put three kids through college. I make a lot more money fixing these messed up return then I could ever make doing them.
Yesterday’s phone call from a prospective bookkeeping client. Prospect “hi this is ______________ I need some bookkeeping help.” “My bookkeeper just walked out on me and left me with quite a mess. I need someone that can figure out what she did.” Me “How long was she with you?” Prospect “about six months and she gave me no notice, this is not the first time this has happened to me.” Me “well we would be happy to assist you. All our bookkeepers are supervised by and accountant and since we use a team approach you never have to worry about the person handling your account quitting, being sick or just not being available.” “All work is done in our office based on a monthly fee that takes into account the amount of work you need done, not the time we spend doing it, so you know in advance just what the cost will be.” “So you will never pay overtime, or have to pay extra because someone is not working fast enough to get the job done.” Prospect “but that’s not how I have done it in the past. I have always had a bookkeeper in my office that handles everything.” Me “how many bookkeepers have you had in this position in the last 2 years.” Prospect “I have had 4 in the last two years.” Me “and what happens when they quit?” Well I have to drop everything else. I have to do because when our bills don’t get out we run out of money real fast.” Me “it sounds like what you have been doing is not working very well. 4 bookkeepers in 2 years.” What if you never had to hire a bookkeeper again and someone else trained them, supervised them and made sure you got what you needed on time, every time?” Prospect “that would be great but I really don’t want to change the way I do things.” Me “without a change in the way you do things it’s foolish to expect a change in the results of what you are doing.” Change is hard, but without it everything stays the same.
Most business owners know that meals and entertainment are only 50% deductible. But did you know that some meals qualify for a 100% deduction? The 100% deduction applies to meals provided on the employer ‘s premises for the employer’s convenience, if more than 50% of the employees are furnished meals for the employers convenience. It also applies to meals at promotional activities such as seminars where meals are provided to the general public, such as an investment seminar.
Starting or running a business today takes more than just having a good idea and delivering it to customers that are willing to pay for it. There are Federal, Local and State laws that you must comply with. You need to know about licensing requirements, taxes, minimum wage requirements, new hire reporting, zoning, wage & hour rules and much more. While these things may complicate your life there is help available. For more than 30 years we have been helping new and existing business owners navigate the Federal, State and Local requirements placed on their business. We are more than just accountants, we are business owners and consultants and most important of all, we are also business owners. If you have questions or need help and don’t know who to call, call us.
Protecting the tax deductions you are entitled too requires good record keeping. It’s important to remember that the deduction for business use of auto goes away for most people it they don’t have the records to prove business use. Something as simple as keeping a mileage log or appointment calendar that shows where you went for business and the miles traveled can protect your deduction. Business meals and entertainment also requires documentation. Never forget the four W’s. Who, where when and what for every business meal or entertainment items. Who = Client’s / customer’s / prospect’s name. Where = where you purchased the meal or description of the entertainment. When is the date and what business was discussed. Remember quiet business meals where business is not discussed are not deductible.
Number one rule in business: Always do the right thing for your clients, customers and employees. Do this no matter what and good things come your way. It’s only a matter of time.
Want to avoid last minute surprises on your tax return? Then it’s a good idea to start early this year. Even if you are used to getting a refund you could find yourself owing or with a smaller refund due to the ACA (Affordable Care Act) aka Obama Care. If you did not have health insurance for the full year penalties may apply and if you did have health insurance through healthcare.gov or one of the state exchanges and received a subsidy and your income was understated on the application or more than you expected, you could end up having to repay all or part of the subsidy you received. Now the news is not all bad as there are some exemptions to the penalty but these require a little effort before you can file your return, so the sooner you visit your tax professional the more time you will have to get what you need and to know what you may owe while you still have time plan for how to pay or deal with that smaller refund.
When a married couple owns an unincorporated business together, that business is a partnership by definition and required to file a partnership return unless an election is made to treat the business as a QJV (Qualified Joint Venture). To qualify for the election both must materially participate in the business, there may be no additional partners and there must not be a partnership agreement or LLC agreement in effect. The couples must also file a joint return. Hint this saves the cost and aggravation of filing a separate partnership return as all income and expenses are reported on schedule C of the joint 1040 once the election is made.
One of the most important laws in business is the law of unintended consequences. Consider it carefully before taking action and remember that often it does not rear its head until long after a decision has been made. When it does, it will often be in an area you never even considered.
In any business decision I ask myself two questions. The first is “What is the best thing that can happen if I do this? The second is what is the worst thing that can happen if I do this? If the answer to the first one does not make it worth risking the second, then I just don’t do it.
Welcome to the new year. Time to start updating your business information: collect new W-4s from employees; make sure that you have I-9s for everyone that works for you; update W-9 information for subcontractors and other vendors.
Tax season has arrived, as we diligently print and send the W-2s, 1099s and other year-end document for our clients we want to remind everyone to stay on the look out for those important forms you will be receiving in the mail. You will need them when it’s time to do your tax return. It’s a good practice to set-up a file folder or large envelope and mark it “2014 Tax Information”. As your tax documents come in you should: open the envelope, verify that the social security number and amount are correct (if they are not contact the company that sent you the document and ask that it be corrected), then place it in the folder or envelope marked “2014 Tax Information”.
If you expect help or other information from the IRS this year you better be prepared to wait. Due to budget cuts coupled with new ACA (Affordable Care Act) enforcement responsibilities and last minute retroactive extensions of expiring tax provisions the IRS has its hands full. We are already receiving reports of extra-long hold times when calling IRS. There are even some reports of messages asking callers to call back on the next business day as the call queues are full. The only good news in all of this is for those of us that are tax professionals, we are betting this means and even busier year with more new clients that are confused by all the changes and have nowhere else to turn for answers.
Taxes become more complicated this year due to the Affordable Care Act (Obama Care). The law requires reporting of required health insurance coverage by month for each member of a household; in addition if insurance was purchased through an exchange and a subsidy (credit) was granted a calculation must be done to see if all, part, or none of the subsidy must be repaid because actual income exceeded projected income for the subsidy. All of this at a time when the IRS has less funding will mean less help from the IRS and more strain on tax professionals.
Who you surround yourself with can make a huge difference in how successful you become. Surround yourself with successful, positive people and you are better than half way to being successful and positive. To make something happen you have to believe that not only can it happen but that it will happen. Let’s make 2015 an “I can” year.
Last Second 529 Planning Tips
With the holidays in full swing and only a week left in 2014, college planning is not top of mind for many families but it should be.
Rather than stuffing the toy box with another battery powered-something-or-another, how about asking for a contribution to your child’s college savings plan (529)?
There are more than a dozen plans throughout the country that make asking for gifts easy. Fidelity plans allow you to create an online “gift page” with pictures, information and even a greeting from the plan beneficiary. Other plans allow Facebook banner posts to ask for gifts. There are still others that utilize Ugift, a service that sends invites to family, friends and others in your social circle asking for contributions to your 529 account.
For families that want to SUPER-Fund their children’s 529 plans, maximizing the annual gift tax exclusion now will allow a married couple to place as much as $168,000 into a college savings account over the next 10 days! That is $168,000 that can be placed into each child’s 529 removing it from the parents’ or grandparents’ estate while the account owner still retains control over the assets.
Lastly, for families of High School seniors, there is only one week left to increase your financial aid award by as much as 14% by utilizing a 529 plan. If you think this may apply to your family, you need to act immediately.
A 529 account has tremendous benefits when properly utilized. As we wrap up 2014 and head into a new year, put some of the family gift giving toward your children’s future expenses.
Sean Moore, CFP®, ChFC®
SMART College Funding
We want to wish all our friends, clients, vendors and employees a happy healthy new year. A business is not built nor does it grow through the work of the founders and owners alone. It is the work of dedicated employees, clients and vendors all working together. So our thanks to our great employees that work hard to not only exceed our expectation but also the expectation of our clients. Thanks as well to our clients new and old who have not only placed their trust and confidence in us but who have also referred their friends, relatives and business associates contributing to our growth and stability. Thanks to the many vendors who have helped us improve our process and provided us with the products and services we needed to service our clients.
The standard mileage rates for 2015 have been announced by the IRS. The deduction for business use of auto for 2015 is 57. 5 cents per mile (an increase of 1.5 cents per mile over the 2014 rate of 56 cents per mile). With gas prices so low, we are not sure how IRS came to this conclusion. We do know sometimes it’s best not to ask the government to explain their actions. Strangely enough the rate for medical and moving mileage is down .5 cents per mile for 2015 to 23 cents per mile.
The extenders act passed by congress and signed by the president contained some good news for tax payers, but it also included some bad news for those that run afoul of the tax code by increasing certain penalties by indexing them for inflation beginning 1/1/15. These include the Failure to File, Failure to Pay Penalties along with the penalties for Failure to File Certain Information Return. On the bright side all you have to do to avoid these increased penalties is to file and pay your taxes on time.
The recently passed Tax Increase Prevention Act restores the ability of those over 70 ½ to make distributions from their IRA directly to a qualified charitable organization instead of taking the Required Minimum Distribution (RMD) for 2014. If you are one of the few taxpayers that are 70 ½ or older and have not yet taken your RMD you have until 12/31/14 to make a distribution directly to a qualified charitable organization. It’s important to remember that while this strategy avoids tax on the distribution, it also makes the contribution non-deductible.
No matter what you believe in, may this holiday season bring you Peace, Happiness and Love for these should be the universal goals of all mankind.
Congress passed and the president signed the “Tax Increase Prevention Act of 2014,” This law restores many expiring tax previsions but only for 2014. It may also be the shortest lived law in the history of our country as it will be in affect less than two weeks from approval to expiration. For Individuals the law extends until the end of 2014; Nonbusiness Energy Property Credits, Above-the-Line Deduction for Educator Expenses, Exclusion for Discharge of Home Mortgage Debt, Mortgage Insurance Premiums as Deductible Qualified Residence Interest, State and Local Sales Tax Deduction, Above-the-Line Deduction for Higher Education Expenses and Nontaxable IRA Transfers to Eligible Charities. For business it extends the Research Credit, Work Opportunity Tax Credit, Indian Employment Credit, The Reduction of Built In Gains Period for S Corporation along with many other credits and other provisions.
It’s all in your perspective; client visited me this week to do some tax planning for their business. While reviewing their business we found a number of steps that could reduce their corporate tax bill from $400,000 plus to just over $200,000. I thought we were doing great but their comment was you mean we are going to still have to pay over $200,000 in taxes?
Did you know that you can be a non-resident alien for the purpose of living legally in the U.S. while being a resident for the purpose of filing a U.S. tax return? To be a resident for tax filing you must simply meet the physical presence test. The test makes you a resident for tax purposes if: You lived in the U.S. for at least 31 days in the current year and 183 days for a three year period that (1) includes all days in the current year (2) 1/3 of the days in the first prior year and (3) 1/6 of the days in the second prior year. To make matters even more interesting you may be able to avoid this test if you can show “a closer connection” to another country. Sound complicated it is and getting it right can make becoming a legal resident less painful (but not pain less).
Think filing bankruptcy solved all your problems? When tax time comes you may find you no longer owe your creditors but filing your return is much more complex. Was a bankruptcy estate created? If so what assets and what liabilities were part of the bankruptcy estate? Adjustments will need to be made to basis and other tax attributes, making your tax return much more complex this year.
We can’t help you if you don’t tell us why you are calling. I am constantly amazed that people call our office and either refuse to give the receptionist the information she needs to get them the help they are looking for. They are offended when asked the reason for their call or what it is regarding. They often refuse to provide their full name and or a phone number in case of a disconnection or because someone might need to get back to them. Our firm policy is very clear any one that answers the phone is to provide you with their name and ask you for yours. They are to get a phone number and the reason for the call. You don’t have to provide confidential information, stating something as simple as, I am a client with a tax question or I have something to go over about my payables is enough to get your call roughed to the right person. Its simple telephone courtesy when we call you we tell you who we are and why we are calling when you call us we ask that you do the same.
If you get a notice from the IRS, do not worry do not shout, send it to your accountant and let him tell you what it’s all about.
When is the last time you really took a look at the financial statements for your business? Do you know how the year will compare to last year? How strong the cash position of your business is? Are your collections keeping pace with your sales? Has the value of your business increased or decreased over the last twelve months?
Santa is not the only one that should be making a list and checking it twice. Financial success requires planning. Your planning list should include reviewing: saving, investing, being tax smart and controlling spending.
I am often asked by marketing consultants who our most important competitor is? For me this is a very difficult question as I never think about outside competitors, I have always considered that the most important competition is that we have with ourselves. This internal competition makes us work hard to constantly look for better ways to serve our customers and to make our employees more effective and better at that they do. It also means we have to work to be the best place to work for our employees for if our employees are unhappy then you can bet our customer will also be unhappy.
You can contribute up to $5,000 to an individual retirement account or Roth IRA for 2014 and, if you’re 50 or older, make catch-up contributions of an additional $1,500. You also have until April 15, 2015, to make an IRA contribution for 2014.
Did you get married or divorced? Change jobs or retire? Now is the time to review events in 2014. A change in employment, for example, may bring about severance pay, sign-on bonuses, stock options, moving expenses, and COBRA health benefits, among other changes that affect your taxes.
Self-employed filing on schedule C, you can deduct the premiums for medical, dental and long term care insurance coverage for yourself, your spouse, your dependents and non-dependent children under 27 years of age at year end. Bonus this deduction comes right off your adjusted gross income on page 1 of your 1040 tax return.
The expenses of almost, but not quite, business acquisitions are deductible as miscellaneous itemized deductions on schedule A of your tax return; these are things like legal expenses and commitment fees for obtaining financing. But the expenses of travel and audits investigating possible business acquisitions is considered a personal expense and are not deductible if the business is never acquired.
Did you start a new business this year? If so you can deduct up to $5,000 of startup costs. Startup costs in excess of $5,000 must be amortized over 180 months. Startup costs are the costs of investigating and or setting up a business before the actual operation begin.
If you own rental property that you want to replace it with a more expensive rental property or turn the equity in one property into several properties, think about making a Like-Kind Exchange. By doing this you can avoid paying the tax on any gain when you sell your original property until you sell the replacement property. These exchanges can be complicated so if you think this strategy may help you consult your tax advisor for guidance before taking any action.
Because a sale is an installment sales does not prevent you from electing out of the installment method and reporting all of your gain in the year of the sale. This would mean that only the interest portion of collections would be taxable in future years. This is sometimes helpful to avoid making larger portions of your Social Security taxable in future years or to avoid a multiple year of inflated AGI (Adjusted Gross Income) due to installment collections that will make thresholds higher for itemized deductions or phase our certain tax credits.
Installment sales of real property can delay paying the tax on the portion of the sale that is not collected in the current year. This can be helpful in lowering AGI (Adjusted Gross Income) to avoid NIIT (Net Investment Income Tax), protect certain itemized deductions or protect tax credits which may phase out at higher AGI. But remember if capital gains rates increase you could end up paying tax on the collections of the gain which are delayed at a higher rate.
Making an installment sale of real property then undercharging from interest on the sale to try to take advantage of the lower long term capital gains rate and avoid paying the higher ordinary tax rates on the interest will not save you anything. The tax code requires that if the interest rate is below the AFR (Applicable Federal Rate) the principal and interest portion of the sale must be recomputed to take into account what would have been the interest at the AFR.
Need more tax write off on your rental property? Cost Segregation might help get it for you. Cost Segregation can increase current depreciation deduction by reclassing what would normally be depreciated as 27.5 or 39 year real property to equipment, fixtures, and mechanical systems with depreciation lives as short as 5 or 7 years. But be careful rental losses are generally only deductible against passive activity income and depreciation claimed today will not be available later in the activities life, it will also have to be recaptured on sale of the rental activity.
Using your auto for business is not enough to ensure a deduction for business use of auto. You must also keep records of the business use of your auto which can be used to support your deduction. These records must be kept at or near the time of business use. It needs to include the business miles driven, date driven and business purpose. Records are required to support a business deduction regardless of whether the deduction is related to a self-employed business or the expenses of an employee that are not reimbursed by the employer. Be prepared. There are two questions which must be answered on a tax return any time business use of auto is deducted. They are (1) do you have a log to support your deduction and (2) is it written. It is perfectly acceptable to keep your log with your appointment calendar. Simply add to appointment names and dates the number of miles driven.
Tax exempt income makes the most sense for tax payers in the highest income tax brackets. 1.00% tax free is equivalent of 1.18% if your tax bracket is 15% but if your tax bracket is 39.6% and you are subject to the additional NIIT of 3.8% bringing your tax rate on investment income to 43.4% your 1.00% tax free yield becomes the equivalent of a 1.77% taxable yield.
This year the maximum tax rate on long term capital gains from investments is no longer 15%. Instead for those in the top 39.65 tax bracket, the capital gains rate is 20%. Those in the 25% through 35% tax brackets will be subject to a long term capital gains rate of 15% and those in the 10% and 15% tax brackets get a 0% long term capital gains rate this year. This means that by properly timing the sales of appreciated investment into years you are in a lower tax bracket, you get to keep more of your gains because you pay less in tax.
The Supremes are at it again. In a case that could change how states tax business located in there state last week, the Supreme Court heard the case of Comptroller of the Treasury of Maryland v. Wynne, which involved a Maryland resident, Brian Wynne, who is part owner of Maxim Healthcare Services — a nationwide health care company that is based in Columbia, Md., but is also taxed in many other states where it operates. Wynne and his wife Karen’s attorneys argued that Maryland’s income tax laws violate the Commerce Clause of the Constitution.
During the oral arguments, the justices challenged attorneys for both sides, so it is difficult to predict what the outcome will be. But it could affect how states tax out of state business activities.
Thinking about buying a business, make sure to let the professionals check it out before you sign on the dotted line. Business acquisitions are complex and failure to make sure you are getting what you think you’re getting can be very costly. Things like unpaid sales taxes of the prior owner can become your responsibility. You could also find that revenues and profits are not what was represented or that payroll taxes were unpaid. These are just a few of the pitfalls business buyers find everyday–often after the purchase is closed and the seller has been paid in full. Don’t let yourself be pressed into a rapid closing that prevents you from doing your due diligence. Often times when a seller is in a hurry to close the sale and collect the money there is a good reason for them being in a hurry. That reason does not bode well for the buyer.
Want to retire with enough money to live without worrying about running out of money? How much you save each month for retirement is much less important than when you start saving for retirement. For example if your were to start saving $50.00 per week at age 25 and keep this up for 40 years until you were 65 and earned you earned 5% on your savings you would have $370,585 at 65 to use in retirement but if you put off starting for 20 years and put away $100 per week for 20 years earning the same 5% you would only have $178,566. At $50 per week for 40 years you will have put in $109,000 while at $100 per week over 20 years you will have put in $104,000. This proves that time really is money and that the sooner you start saving, the more secure you will be in retirement!
I often receive emails from clients with questions like “I am collecting long term disability, how much tax will I have to pay?” The problem is the answer requires more information. Without complete information, it’s impossible to give a meaningful answer. In this case I needed to know: was the disability insurance purchased using after tax dollars or was it purchased by an employer using employer or other pretax dollars. That is not the end of it–depending on the answers to these questions, there is other information I need to advise them properly. Like anything in life the answer almost always depends on many factors and answering without knowing all the required information does not do anyone any good.
Thinking about taking your business to the next level in the coming year? Then quit wasting your time doing things that you can have others do more efficiently and/or don’t create the growth and profitability your desire. Get back to what is important, serving your customers better and finding more customers to serve.
There is still time for some traditional year-end tax strategies. The election results are in, so it’s a good bet tax rates at least won’t be increasing in the near future. This makes income deferral an old strategy that will still work for you. Selling Real Property–think about an installment sale. This will delay collection of the tax until you collect the money. The stockmarket has reacted favorably to the election, so put off selling those appreciated stocks until you hold them at least a year or better yet until next year. Thinking about a ROTH conversion, wait till January and you will delay the tax on the conversion for a full year. A little planning now can really reduce your tax bill for this year, so schedule an appointment to see your tax advisor and review the steps that make sense for you this year.
Put your children to work. If you have a business, why not put your children to work? Even young children can often preform services like stuffing envelopes, taking out the trash, cleaning up around the office, or other activities that will help teach them a work ethic and let you pay them; moving income from your tax bracket to theirs. You can use this as an opportunity not only to teach them the value of work but also the value of savings by setting up a ROTH IRA for them to put their earnings into. As an added bonus as long as their ROTH IRA is open at least 5 years they can withdraw the money they put in (their basis) when it comes time for college to help with that incidental expenses that come up, things like spring break trips, dating and more, without penalty.
ALERT a little know provision of the ACA (Affordable Care Act) creates a penalty for businesses that reimburse health insurance expenses directly to their employees or by making a payment to their employees’ health insurance provider for a non-employer group health insurance. This penalty kicks in if you have more than ONE employee and do not include these payments in taxable income and pay the required Social Security and Medicare taxes. It must be reported as payroll on the employees W-2. WARNING the penalty is $100.00 per day per employee and can be as much as $36,500.00 per employee per year.
Year End Tax Planning Strategy – Maximize “above-the-line” deductions. Above-the-line deductions are valuable because you deduct them before you calculate your AGI. They are allowed in full and make it less likely that your other tax benefits will be limited. Common above-the-line deductions include traditional IRA and health savings account (HSA) contributions, moving expenses, self-employed health insurance costs and alimony payments. Want to know more download our 2014 Tax Planner athttp://www.rmsaccounting.com/2014-tax-planner/
Year End Tax Planning Strategy – Don’t squander your gift tax exclusion. You can give up to $14,000 to as many people as you wish in 2014, free of gift or estate tax. You get a new annual gift tax exclusion every year, so don’t let it go to waste. If you combine gifts with a spouse, you can give up to $28,000 per beneficiary, per year. For example, a couple with three grown children who are married could give each couple $56,000 each and remove a total of $168,000 gift tax free in a single year. Even more could be given tax free if grandchildren are included. Want to know more download our 2014 Tax Planner at http://www.rmsaccounting.com/2014-tax-planner/
Year End Tax Planning Strategy – Reconsider a Roth IRA Rollover. It has become very popular in recent years to convert a traditional IRA into a Roth IRA. This type of rollover allows you to pay tax on the conversion in exchange for no taxes in the future (if withdrawals are made properly). If you converted your account this year, reexamine the rollover. If the value went down, you have until your extended filing deadline to reverse the conversion. That way, you may be able to perform a conversion later and pay less tax. Want to learn more join just for a Year End Tax Planning Seminar. http://www.rmsaccounting.com/free-year-end-tax-planning/
Year End Tax Planning Strategy – Leverage retirement account tax savings. It’s not too late to increase contributions to a retirement account. Traditional retirement accounts like a 401(k) or individual retirement account still offer some of the best tax savings. Contributions reduce taxable income at the time that you make them, and you don’t pay taxes until you take the money out at retirement. The 2014 contribution limits are $17,500 for a 401(k) and $5,500 for an IRA (not including catch-up contributions for those 50 years of age and older). Want to learn more join just for a Year End Tax Planning Seminar. http://www.rmsaccounting.com/free-year-end-tax-planning/
Year End Tax Planning Strategy – Make up a tax shortfall with increased withholding. Don’t forget that taxes are due throughout the year. Check your withholding and estimated tax payments now while you have time to fix a problem. If you’re in danger of an underpayment penalty, try to make up the shortfall through increased withholding on your salary or bonuses. A bigger estimated tax payment can still leave you exposed to penalties for previous quarters, while withholding is considered to have been paid ratably throughout the year. Want to learn more join just for a Year End Tax Planning Seminar. http://www.rmsaccounting.com/free-year-end-tax-planning/
Year End Tax Planning Strategy – Bunch those deductions. Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income. Bunching itemized deductible expenses into one year can help you exceed these AGI floors. Consider scheduling your costly non-urgent medical procedures in a single year to exceed the 10 percent AGI floor for medical expenses (7.5 percent for taxpayers age 65 and older). This may mean moving up a procedure into this year or postponing it until next year, when you’ll have more medical expenses. To exceed the 2 percent AGI floor for miscellaneous expenses, bunch professional fees like legal advice and tax planning, as well as unreimbursed business expenses such as travel and vehicle costs. Want to learn more join just for a Year End Tax Planning Seminar. http://www.rmsaccounting.com/free-year-end-tax-planning/
Year End Tax Planning Strategy — Deferring tax is a cornerstone of tax planning. Generally, this means accelerating deductions into the current year and deferring income into next year. There are plenty of income items and expenses you may be able to control. Consider deferring bonuses, consulting income or self-employment income. On the deduction side, you may be able to accelerate state and local income taxes, interest payments and real estate taxes. Want to learn more, join just for a Year End Tax Planning Seminar. http://www.rmsaccounting.com/free-year-end-tax-planning/
Beware of Expiring Tax Breaks — More than 50 popular tax provisions expired at the end of 2013. Without legislative action, businesses won’t get a credit for research activities or be able to immediately deduct one-half of the cost of new business equipment. Individuals would lose benefits like the ability to deduct tuition and state and local sales taxes. Want to know more? Download our 2014 Tax Planner at http://www.rmsaccounting.com/2014-tax-planner/
Ever wonder how much of those tax deductible contributions you make to charity really go to work supporting the cause? Each year Americans donate HUNDREDS OF BILLIONS of dollars to charity, but not all that money goes directly to support the cause. Some of it goes to administration, salaries, marketing and other expenses that have little or nothing to do with helping the homeless, supporting education or whatever other purpose of the charity. But how much or what percentage actually goes to the cause depends on how efficient the charity is. Want to know how efficient your choice is? Check them out at http://www.charitynavigator.org
If you think income tax rules are convoluted just take a look at the Florida Sales Tax Code. Taxable or not taxable often depends on the facts and circumstances. For example ice cream—if you buy a gallon and it’s a food no sales tax, buy a Dixie cup and it’s a prepared food subject to sales tax. Water no tax add, add a flavor and its taxable. Services are not taxed in Florida right? Maybe and sometimes. For example, get someone to clean your residence its tax free, but have them clean your office or commercial building it’s now taxable. Get your car washed no sales tax; add a little spray on wax and wamo the whole transaction is taxable. When it comes to sales tax, getting qualified professional advice that is on point and specific can help you make sure to collect the right tax on the correct items. Failure to collect the right tax, does not absolve you from the responsibility for paying it over to the Florida Department of Revenue.
To qualify, a home office must meet three tests. 1) It must be a principal place of business. If you are any employee, it must exist for the convenience of your employer, not as an alternative working space to one provided by your employer. 2) It must be used as a place to meet or deal with customers or clients in the normal course of your business or “in connection with” the business, if the space is a separate structure from the residence, like a detached garage. 3) The space must be used regularly and exclusively for the business activity of the tax payer or be the only place available for the storage of inventory for sale. If you meet these requirements you can deduct the actual expenses of your home office. This includes the percentage of the following items that matches the percentage of space your office in the home represents. For example it you have a 10 square foot office in a 1000 square foot home you can deduct 10% of the expenses associated with your home such as; utilities, maintenance, real estate taxes, mortgage interest and depreciation. You may also choose to use the optional method of deducting up to $5.00 per square foot of office space not to exceed $1,500.00 annually. To protect the deduction, keep good records of your office use and make sure you have pictures to show the office use area. As with all things tax related, it’s the documentation that protects the deduction.
U.S. residents and citizens with Canadian RSPs have been granted automatic relief from the IRS requirement that they make a timely election under the U.S. – Canada Income Treaty to defer U.S. tax on income earned in their Canadian retirement plans until a distribution is made. This relief goes back to the first year in which they would have had to make the election, which is the year in which the Canadian plan first had earnings. Rev Proc 2014-55, 2014-44 IRB, IR 2014-97
Good news from the IRS for home owners that converted their home to a rental. They may still be able to claim the tax exclusion from gain on the sale of a principal residence of up to $500,000 for a married couple filing joint and $250,000 for non-joint filers. This could be a win-win, if you also use any unused passive losses to reduce other income at the time of the sale. But it’s important to remember the home must still have been your residence two or more years of the last five years and all the other rules of Code Sec. 121 also apply. CCA 201428008
One of the things that scares me is how easy it is to hit the send button and send an email on it’s way. All of my other correspondence goes through a strict review process. First my staff checks for spelling (something that has always been difficult for me). Then they check grammar and content. While this slows everything down, it also give me time to rethink my message and make sure that I really mean what I am saying. If I feel I was short, or that my message is reactionary I can reword it and even if it has already been sealed in an envelope, as long as the mail has not been picked up there is always time to make a change. But with email it seems to be a matter of speed: get it, answer it, send it and this means that sometime you also have to add regret it, because it’s gone before you really have a chance to think about it.
One of the most important things to learn in business is how to listen; it’s also one of the most difficult. Most of us start thinking about what we are going to say as soon as an employee or customer starts to talk, when in truth what they are saying is almost always more important than what our reply will be.
Sometimes a good deed can have a bad result. I met with a new client today that received a dreaded CP-2000 letter from the IRS assessing more tax due to unreported gambling winnings. It seems that when he was at the race track a he was asked by a stranger to help cash a winning ticket as the stranger said he did not have a Social Security number and therefore could not collect his winnings and offered to pay my new client 20% of the winning if he would cash the ticket for him. Problem is that my new client did not report these winning and worse yet the additional income is at a 25% tax rate as he already maxed out the 15% bracket. So not only will the $6,000 he got to keep, go to the IRS but so will another $1,500 of his hard earned money, not to mention penalties and interest.
It’s budget time again and while no one want to pay more, it’s important to remember association budgets are based on the costs of operating and maintaining the association’s property. Add to this the cost of amenities and you get what is needed for the coming year. From this you can then deduct any non-owner revenue the association will be receiving, such as laundry money, rents and other fees. The balance of what is needed will have to come from owner maintenance assessments. Want to lower the assessments, you will have to find something on the expense list your can reduce or eliminate.
If you have seen the show Shark Tank you know that passion is an important business quality along with a product or service that is hard to duplicate (protected by a patent) and that has a large enough market along with staying power to attract the Sharks attention and money. But no matter how much passion or how good the product nothing happens if the business owners don’t know the numbers. This includes cost to produce, customer acquisition costs and net profit. As a business owner there is a lesson to be learned from Shark Tank–what your business is worth depends on the numbers.
Growth is a wonderful thing when it’s in the right direction. When it is not in the right direction, bad things can happen just like when you wake up one morning and your pants no longer button. Is your business growing in the right direction? How do you track business growth? Do you know how growth is affecting other important factors like cash flow and profitability?
Three simple rules for business calls. 1) Treat the gate keeper well. If you give the receptionist a hard time, the person you are calling is going to know about it. 2) If you have to leave a message, always leave a call back number, don’t assume the person you are calling will have you number handy when they have time to get back to you. 3) When asked for the reason for your call, give a short explanation. You don’t have to give the secret recipe to the Colonel’s chicken to let someone know you are calling about cooking a chicken.
Want to reduce your 2014 tax bill? You will need to take action before the year ends. Both business owners and individuals can take steps to lower their tax bill. Some of the steps are simple like setting up and funding an IRA or retirement account. Others are more complex, like shifting income to family members in a lower tax bracket or setting up charitable remainder trusts. There are more than 73,000 pages in the US tax code. Buried in these pages are lots of deductions, credits and exemptions just waiting to be used, but you have to know about them to use them and you have to take action. Now is the time to visit your tax advisor to talk about strategies that will help you reduce your taxes.
Remember all employers must include the cost of employer provided health insurance coverage on W-2 forms this year. If you use a payroll service, you need to make sure they have this information for every employee before they prepare your W-2 forms. If you do your own payroll you will need to make sure your payroll software allows you enter the necessary information into your system.
I just finished responding to an IRS notice for a new client who bought their first home in 2012. This client had filed all of their own taxes up until now because “all they had was a W-2, so it was easy”. During the purchase of their home, the mortgage broker told them they “could take $10,000 out of their IRA and not pay any tax as a first time home buyer.” This information was just wrong but they used it and left the IRA distribution off their tax return which generated a notice and additional tax assessment from the IRS. Had they asked a tax professional they would have been told that the $10,000 taken from their IRA was taxable but the 10% early withdrawal penalty would not apply, as long as the transaction was properly reported on their tax return. The moral of the story is don’t take tax advice from someone that is not a tax professional.
Some companies spend their time and money telling you how great their technology is. We think great technology has very little meaning without great people. Want to experience the world’s greatest people just give us a call.
I recently heard a large payroll company advertising on the radio that “all their services were available on the web, you simply had to enter your payroll information & print your checks”. “All this without ever talking to a live human being. While I understand that this may keep their costs down, I am not sure why anyone would want to use a service that eliminates the human element. One of the things we like most about providing payroll services to our clients is that it allows us to have even more regular personal contact with them. This means we can help them spot issues before they become serious problems, offer advice and even remind them when it’s time to get their payroll information to us with a friendly phone call.
I am often asked. “Should I incorporate my business.” Those asking think that there should be a simple answer to this question but that is just not true. The answer depends on many factors. Some dealing with liabilities the business may create which could put other assets at risk. Some dealing with ownership issues and long term growth planning and other dealing with tax treatment of both profits and losses the business will have in the coming years. Another important consideration is the actual costs and additional accounting and recordkeeping requirements being incorporated brings. By now I hope that you understand that while incorporation can be the right answer in many cases, it is not the correct answer for everyone and every business. The best way to know what is best for your business is to discuss these issues with a qualified professional so that they can help you pick the entity that best serves your needs not only today but well into the future. For more information on business entities see the “Information” page on our web site “WWW.RMSAccounting.com” and check the white paper on “Business Entity Choices”.
It’s a common myth that doing business online will let you reduce personal service and make your business simpler to operate. While going on line can allow you to expand, customer service and customer satisfaction become even more important in online transactions as you tend to lose the benefit of personal relationships and the lengths people will go to do business with those they like, even when they are not delivering all that was expected. Online competition is often all about price and delivery and if you don’t have the best price or quickest delivery you can be left out in the cold. While doing business on line can add to your customer base it’s important to remember what is important is not how many customers your get it’s how many customers your keep.
I am often asked what makes us different. The answer is we learn your industry and your business so we can help you spot opportunities and avoid pitfalls. We understand that it’s about more than just the numbers to you.
It seems there are a lot of people sending out resumes, looking for work or who only have part time jobs but although they send out resumes they just don’t show after scheduling an interview. Add to this the people that apply for a job that advertises a set salary range and then want substantially more than the amount offered, yet they are currently earning noting. What ever happened to joining a company, proving that you could add value and getting pay increases because you add value to the company?
Looking for a job? Make sure your phone number is on your resume. For some reason some people don’t include this basic information on their resume, now they may have included it in their cover letter or in the email they sent with their resume but often times these things don’t get sent on the person that call and sets up the job interview so their movement up the hiring chain just stall and their resume goes from the call this person stack to the trash.
Trusts they are not just for the rich. While it’s true that a trust can help avoid the legal hassles and costs of probate they can also help protect you while you are alive and breathing. For example they can make sure that the person you choose has control of you assets if you suffer from a mental disability or illness. They can allow you to provide financial security for a loved while protecting that loved one from themselves or other in their life that make take advantage of them should they inherit your assets. You can still maintain control of your assets with a trust but add additional levels of protection for yourself and those you live. Trusts are not only an important part of an estate plan they are an important part of a plan for living.
Lois Lerner said “I know I did the best I could….and am not sorry for anything I did” not something I would recommend that you tell the IRS when they audit you and question your expenses or find unreported income. Why is it that the government does not have to meet the same standards that they hold private citizens to?
If you have employees, now is the time to get your ducks in a row and make sure your payroll information is up to date and ready for year end. This could end up being more important than ever, if the Government Accounting Office (GAO) gets its way and convinces the IRS to push the due date for sending W-2 information up to January 31. It is hoped this would help reduce the claims for fraudulent refunds by allowing the IRS to match W-2 information much sooner.
As we move into the final quarter of the year, it’s important for those who are 70 ½ or older to remember to take the Required Minimum Distribution from their regular IRA or pension accounts. Failure to take your Required Minimum Distribution will result in a penalty equal to 50% of the Required Minimum Distribution amount or shortfall in distribution. If you need help computing your Required Minimum Distribution give us a call.
For a small business, growth can be a friend or an enemy. Controlled growth that maximizes the use of your capital and strengthens your customer base by making it more broad will not only make your profit increase but will also make your business stronger. Uncontrolled growth that is driven by the demands of one or a few customers can weaken your position, use up capital resources and leave you at the mercy of one or a few large customers. It’s important to control growth and develop a large enough customer and vendor base to prevent one or a few large customers or vendors from being able to exert too much control over your business.
Yesterday one of my clients stopped by and was frantic because he received a message that the IRS called and that if he did not return the call and make a payment of $5,000.00 today they were going to send the police. They left a phone number with a family member and told them that if they did not hear from him, they would send the local police to arrest him. Now this client owes no taxes, has received no notices and was smart enough to come see me before making any calls or sending any payments. The call was a total scam from someone trying to get his bank information or have him send money. A few things you should know about the IRS: They don’t use the police to collect taxes. You will always get notices in writing with plenty of time to respond if you owe money. You can always check the identity of an IRS employee by calling the IRS at 800-829-1040 so don’t trust the phone number someone claiming to be from the IRS leaves for you without checking them out first. Don’t fall victim to this scam that is being used to steal identities and money by thieves.
When you use RMS Accounting for accounting, bookkeeping, payroll and tax needs you get more than just financial information you can depend on. You get us as a member of your team, working hard to help you succeed. We are more than just service providers, we are true partners helping you to be more successful.
Old tax laws are never forgotten, they are simply misquoted and misunderstood. A client asked me about why he had to pay tax on the sale of a business property today as he thought he had two years to reinvest the money. While this might have been true in had it been the sale of his principal residence and had it taken place before 1997, this treatment was never allowed for business property. Changes to the law in 1997 created an exclusion of $250,000 in gains for taxpayers that do not file married filing jointly and $500,000 in gains for taxpayer that file a joint return on the sale of their primary residence subject to specific rules and conditions. The moral of the story is ask first. What was is not always what is. Ask a tax professional.
I had a call from a client the other day that wanted to know what I thought they should do as one of the customers of their business had offered them a “full time position”. My client explained that in the five years he had been in business he had made less that the full time position that he had held before he started his company, found he was working more hours and was never certain of how much he would be able to take home. He said that he had just started to make steady profits and take home a steady paycheck, and his customer was offering him more money and fringe benefits and he wanted to know what to do. I told him that it was not my job to tell him what to do but I would be happy to help him explore his options. I explained that his business had a value and that if he chose to sell it he could. I explained that in addition to the compensation he was receiving each year, the value of his business was growing and although he could not spend this increase in value, he could someday receive it by selling the business. I explained that his business allowed him to have control of his Destiny, but that in exchange for this control he had to work harder and sometimes get paid less. In the end I explained that he would have to make the choice but it should be an informed choice.
Who had the most influence on you and your success? For me, one of the people that had the most influence on my life and my success was a man I will always remember, and often look back to the example he set. His name is David Lieberman. Some of you will remember back to the days that our firm was affiliated with Triple Check as a franchisee. Back then I had a lot to learn about how the turn my small professional office into a real business that not only served my clients but also made a good living for my family. David was president of Triple Check, and he taught me what it meant to grow a business with systems in place to insure that we always delivered quality to our clients. Even more important, was the lesson he taught by example of how people should be treated. Every franchisee was important to him and he made it his mission to make each of us successful. His company had its share of superstars, but he never paid them more attention than those that were small and needed his help to grow and develop. Most important of all he was a man you could trust, he told you something you could bank on it. If there was a misunderstanding over something he looked for a fair way to settle it, not to what the contract said. I have learned in life that there are few men like him, whose handshake is their bond and that you could always rely on to do the right thing. But I am grateful to him to this day and try hard to live my life by the example he set. Thank you David.
Do you get full value from your accounting and tax professionals? Do you just drop off your paperwork or tax papers and get back a financial statement or tax return. To get full value you must sit down with these professionals and discuss your goals, objectives, problems and plans. A good accountant is like a sponge that sucks up knowledge and information from every client they work with and then uses that information along with their professional knowledge to help other clients. But to get the true benefits that will help you to be more successful, you have to make the time to squeeze them every once in a while.
If you are a 2% or greater shareholder in an S-Corporation that provides you with health insurance, be sure that the cost of insurance is included in your taxable income and properly reported on your W-2 at year end, as the cost of health insurance for 2% or greater owners is not deductible by S-Corporations but can be deducted directly on your individual tax return if it is properly reported and included on your W-2. This direct deduction is taken on your 1040 so it does not require you to itemize and is not influenced by the rule limiting medical expense deductibles to only those over 10% of your Adjusted Gross Income (7.5% of AGI for those over 65).
Have a tax problem? Forgot to file returns for a few years? Owe the IRS more than you can ever hope to pay? Now is the time to clean up these problems and get back on track. Remember that the statute of limitations for filing a tax return does not even begin to run until the return is filed. The IRS can seize bank accounts and other assets to settle tax debts, but there are things you can do reduce the debt and avoid seizure of assets. It’s won’t be painless, and it won’t make what you owe just go away, but we can help you get back on track. The first step is to acknowledge the problem and get professional help.
If you pay someone to do your taxes they must include their information: name, address and IPIN on the return. They must also sign the return. This allows the IRS to track tax preparers that do not follow the law and hold them responsible. Tax preparers may not charge for return preparation based on the amount of the refund, as this violates the IRS rules for paid preparers. All returns are subject to audit for 3 years from the later of the date the return was filed or the tax was paid, so hold on to your receipts and records. While the law does not limited or set qualifications for who can prepare a return for pay, only Enrolled Agents, CPAs and Attorneys can represent clients before the IRS in tax matters and audits.
Do you have systems in place to make your business run better and help your people make the right decisions? Now I know many business owners will say yes we have a systems for how we do things and my people know what I want, but if your systems are not clear, written down and available for your employees to review whenever questions arise or conflicts come up you don’t have a system in place. It’s very important to put your policies and procedure in writing and for that written material to be in the hands of your employees. This will allow you to grow your business and spend less time and effort covering the same ground over and over.
Is this the government we want for our children and our children’s children? Do we want them to inherit a world where individual responsibility is just a memory? Do we want them to live in a world in which the sins of the past are more important than the promises of the future? It’s time to stop talking about what others have or don’t have and understand that it is individual achievement that made our country great, not government intervention. In a truly free society not only do people have the right to succeed but they also have the right to fail. The strong see failure as one more step toward success. The weak see it as an excuse and a reason to blame others for their failure.
We know that as a business owner you have many demands on your time. The important question is which of these is the best use of your time? Remember no matter how hard you work, time is the one thing that you can never get more of. Are you spending your time doing the truly important things that will grow your business, like developing new clients or customers or are you spending your time on tasks that could easily be done by others like bookkeeping and office work?
One of the important lessons I have learned from my clients is that saving for retirement matters less about how much you make than it does about the priorities you set. I have seen clients that make hundreds of thousands of dollars with little savings and those who make much less than fifty per year their whole lives, retire with over a million dollars. Ask them how they did it and they all tell you the same thing. “I started early and always put savings first!”
As we get older we worry more about being unable to care for our self’s at some point in the future. One of the ways to reduce this worrying is through the purchase of Long Term Care Insurance. Remember, that like most insurance products it’s too late to make a purchase once you need the coverage. While all or part of the premiums may be deductible, you must itemize your deductions to benefit from this deduction. Your medical expenses including the premiums must also exceed 10% of your adjusted gross income is you are under 65 or 7.5% of your adjusted gross income if you are 65 or older. How much can be deducted for Long Term Care is also limited by your age. For more information be sure to ask your tax professional.
Do you ever wonder what your business is worth? Would you be interested in knowing how your business profitability compares to others in your industry? If you answered yes to either of these questions, we can help.
Today is a double header. I will be a guest on Community News and Review on Clear Channel 1230AM WBZT Talk Radio and on iHeart HD Radio Nationally and World Wide on the Web between 6PM and 7PM tonight. Tune in–better yet stop by the Palm Beach County Expo at the Embassy Suites Boca Raton Hotel, 661 NW 53rd St, Boca Raton, FL 33487 I-95 & Yamato Road. The show will be broadcast from there tonight and we will be joining a host of other local businesses for a trade show.
Just because you call it something other than wages does not mean you can exclude it from payroll and payroll taxes. Employers often try to find ways around including part of the compensation they pay to their employees in wages and salaries. Things like auto allowances, housing allowances, reimbursements for an individual’s personal medical insurance and gas allowances made to employees but not included in their payroll. These should all be part of the employees’ taxable compensation. While there items that can be excluded like, group medical insurance and group term life insurance of up to $50,000 when provided by and paid for by the employer. There are also items which may be reimbursed and not included in the employees’ pay, as long as the employee provides proper substantiation to the employer. These include business use of auto based on the standard mileage rate, business travel, business meals and entertainment and many other items advanced by the employee on behalf of the employer. It’s important for the employer to require proper documentation for these items and to keep this documentation as it will be required in the event of a IRS or State payroll audit.
Will you be ready when it’s time to get your money out of your business? One of the best things about being a business owner is that in addition to the money you take out as salary and profit distributions you build equity in your business. Every profitable business has a value and like the trees on a tree farm the value grows over time if it is nurtured. While it’s hard to think about, for many of us, at some point, we or our families are going to want to cash in or transfer this value. Whether it’s selling the business and using the money to retire or transferring the business to the next generation, careful planning in advance can help leverage the value of your business and insure its continuation. The earlier you start working on your exit plan the better your chance to maximize what you get when it’s time to sell.
As your accountants and tax advisors our job requires us to do more than just record what you have done and complete tax return. Our job is to educate you so that you can get the most out of your business, understand the past and use it to pay for the future and take actions to lower your tax liability. In short we want to provide you with the knowledge that helps you make your life better. We are here ready, willing and able to provide this for you, but we can’t do it alone you have to make the time to share your concerns, questions and desires with us.
Ramification of the Supreme Court’s DOMA decision are affecting every area of federal law. Some of these effects are small, some not some small. On the tax front if you are a same-sex couple that is married under state or foreign law, you now must file your federal tax return as Married Filing Jointly or Married Filing Separately, you may no longer file as single or head of household unless you did not live with your spouse the last six months of the year and provide a home for one or more minor children. The law also effects estate taxes and estate tax planning and in some states federal treatment of an estate may differ from the treatment under state law. Because of these and other complication it’s important to stay informed and to have a tax professional that understand the complex rules along with your individual situation.
Domestic manufacturers can take advantage of the Section 199 deduction. Qualified activities include certain types of film and video, computer software, and energy production, as well as certain agricultural processing, construction, engineering, and architectural activities. To learn more about this credit and find our if you can take advantage of it visit our offices for a FREE Consultation.
You can get a tax break for donating excess inventory to a charity. Businesses may donate surplus inventory to charitable organizations and receive a tax deduction. For example, if you contribute food or medical supplies to a charity that provides for the homeless, you may deduct not only the cost of the goods, but also half of the lost profit (not to exceed twice the cost). Deductions are of course limited based on taxable income so check with your accountant before taking any action.
Saving for retirement is less about how much you squirrel away and more about when you start squirreling it away. If you get in the habit of “paying yourself first” your nest egg will grow. If you wait to save till you can afford it or “you have some extra money”, chances are you will never be able to retire.
Want to trade up your investment real estate and avoid the tax on the gain on the old property? You may qualify for a 1031 Like Kind Exchange. While an exchange does not eliminate the tax on the gain it does delay it until you sell the replacement property leaving you more cash to use toward your replacement purchase. Note exchanges are subject to complex rules that require some advance planning so don’t wait until you sell the property you are trading out of to speak to a tax professional, by then it may be too late.
There are several strategies for those saving for a child’s education, such as 529 plans, Coverdell Education Savings Accounts (ESAs), and education tax credits. Navigating the different options and the temporary nature of some opportunities, however, can be challenging. If you need help understanding the options and choosing the one that is best for you and your family, we would be happy to help you.
Little known fact–they cannot put you in jail for failure to pay your income taxes, but they can put you in jail for failure to file your tax return or for lying on a return you file. This is not to say it’s a good idea not to pay because while they can’t put you in jail, they can take your money and other assets.
Don’t understand business bookkeeping? QuickBooks alone will not solve your problems. There is an old saying about computers and computer software “garbage in-garbage out. It’s too bad that we often find that business owners don’t understand this and buy QuickBooks of some other accounting software, then hand it to a secretary or clerk and expect then to set it up and do the bookkeeping. The problem is the person they give this project to has no understanding of basic accounting. They don’t know enough to keep personal expenses off the books, nor so do they know the difference between an asset, a liability or a deductible expense vs personal expenses. All of these problems can be resolved by getting a little help with the set-up, some training and some ongoing support from a professional that can guide you along the way.
Yesterday I had a new client come in and ask for my help. The conversation started with the “Do you remember me?” When I said no he told me he came in a few years ago but decided not to use us as I told him that the people he had working in his business should be treated as employees and not as independent contractors. He asked if I remembered the horror stories I him about what could happen and how his friends in the business told him I was just trying to scare him. Then he said the reason I am here is because everything you said has come to pass and the he needed help dealing with requests from the IRS and State of Florida regarding payroll tax liabilities. The good news is we now have a new client the bad news is that instead of helping him build his business we are working on helping him save it from IRS ad State auditors.
Yesterday I had a new client come in and ask for my help. The conversation started with “Do you remember me?” When I said no he told me he came in a few years ago but decided not to use us as I told him that the people he had working in his business should be treated as employees and not as independent contractors. He asked if I remembered the horror stories I told him about what could happen and how his friends in the business told him I was just trying to scare him. Then he said the reason I am here is because everything you said has come to pass and he needed help dealing with requests from the IRS and State of Florida regarding payroll tax liabilities. The good news is we now have a new client, the bad news is that instead of helping him build his business we are working on helping him save it from IRS and State auditors.
When to file for Social Security is a complex question. While you can begin taking benefits as early as age 62, full retirement age varies from between 65 to 67 years of age depending on when you were born, beginning benefits early can reduce the amount you receive each month by up to 30%. This does not mean you should not take benefits early but it does mean that you need to take into account many things including needs, life expectancy, health and other sources of assets available. In addition, some or all of amounts received before full retirement may have to be repaid to Social Security if you have earned income exceeding certain thresholds.
Banking today can be very expensive for small business, in addition to the costs of check clearing, making deposits, credit card fees and interest, one of the most expensive charges in the banking world is the overdraft fee. We sometimes see clients that are spending hundreds or even a thousand dollars or more on over draft charges. While no one plans to spend more than is in their bank account, sometimes they just don’t realize that deposits are not credited as soon as they are made and in some cases it may take several days for funds to clear. This problem is often compounded when a large check creates an overdraft and a number of smaller checks then not only overdraw the account, but also create NSF fees of up to $30.00 each. Keeping a close watch on your bank account to make sure funds are available for all the checks you write along with an overdraft protection plan (some banks offer to link your account to a loan or line of credit feature) can help reduce these costs that steal critical dollars from your bottom line.
Thinking about buying a business? Your first step should be developing a relationship with an accountant. Think of the accountant as a guide on a mountain road, where finding the gold mine is a little less important than not falling off the edge to your death on the rocks below before you get there. It’s a business broker’s job to find a buyer for the seller, while it’s your accountant’s job to make sure you don’t run into the unexpected.
One of the most expensive things you can do is to get divorced. Not only can this mean a separation of assets and property, it can have very large tax consequences. While no one can make divorce painless, speaking with a tax professional may help reduce the tax bite or at least make sure you don’t get hit with any surprises when tax time comes around.
One of the advantages of owing your own business is that most business are or can be saleable. This means when you are ready to retire or move on you should be able to get a substantial sum for your business but doing this requires several things; You must have systems in place that can be duplicated; you must have good records that show how much money the business takes in and what it costs to run it; you must not have tax or other outstanding liabilities and you must have time to find the right buyer. If you are curious about the value of your business, we can help you to get an idea of how much it is worth.
A lot of people just don’t enjoy bookkeeping and the work that goes with it, but it you are in business it is necessary like it or not, state and federal tax authorities require lots of record keeping. No matter how much your hate it there are only two solutions you do it or your get someone else to do it for you. We would be more than happy to be that someone else. We get it done No Worries, Just Be Happy.
I recently had a tax client come in to talk to me about starting a business. He wanted ideas on what kind of business to start and how he would go about it. When I asked him why he wanted to start a business he said, “I hate my boss and am tired of taking orders and working so hard. If I go into business for myself I can work less and won’t have to let anyone tell me what to do.” I suggested that these were the wrong reasons and that starting a business meant working harder, for less money and more hours than he has ever worked before. He would also be risking his own money and he may not even get a paid for a year or more and that although he would be his own boss, that does not mean he was not going to have to please customers and suppliers or deal with the demands of others. While I love working with new business owners and believe there is nothing more rewarding than starting and growing a business, it’s hard work and you need to do it for the right reasons.
Don’t let basic accounting confuse you it’s nothing more than keeping a list and a little adding and subtracting. Like operating an auto, although it might be nice to understand the workings of the internal combustion engine, it’s not a requirement to drive one. So if you don’t understand an accounting or tax matter ask and if you still don’t understand after your accountant explains it maybe you need a new accountant.
When considering a professional to assist you, knowledge is important, but not quite as important as how they share that knowledge with you. In the right relationship there are no dumb questions, and answers are both understandable and actionable.
It’s always important to remember why you work so hard.
One way to get into business, but not have to do all the heavy lifting of coming up with a concept, testing the concept, finding suppliers and then getting customer recognition, is to purchase a franchise. Franchises exist in many shapes and sizes, some are great, some not so great. The idea here is that you get a proven model with the guides, support and training to help make you successful. But since not all franchises are alike, it’s important to pick the right one for you and to do the due diligence to make sure that the model works, the existing franchisees are profitable and that it fits with your goals and objectives.
Thinking about starting a new business? Here are some important questions to ask yourself: What will I sell? How will I get it or who will perform the service? Who will I sell it to? How will I reach my prospective customers and what will it cost? How much will I make on each sale? How much will the minimum overhead be to support my business? How much am I willing to invest and risk in my vision? Don’t waste money on accountants or attorneys until you can answer these questions.
SCAM ALERT! You are at your business or home and receive a call from someone claiming to be with the IRS or the state tax department, your caller ID reads Government and the caller wants to meet you at the bank or asks for information on your bank account because you owe taxes of some kind you are not aware of. They threaten that if you don’t comply, they can take all your money or that you will be arrested. This is the jist of a new SCAM that is making the rounds, don’t give them any information. Get their name, ID and phone number and tell them you will give it to your accountant, then hang up. The IRS and or state tax authorities do not contact taxpayers by phone unless they have already done so by mail. No government employee state or federal has the right to harass or threaten you, so chances are it’s a scammer looking for a fast score. Don’t be a victim, hang up and then call your accountant or the police with any information you have about the caller.
Thought for Today – What was the primary reason you purchased in your condominium association or HOA? Was it: the amenities, the maintenance, rules, or something else? We want your comments so please tell us why below.
Employers can prevent penalties for incorrect Social Security Numbers on employee W-2s and from hiring those that are not eligible to work in the U.S. It is as simple as using the E-Verify system. This free, voluntary, Internet-based system that allows participating employers to determine the employment eligibility of new hires by comparing information from the new hire’s Form I-9, Employment Eligibility Verification, with Department of Homeland Security (DHS) and Social Security Administration (SSA) records. http://www.uscis.gov/e-verify
Not all tax deductions make the cut, take for example the man who deducted his new bed as a job related expense, because he “needed to get a good night’s sleep because his boss told him he needed to stop falling asleep on the job”. The deduction was disallowed by the IRS along with the deductions for his sleep mask and down comforter.
Bookkeeping and accounting should be about more than just filing tax returns and knowing your bank balance. The information produced can be used in business planning, understanding what products or services are profitable and what products or services are not profitable. It can be used to compare current performance against past performance and for hundreds of others things. But it can’t help with any of these if you don’t take the time to review and understand it. Block some time every month to review the financial statements and other accounting reports from your business, and use the information to find ways to make your business better.
The best time to get help with your business finances is when you don’t yet feel you need help. In the complex world of business finance (accounting, bookkeeping, cash flow, funding, payroll & taxes) an ounce of prevention is worth a pound of cure. A regular visit to your accountant can help prevent problems, implement tax saving strategies and develop paths to growing your business.
Have a new baby? It’s a shame that the best time to start planning for your child’s college education is also the time most new parents have the least money to do anything about it, when the child is born. The good news is that Coverdell Education Savings accounts and 529 plans can be funded by grandparents and or gifts from family. Even an investment account in your Childs’ name to which birthday and other gifts are deposited over time will add up to a tidy sum when college time comes around.
Does your bookkeeper know more about your company’s finances than you do? If so, don’t be surprised when they make themselves a partner. Good bookkeeping systems include good controls that separate the bookkeeper from the reconciliation process and make sure more than one set of eyes is looking at every transaction. You may not be a fraud victim but how would you know for sure?
Don’t be fooled by the many “Tax Resolution Firms” that promise to resolve your tax problems for “Pennies on the Dollar” or tout “New IRS Debt Settlement Programs.” In most cases these companies do little more than separate you from your money, making it even more difficult to deal with what you owe the IRS. While there are ways to help those that can’t pay, they don’t just wipe out what you owe because it would be hard or inconvenient for you to pay. No one can guarantee what the IRS will accept, but it is often possible to work out an “Installment Agreement” that allows you to pay what you owe over time or in some limited cases to do an “Offer In Compromise” and reduce what it owed. In some cases it is even possible to wipe out taxes in “Bankruptcy.” As tax professionals, we are often called on to help tax payers get back on track, what we can’t do is make it painless and neither can anyone else.
The one thing we find that small business owners need most is someone to go to that they can bounce ideas off of and get a fresh perspective from. Especially in the early stages, many of the new small business owners we see today come from the ranks of upper and middle management at large companies and although these people have great skills and lots of passion, they are used to having a support system that included company CFOs, Accountants, Legal Counsel, HR Departments and much more. Having an outside adviser can make all the difference in the early stages by giving them someone to talk to who is not an employee, spouse or relative.
College planning: new numbers from the federal government show that what your kids study in college, their Major, is much more important than what college they study at. There really is no reason to spend a lot of money for an expensive private school when those graduating from a state school earn as much and don’t run up near the debt.
The question is not “can you do your own bookkeeping”? It’s “is bookkeeping the best use of your time”?
Do you treat your business like a job? A job is someplace you go to get a paycheck, you put in the hours required and do what is required of you. A business is a place you build equity by investing your time and money, including part of the profits earned so that it can grow and prosper. When you leave a job, the paychecks stop. When you leave your business, either the income stream continues or you sell it and get a payout for all your hard work. Don’t treat your business like a job.
You have filed your taxes and received your refund and then it happens your go to the mail box and find a letter from the IRS, now what. Don’t panic, the IRS send out lots of notices and some of them are correct are some not correct. Step one open the letter. Step two breath, Step three mail, fax or email a copy of the letter to your accountant, then give them a call. Most IRS notices are easily handled by a tax professional and nothing to worry about but it is important that these letters and notices are replied to in a timely manner. At RMS Accounting we never charge a client for handling a notice about a tax return we prepared for them. If we prepare your return we stand behind it.
In business unlike with fireworks its staying power that is most important not just how much noise you make or how brightly you burn up.
Don’t let the tax tail wag the dog. I get lots of calls this time of year from clients that are thinking about starting a business or making an investment “because it will reduce their taxes”. While both going into business and making investments can be good things, doing either because of the tax savings alone is foolish.
When you hire a bookkeeper you have to train them, supervise them, and give them days off. You also have to include them in your pension and other company benefits. Then you have to pay them for all the hours they work including overtime hours, even if they are not productive. When you outsource your bookkeeping to us, we handle all of these things and you pay a flat fee that insures you get what you need at a known rather than unknown cost.
As much as most of us hate to receive complaints from our customers the truth is we should be thankful to those customers that complain as more often than not instead of complaining customers just go elsewhere and don’t bother to tell us why. When a customer complains we have an opportunity not only to keep the client but also to fix a problem they may be costing us other customers.
In business there is often a difference between how we perceive we are doing and how our customers / client perceive we are doing. When is the last time you really listened to what your customers were saying?
We know over the years many business have purchased QuickBooks or some other accounting software only to find that having a box of software did not get their bookkeeping done. For some reason they just don’t understand why the mess of receipts, checks, credit card receipts, and other important financial information did not organize itself not that they had accounting software. If you are one of these business owners maybe you should trade your software for one of our living breathing bookkeepers that will not only keep you organized and up to date but will also provide meaningful information you can use to help your business grow.
Are you spending too much time on bookkeeping and other clerical duties? Worse yet are you failing to keep your books up to date? If you answered yes maybe you should think about outsourcing these responsibilities so that you can get back to building your business.
The best way to be successful in business is to make sure you give your customers more value than anyone else. Please note I did not say the cheapest price.
It’s important to understand that selling more does not necessarily equate to making more! Before you thinking about increasing sales, you need to make sure the sales you do have are profitable, and that an increase in sales will not reduce profitability or require additional working capital that is not available.
Is a franchise for you? The franchise industry offers many options for those looking to own a business without being on their own. The world is full of Franchise Millionaires and Franchise Failures, which one a franchisee becomes depends on many factors. When you buy a franchise you give up part of your revenue to get proven systems, name recognition, purchasing power and assistance building your business. Not all franchises deliver all of these things and some do it better than others. If you want to be in business without being on your own, you should investigate the many franchise opportunities that are available.
Is it truly a Right-wing conspiracy and did the computer really eat all the non-profit division of the IRS supervisory emails?
In life they say stop and smell the roses, while in business we often have to remind our clients that it’s just as important to work on their business as in their business. When is the last time you spent some time reviewing the processes, procedure, customer needs and all the other things that can make your business more successful?
Have unreported offshore accounts? Now may be the may be the time to come clean. The IRS announced yesterday that it would make major changes in its voluntary compliance programs to provide new options to help both taxpayers residing overseas and those residing in the United States.
The changes are expected to provide thousands of people a new way to come into compliance with U.S. tax obligations. The changes include an expansion of the streamlined filing compliance procedures that were announced in 2012 and important modifications to the 2012 Offshore Voluntary Disclosure Program, or OVDP. The expanded streamlined procedures are intended for U.S. taxpayers whose failure to disclose their offshore assets was non-willful. If you have an offshore accounts you failed to report, now is the time to contact your tax professional.
Under the heading if only I could get away with this, is the recent claim by the IRS that a “computer crash” caused the loss of all of the Lois Learner emails. If only tax payers could blame missing records on their computer crashing? Add to this, it took a year for the IRS to figure out this brilliant excuse. Just don’t try asking the IRS to wait a year when they ask you for information.
If you want to get the most out of your accountant, you need to talk to them before you make important business, investment and tax decisions.
The IRS recently announced that it has adopted a new “Taxpayer Bill of Rights”, which includes the following: “The Right to Be Informed, The Right to Quality Service, The Right to Pay No More than the Correct Amount of Tax, The Right to Challenge the IRS’s Position and Be Heard, The Right to Appeal an IRS Decision in an Independent Forum, The Right to Finality, The Right to Privacy, The Right to Confidentiality, The Right to Retain Representation, The Right to a Fair and Just Tax System”. Do you think that this is just so much new paint on an old jalopy or has a true restoration taken place?
Best business advice I ever received: Do the right thing no matter what it costs you. Admit your mistakes. Spend your time looking forward instead of looking back.
It’s summer, and as many parents send the kids off to camp, business owners may want to think about taking the kids to work and making them punch a time card. If your child is old enough to provide a useful service to your business like filing, copying, answering phones, stuffing mailers; putting them on the payroll will give them valuable work experience while moving a little money out of your tax bracket into theirs. It may also teach them the value of a dollar and give you an opportunity to open a ROTH IRA account for them and teach them a little about savings and investment.
We see lots of government numbers that are supposed to tell us how the economy is doing, but to us, the real key to economic conditions is how our clients and their customers are doing. Are you: Optimistic that the economy is getting better? Pessimistic and think things have gotten worse? Or do you think things are about the same and we are just getting used to them?
While it’s great for an Entrepreneur to have both passion and ability; ability without passion often ends up as wasted ability.
There is still time to claim a tax credit for health insurance provided to employees of small business with less than 25 employees, for 2011, 2012 and 2013 if you failed to take advantage of the credit when you filed your return. The credit can be up to 35% of the premiums paid for employee coverage and is completely refundable. (If all your taxes are paid or you owe no tax the government sends you a check.)
I often get calls from people asking me how to set-up a Corporation or an LLC for their new business. While calling to get advice is a good thing, it’s important that you ask the right questions. Instead of how do I…? A better question would be “What would the best business entity be to set-up for a new business that (fill in some information about the kind of business, number of owners, initial investment, vision for the future)?”
Forget about using foreign banks to hide income and assets from the IRS. Over 77,000 banks and over 70 foreign countries have agreed to supply information about the accounts of U.S. tax payers to the IRS. In recent year the IRS has been spending more time and resources to ferret U.S. Tax payers that are fraudulently hiding assets and income using foreign banks and investment firms. These new agreements will make these accounts easy to find. There are amnesty programs in place for those that want to come forward pay the tax and penalties, but to take advantage of these programs you must do before the IRS initiates contact with you.
It’s Friday so we thought today would be a good day to play a little game of bad boss and we invite you to join us by answering the following question as a comment on this post. The worst thing my boss ever asked me to do was?
The Supreme Court’s ruling last year, which expands the federal definition of marriage to include same-gender spouses, has a significant effect on federal laws including payroll taxes and health insurance, and employment laws such as the Family Medical Leave Act (FMLA). Affected employees are now eligible to pay for same-gender spousal benefits such as health insurance premiums and FSA/Section 125 participation on a pretax basis for federal taxes. Individuals whose legal spousal status was changed by the ruling also have the option to claim refunds and/or request adjustments due to overpayment of FICA taxes.
Get more bang for your buck when moving up in the rental real estate business. Increasing real estate values make “like kind exchanges” (section 1031) a timely option again. An exchange allows property owners to delay paying tax on the gains from a sale, creating more cash for investment in a new property. For realtors they can create the ability to double down, creating the need for a client to close both a sale and a purchase in a limited time frame. Remember if you are considering an exchange it’s important to see your tax advisor early, it’s also important to follow all the rules carefully.
In business cash is king. Many businesses operate for years without making a profit, but run out of cash and it’s all over. The most important resource your business has is its cash flow. If you are not keeping a close eye on your cash flow, projecting future cash needs and cash receipts, it could all be over before you know what hit you.
Have a foreign account and willfully fail to file the required FBAR disclosures can cost you. In a May 29, 2014 release, the United States Department of Justice has announced that a Florida district court jury has found that a U.S. citizen willfully failed to file required Reports of Foreign Bank and Financial Accounts (FBARs) for tax years 2004 through 2006 with respect to a Swiss bank account that he controlled. The judge in the case will later determine the amount of the penalty which could be as high as 150% of the bank account balance.
Sometimes the best place to look for a solution to a problem is in the mirror. What you think is often much less important than what your customers, employees or vendors think of you.
Sometimes the best place to look for a solution to a problem is in the mirror. What you think is often much less important than what your customers, employees or vendors think of you.
Check your pay stub. Make sure that your name is spelled correctly and matches what is on file with social security. Make sure your employer has the correct address and social security number on file. It’s also a good idea to make sure that enough is being withheld for income tax. Checking things now will help avoid unpleasant surprises when tax time comes around again.
Don’t let receiving a form 5498 from your IRA custodian or financial instruction that says “IMPORTANT TAX INFORMATION” scare you into thinking you may have missed something on your 2013 tax return. These forms are sent out in May to provide you with verification of IRA contributions for the prior year along with the value of your account at year end. Since IRA contributions can be made up until April 15 of 2014 for 2013, the forms cannot be sent until after the tax filing deadline. You can check the form to make sure all your 2013 contributions were properly applied to the correct year and contact the provider if any contributions were not properly treated. There is no need to contact your accountant when you get this form. After you review it simply store it with the copy of your 2013 tax return.
Is getting married in your future? If so here are 5 things you should discuss with your intended before you tie the knot. 1) How much debt do you have? 2) What’s your credit score? 3) What kind of lifestyle do you see us living? 4) What are your financial goals? 5) Are we going to manage our investments ourselves or hire someone to do it for us? Love may be blind, but money is still the number one cause of divorce and the best secret to being financially successful is marry once and stay married. Two may not be able to live as cheaply as one, but divorce is expensive and requires support for four–the two of you and the two lawyers.
Congress again is talking about having IRS return to the failed past practice of using private debt collectors to recover unpaid taxes. The EXPIRE Act, introduced last month by Senate Finance Committee chairman Ron Wyden, D-Ore., would restore the private debt collection program that the IRS discontinued in 2009. According to the IRS oversight board and tax advocate Nina Olson This concept has already failed twice in the past.
I am often called by clients that have a collection problem with one or more of their customers. In most cases they have extended credit to customers that have gotten behind in their payments and the amount has increased to the point where it has put their business in jeopardy. The problem is that they have known for some time the customer was having problems making payments but because it was a “good customer” and “they did not want to lose the business” they failed to take action. It’s important to set credit limits and cut off credit when customer starts to develop payment problem. It’s also important to never allow one or a few customer to own you enough to put your business at risk.
Don’t let those auto recurring charges get the best of you. We often find clients have signed up to have advertising or other services automatically charged to a credit card each month. Many time these charges are forgotten about by the client who may no longer need or be using the service but the charge just continues to merrily recur on their credit card unnoticed by the client. If you as still using the service this is fine but if you are no longer using the service it’s a shame to let the money just disappear because you failed to review your charges.
If you have partners of other shareholders in your business you should have a buy-Sell agreement. Having an agreement in place will help insure that you don’t end up being in business with a wife, husband or child of your partner or fellow shareholder.
When you shop what is most important to you price or quality? How does this affect the products and services your business offers to your customers?
Good record keeping pays off in lower taxes, less stress and the ability to defend your position should the IRS choose to audit your tax return.
Three important tips for those who missed the tax filing deadline. 1) File as soon as you can. If you owe taxes, you should file and pay as soon as you can. This will help minimize the interest and penalty charges. 2) If owe tax and don’t have all you owe, pay as much as you can when you file your return and make arrangements to pay the remaining balance as fast as you can manage. 3) Don’t wait too long if you if you have a refund coming. While the statute of limitations for filing and paying taxes does not even start running till you file your return, you only have three years from the due date of a return to claim a refund.
Don’t lose sight of the bottom line. Often time, we find business owners can get caught up in building a bigger organization, looking for more sales, customers or employees while losing site of the bottom line. Too much growth, to fast, can actually reduce profits and put your business at risk. I am not suggesting that you should not grow your business, but I am suggesting that growth should be both controlled and planned so that it makes your business stronger and adds to the bottom line.
The most expensive money you can borrow is the money you withhold from your employees payroll checks. Failure to pay over the payroll taxes you withhold from employee pay checks can not only result in high penalties and interest, it also creates a personal liability for anyone that can be considered a responsible party (corporate officers and anyone who had check signing privileges). In addition it could also result in criminal charges. The IRS makes a poor creditor and has the power to make a loan sharks collections methods look civilized and friendly.
Job search hint 201. You got the interview. Don’t blow it before you get started. Leave the perfume and cologne in a bottle and stick to soap and water. We should not smell you coming and you don’t want the thing we remember about you to be the scent that lingers after you leave.
Complaining never solved a problem or made anything better. It’s simply a waste of energy that could be devoted to change. Action is the key to change. The sooner you take action the sooner change can happen.
Job search hint 102, when you get an interview be careful not to exaggerate your ability and knowledge to the point that your employer’s expectations will exceed your abilities. It is better to stress your ability to learn and adapt than your ability to do something you don’t know how to do.
One of the least expensive things to give away is credit for a job well done or a problem solved. The best leaders know how to give credit for success to others while hording blame on any failures to themselves.
Businesses that sell a product or service to those who want it are not near as successful as businesses that that see the needs of their customers and develop products and services that meet those needs.
Have more business than you can handle? Maybe your price is too low. We often run into clients that are working around the clock and still making little or no profit. The more work they get the less time they have and the harder they work. There is often a simple solution to this. Increase your prices and you may get less work, but you will make more on the work you do get and maybe even get a little time to spend with your family.
Tax rules are complex. In order to deduct an expense for your business it must be ordinary and necessary. While this may sound simple, it’s important. What is ordinary and necessary for one business may not be for another. An example the tax court case of Cynthia Hess also known as “Chesty Love”: the IRS disallowed the deductions for her breast enlargement surgery as a business expense (she is a top less dancer) but tax court allowed it. While cosmetic surgery is not deductible even as a medical expense under most circumstances “Chesty Love” was able to show that her enhancement had a direct link to her income and business. http://www.woodllp.com/Publications/Articles/pdf/Hess.pdf
Our businesses most valuable asset is our people. Many business owners fail to recognize this important fact. The truth is your people hold the institutional memory of your business. They are the receptacle of all the training you do and they are the face your customers see and trust.
Just an F.Y.I., I have put three children through college, mostly on the extra fees generated by people that thought they could save a little money by handling things on their own instead of hiring a professional.
When it comes time to pay taxes, no one ever says “I make too much, I need to pay more.”
One of the most complicated taxes of all is the sales tax. Sales tax rules contain many all kinds of exemptions and special tax rules. Get these rules wrong and you can be liable for tens of thousands of dollars in tax. When is the last time your business had a sales tax checkup?
Many Tax-Exempt Organizations Must File with IRS by May 15 to Preserve Tax-Exempt Status. Remember to file your 990, if required, to avoid penalties or worse yet loss of your tax exempt status.
Had a visit from a prospective client that has visited us several years ago. He wanted to know about opening a new corporation as his old corporation had been subject to several audits, assessed lots of additional taxes and been subject to all kinds of penalties. When asked why the additional taxes had been assessed he had no idea. What he did know was that the accountant he had been working with was “very inexpensive” but had never explained anything to him so he did not know why he was subject to two audits. He wanted to make a change but price was still his number one consideration. Just a reminder when choosing accountants and brain surgeons, price should not be your number one consideration.
Unfiled tax returns don’t go away. If you have neglected to file past tax returns it’s important to remember for the statute of limitations to run, your returns must be filed. This means that no matter how long ago you failed to file a return the IRS can still come looking for the return along with the taxes interest and penalties due. While failure to file means you never get off the hook no matter how long you wait, the same is not true for your right to claim a refund due on an unfiled tax return. You have only 3 years from the date the return was originally due to claim your refund.