Small Business Tax

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Find and Keep the Best Talent for Your Business

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Finding the best candidate to hire is often costly and time consuming. But, if your new hire turns into a loyal, hardworking, long-term employee, your investment may be worth every cent and minute.

Locate Candidates

How do you find good people? In the past, people who were job hunting would look in the “help wanted” section of the newspaper or go from store to store filling out applications. Today, most people use a computer and a mouse and search the Internet for jobs. So if you’re not posting your openings on online job boards and industry blogs and websites, you may be missing talented candidates. Note: Running classified ads may still be a good way to reach out (especially to fill jobs requiring local candidates) since many local newspapers also have an online job board for posting classifieds.

Another way to attract candidates is to add a recruiting page to your website. In addition to posting job openings, you can use the page to attract qualified candidates by highlighting the benefits of working for your company.

And last, but certainly not least, you can use social media to announce openings and solicit job applicants. There’s no better way to reach a large number of people almost instantaneously.

Make an Attractive Offer

If you’re hoping to hire top talent, you’ll want to make sure the benefits you offer are competitive — or better. According to government analysis of private industry data, 86% of full-time workers had access to employer-provided medical care and 76% had access to a retirement plan.*

Keep Employees on Board

Once you’ve assembled a group of valuable employees, an attractive and competitive benefit package will help ensure they stay. Your financial professional can provide insights and help you review your firm’s benefit package for cost efficiency and competitiveness.

 

For more tips on how to keep business best practices front and center for your company, give us a call today. We can’t wait to hear from you.

* Bureau of Labor Statistics, March 2015

7 Best Practices for QuickBooks Online

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Even if you’ve been using QuickBooks Online for a long time, it’s good to step back and evaluate your actions.

“Best practices” aren’t enforceable rules. They’re simply guidelines businesses commonly follow in one area or another. If you’re in retail, for example, one best practice might be to always ask customers checking out if they found everything they were looking for. This serves two purposes: It conveys a feeling of concern for the customer’s shopping experience, and it may also lead to increased sales.

QuickBooks Online has many best practices, some of which may serve multiple purposes, including these:

    • They keep your company data safe and clean.
    • They provide insight on your financial status.
    • They save time.
    • They can lead you to better relationships with customers and vendors.

Are any or all the following common practices for your business?

Reconcile accounts regularly.

One of QuickBooks Online’s most useful features is its ability to connect to your financial institution’s websites and download cleared transactions. QuickBooks Online also offers tools to help you keep your accounts reconciled online, like you used to do every month when your paper statement came. Reconciling accounts can help you uncover errors. It gives you a truer picture of your cash flow, and it improves the accuracy and timeliness of some reports.

It’s not a particularly pleasant process, but you should be reconciling your accounts regularly in QuickBooks Online. We can help.

Clean up your lists.

Some lists in QuickBooks Online aren’t overly long. You don’t have to worry about, for example, Payment Methods, Terms, or Classes. Your lists of customers and vendors, products, and services, on the other hand, can grow unwieldy over the years. This means it can take more time than it should to scroll through lists when you’re using those entities in transactions. It also puts unnecessary stress on your company file. If you can’t delete any, at least make them inactive.

Never leave QuickBooks Online open when you leave your work area.

This goes for everyone, even people who work alone and don’t access their company files away from their work areas. The obvious reason is to keep someone else from getting in and authorizing payments, for example, or otherwise compromising your financial information. It also protects the integrity of your data file in case your internet connection suffers some kind of outage.

Keep track of 1099 vendors.

Whether your company uses 10 vendors or a hundred or more, you may have to supply at least some of them with an IRS Form 1099 at about the same time you’re preparing W-2s for employees. Your 1099-related tasks will be much easier if those individuals and/or companies are earmarked. If you think vendors might need 1099s when you create their records in QuickBooks Online, click in the box to the left of Track payments for 1099 in the lower right corner. Not sure? Ask us.

Classify everything with care.

Every time you have to create a record or transaction where categories are involved (i.e., Classes, Customers and Vendors, Territories), check and double-check that you’ve assigned them the correct classification. Errors here can result not only in problems with daily workflow, but your reports will not be accurate. A related best practice: Create a meaningful group of Classes, and use them faithfully. They’ll help you make better business decisions.

To create your list of Classes, click the gear icon in the upper right and select All Lists | Classes | New.

View reports on a regular basis.

There are some advanced financial reports in QuickBooks Online that we should be creating for you on a regular basis, either monthly or quarterly. These include Profit and Loss, Balance Sheet, and Statement of Cash Flows. The mechanics of creating them aren’t difficult, but analyzing them is. You should be running reports on your own at frequencies that you think would be helpful, like A/R Aging Detail, Unpaid Bills, and Sales by Class Detail.

If you’ve been using QuickBooks Online for a while, you could probably come up with your own list of best practices. If you’re new to the site, consider scheduling some time with us to go over more of them. Develop good habits from the start, and there won’t be nearly as much need for troubleshooting down the road.

Can You Deduct Your Vacation?

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How would you like Uncle Sam to pay for part of your vacation? Sound unlikely? If you combine your vacation with a business trip, you may be able to deduct some of your expenses. Pay attention to the rules, though. Expenses must meet certain requirements before they’re tax deductible.

General Guidelines

As long as your primary reason for making the trip is business, you generally can deduct the cost of your transportation to and from your destination. You’ll generally be able to deduct food (within limits) and lodging costs only for the days you actually spend on business.

Bring the Family

You can bring your family along, too. While you can’t deduct their food, lodging, or airfare, you can write off your own expenses, including the single-occupancy rate for lodging on days when you’re conducting business. If you and your family travel by car, you can also deduct the full cost of transportation. Just be sure to keep detailed records.

To learn more about tax rules and regulations, give us a call today. Our knowledgeable and trained staff is here to help.

An Easier Way to Avoid IRS Penalties

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The IRS may remove tax penalties if the taxpayer has reasonable cause (e.g., serious illness) for failing to comply with tax filing and payment requirements.  This penalty relief is not automatic and may require filing with the IRS Appeals Office before it succeeds.  In effect, the IRS rewards typically compliant taxpayers with one-time penalty amnesty, which can save the taxpayer hundreds—sometimes thousands—of dollars.

There is a hidden gem in the IRS penalty abatement policy known as the First Time Abatement (FTA) policy.  This provision allows normally compliant taxpayers a chance to escape penalties.

The FTA provision applies if:

  • No penalties have been added to or removed from the taxpayer’s account for the previous 3 years, or the taxpayer was not previously required to file a return.
  • The taxpayer is current in filing all required tax returns (including extensions)
  • The client has paid or made payment arrangements to pay any outstanding tax due (including being current on an installment agreement).

FTA applies to the following penalties:

  • Failure to file
  • Failure to pay (income tax)
  • Failure to deposit (payroll tax)

The taxpayer will not be disqualified from receiving an FTA based on lack of a clean penalty history if the client:

  • Had a penalty assessed more than three tax years prior to the tax return in question.
  • Had an estimated tax penalty assessed in the past three years. 
  • Received reasonable-cause relief from penalties at any point in the past.
  • Received an FTA more than three tax years prior to the tax return in question.
  • Has penalties on subsequent tax years.

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

IRS Announces Increases to 2018 Retirement Plan Dollar Limits

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The IRS announced the 2018 cost-of-living adjustments to retirement plan limits.  The following plan limits are increased effective January 1, 2018:

  • Employee Contributions to 401(k) and 403(b) Plans: the contribution limit is increased from $18,000 to $18,500.
  • Defined Contribution Plans: the limit on annual additions to a participant’s defined contribution account increases from $54,000 to $55,000.
  • Defined Benefit Plans: the limitation on the annual benefit under a defined benefit plan increases from $215,000 to $220,000.
  • Annual Compensation Limit: the maximum amount of annual compensation that can be taken into account for various qualified plan purposes increases from $270,000 to $275,000.
  • Government Deferred Compensation Plans: the limit on deferrals under Section 457 (concerning deferred compensation plans of state and local governments and tax-exempt organizations) increases from $18,000 to $18,500.

Some limitations are not increased for 2018, including:

  • The limitation for catch-up contributions to an applicable employer plan other than a SIMPLE 401(k) plan or SIMPLE IRA for individuals age 50 and over remains unchanged at $6,000.
  • SIMPLE Plans: the maximum amount of compensation an employee may elect to defer remains at $12,500.
  • IRS and Roth IRA Limits: the deductible amount for an individual making a deductible IRA contribution remains at $5,500.  The Roth IRA limit of $5,500 remains unchanged as well.

If you have any questions on how these rules apply to give, please give us a call.

Current Status of Tax Reform

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The President recently reaffirmed his desire for a 15% business tax rate that applies to all business entities (C corporations, S corporations, LLCs, etc).  However, most analysts do not believe that a 15% tax rate is possible with a $20 trillion national debt.  The House Republican plan called for a 25% tax rate.

Service Businesses May Not Benefit

According to a recent piece in the Wall Street Journal, Secretary Mnuchin stated that the lower 15% tax rate would NOT apply to service businesses such as accounting (boo!!!) or law firms.  The idea is to tax these services businesses at a rate between the lower business tax rate and the tax rate that applies to wages.  That new rate would apply to pass-through service businesses but with boundaries to prevent it from being used by services businesses where the pass-through income more closely resembles wages…sounds perfectly workable!

Principles of Tax Overhaul

The President outlined four principles as guiding his tax reform efforts:

  • A fair and simple tax Code
  • A tax Code that is competitive with other nations’ tax Codes
  • Tax relief for middle-class families
  • Repatriation of overseas profits (i.e., lowering the tax on profits corporations bring back to the U.S. from foreign corporations).

What to Expect Next

Outside of general principles, details are still unknown.  Republicans plan to release details of tax overhaul on September 25.  If a tax cut is passed, it is expected to take effect retroactively to January 1, 2017.

 

Comments or questions about this post?  Please let us know through the comment area below!

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Rules for Deducting Rental Losses

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Rental losses may not be deductible because of the passive activity loss rules. The passive loss rules apply to activities in which taxpayers do not materially participate.  Taxpayers usually satisfy the material participation standard by being involved in a business for 500 hours per year (although there are several other ways of materially participating).  Passive losses can only be deducted against passive income.  Passive losses will also be allowed when the activity is disposed of in a taxable transaction (e.g., the activity is sold).  Congress created the passive loss rules in 1986 to curb tax shelter abuses.  Unfortunately, these rules also affect many legitimate activities.

Unfortunately, rental activities will be classified as passive activities even if the taxpayer materially participates in the rental.  Therefore, rental losses will not be deductible against other income until the rental activity is disposed of in a taxable transaction (e.g., the rental property is sold).

Fortunately, there are three ways rental losses may be deductible:

  • If the taxpayer actively participates in the rental activity, rental losses of up to $25,000 per year may be deductible
  • If the taxpayer meets the requirements to be classified as a real estate professional
  • If the activity is not treated as a rental by the tax law

Actively Participating in the Rental Activity

Taxpayers who actively participate in a rental activity can deduct up to $25,000 of rental losses per year.  Taxpayers actively participate in a rental activity through managerial functions such as deciding on rental terms, approving tenants, and approving capital expenditures.  Taxpayers must own at least 10% of the value of the rental activity to meet the active participation standard.  Finally, the $25,000 loss is reduced by 50% of the excess of the taxpayer’s adjusted gross income over $100,000.

Example:  Wilma owns a rental property.  She negotiates lease terms with potential tenants, approves tenants, and decides what improvements (repairs, carpeting, etc.) will be made to the property before leasing it out. Wilma’s adjusted gross income is $90,000.  Since Wilma decides on rental terms, approves tenants, and approves capital expenditures, she actively participates in the rental.  Her income is below the phaseout threshold so she can deduct up to $25,000 of rental losses.  

Real Estate Professionals

Real estate professionals may fully deduct rental losses.  A Taxpayer must meet the following three requirements to be classified as a real estate professional:

  • She must spend more than 750 hours per year in real property trades or businesses in which she materially participates (e.g., spends more than 500 hours in the activity) AND
  • She spends more than 50% of her time in real property trades or businesses in which she materially participates
  • She must materially participate in the rental activity for which she is trying to claim a loss

The term real property trade or business means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.

Example:  Barney is a real estate broker.  He spends 1,000 hours per year working as a broker.  He also spends 1,000 hours per year managing an apartment building that he owns.  The apartment building will suffer a $100,000 rental loss this year.  These are Barney’s only activities.  Since Barney spends 2,000 hours per year on real estate businesses and 100% of his time is spent on real estate businesses, he is a real estate professional.  Since Barney spends more than 500 hours in the apartment building activity, he materially participates in the apartment building activity.  Barney meets the requirements of the real estate professional exception and may fully deduct the $100,000 loss.

Activities Not Treated as Rentals by the Taw Law

Rental activities of a very short duration or that require substantial services along with the rental property may be classified as business activities rather than rental activities.  This is due to the increased involvement of the taxpayer in such activities.  If a rental activity is classified as a business activity, taxpayers may be able to deduct losses if they materially participate.  Normally, rental losses are not deductible even if taxpayers materially participate (unless the active participation or real estate professional exceptions apply).

The following rental activities are treated as non-rental activities:

  • The property is rented by each customer for an average of seven days or less (e.g., hotel rooms or cars)
  • Significant personal services are provided, and each customer rents the property for an average of more than seven, but no more than 30 days (e.g., a dude ranch or resort).
  • Extraordinary personal services are provided, regardless of the average period of customer rental (e.g., nursing home).
  • The rental is incidental to the taxpayer’s nonrental activity, (e.g., the rental of a parking lot for a special event). If the gross rental income in those situations is less than 2% of the lesser of the property’s unadjusted basis or its fair market value, the rental of the property is considered incidental to a nonrental activity.
  • The property is made available by the taxpayer during defined business hours for nonexclusive use by various customers (e.g., a golf course that has both daily customers and customers who purchase long-term passes).

If the taxpayer conducts one of these activities, she will be able to deduct losses as long as she materially participates in the activity.

Comments or questions about this post?  Please let us know through the comment area below!

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

 

Leave-Based Donation Programs for Victims of Hurricane Harvey

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In response to the extreme need for charitable relief for victims of Hurricane Harvey, some employers are adopting leave-based donation programs.  Under these programs, employees can essentially donate their vacation and sick pay to charitable organizations.

The IRS recently issued a notice that cash payments an employer makes to a charitable organization in exchange for vacation, sick, or personal leave that its employees elect to forgo will NOT constitute income or wages of the employee if the payments are:

  • Made to charitable organizations for the relief of victims of Hurricane Harvey and Tropical Storm Harvey and
  • Paid to the charity before January 1, 2019

The IRS will not allow double dipping—employees won’t have to claim the donated vacation, sick, or personal leave time as income but they will also not be allowed a charitable donation for the amount donated.

The employer will take a business (and not a charitable deduction) for the amount of vacation, sick, or personal leave time donated.

People also need to be aware of scam artists that have created fraudulent charities.  The IRS cautions people wishing to make disaster-related charitable donations to avoid scam artists by following these tips:

  • Be sure to donate to recognized charities.
  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. The IRS website at IRS.gov has a search feature, Exempt Organizations Select Check, through which people may find qualified charities; donations to these charities may be tax-deductible.
  • Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution. Scam artists may use this information to steal a donor’s identity and money.
  • Never give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the donation.
  • Consult IRS Publication 526, Charitable Contributions, available on IRS.gov. This free booklet describes the tax rules that apply to making legitimate tax-deductible donations. Among other things, it also provides complete details on what records to keep.

Comments or questions about this post?  Please let us know through the comment area below!

If you found this article informative, subscribe to our Tax Newsletter.

Contact us for a Free Initial Consultation

Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Restaurant Owners–What Are Your Numbers Really Telling You?

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Successful restaurant owners are focused on providing high quality food at reasonable prices and with very good service.  This is obviously a very important focus for restaurant owners.  Successful restaurant owners also know that there is a numbers side to the business—how profitable is the restaurant?

It is helpful for restaurant owners to know how their financial numbers look compared to their competition.  When restaurant owners compare their numbers to industry norms, interesting questions tend to arise.  They begin to take closer looks at certain aspects of their restaurants to make sure they are operating the restaurants as profitably as possible.

Our firm has access to real-time databases and we were able to gather information on privately held restaurants in Michigan with sales of $1 million and under.

We found the following information (percentages of sales):

Average Cost of Food    42.57%

Average Gross Profit      57.43%

Payroll                              22.22%

Rent                                  5.92%

Advertising                       4.16%

Example: JoJo’s Restaurant has the following Profit & Loss Statement:

Sales                      $1,000,000

Cost of Food               600,000  (60%)

Payroll                        280,000  (28%)

Rent                           100,000  (10%)

Advertising                   50,000  (5%)

There are some things to note:

JoJo’s cost of food is slightly higher than the average.

This can be caused by:

  • Underpricing the competition
  • Paying higher food costs than the competition
  • Buying higher qualify food than the competition
  • Inventory walking out the back door
  • High inventory waste or spoilage
  • Over-portioning
  • Inventory being eaten by the owners/employees and it’s still being counted as food cost expense

JoJo’s cost of labor is higher than the competition

This can be caused by:

  • Scheduling too many employees during shifts
  • Paying employees a higher wage/salary
  • Employees are moving slowly
  • Having too few employees and paying some employees overtime
  • Employees clock in early and clock out late

Going through the numbers on a regular basis may not be the most interesting thing to do, but it will reveal things about your restaurant that could surprise you.

Learn More About Restaurant Accounting and Tax Services We Provide

Schedule a Free Tax Analysis

Qualified Small Employer HRA Avoids $100 per Day Penalty

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Background

Over the past few years, there has been a $100 per day per employee penalty for employers who provided certain Health Reimbursement Accounts (HRAs) and/or Employer Payment Plans.

Under an HRA, an employer reimburses employees for the medical expenses up to a certain limit.  The reimbursement is deductible by the employer and tax-free to the employee.

Under an Employer Payment Plan, the employer either reimburses employees for the cost of health insurance premiums or directly pays the insurance company for the employees’ health insurance coverage.  Again, the payment is deductible by the employer and tax-free to the employee.

Under the market reform provisions of Obamacare, these plans became disfavored and subjected the employer to a $100 per day per employee (i.e., $36,500 per employee per year) penalty.  The primary reason for the penalty is because the market reform provisions eliminated any annual or lifetime cap on benefits.  HRAs are generally subject to an annual cap and Employer Payment Plans are deemed to be capped at the cost of the employee’s premium that is being paid.

Qualified HRAs No Longer Subject to $100 per Day per Employee Penalty

Beginning in 2017, qualified HRAs will be exempt from the $100 penalty.  Employer Payment Plans remain subject to the penalty.

For 2017 and later, eligible employers that do not offer group health insurance coverage to any employees can offer a Qualified Small Employer HRA (QSEHRA).  Eligible employers are employers that are not applicable large employers under Obamacare (applicable large employers have 50 or more employees).

The employer must offer a QSEHRA to each eligible employee.  An eligible employee is defined broadly as any employee; however, the employer can elect to exclude the following:

  • Employees who have not completed 90 days of service
  • Employees under age 25
  • Part-time or seasonal employees
  • Employees covered by a collective bargaining agreement covering accident and health benefits
  • Nonresident alien employees with no U.S. source income

A QSEHRA must be provided on the same terms to all eligible employees and funded entirely by the employer.  Payments and reimbursements are limited to $4,950 per year ($10,000 for family coverage) and are prorated if the employee is not covered for the whole year.  For example, if a single person starts employment on July 1, then the limit is reduced by 50%–$2,475 ($4,950 times 50%).  These amounts will be adjusted for inflation.

Payments/Reimbursements are Taxable If Employee Does Not Have Minimum Essential Coverage

Unlike a regular HRA, premiums for individual health insurance policies, as well as other medical expenses such as deductibles and copays, can be paid or reimbursed by a QSEHRA.  However, any payments or reimbursements from a QSEHRA for medical care (including insurance premiums) that are provided when an individual does not have minimum essential coverage are included in the employee’s income.  Generally, an individual health insurance policy qualifies as minimum essential coverage, but the employer must verify that the employee has minimum essential coverage.  Payments under a QSEHRA will affect the employee’s amount and qualification for the premium tax credit.

Employer Must Provide Notice to Employees

An employer funding a QSEHRA must provide written notice to each eligible employee no later than 90 days before the beginning of the year (or the date the employee first becomes eligible to participate).  The notice must state the amount that will be available for reimbursement or payment for the year.  Additionally, the notice must remind the employee that any benefits available under a QSEHRA must be disclosed to the health insurance marketplace if the employee applies for coverage through the marketplace and requests advance payment of the premium tax credit.  The notice must also include a statement that if the employee does not have minimum essential coverage for any month, he may be subject to a penalty for the month and that payments and reimbursements under the QSEHRA may be included in income.

Employers that do not provide proper notice to employees are subject to a penalty of $50 per employee.  The total penalty that can be assessed for one year cannot exceed $2,500.

Finally, amounts paid under a QSEHRA must be reported on the employee’s W2 (even though the payments are generally tax-free).

Comments or questions about this post?  Please let us know through the comment area below!

If you found this article informative, subscribe to our Tax Newsletter.

Contact us for a Free Initial Consultation

Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

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