The purpose of using small business accounting software is to prepare your books for your CPA, or to just make your accounting all-around easier. Maybe you’ve been doing your books for years and are already an expert with QuickBooks software, but below you’ll find several tips that we regularly apply to help our clients close out their books in preparation for their taxes. If you’re not using QuickBooks, then we highly recommend it as an easy and cost-effective solution for your small business unless you have specific industry needs or add on software that require other accounting software. By using these tips, you’ll be able to save yourself time with tax filing, lowered tax preparation costs, and have a better understanding of your businesses financial position. Continue reading “How to Use QuickBooks to Save Your Business Time and Money” »
What to ask Tax professionals before hiring them
Finding the right tax professional or CPA can be a blessing. I’m sure you’ve heard other business owners talk about how great their CPA is, and how they found “this” many deductions. But have you ever heard of businesses choosing the wrong CPA? Imagine going to work one day only to find that the IRS is closing down your offices. Well as recently as 2013, numerous clients of “S. Chand Tax & Accounting Service
” were the victims of poor quality tax preparation to the degree that they either did not receive their tax returns or even had their businesses closed down by the IRS.
While you may not encounter tax professionals or CPAs with as low level of ethics as Jordan Belfort, it’s still absolutely crucial to do your homework and ask your prospective tax preparer or CPA the right questions.
What to do before you hire a Tax Preparer or CPA
Find your Tax Pro – There are tons of tax professionals and CPAs that you can find in your area. Popular ways of searching for them include using Yelp, Angie’s list, Google Search, or Word-of-mouth. It doesn’t matter where you find your Tax professional, what matters is how comfortable you are with them and how reputable they are. When you first meet your tax preparers or CPAs do your best to understand their specialty and styles and make sure that they match up with your philosophy.
Verify qualifications – Make sure that your preparer has a Preparer Tax identification Number (PTIN). This is a number that the government requires paid preparers to have. Additionally, you can ask your potential tax preparer about any organizations that he is a part of in order to further validate his qualifications. If this still isn’t enough for you, then you can ask for references and inquire into his/her educational background.
Be safe not sorry – Even if you think you’ve found your tax pro, you need to do a background check or you may be sorry. There have been numerous tax schemes from less than reputable CPAs who were caught altering clients’ tax returns without their knowledge to obtain refunds illegally. You can easily avoid this by checking a CPAs background at the Better Business Bureau or state boards of accountancy for any signs of misconduct.
Additional Questions for CPAs or Tax Preparers
Think you’ve found your CPA or tax preparer? Here are some additional questions that you should ask before hiring them to do your taxes.
- What size of businesses do you work with the most? Home businesses, small, mid sized, large?
- What times are you available for me to reach you?
- What do you charge
- How do you calculate your fees? One time fee, by the hour, etc?
- What records and receipts do you need?
- What other services do you provide?
- Can I file electronically?
- If for some reason I’m audited, then what steps will you take to help me with that situation?
Remember, finding your tax pro may seem as easy as a quick search on Google, but remember to take the necessary precautionary steps to ensure that you are comfortable with your tax pro, that they are qualified, and that they have no history of misconduct or derogatory marks.
Have you recently conducted a search for a CPA or just have tips for other people searching? Leave your tips in the comments below.
Since tax returns are on many business owners mind and the filing dates are quickly approaching we decided to discuss tax deductions that may apply to your business. If you are a small business owners and qualify to take advantage of these deductions listed below you could exceed $513,000 for the 2013 tax year using the following 10 filings: 5 with maximum limitations and 5 without.
- Up to $500,000 for capital expenses. Form 4562; Publication: Section 179
To mobilize small businesses since 2008, multiple federal stimulus acts have made it possible through Section 179 for new companies to write off new and used equipment at a maximum of $500,000. Section179.org states, “if you buy (or lease) a piece of qualifying equipment, you can deduct the full purchase price from your gross income.” The equipment must be used for business purposes more than 50% of the time to qualify.
- Up to $1,500 for office space. Form 8829; Publication: 587
With a new method, small business owners can make deductions on office space in their homes at a rate of $5.00 per square foot for up to 300 square feet to a $1,500 limit. This option, just a year young, simplifies the old, regular method of tallying each individual office utility. The Home Expenses Chart makes it even easier to determine space eligibility.
- Up to $5,000 for start up costs. Form 1040 C; Publication: 535
These include marketing costs, promotions, and employee training for small businesses in their first year. $5,000 is deductible for businesses with start up costs under $50,000; over $50,000 by $1,000 drops the deduction by $1,000. For example, if startup costs are $52,000, the deduction can only be $3,000; at $56,000, the deduction is $0.00
- Up to $1,000 for office supplies. Form: 1040 C, or 8829; Publication: 587
Keeping receipts from every drive to the office supply store allows small businesses to deduct after equipping the desk. Office utilities must pass the 50% test. For example, if Debbie uses her laptop 55% of the time for business and 45% for personal reasons, her laptop becomes deductible.
- Up to ¢56.5/mile for auto expenses. Form 1040 C; Publication: 334
The gas used on every drive to the office supply store can also be written off at ¢56.5/mile. This is a 1 cent increase from 2012 and will decrease to ¢56 in 2014. The average American drives between 10,000-15,000 miles per year; if the majority of driving is for work, it’s possible to deduct more than $5,650.
- Bad debts from goods. Form 8949; Publication: 535 Chapter 10
Small businesses can deduct products taken without customer payment. This only applies to goods companies; service companies are ineligible. Bad debts other than unpaid goods, such as a sold bond asset, count as short-term capital losses and are reported on Form 8949.
- 50% on Business Entertainment. Form 1040 C; IRS Topic 512
Business entertainment expenses must be directly related to business conducted and are 50% deductible. Proof of business from entertainment expenses is required. For example, if an agreement to a sale is made over a dinner, the signed agreement must be filed with the restaurant receipt.
- Charitable contributions. Form 8283; Publication 526
If a business is an LLC, a partnership, or an S corporation, it can make a contribution to a charity and pass the deduction to the small business owner. There are also tax incentives to donate used office equipment to schools or NPOs.
- Interest on business loans. Form 1040 C; Publication 334, 535 Ch 4 (How to)
Interest on business loans qualifies as 100% deductible. If, for example, Chuck owns a landscaping business and takes out a loan of $20,000 at 7% interest to buy a truck, he can deduct the annual interest.
- Education. Form 1040 C; Publication: 970 Chapter 12
Job training qualifies for a deduction if 1) it sustains or strengthen job capabilities or 2) is legally mandatory. Other educational expenses such as tuition, textbooks, supplies, and commuting can be deducted as well. Education isn’t deductible if it is for the minimum skills to do business, or if it is training for work in a new industry.
The important thing to remember is business expenses have two requirements; they must be 1) ordinary and necessary, i.e. common in the field or industry, and 2) separate from personal and capital expenses. However, some capital expenses are the most valuable deduction for first time small business owners because of Section 179.
We understand this is a bit technical so pass this list on to your CPA to discuss if you qualify for any or all of those tax deductions. Many accounting professionals and Controllers should also have an understanding of these topics – in case you need assistance our accounting staff is available to help.
Are your near-term strategic and operating goals aligned with your current financing capacity? Some companies are fortunate enough to be self-funding through their internal cash flow. While for some, self-funding is ideal, there are others who for various reasons, find that this is not the case.
What happens if your receivables aren’t turning into cash fast enough to afford the growth that you have outlined for the New Year? What will you do if an opportunity arises and there is just not enough cash available to capitalize on it? What if you are the type of company that can’t easily use your receivables as a viable option for funding?
In our last article, we discussed various options for middle market funding. There is a lot to consider, and the variety and scope of those choices might get a little confusing. If you are considering any of these lending programs, you might want to ask the following questions to help narrow down the perfect financing pathway for your company.
Have you considered whether your current availability of capital is adequate to accommodate your near-term operating plan or to take advantage of a high-probability growth opportunity? It is important as you look forward to your projected plans for the year that you are aware of your current capital, and that you know exactly what is available. It’s helpful to have a backup plan so that lack of funding does not prevent you from seizing an opportunity that could take your business to the next level.
Is your current credit facility/borrowing base priced at market rates based on your recent operating performance? It may be possible to get better rates than you have had in the past if you know the players in the capital markets that could best meet your needs.
Are there any projects related to your near-term strategic plan that might require a unique debt structure or equity investment? Our last article mentioned some options wherein new debt structured properly can finance your project. Being in a position where you have access to this capital can help ensure that you are able to follow through with those plans.
Do you need to consider restructuring your existing debt due to unforeseen events and circumstances? If you are dealing with a slowing market and some of your vendors are slow to pay, you may need to look into this option to keep your company solvent.
These are a lot of questions to consider, but here at PCG, we are pleased to be home to many CFO Advisory professionals who will sit down with you, face-to-face to discuss potential solutions to your unique capital requirements so that you can keep your business running smoothly while also meeting the capital expenditure needs that will allow you to execute on your growth plans.
We wrapped up 2013 in our previous article by providing you with a number of tips and ideas about closing out the company year and some helpful processes for beginning the New Year. One of the processes we discussed was to schedule a strategy session for the New Year in which opportunities for growth and budget planning is discussed. There may be a number of effective ways to enhance your funding and financial flexibility, or restructure a few things to increase your cash flow…and that could be just the ticket you need.
For example, if your receivables aren’t turning fast enough, you might find that you are not in a position to capitalize on opportunities for expansion. The climate in Middle Market financing has become one that is now extremely advantageous to the borrower since so much focus has shifted to rebuilding the economy and an abundance of lenders are competing vigorously for new business.
In deciding which type of debt financing is most advantageous to you, it is helpful to understand the different types of financing structures and their basic definitions.
- Cash Flow Loans: During the economic boom, these loans were common and made based on expected cash flow. There is very little emphasis on collateral value tied to securing these loans, but instead they are based on financial maintenance covenants that must be met on an ongoing basis. These covenants include stipulations such as minimum EBITDA requirements, lev
erage restrictions and fixed charge coverage ratios. These loans are no longer as popular in the lower Middle Market due to the challenges that many smaller companies have had in meeting these types of covenants.
- Asset-Based Loans (ABL): Since it has become more difficult for companies to meet the covenant requirements of Cash Flow Loans, the structure of ABL loans has become more appealing. Often, the covenants of these loans only become effective in the case of default or when excess availability falls below a specified amount. These loans are generally secured by collateral representing all the assets of the borrower. The assets include inventory, accounts receivables, intellectual and investment properties (depending on the industry) as well as property, plant and equipment (PP&E). These loans typically require frequent reporting on the composition off assets securing the loan in the form of a borrowing base calculation which monitors collateral levels. This required reporting goes beyond that which is customarily necessitated for other types of loans.
- Second Lien Loans: These loans are a form of secured financing where the lender holds a secondary security position in the collateral of a senior lender who maintains a first security position in all the assets of a borrower. There is still an expectation of timely repayment, however, in the case of default, the security position of a second lien lender ranks behind the senior lender’s interest in the collateral. Their right to enforce against the collateral is often restricted by an inter-creditor agreement. These loans are generally offered by finance companies desiring higher yields with some perceived level of protection from the collateral. These loans are generally more expensive than first lien loans, although due to the security provided by the second lien, they tend to have a lower cost than mezzanine loans, equity financing or high yield offerings.
- Subordinated Debt: This form of debt is generally unsecured and ranks behind every other debt provider in a company’s capital structure and is only ahead of equity capital when determining the order of a borrower’s repayment obligations It is generally used to finance the expansion of a company during a significant period of growth. Subordinated debt can incorporate a mix of debt and equity financing and gives senior lenders comfort that are investors that rank below them in a company’s capital structure. This form of debt is generally the most expensive type of borrowing and can result in the dilution of existing equity investors if there is an equity component in the transaction and specific milestones are achieved by the company during the term of the loan such as revenue growth and profitability measures, or conversely in the event of a loan default.
There are several other forms of Middle Market financing including Senior-Secured Loans, Term B Loans, High-Yield Offerings, Factoring and Unitranche. In order to best evaluate the needs of your company and your current situation, it may be advantageous to get some outside input. Consider scheduling a complimentary consultation with one of our professionals at PCG, where we specialize in evaluating your debt financing needs and finding the right funding solution for your company.
Another year behind us and…and the details are important…
Here we are again at the end of another year. The prospects of new opportunities in the coming year are pending and as we look back over the current year on what we accomplished in our businesses, it’s time to review our year-end processes so we can assure that we will close out strong.
If you are on a calendar fiscal year, your business must close out the books to prepare for tax return preparation and other tax planning year-end events. While some businesses choose to keep up-to-date with these systems on a monthly or quarterly basis, for those who choose to only do so annually, this means it’s time to start preparing and finalizing your year-end processes.
It is vital when closing the books on another year in business that we make sure all key elements have been addressed because once the books are closed, it can be extremely challenging to go back and change the information…especially with our “oh-so-beloved” taxing agencies.
Here are a few important points to help ensure that you haven’t left anything out and can close out your business year in confidence:
- Reconcile bank accounts – Go through each of your bank accounts and make sure that the numbers you have in your accounting program match the balances of the statements. If they don’t match up, there may be errors, double entries or uncleared checks that have to be reviewed or corrected.
- Complete your invoicing – Review that you have sent out invoices for any products sold, tasks completed or services you have rendered in the current year.
- Record supplier invoices – Double-check that you have entered all of the invoices from of your suppliers or vendors and operating expenses. There may be some sitting in your inbox, or you may have missed payments. Some of them can wait until January it will depend on you due dates and strategy of moving expenses to one or the other year.
- Write off bad debts - Unfortunately, in today’s economy, not all of your customers are able (or willing) to pay their bills. If you do happen to have some customers who will most likely never be able to pay, you might want to consider writing those off as bad debts.
- Run reports to compare this year to previous years – To confirm that you haven’t missed anything, compare the preliminary reports for this year with the reports for last year. The best way to see this year’s discrepancies is to run the report by month and review for consistency. Of course, things change over the years, just be sure there is a logical explanation. If you find a discrepancy, you can look deeper to find out what might have been overlooked.
- Record depreciation - You must account for depreciation if your business has fixed assets. You can consult your accountant to make sure that this is done properly if this applies to you.
- Address prepaid expenses - Some businesses choose to prepay for certain services such as insurance. When the prepayment is made, it is recorded as an ‘asset’. It will need to be reclassified as an expense. Take a look at any prepaid expenses and adjust your records accordingly.
- Close out owner’s draw - Any money withdrawn from the company for personal use must be accounted for in an equity account.
- Begin the 1099 process - Subcontractors must receive their 1099 forms by January 31. Start gathering together the information now to save extra time and headaches as that deadline approaches.
- Recording mileage - If you have used your personal vehicle to do running for your business, don’t forget to record the mileage. There are deductions you can claim for those expenses.
It may seem like a lot of technical information but getting everything in order now will help you to make sure that you aren’t caught scrambling as you get down to the wire and that you neither over or underpay the IRS or state tax agencies when tax day rolls around. The task of closing the books is typically performed by a company controller – but as a business owner you may want to be aware of the process and available for questions.
If you are in business, chances are that you have at least one employee. In today’s litigious society, it’s often desirable to have a clear outline of expectations of employees and company offerings. One way to establish these expectations is through the creation of an employee handbook detailing the employment laws, policies, conduct of business practices, and benefits.
While verbal communication to employees is crucial, it is very important to create a clear definition of policies and procedures in writing. This allows for protections by outlining labor laws, hours of work, overtime pay, the physical working conditions and expectations of employees. In order to make sure that all employees are aware of the terms of employment and to avoid any appearance of impropriety or partiality, delivering a handbook and having each employee sign for it upon acceptance of employment is a wise practice to put in place.
What should be included when you create an employee handbook?
Creating an employee handbook may seem overwhelming, however, the majority of labor laws are standard rules that vary from location and city and the company specific items are the rules by which you will govern your business. Listed below are a few examples of areas that are important to decide and then communicate to create a standard culture of your choice.
- About the company: What is your company’s history? What is your mission statement? And what are the goals you hope to attain? What work culture are you creating?
- Compliance with federal rules: Every company with at least 15 employees falls under federal guidelines and must comply with the regulations relating to equal opportunity employment, and non-harassment/non-discrimination. It is also wise in this section to outline the expectations of a drug-free workplace.
- Benefits: The new ACA regulations and various other ordinances in your area now require benefits to be offered. This section is where you will outline health insurance benefits, how vacation rules work and how your company deals with sick leave.
- Employee Status: This is where you will define how an employee is classified (full-time, part-time, on call), pay periods and how they can expect to be paid.Work Performance: It is important to explain how each employee will be evaluated and the expectations for their positions.
- Discipline and termination: If an employee is acting in a way that is contradictory to the policies of the company or legal limits, it’s important to have the grounds for disciplinary action outlined, the procedures for pursuing those actions and the procedures for termination.
- Acknowledgment of receipt: In order to make sure that there is a record of the employee receiving the handbook, it’s important to have them sign a ‘handbook acknowledgement form’. The following disclaimers should be included: acknowledgment that this is not an employment contract, designation of at-will relationship, and the company’s right to revise or terminate any policies at any time, for any reason.
There are some great online resources for how to create an employee handbook. In addition, it would be wise to work with an HR professional to assist with policy creation, benefits offerings, and bringing local expertise to the table as the law varies by location. A good HR consultant has the experience to discuss with you options and industry standards and creative ways to create a good benefit package and culture.
In order to obtain the maximum benefits from your employee handbook, it is vital that those policies outlined in the handbook are consistent with the actions of the company. This will provide you with protection should any legal actions or disputes arise.
Our HR staff is committed to ensuring that your company is able to meet its goals and objectives. Click here for a free consultation to find out how we can support you.
While the Affordable Care Act (ACA) has created many new rules and regulations that affect most Americans and American businesses, not everyone is aware that California has its own healthcare regulations that supersede the rules imposed by the ACA.
Changes to eligibility waiting periods beginning 2014
Under the ACA, federally, employers are only allowed to require a maximum 90-day waiting period for any new employee to receive benefits in 2014. California’s AB 1083, however, is much more rigid in its requirement that California employers must end the waiting period no later than 60 calendar days after the employee is hired. The first day of your plan year in 2014 is when this rule will take effect. In order to avoid any difficulties in implementing this change, we recommend that the employee benefit enrollment process begins on the 31st day of eligibility so that by the 61st day, all new employees will have their benefits.
What’s new in California?
You’re probably aware that depending on where you are based in California, there are some very different health care regulations in place. The City of San Francisco has several new ordinances that will become effective on January 1, 2014.
Health Care Expenditure Rates
Under the Health Care Security Ordinance (HCSO), the expenditure rates for 2014 will apply to all businesses with at least 20 employees where one or more employees works a minimum of 8 hours per week in San Francisco. Each employee who has worked for 90 days will require a defined contribution toward health care for each hour worked. For large employers, which the HCSO defines as having more than 100 employees, the contribution is $2.44 per hour. For medium employers, those employing 20-99 employees, the contribution rate will be $1.63 per hour. This requirement will take effect January 1, 2014. To learn more on how the HCSO and ACA overlap, you may visit this website.
The Family Friendly Workplace Ordinance (FFWO)
On October 8, 2013, the FFWO was enacted. It will go into effect on January 1, 2014.
As with the other ordinances in effect in San Francisco, this ordinance will affect employers with 20 employees. Any employee working in San Francisco, who has been employed for at least six months and works a minimum of eight hours per week on a regular basis will be able to request a “flexible or predictable” working arrangement to facilitate management of care giving responsibilities. These employees may make these requests for the following persons:
Children under eighteen years of age;
- A family member with a serious health condition;
- An elderly parent (age 65 or older)
To be in compliance with this ordinance, the employer must meet with the employee regarding the request within 21 days of the request. The employee must have his response within 21 days of the initial meeting.
If the request is denied, the denial must be made via written response with a legitimate business reason explaining the reason for the denial. Employees must be given notice of the right to request reconsideration. More information about the details of the FFWO can be found here.
There are many new changes coming for 2014, but working with a knowledgeable and experienced HR professional will help to ensure compliance and a smooth transition.
Small Biz? Large Biz? Red Biz? Blue Biz?
In our previous article, we offered several important questions that you could be asked in trying to navigate the complicated waters of Health Care Reform (HCR) and help to clarify its effect on your company.
In an attempt to keep things simple, we have broken things down to the two major groups that are affected by the rules of the HCR. This article will clarify how to determine to which of these groups you belong.
Where do I fit in the small business equation?
A small business, as defined on the Obamacare Facts website, is a business that is privately owned and employs 1-250 workers. For the purpose of expanding on our previous post, we will begin with the number of employees. HCR is very tricky in the way that it classifies where a company fits in the small business equation. While there are a few exclusions to these rules, most employers must exercise care in how they calculate the number of employees.
As discussed in the previous article, HCR uses the term full-time equivalent (FTE) employees. The number of employees is set at 50. Those employers having 50 or fewer FTE employees have fewer requirements placed upon them than those with 51 or more employees.
What does the term “FTE” actually mean?
Cutting back the number of full-time employees and replacing them with multiple part-time employees is not enough to take you below the 50 person threshold.
An employee is considered full-time if they work an average of 30+ hours per week. You will want to review each employee’s hours over the past 3-12 months and average the total amount of time they have worked to find out whether or not they have worked the 30+ hours. If they are below that mark, they are considered part time.
Here is the caveat to keep everyone on an even playing field: the total number of hours worked by all part-time employees is divided by 120, which then gives you the number of FTE employees.
For example: If an employer cuts back full-time employees to 40 and hires 15 part-time employees who work 24 hours per week, the FTE is calculated as follows:
- 15 employees x 24 hours per week (96 hours per month)= 1440 hours divided by 120 hours = 12 FTE employees.
- 40 full time +12 FTE employees = 52 FTE employees thus making the company a large business and subject to the regulations governing the larger businesses.
It is important to know how many FTE employees your company has. While there are a few mandates that are in effect now for companies with more than 50 FTE employees, some of the mandates have been pushed off until 2015.
To learn detailed information on how HCR will affect your company and the revisions that have recently been enacted, visit the Obamacare Facts Website and if you have questions make your appointment to get a strategic HR consultation to prepare for the HCR changes that will affect you.
A few important questions you should be asking…
If you’re worried or feeling overwhelmed about all the coming changes due to the Health Care Reform (HCR), don’t be. As complicated as it seems, there is help to navigate the waters. Officially called the Patient Protection and Affordable Care Act, HCR is bringing sweeping changes to all U.S. citizens and legal residents, whether they are currently covered through their employer, individually or not currently covered at all.
While the entire act is extremely complex, in essence, it requires most U.S. citizens and legal residents to be covered by health care insurance and provides a mechanism for access to “affordable” health care plans to everyone, regardless of preexisting conditions or other factors that may have prevented them from receiving coverage in the past. Individuals will be required to be covered or face tax penalties, starting in January, 2014.
How Does HCR Affect Your Business?
This is a great question that doesn’t have a simple answer. However, the benchmark for determining the affects of HCR on your business is whether your company has 50 or more employees, or fewer than 50 employees. In this regard, the requirements under HCR, along with tax credits and penalties associated with HCR vary greatly. Kaiser Family Foundation has compiled a valuable summary of HCR that you can review here.
If you have fewer than 50 employees, HCR will not have such a dramatic affect on how you administer your health care plans, but there are changes that affect your business, including tax credits, plan coverage, renewals, maximum benefits and more.
Some of the most important questions you should be asking (or your employees will likely be asking) are the following…
For businesses with 50 or fewer full-time equivalent employees:
- Does your business qualify for early renewal of your current health plan for 2014?
- Can your employee’s dependent child be now on the parent’s health plan until age 26?
- Has the annual limit and lifelong maximum benefit amount changed?
- Do you qualify for a small employer tax credit?
- What does preventative mandate mean and how will that change?
- Do you know that your employees can now roll over some of your FSA contributions?
- Are your employees required to get their health insurance from you, as long as you offer health insurance?
For businesses with 50 or more full-time employees:
- Is every business required to pay for health insurance for their employees?
- What are the penalties if my company not in compliance?
- Can low income employees get subsidies from the government if you provide insurance for them? What about their dependents?
- What exactly does the California Exchange Program offer?
- What tax consequences does a company or family face in 2014?
While these are important questions, they won’t be the only questions you have. Don’t be caught unprepared for these sweeping changes. Now is an ideal time to get some help to be absolutely certain that your company is in compliance as well as taking advantage of all the credits that may be available to the business now. Our best advice is to get a strategic HR consultation to be sure your company is well-positioned for the HCR changes.