With the year coming to a close and 2015 on the horizon, I’m sure many of you are wondering about tax tips to close out this year and start the next. Well you can get ahead of tax season by having a discussion with your CPA now to maximize your deductions and get your tax strategy in order. While the tips below may be helpful for some businesses, it’s important to remember that no two businesses are alike and we recommend discussing with your CPA and figuring out which tax strategies may apply to you.
The first thing to keep in mind is that it is difficult to provide sound tax advice when the underlying IRC is in flux and uncertain. A one year extender (HR 5771) was just passed, meaning extended through 12/31/14, for the many tax benefits that expired beginning in 2014. However, the Senate is expected to pass the legislation as well, but this will most likely happen in 2015. Unfortunately the tax filing deadlines remain the same, but the last-minute retroactive tax law changes then delays the IRS in releasing final tax forms and instructions.
What this means
This means that tax preparation software companies are delayed in releasing their final software updates, which in turn, delays tax preparers from completing client’s tax returns. An increase in tax returns going on extension will most likely be the result.
Click here if you’re interested in following HR 5771
Tax Tips Going Into the New Year
1. Although the business property expensing option is greatly reduced in 2014, don’t neglect to make expenditures that qualify for this option. For tax years beginning in 2014, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000.
Extended only through 12/31/14 – Sec 179 should be back to the $500,000 expense limit and the 50% bonus depreciation should also return. Sec 179 can be taken on new or used qualifying property; bonus depreciation can only be taken on new qualifying property (meaning, first owner of property). Also keep in mind that the property has to be purchased and placed into service on or before 12/31/14.
2. Businesses may be able to take advantage of the “de minimis safe harbor election”–the book-tax conformity election–to expense the costs of inexpensive assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit-of-property can’t exceed $5,000 if the taxpayer has an applicable financial statement(AFS). If there’s no AFS, the cost of a unit of property can’t exceed $500. Where the UNICAP rules aren’t an issue, purchase such qualifying items before the end of 2014.
3. A corporation (other than a “large” corporation) that anticipates a small net operating loss for 2014 may find it worthwhile to accelerate just enough of its 2015 income to create a small amount of net income for 2014. This will permit the corporation to base its 2015 estimated tax installments on the relatively small amount of income shown on its 2014 return, rather than having to pay estimated taxes based on 100% of its much larger 2015 taxable income.
4. A corporation should consider accelerating income from 2015 to 2014 where doing so will prevent the corporation from moving into a higher bracket next year. Conversely, it should consider deferring income until 2015 where doing so will prevent the corporation from moving into a higher bracket this year.
C-Corps are taxed at 15% federal on the first $50,000 of taxable income; 25% federal on next $25,000. In general, CA taxes C-Corps at a flat 8.84%. Please make sure to keep this in mind when trying to maximize the utilization of tax brackets in an overall tax strategy.
5. Curious about year-end bonuses? In general, owner compensation is treated on the cash basis even if the company is on the accrual basis. So, for owner compensation/bonuses to be deductible in 2014 make sure that they are actually paid before 12/31/14. Employee (non-owner) bonuses can be accrued at year-end but then must be paid within 2.5 months of year-end to be deductible for 2014.
6. In general, retirement contributions can be accrued at 12/31/14 but do need to be funded until the due date of the return (including extensions). So you get the deduction in 2014 that does not need to be funded until many months later (September 2015, if on extension). This is a great tax benefit that is often overlooked.
As the old adage goes, “It’s better to get started sooner than later,” and this is the same for your tax strategy. While you may not be able to take advantage of the tips in this post, I do suggest bringing these topics to the attention of your CPA. Having a discussion of the different options and deductions that are available to you will help you gain a better understanding of effective tax strategies, and your CPA will know what will work best for your business. If you don’t have a CPA, feel free to send us a message and we can recommend one to you. And remember, the only bad questions are the ones not asked.
When you are traveling for business, it can be difficult to keep track of expenditures, but if you are not doing so you are missing out on some great deductions for your business. To make sure that you are following the law when it comes to business tax deductions (especially with travel) make sure to consult your tax professional. The tips and tricks below are to get you started on the right path!
Always Keep a Record
The IRS requires that lodging always has a record to go with it. Many hotels have a digital check out feature (usually accessible through the TV) so make sure that you have a paper copy you can put into your records. Make sure that it has the amounts, dates and what type of expense on it. One thing to note is that any in-room service (IE dining) is separate from your lodging bill and is deducted as “meal expenses” which have their own stipulations.
Keep an Expense Diary
You can download expense report software for your phone (often for free) so that you can keep detailed records of your traveling and expenses. Put in all the details so that you have a record and keep your receipts. This includes cash (like for your morning coffee). Without details you don’t have an evidence chain to show on your taxes. Forgetting to write down your expenses can often result in you getting home and wondering what that $30 was from. The extra minute or two can go a long way in saving you money!
Meals can be tricky, and have certain requirements like they are only deductible if the trip is overnight or long enough that you need to stop for sleep/rest. Again, a record in the form of receipt is best instead of just having a ‘standard meal allowance’. Generally meals are only covered 50%, so it can be helpful to check before you travel to ensure that you have all the information and aren’t stuck holding the bill at the end of the year!
Hey Honey You are Coming With!
Unfortunately deductions are often denied for spouses unless they are an employee of your business or are traveling for a business person. This can be a large grey area, so again- check with your tax professional on this. When it comes to lodging, hotels often don’t distinguish between single to double occupant and same thing for vehicles. Meals or flights can be the tricky part as those are often where the extra expense is shown. Also check to see if there are other reasonable deductions for your partner to come with you, for example they might be able to deduct the cost of their travel on their own taxes.
Trying to figure out how to keep it all moving forward? PCG’s Strategic Consultants will help you take a step back from your business, laser-focus on the details of what’s working (and what isn’t) and take a big picture approach to creating your strategic solutions. With our help traveling for work doesn’t have to be such a chore!
It is almost the end of the year! Is your business ready to move forward in 2015? Are you sure? Many businesses, especially if they are new fall into accounting traps that can prove to be damaging to growth. This is completely understandable! Marketing, managing, accounting and helping customers? It is all very overwhelming!
What are these accounting pitfalls and what can you do to prevent them?
1. Staying on top of receivables
While this seems like common sense, often businesses are moving at the speed of light, sending out invoices and then drumming up more business. Things can get lost, or items not logged. Always marking invoices paid or unpaid will help you to have a better picture of where the company’s finances are. Also, waiting till tax time can leave you with a lot of unknowns which could result in overpaying taxes. Having an accountant on hand to assist you on items like receivables can help with keeping it all in track. There are also many different kinds of money management software that have the ability to set reminders on invoices.
Separating business expenses from personal can be confusing if you only use one account or card for purchasing items. Was that a birthday dinner or a business dinner? Do you remember what that $50 charge was for? An easy way to solve this dilemma (and again- not mess up your taxes) is use different cards for expenses. A dedicated business expense card can help you keep it straight. Not to mention the different rewards that can come with certain business cards, like free travel or cash back!
3. Record where your cash goes
If you have petty cash, or use cash, a method of recording this will also help you when it comes to balancing the books. What is the big deal? If you aren’t keeping track of cash, you may be overestimating how much income (or underestimating) that your business is bringing in! There are apps for mobile devices that work like a paper check register (or even use your notepad feature or Evernote) to help remind you when you use cash!
4. Get a Tax Professional
Let’s face it; taxes are not the easiest thing to do. They can be very confusing, especially for businesses. There are many deductions that you may not realize you qualify for, not to mention state vs federal taxes. Finding a qualified tax professional that you communicate well with will help your business to be successful. Communication is the key factor here. You have to feel comfortable to ask sensitive questions about your finances and feel that you are getting all the information you need. Getting the help you need enables you to focus on your business.
Fortunately if you are looking for assistance in any of the topics above Pacific Crest Group has the infrastructure already in place to help you hit the ground running! Our Basic Accounting Principles Guide has more tips for your small business!
You’ve come up with a brilliant idea. Really- there hasn’t been a better idea since the Post It. You know that this is going to change the face of ‘X’ industry. Before you can jump into manufacturing, marketing and selling, how do you value and protect it?
First lets examine what intellectual property is:
A Law: Property that results from original creative thought, as patents, copyright, material, and trademarks.
Now what we understand what intellectual property is, we can identify the steps we need to take:
1. Get Legal Advice.
Intellectual property laws are designed to protect those that have come up with great ideas, inventions and materials. These protections come in the form of patents, copyrights and more. These laws are complex and require a lawyer who has been well versed in their uses to to be able to effectively help their client protect their property. They would identify possible copyright issues, figure out how the scope of the protections and more. If you are starting a new company, having someone in your corner who can advise you on the best options and steps is necessary.
2. Find Staff to Appraise the Value of Your Intellectual Property
You want the staff you chose for this role to be well educated about the requirements of your property (known as your idea/invention), as there are different ways to appraise properties and each have the strict guidelines in the law. Your team needs to be able to
- Figure out the idea, the nature and size of the market to be served with your property
- The competitive advantages of your solution
- The price customers are willing to pay for your solution and related value proposition
- Costs of implementing the technology or products
- The impact of the technology on the processes used by the business to service its customers
- Length of time before new competition will enter the market
3. Research Comparable Transactions
Just like with the real estate market, if you don’t know what other homes are selling for, you don’t have the ability to determine how to price your home. This is similar with intellectual property. A good appraiser will have the ability to determine what your property will be worth by comparing it to something that is already currently selling.
In this case it must be apples to apples comparison. If you are selling software, you cannot compare selling a retail product like shoes. Picking an experience appraiser in the field of your property will be vital.
4. Understand the Risks Involved
Like with any investment, you have to consider the risks as well as the gains. You do not want to underestimate your costs, the time investment for the idea (development) or the setbacks that can occur.
Having someone assist you with realistic cash flow, benefits and future investments in the business will help safeguard your idea and its growth.
”Don’t give up; the beginning is always the hardest.” – Kemmy Nola
Intellectual property can be difficult to navigate, but with a basic understanding and a great team to assist you, you can be sure of success. Reaching your goals is possible, and Pacific Crest Group is here to help! Be sure to check out our blog about Reaching Your Goals Through Accounting!
Did you know that one of the first things printed on a Gutenberg printing press was a treatise by Luca Pacioli, one of the fathers of accounting? Originally penned in 1494, it is mind boggling to think how far Accounting has come since that point.
Considering that automated spreadsheet sums weren’t available until the 1970s! This makes the majority of modern accounting practices less than a century old! Before computerized programs all entries had to be written and balanced manually. This was, as you can imagine, time consuming. It also left more room for human error and when mistakes were made, they were often impossible to find! In a large company, the Accounting department was often huge, with each individual being assigned one role in the great machine that kept everything financially balanced.
Fast forward to the 1970s and the use of computers in the workplace. With the wide spread use of MSDOS companies were able use software like Great Plains to automatically input numbers for calculation. As technology changed, so did software. Imagine being an Accountant and starting your career in the 70s. By now, every system you originally learned on is outdated.
What is the point? The point is the value that is to be had with having a partner in account management. No longer are Accountants just crunching numbers, they are crunching numbers, advising businesses on best practices and able to impact their company’s bottom line. A good accountant can be a business’s best friend when it comes to growth. Imagine not being aware of a change in tax law, or that there are new requirements for payroll in your state. Having a team member dedicated to looking out for your best interest can mean the difference between success and failure.
As we covered in our Basic Accounting Principles blog post, there is a lot to cover to successfully navigate the accounting sphere, and that can get overwhelming. Fortunately we no longer live in the age of the printing press anymore and can use the tools that are out there to assist but if you want an extra boost, Pacific Crest Group is here to help!
How often do you communicate with your accountant? If you only speak with your accountant a couple of times per year around tax time, then you may not be making the most of their expertise.
As a business owner, you should be providing your accountant with all of the documents needed to track your past spending and growth. But did you know that your accountant can help you plan for the future as well?
Accountants have the skills to help you set goals and grow your business. Did you know that they can help you even set goals for the next year or even 10 years from now? All you have to do is provide them with additional information.
Here’s a list of topics to discuss with your accountant to ensure that they help you reach your goals.
What’s the end goal for your business?
Every business will have an end goal. A small software startup may have an end goal of being acquired by a larger company. Whereas you may want your small service company to run for the rest of your life to provide you with steady income.
If you’re a small startup looking to get acquired, your goal would be to achieve very rapid growth with little attention paid to profitability. Your accountant would use this information to create financial goals that will help you look more appealing to larger companies.
What type of growth do you want for your company
Some people want to keep their business with only a couple people on staff working out of home offices. Others have hopes of large staff and multiple office locations. Regardless, your accountant can help ensure that you’re spending your money on the right parts of your business to match the level growth that you want.
When do you want your business to be profitable
Depending on the type of business you’re running and if you need investors to get started, you may not be able to be profitable from the get-go. Your accountant will be responsible for determining the distribution schedule and when the company will expect to be profitable for investors.
Additionally, if you’re starting a small business and you have a family and bills to pay, your accountant can focus on improving cash flow to ensure that you get money in your hands as soon as possible.
How much do you want to earn each year
Paying yourself a smaller salary means you can spend additional money on advertising and new equipment, and a larger salary means limiting your growth. However, as a new business owner, you may need the profits right away and won’t be able to put a lot back into the business.
Your accountant can also help you determine if it’s the right time to switch from a sole proprietorship and incorporate your business, or if it’s the right time to hire staff and take a smaller role. Your accountant can help you make the best choices at each stage.
How big of a role do you want to have in your business
CEO, COO, CMO, janitor? Do you want to have this role forever, or maybe even take a smaller role as you get closer to retirement. Heck, maybe you just want to get it up and running and then stay away from the daily operations as soon as possible.
Every business and business owner is different. Some people love being in the trenches day-in and day-out. Others just want to set up a successful business and get out as quickly as possible to start their next venture.
You need to make sure to have this conversation with your accountant, and what possible changes you want to make regarding how much you work, the cost of hiring employees, etc.
Will your family play a part?
Wondering if it’s smart to start a “family business?” Well, there’s certainly some tax incentives for hiring family members. However, having your entire family’s income coming from a single source of revenue cane be risky, and you will need additional help from your accountant to plan for how you grow this company.
Establishing a Partnership
Whether you’re starting your home business or getting ready to create the next big Silicon Valley startup, you’ll never be alone. Part of running a successful business means establishing partnerships with key individuals that can help you become more successful. One of these people will be the person or team you hire to do your accounting. If you share your goals with the right accounting team, then you’ll be able to grow faster and reach your financial goals.
What does it mean to be a small business owner? It means a few things. First, that you have worked incredibly hard getting your business off the ground. And two, that you have probably spent many sleepless nights trying to learn every area of your business including basic accounting principles. If you’re just trying to wrap your head around this three-headed monster that is basic accounting, then this may serve as a decent guide to getting started. Continue reading “Basic Accounting Principles Small Business Owners Must Know” »
Key performance indicators help you measure the performance of your business, and it’s ability to meet goals and expectations. Regardless of your industry, you need to establish key performance indicators (or KPIs) to understand the growth and trajectory of your business. Creating KPIs is more time intensive than it is difficult, and requires you to understand the connection between goals and results. Continue reading “How Do I Create Key Performance Indicators?” »
Business benchmarking is the comparison of your current performance data to either past performance data, or your competitors performance data. By benchmarking your data, you can gain a clear understanding of what areas of your business need improvement.
Continue reading “Using Business Benchmarking to Improve Operations” »