Time Matters with Tax Refunds: Don’t Miss Out!

If you have not yet filed your 2015 tax return and have a refund coming, time is running out! There is no penalty for filing a late return that qualifies for a refund!  The IRS estimates over a million Americans fail to file a tax return every year.  By not filing, many of these people risk losing any refund they are owed (which averages $600).

If you miss the filing deadline, any excess tax you paid with every paycheck or sent in as a quarterly estimated tax payment in 2015 goes to the US Treasury.  You will not be able to apply these monies to another tax year, or use these monies to pay any past-due student loans or child support.

When filing a 2015 tax return, the law requires that the return be properly addressed, mailed, and postmarked by April 15, 2019.  Late filers who owe no taxes do NOT pay any penalty, AND might even be eligible to get credits beyond the money withheld from their paychecks.

As a friendly reminder …. taxpayers seeking a 2015 refund should know that their checks will be held if they have not filed tax returns for 2016 and 2017.  In addition, the refund will be applied to any amounts still owed to the IRS and may be used to offset unpaid child support or past due federal debts, such as student loans.

Please give this office a call before the end of this year to have us prepare your prior year tax returns. Sufficient time is needed to gather the required source documents, prepare complete and accurate tax returns, review, print, sign and mail the returns to the appropriate tax agencies.

Posted in Cost-Savings Tips, Tax Tips, Tax-Planning Tips, Time Management Tips | Leave a comment

5 Fall Projects to Refresh Your Financial Results

As we move into the fall season and the final quarter of the year, it’s a perfect time to commit to a project in your business that will help you reach the year’s end in better shape.  Here are 5 ideas: 

  1. Back-to-School Time

If payroll expenses are one of the higher costs in your business, then it makes sense to boost your team’s productivity and maybe also your own.   Fall is back-to-school time anyway, so it’s a natural time of the year to take on a course, read a business book, or hire an organizer to help you get more from your workspace.

If you spend a lot of time doing email, consider taking a course on Microsoft Outlook® or even Windows; learning a few new keystrokes could save you tons of time.  If you need more time, look for a book or course on time management.  Look for classes at your local community college or adult education center.

  1. A Garage Sale for Your Business

Do you have inventory in your business?  If so, take a look at which items are slower-moving and clear them out in a big sale.  We can help you figure out what’s moving slowly, and you might even save on taxes too.

  1. Celebrate Your Results

Take a checkpoint to see how your revenue and income are running compared to last year at this time.  Is it time for a celebration, or is it time to hunker down and bring in some more sales before winter? With one more quarter to go, you have time to make any strategy corrections you need to at this time.  Let us know if we can pull a report that shows your year-on-year financial comparison.

  1. Get Ready for Year’s End

Avoid the time pressure of year’s end by getting ready early.  Review your balance sheet to make sure your account balances are correct for all transactions entered to date.  You will be ahead of the game by getting the bulk of the year reviewed and out of the way early.

Also make sure you have the required documentation you need from vendors and customers.  One example is contract labor that you will need to issue a 1099 for; make sure you have a W-9 on file for them.  If we can help you get ready for year-end, let us know.

  1. Margin Mastery

If your business has multiple products and services, there may be some that are far more profitable than others.  Breaking these numbers out to calculate your profit margins or contribution margins by product or service line can help you see the areas that are adding the most income to your bottom line.  Correspondingly, you can determine if you have any items that are losing money; knowing will help you take the right action in your business.

Refresh your financials this fall with your favorite idea of these five, or come up with your own fall project to rejuvenate your business.

Posted in Accounting, Bookkeeping Tips, Business Tips, Cost-Savings Tips, Management Tips, Payroll Tips, Profitability Tips, Tax Tips, Tax-Planning Tips, Time Management Tips | Leave a comment

Most Overlooked Tax Deduction

Article Highlights:

  • What Is IRD?
  • Why Is There an IRD Deduction?
  • How to Recognize If One Exists
  • What to Do If an IRD Deduction Is Suspected

One of the most overlooked tax deductions is what is referred to as the IRD deduction. IRD is the acronym for income in respect of a decedent. So what is IRD income? It is income that is taxable to the decedent’s estate and also taxable to the beneficiaries of the estate.

Estate tax is a tax on property transfers. Thus, when an individual dies, the value of all of his property is added up and the amount that exceeds the lifetime estate tax exclusion less any prior taxable gifts is subject to estate tax. In some cases the estate includes items that are taxable both to the estate and to the beneficiaries, such as a traditional IRA, uncollected business income, and accrued bond interest. To make up for this double taxation, the beneficiaries are allowed an itemized deduction for the portion of the estate tax attributable to the double-taxed income.

The problem is that the beneficiaries do not receive anything from the estate to make them aware of an IRD deduction or the amount of the deduction, if one exists. A beneficiary must recognize when there is an IRD and a possibility of a deduction and make further inquiries.

The first clue is, did you as a beneficiary of the estate receive a Form 1099-R or Schedule K-1 with taxable income from the estate? If so, you need to inquire whether a Form 706 Estate Tax Return was filed, and if so, whether it resulted in tax due. If there was a tax due, then there is a good chance you are entitled to an IRD deduction.  Request a copy of the 706 Estate Tax Return and provide it to this office so we can determine whether you are entitled to a deduction and if so, how much it is worth.

The deduction is generally the difference in the estate tax figured with and without the double-taxed income. Please call this office if you need additional information.

Posted in Cost-Savings Tips, Estate Planning Tips, Tax Tips, Tax-Planning Tips | Leave a comment

Hobbies and Income Tax

Article Highlights:

  • Hobby, Trade, or Business
  • Profit Motive
  • Factors Determining Profit Motive
  • Presumption of Profit Motive
  • Tax Treatment of Hobbies

Millions of U.S. taxpayers engage in hobbies such as collecting stamps or coins, refurbishing old cars, making crafts, painting or breeding horses, and the list goes on.

Some hobbies will actually generate income, and some will even evolve into businesses. The tax treatment of hobbies with income is quite different than that of a trade or business, and making the distinction can be rather complicated.  The main issue here is that the IRS does not want taxpayers to write off hobby expenses under the guise of trade or businesses expenses.

So, the first question is whether the activity is a hobby, trade or business. The tax law doesn’t really provide a bright-line definition of the term “trade or business,” probably because no single definition will apply in all cases.  But certainly, to be considered a trade or business, an activity must be motivated by the taxpayer’s profit motive, even if that motivation is unrealistic. Along with a profit motive, the taxpayer must carry on some kind of economic activity.

Factors to determine profit motive – The IRS uses a series of factors to determine whether an activity is for profit.  No one factor is decisive, but all of them must be considered together in making the determination.

  • Is the activity carried out in a businesslike manner?
  • How much time and effort does the taxpayer spend on the activity?
  • Does the taxpayer depend on the activity as a source of income?
  • Are losses from the activity the result of sources beyond the taxpayer’s control?
  • Has the taxpayer changed business methods in attempts to improve profitability?
  • What is the taxpayer’s expertise in the field?
  • What success has the taxpayer had in similar operations?
  • What is the possibility of profit?
  • Will there be a possibility of profit from asset appreciation?

Presumption of profit motive – There is a presumption that a taxpayer has a profit motive if an activity shows a profit for any three or more years during a period of five consecutive years.  However, if the activity involves breeding, training, showing or racing horses, the period is two out of seven consecutive years.  An activity that is reported on a tax return as a business but has had year after year of losses and no gains is likely to eventually come under scrutiny by the IRS.

Tax Treatment of Hobbies – While trades or businesses can have losses without restriction, if the activity is deemed to be a hobby, then special rules – frequently referred to as “hobby loss” rules – apply.  Under these rules, any income from the hobby is reported on the face of the tax return, and the expenses are only deductible if a taxpayer itemizes their deductions on Schedule A.  In addition, hobby expenses are limited by category as follows:

Category 1: This category includes deductions for home mortgage interest, taxes, and casualty losses.  They are reported on the appropriate lines of Schedule A as they would be if no hobby activity existed.

Category 2: Deductions that don’t result in an adjustment to the basis of property are allowed next, but only to the extent that gross income from the activity is greater than the deductions under Category 1.  Most expenses that a business would incur, such as those for advertising, insurance premiums, interest, utilities, wages, etc., belong in this category.

Category 3: Business deductions that decrease the basis of property are allowed last, but only to the extent that the gross income from the activity is more than the deductions under the first two categories.  The deductions for depreciation and amortization belong in this category.

Additional limit Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A, which are subject to the 2% AGI reduction; as a result, they are not deductible for alternative minimum tax purposes.

Hobby loss rules can be complicated.  If you need assistance determining whether your activity qualifies as trade or business, or whether it is subject to the hobby loss rules, please give this office a call.

Posted in Tax Tips, Tax-Planning Tips | Leave a comment

Budgeting Breakthrough

When you hear the word “budget,” what do you think about?  Most people would say something similar to “Ugghh!” If you would rather do just about anything besides create a budget, you’re not alone.  The word “budget” brings up connotations of endless numbers, constraints, the opposite of freedom and creativity, and hard work, none of which are very desirable.

Yet, the benefits of a budget are huge.  Budgets can help you with cash flow improvements, keep you on track for higher profits, and alert you to items that need further action.

From “Budget” to “Profit Plan”

To be successful with budgeting, we need to get rid of all of the connotations that go with the word.  Perhaps it might work if we rename “budgeting” to “profit planning.” And then, rather than focus on how little we should spend, let’s start with how much revenue we’re going to make.

Revenue Clarity

It’s simple to create a revenue plan if you go backwards.  What revenue goal would you like to hit this year?  Just like we would never get in a car without a final destination, a revenue plan gives us a number to aim for in our businesses.

Once you know your number, then we can use averages to come up how many sales or clients we need to generate in order to meet our revenue goal.  Here’s a quick example: Let’s say you want to reach $5 million in revenue this year.  If you average order is $10,000, then you need 500 sales.  If you have multiple products and services, then you’ll need to sum the product of the average sale times the needed number of sales for each line.

From there, you can make marketing and production plans based on the number of sales or clients you need.

Protecting Your Profit

Think of the expense side of your “profit plan” as protecting your profit margins so that you can ensure financial gain from all the hard work you do.  Setting budget limits on spending will allow you to control overhead and other items so you can keep more of what you make.

Exceptional Reporting

A great “profit plan” report will provide several things.  You can compare budget to actual, or better yet, just be alerted to the accounts showing exceptions.  You can also get an income statement that compares the current period with the prior year period so you can see how far you’ve come.  One last option is a benchmark report which provides industry averages so you can measure how you fare compared to other companies in your industry.

A “profit plan” is a great tool for your business.  If we can help you with the process or provide you with custom reporting, please give us a call.

Posted in Accounting, Bookkeeping Tips, Business Tips, Cost-Savings Tips, Management Tips, Profitability Tips | Leave a comment

Need an A/R Makeover?  A Quick 5 Item Best-Practice Checklist

Technology has allowed businesses to make substantial improvements in their customer invoicing processes.  The good news is that when you implement these technologies, you will almost always get paid much faster.

If it’s been a few years since the last time you’ve changed your accounts receivable processes, it’s time for a new look.  Here are 5 tips you can use to rate your own invoicing process.

  1. Invoice Creation

The best way to create all of your invoices is by the push of a button from one of about five types of systems that already have all of your data:

  • Time and billing (if you bill hourly)
  • Estimating and project management (if you use proposals)
  • Customer relations management (CRM) systems that have invoicing as a feature
  • Point of sales systems that track open accounts
  • Accounting system that includes an A/R component

There are a couple of key best-practice concepts to follow at this step:

  • Eliminate any duplicate data entry you can. You should only have to enter your invoicing data in one place, and it should flow to every other system that needs it.
  • Automate as much of the process as possible. NEVER start in Word or Excel, because this always means duplicate data entry somewhere.
  • Create an easy SOP so someone else can do the data entry if needed.
  • Keep your invoice data real-time so you can benefit from the next step, which is….
  1. Invoice Delivery

How you create your invoice will vary by the type of business you have, but the main thing to make sure of is that the invoice is approved quickly and sent out to the client as soon as the work has been done.

The only way to do this is electronically.  If you’re still printing, stuffing, stamping, and mailing your invoices, you’re losing anywhere from two days to nearly a week before your customer even sees the bill.  Change that by using email or delivering the invoice electronically.

  1. Invoice Terms

When do you want to get paid?  Most people feel it’s realistic to aim for 30 days.  But if you set your payment terms to Net 30, you’re more likely to get paid in 45 days, not 30.. Am I right?! 

INSTEAD, we recommend setting your terms at 10 days, because many small businesses pay two weeks late.

  1. Payment Method

How does your business rate when it comes to payment options?  If all you take is checks, you can add another week’s delay to your payment.  INSTEAD, we recommend accepting debit and credit cards through MasterCard, Visa, American Express, and Discover.

  1. Receipt

When you get paid electronically, it’s in your bank (or your merchant account) within minutes.  If you bank online, you can see things immediately now (it’s really amazing!). When you receive a check, you have the overhead of preparing the deposit and making the trip to the bank.  If you have hundreds of paper checks, you may also have additional bank fees incurred from processing the checks.

If your accounting system interfaces with your bank, then you save a lot of time and money not having to post those transactions.

Invoice-Free Zone
Why not get out of the invoicing business altogether by offering a pay-in-advance option? Your Accounts Receivable balance goes to nothing, to name one of many benefits.  Not every industry can adopt this practice, but if you think creatively, you might find some ways you can implement this in your business.

Conclusion
How did your A/R process rate on the 5-point checklist?  Got some ideas for improvement?  As always, please reach out if you have A/R questions or if we can help you implement your best-practice invoicing system.

Posted in Accounting, Bookkeeping Tips, Business Tips, Computer Tips, Management Tips, Profitability Tips, Quickbooks, Time Management Tips | Leave a comment

5 Fun Things to Add to Your Invoices

When it comes to marketing, the company invoice might be the last thing you’d think about.  But think again:  it’s a great place to make every attempt to get paid faster and have your customer coming back for more services and products.  Here are 5 fun easy-to-implement ideas to add to your invoices:

  1. A Thank-You

A simple “Thank you for your business” or a “We appreciate your business” is a nice added touch on the bottom of every invoice.

QuickBooks invoices include a comment line where you can choose your comment or write one for yourself.  You can also customize the form so that it appears on every invoice.

  1. Your Current Special Offer

A customer that just purchased from you now trusts you; it’s the perfect time to let them know what else you have available that they could benefit from.  Your offer could be a small amount off their invoice for referrals they send you, your monthly special, a sale item, or an item related to what they purchased.

Just add a quick text line to your invoice letting them know the special and where to call for more information.  If you haven’t ever tried this, you will be surprised and delighted at the results.

  1. A Prominent Due Date

Most invoices include terms, but you can make it even easier on your client by computing their specific due date.  If at all possible, include the due date on your invoice so the customer can see clearly when they need to pay you.

Make the due date stand out, too.  Bold it, print it in a different color, increase the font, or do all of the above.  You want it to be really clear when that payment is due in your office.  

  1. A Payment Link

Can you take payments online?  If so, include the web link that customers can use to pay you online.  This might be to a shopping cart, PayPal®, or another online payment system.  If it’s convenient for your client to pay, you’ll get paid faster.  

  1. A Friendly Warning for Overdue Invoices: “Does your mother know you haven’t paid this invoice?”

If all the above fails and the customer does not pay you by the invoice’s due date, you’ll want to have a process for re-sending the invoice and/or statement until the customer pays or until you’re ready to turn it over to a collections agency.  Here are some sample sentences you can choose from:

“We hope you’ve just overlooked this bill and can send your payment right away.”

“We’re re-sending this invoice in case it got lost.  Please send payment right away.”

“Could you check on the status of this payment for us? Our records show it’s past due.”

“Please contact us if you have questions or issues with this invoice. Payment is now past due; please remit immediately.”

“Hey, we need to pay the rent!  Please send your payment as soon as possible.”

When the invoice gets older, sometimes it helps to add a little humor:

“Does your mother know you haven’t paid this invoice?”

Marketing to Get Paid

With these 5 low-cost ideas, you’re sort of “marketing” to get the payment sooner.   They are easy to implement, cost very little, and will improve your cash flow.   Try them and let us know how they are working.   And, don’t be surprised if you see these ideas on our invoices!

Posted in Accounting, Bookkeeping Tips, Business Tips, Profitability Tips, Quickbooks | Leave a comment

Equifax Survivors

By now, I am sure you are aware we have experienced one of the most significant identity theft breaches our country has ever seen.  Stolen information includes names, social security numbers, birthdates, addresses, and driver’s license numbers.  This type of information has no expiration date and will affect you and your family members for a lifetime.

On September 7, 2017, Equifax announced that 143 million people had their identities compromised between May and July of this year.  According to the Federal Trade Commission (FTC), if you have a credit report, there’s a “good chance” you’re one of the 143 million Americans impacted.

Even though the Equifax data breach may be the largest data breach on record, it definitely is NOT the only data breach on record.  The Identity Theft Resource Center (ITRC) reports 1,091 cases in 2016 and 1,002 cases in the first half of 2017 ALONE!  This Equifax data breach is just a harsh reminder that forces beyond our control can lead to the exposure of our personal information AND that everyone needs identity theft protection.

In response to the Equifax data breach, Equifax is offering one year of free credit monitoring.  However, please know the solution Equifax is offering is their own product called TrustedID.  Can you trust Equifax to provide minimum credit monitoring for free if they couldn’t protect your sensitive records in the first place? I highly recommend you DO NOT enroll with TrustedID, as it may give you a false sense of security.

In the following short video, Morgan Wright, US State Department, Senior Anti-Terrorism Advisor, talks about the significance of this breach, why you shouldn’t use TrustedID, and why he has selected IDShield (the service we provide) as the service of choice to handle identity theft.

https://www.cnbc.com/video/2017/09/08/antiterrorism-advisor-how-to-protect-yourself-from-equifaxs-data-breach.html

This is a stressful time for many of you knowing that your personal information will be bought, sold and traded, but we’re here to help.  Our members have access to our dedicated and experienced licensed private investigators to ask questions and get help if they become victims of fraud.  Our members also have pro-active credit monitoring through EXPERIAN (NOT Equifax!) and are alerted if there are any changes to their credit report.

WHAT CAN YOU DO?

Here are steps ANYONE can take to provide an extra layer of security:

  • Set up a FRAUD alert with one of the main bureaus. If you place the alert with 1 bureau, it will ensure it’s placed with the other bureaus as well.
  • Be diligent with your information. Don’t give out your personal information.
  • Change your passwords. (IDShield Members can use IDShield Vault password manager to generate a new strong password.)
  • If you don’t have IDShield yet, this is a great time to sign up for comprehensive identity protection with full service, white-glove restoration.

With over 2,000 data breach cases documented in the past 1 1/2 years, together with the largest known data breach in US history revealed to us just 2 weeks ago, isn’t it reasonable to believe pieces of your personal identity may have been exposed?  If your stolen data is used to get a fake ID, file a false tax return, or commit a crime, it could take up to 18 months or more to resolve, and you may need to take time off from work to deal with this issue.

Be proactive! Protect you and your family with IDShield, a comprehensive identity theft plan that provides access to licensed private investigators, credit monitoring, social media monitoring and more for as little as $9.95 a month.  Visit www.kerezman.com for additional information and to enroll TODAY!  Text me at (574) 215.5505 if you are interested in offering identity theft protection to employee groups at discounted rates.

Posted in Cost-Savings Tips, Identity Theft | Leave a comment

Did You Collect the Needed W-9s?

Article Highlights:

  • The IRS Form W-9 is used to obtain independent contractors’ tax ID numbers.
  • Tax ID numbers are required when filing 1099s.
  • 1099-MISCs must be issued to independent contractors that are paid $600 or more during the year for performing services for a trade or business.

If you used independent contractors to perform services for your business or trade, and you paid them $600 or more for the year, you must issue them a Form 1099-MISC to get the deduction for their labor and expenses and avoid potential penalties.  (This requirement generally does not apply to payments made to a corporation. However, the corporation exception does not apply to payments made for attorney fees and for certain payments for medical or health care services.)

It is not uncommon to have a repairman come out early in the year, pay him less than $600, then use his services again later and have the total paid him for the year exceed the $600 limit.  If this happens, you may overlook the information needed to file 1099s for the year.  Therefore, it is good practice always to have individuals complete and sign the IRS Form W-9 the first time you use them.  This eliminates oversights and protects you against IRS penalties and conflicts.

Many small business owners and landlords overlook this requirement during the year, and only realize in January that they have not collected the required documentation to issue 1099s.

If you have not collected W-9s throughout the year, do so as soon as possible, so you will have them available when it comes time to prepare 1099s for the year. It is sometimes difficult to acquire contractor information after the fact, especially from those contractors with no intention of reporting the income, so it’s always better to get it up front.

Form W-9 provides entries for the contractor’s name, contact information and tax ID number.  It also includes a signature block for the contractor, certifying the information and insulating you against penalties if he or she provides an incorrect or phony ID number.

If you have questions or need copies of the Form W-9, please call this office.  This office can also assist you with your 1099 filing requirements in January.

Posted in Bookkeeping Tips, Business Tips, Cost-Savings Tips, Management Tips, Payroll Tips, Profitability Tips, Tax Tips, Tax-Planning Tips, Time Management Tips | Leave a comment

Time is Running Out! File Your 2016 Tax Returns!

Extended Tax Due Date Just Around the Corner

Article Highlights:

  • Extended Due Date
  • Funding Retirement Plans
  • K-1 Due Dates
  • Late Filing Penalty
  • Interest on Amount Due

If you could not file your 2016 tax return by the normal April due date and requested an extension, be aware that the final due date for your tax return is October 16, 2017. The date is normally October 15, but that falls on a weekend this year, giving you an extra day to meet your individual tax-filing obligation. There are no additional extensions, so this is it!

Even though you have until October 16, you need to be thinking about getting the return completed in advance of the actual due date. Preparing a return takes time, and last-minute issues may need to be resolved before the return is ready to file. In addition, between 10% and 15% of all tax returns are on extension, creating a rush for this office as many people file at once.

If you are self-employed, October 16 is also the final date when you can fund your existing self-employed retirement plan or establish a new one; without completing your return, there is no way to determine how much you can (or want to) contribute to that retirement plan.

The extended deadline for K-1s from partnerships, S-corporations, or fiduciary returns to be sent out was September 15, so if you have not received that information yet, you should make inquiries.

Extended individual federal returns are subject to a penalty of 5% of the tax due for each month (or part of a month) for which the return is not filed by the October 16 due date, with a maximum penalty of 25% of the tax due. In addition, if you end up owing taxes, the IRS will charge you interest on any tax due, going all the way back to the original April due date. If do not file a required state return and do owe state taxes, the state will also charge a late filing penalty and interest.

If this office is waiting for you to supply missing information to complete your return, we will need that information NOW! Please call this office immediately if you anticipate complications related to providing the needed information so that we can determine a course of action for avoiding potential penalties.

Posted in Retirement Planning, Tax Tips, Tax-Planning Tips | Leave a comment