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Are You Certain of Your Answer?

Author: Keith Huggett 

If you are an owner of a small or medium sized business, you may think you are certain of your answer. But for most of us, the answer is often "No, I am not certain of my answer."  The reason for this is because we often hand over the controls to our financial department to what we consider to be our "financial staff" which consists of one or two trusted individuals and never think twice about it.  This can lead to employee theft. We're not saying that it always will, just that it can. Like everyone else, we like to look on the bright and shiny side of life too, and hope that the people we work with are honest and dependable, but you never know what can happen. Sometime life throws you something bad, and people are driven to desperate measures. So today, we have some tips for you that may help you prevent employee theft.

• Match up your client payments to your client invoices.
• Call your clients to make certain that payments haven't been sent that haven't been credited against their account.
• Use an expense account for each employee.
• Use online banking.
• Don't share passwords.
• Watch for dates being changed on transactions.
• Keep track of inventory by holding random inventory checks.
• Keep complete vendor records. Collect W-9s from each vendor prior to making payments to them.  Having complete W-9s is a good policy for tax time as well, as you may need this information at the end of the year should you need to send out 1099s.

There are many more tips and tricks to keeping track of the employees handling your financial data. For more in depth information, you can download this free whitepaper To Catch A Thief, Is Your Bookkeeper Stealing? Because small businesses are just that, small, they often lack the large financial staff and sophisticated controll systems inherent with large companies which makes it easier for employees to steal.  The United States Chamber of Commerce estimates that $50 billion dollars are lost annually to employee theft.  The FBI arrested 21,300 people in 2012 for embezzlement.

If you are concerned about the numbers shown above, and you suspect that maybe you have encountered theft in your office, now is the time to act.  The bookkeeping specialists at The Tax Office, Inc. can help you.  We specialize in outsourced bookkeeping, where you will have 24/7 access to your financial data. Contact us today.

Year End is Coming, Have You Planned For It?

Author: Keith Huggett 

Back in January, our Congress and President worked together to put into place the American Taxpayer Relief Act of 2012. With it, they extended several tax credits through the end of December 2013.  Unless they act again, many credits will expire at the end of this year.  Are you prepared for how this may affect your tax return?  Some of the expiring credits include:

• Qualified Mortgage Debt- up to $2 million dollars (married filing jointly) or $1 million for married filing separately, could be excluded from income.
• Educator Expenses - Teachers, instructors, counselors, principals and aides for kindergarten through 12th grade, can deduct up to $250 of out-of-pocket costs.
• State & Local Taxes can be deducted in lieu of State Income Tax.
• Fringe benefits for mass transit were made equal to those of parking, allowing you to exclude from your income a certain amount for transportation.
• Making your home more energy efficient and "going green" allowed a credit of 10% of the amount paid for structural improvements to your home.
• If you have hired an employee in 2012 from a specific targeted group, you may qualify for the Work Opportunity Tax Credit (WOTC). 
• Research & Development Credit
• Tuition & Fees - Individuals can claim an above-the-line deduction for tuition and fees for qualified higher education expenses.
• The 100% exclusion on the gain from the sale of small business stock has been retroactively reinstated and extended through December 31. 2103.
  

Clarifying the Muddy Waters

Author: Keith Huggett

You have two ways to treat the people who help you run your business. You can hire them as employees, with all the legal and financial commitments “employment” carries. Or you can engage them as independent contractors. Here’s how they differ:

• Hiring employees makes you responsible for FICA (Social Security), FUTA (unemployment) and state unemployment and worker’s compensation costs. You have to include them in benefit programs like health insurance, medical expense reimbursement, and retirement plans. You’re subject to various federal, state, and local employment laws. And you’re vicariously liable for employees’ errors and omissions.
• Engaging contractors avoids FICA, unemployment, and worker’s compensation costs. You can exclude contractors from employee benefit plans. You’ll avoid much of the legal and regulatory oversight. And you’re less responsible for contractors’ errors and omissions.

In some industries, custom dictates hiring employees. In others, “recognized industry practice” lets you treat staff as employees or contractors. Contractors are easier and cheaper to hire and manage. Of course, the IRS knows this too. And they’re on the lookout for businesses that classify employees as contractors to avoid employment obligations. They use a 20-factor test to determine employment, including factors such as:

• Do you give specific instructions for completing tasks?
• Do you offer training?
• Do you specify work hours?
• Do you pay flat compensation classifiable as salary?
• Do you reimburse expenses?

If the IRS recharacterizes your contractors as employees, you’ll be liable for FICA and FUTA taxes plus stiff penalties and interest. Here are four steps to take to protect yourself:

1. Have each contractor sign a written agreement specifying they will be treated as contractors, responsible for paying their own taxes, and not covered by workers’ compensation.
2. Have each contractor complete Form W-9 to accept their responsibility for paying required taxes.
3. Treat all workers providing the same service consistently.
4. Issue Form 1099-MISC for all contractors earning more than $600 annually.

If you fear the IRS might reclassify your contractors as employees, you can file Form SS-8, “Determination of Employee Work Status for Purposes of Federal Unemployment Taxes and Income Tax Withholding.” There’s no charge, and you can file a single form for an entire class of employees. But many advisors recommend not filing this form, preferring not to alert the IRS to the issue.  

If you would like more information on employee status, 1099 Misc forms, Independent Contractors, or general tax information, please contact us, The Tax Office Inc.  Our specialists are highly trained in all matters tax related and can answer your questions as they arise.

Is Your Business On Track?

Author: Keith Huggett

Many business people write a business plan, start a business and then put that business plan in the filing cabinet. If you are doing this, you're wasting your business' greatest asset. Your plan is more than a tool you use to get started. It's a living document that helps keep you accountable, guides you as you grow your business and provides you with inspiration as to how you can evolve your business.

Now that we are entering the fourth quarter, dig out your business plan. See how your company is doing relative to the goals found in your plan. If you haven't reached all of your goals, figure out why. This exercise will help you look at your business not from a day-to-day operational perspective, but by comparing it to the big-picture goals that you set when you wrote the plan.

If you're ahead of your goals, do the same thing. If you're ahead of your plan because of good luck or outside influences, you know that you may not be able to plan on that in the future. On the other hand, if your business is performing better than you have expected, figure out where and why, and use what you learn to focus your improvement efforts for the rest of your business. It may be time to expand into a new business structure.  The Tax Office, Inc. is presenting Destination: Incorporation, a seminar on the A-Z's of Incorporating your Business at the end of October.

Analyzing your business can also help you plan what you will need in the coming year. You might be able to shift capital expenditures or other expenses to better plan your cash flow or manage your tax liabilities. If your company needs additional help, you can also get started on recruiting new employees or contractors.

When you are done with the process, update your business plan. Your plan isn't set in stone -- it should represent where your business is and where it's going, and those things can, and should, change. For help updating your business plan, talk to the business and accounting experts at The Tax Office, Inc. Getting professional input can help you better ground your plan in your business' operating and accounting realities.

Don't Miss This Exciting Seminar on Incorporating your Business!

Author: Keith Huggett

Ever wondered if you should incorporate your business? Now's the time to find out. What are the benefits of incorporating? If you are like most small businesses, you may be growing past the point of being a sole proprietorship but are unsure of what comes next. 

Luckily for you, some of the best minds in the business are coming together October 29, 2013 to help you.  Not only will they be discussing the how's and why's of incorporating your business, they will be presenting information on:

• Legal issues 
• Tax issues, 
• The benefits of outsourcing your payroll and accounting, human resources, IT, and other topics
• The affects of misunderstanding corporate payroll
• Tax free retirement and
• 401 K plans 

(916) 773-7053

Retail Business Owner Can Expect A Visit

Author: Keith Huggett 

The State Board of Equalization has recently sent out a news release stating that their Statewide Compliance and Outreach Program will be sending out teams to visit retail businesses throughout the state. If you own a retail business you should be receiving a letter from the Board sometime soon.

The teams will only be going to specific zip codes throughout California at this time, although the Board intends to visit every retail establishment in the state, given enough time. Cities included in the current exam include Bakersfield (93301), Baldwin Park (91706), Boulder Creek (95006), Cambria (93428), Carpinteria (93013 and 93014), Culver City (90230 and 90231), North Hollywood (91601), San Jose (95134 and 95136), San Juan Capistrano (92675 and 92691), Sutter Creek (95685), and Volcano (95689). For more detailed information on this program, please take a look at our white paper The State Board of Equalization's Statewide Compliance & Outreach Program - Coming Soon. 

The main purpose of this program is to ensure compliance with our state's sales and use tax program.  The Board of Equalization collects more than $53.7 billion dollars annually in taxes and fees supporting state and local government services.  According to the BOE, under-reporting and non-compliance are responsible for more than $2 billion dollars in uncollected tax. By sending teams out to confirm that you are reporting accurately or correcting your reporting the Board is able to lessen the amount in uncollected tax.

If you feel any anxiety prior to your upcoming visit by the Board of Equalization, please feel free to contact us.  The specialists at the Tax Office, Inc., can assist you with your sales and use tax compliance before your scheduled meeting with the BOE, or after  your meeting to help make certain you are in compliance with the state requirements.  

Your Personal Home Is Not Necessarily Your Tax Home!

Author: Keith Huggett

Where you live plays a huge role in structuring your tax plan.  It is not necessarily your tax home however.  Your tax home is defined as where you maintain your principal place of work.  This could be 100 miles away from your home.  Another thing you should be aware of is that business travel and business transportation are two different things.  Business travel is when you travel away from your place of business (tax home) overnight or long enough to require sleep. You deduct the cost of business transportation as a cost of going to and from tax deductible business destinations.

Here are 5 tips for your personal and tax home:

1. Have your personal home within 50 miles of your tax home.
2. When your personal home is within 50 miles of your tax home, claim the home-office deduction under the administrative office rules so you can eliminate commuting to your outside-the-home-office.
3. Deduct overnight business travel when you travel on business outside the area of your tax office.
4. If you have more than one business on which you spend the most time and make the most money is the principal business. It's the location of your tax home. Overnight travel outside the tax-home area of the principal business to a secondary business is deductible.
5. If you have one business with multiple offices in different cities, the office where you spend the most time, do the most important things, and make the most money is your tax home. When you travel away from this office overnight to a secondary office, you are in business travel status.

Just Say "I Do"

Author: Keith Huggett 

With the legal definition of marriage changing, there will be changes in the tax laws regarding marriage as well. As it stands currently, there are both benefits and setbacks to being married in the tax code, depending on how much you earn and how you file.

Married, filing jointly allows married couples to use the most-favored tax-rate table to prepare their taxes.  However, you also have the option to file separately.  The only way to find out which way saves you more money is to run the numbers through your tax return.

At this point, how much you and your spouse earn determines how much you can save.  If you earn more than your spouse, you can save more.  If you and your spouse both earn high wages, you can expect to pay more in income taxes.  Over the years, our lawmakers have tried to balance out the penalty of being married and earning high wages.

As a married couple, you also have an IRA advantage. If your spouse is "jobless" and has no compensation - wages, salaries, fees, commissions, tips, bonuses, or self-employment income, you can contribute to an IRA on his/her behalf. Also, the income limits that apply to your IRA contribution when you are in a qualified retirement plan increase if you are married.

If you are planning on selling your home, as a single tax payer, you qualify to exclude up to $250,000 of the sale profits. If married, that amount doubles to $500,000.  However, you and your spouse must both pass the required "use" test and one of you must pass the "ownership" test.

Death comes to us all, and the IRS wants their part of it.  Should you accumulate enough cash, investments, and property during your lifetime, it will fall to your heirs to pay the estate taxes. Federal estate and gift tax rules benefit married couples.  For the 2013 tax year, an individual's estate qualifies for an exclusion of up to $5.25 million from estate taxes.  If you are married, you and your spouse get to exclude double that amount for up to $10.5 million from estate taxes.

Citizenship has it's benefits too, as we all know. If you are married, the unlimited marital deduction allows you to pass assets to your spouse with no federal estate or gift taxes as long as he/she is a United States citizen.  

As you can see, marriage can affect your taxes in both a positive and negative way depending on your earnings throughout your life, even unto your death.  Proactive tax planning along the way can help you get the most out of your earnings and required tax payments.  The Tax Office, Inc. and their tax specialists can assist you with tax planning, estate planning and any additional questions you may have.  Please contact us today.

Solid Business Plan Critical for Success

Author: Keith Huggett

For many companies, growth comes with forming a business partnership. Combining forces with another individual or company that complements your strengths and weaknesses is an excellent way to expand quickly and with less capital. However, no matter what business path you decide to take, having a strong business plan in place is critical. Consider it a road map to success. A solid business plan will be helpful in not just enticing investors, but also for keeping your business running smoothly.

Your business plan should include the following components in a clear, concise document:

• Describe the marketplace gap that your company fills. Whether you offer an innovative product that no other company has, or simply provide an unparalleled customer service experience within your industry, the first step is defining the gap your company aims to fill.

• Explain how your company fills this gap. What product features or unique service offerings does your company provide that others do not?

• Define your market. It is important to fully understand the size of your industry and how your company fits into it. You should also describe your target customer in this section.

• Outline your business model. You are presumably in business to make money; your business model defines how you will do this effectively.

• Understand your competition. Who else sells a product or service similar to yours? What advantages do you have over them and are they sustainable?

• Describe your sales strategy. In real life, "If you build it, they will come" is not an effective marketing strategy. You need to know how you will generate new customers and promote sales growth from year to year.

• Have an exit strategy. Do you plan to form a business partnership, keep it in the family or sell to a competitor in five years?

If you need help with developing a new business, forming a business partnership or tax planning for your existing company, contact the professionals at The Tax Office, Inc. We can help you with the day-to-day tasks of bookkeeping and the bigger picture strategy issues that every business faces. Contact us today to learn more.

New Business Owners Have Several Choices for Accounting Services

Author: Keith Huggett

Starting a new business is a tremendous challenge. You have to design and create products and/or services, establish a brand, find customers, fill orders, etc. You also need to figure out what you spend and what you take in, maintain a positive cash flow, perhaps deal with payroll and certainly manage your tax obligations.

If you don't have the accounting expertise necessary to do this, there are a number of ways to handle your financial books. Here are four common options:

1. Do it yourself. Some entrepreneurs who have no accounting or tax experience manage their own financials. Dedicated software can help, but you still need to understand the basics of accounting. If you take this on, you risk classifying income and expenses improperly, which will make it harder to analyze your company's performance and meet your tax obligations accurately. This is risky for anyone but the smallest of businesses.
2. Hire a bookkeeper. Bookkeepers can do a satisfactory job of entering information into a pre-configured system. Most are not experienced enough to set up an accounting system, though, and they're not qualified to give you tax and planning advice.
3. Hire a CPA. The right CPA can do things well. But CPAs practicing solo have the same challenge that you do: keeping their own businesses running. And you're limited to the expertise of one individual.
4. Hire an accounting firm. Accounting firms typically have a mixture of CPAs along with other accounting and business professionals, and support staff. These days, they're also well-versed in technology. They can set up your bookkeeping system and help you in myriad ways, while basic data entry is done by non-chartered accountants and bookkeepers. This model can provide the expertise that you need, when you need it, and save you money.

Accounting is a time-consuming, unfamiliar process for most new business owners. It's very familiar to us at The Tax Office. We can handle every aspect of your financials, from online bookkeeping to payroll to tax planning and preparation to general business management and complete accounting. Contact us to get started, so you can focus on what you do best -- building your business.