Being Grateful

With holidays approaching, this is the perfect time of year to take a moment and reflect on all of the things we are grateful for. Being grateful may sound a bit trite, but it’s also the number one, hands down, fastest way to bring more positivity and less negativity into your work and life.

Acts of gratitude are selfless and done unconditionally. You can use gratitude as a private exercise of reflection or you can express your gratefulness to show people that they are appreciated.

You don’t have to wait to feel gratitude; you can invoke it proactively.

If you don’t have a gratitude practice, consider starting one. Science has gotten involved in studying gratitude, especially in the field of positive psychology, and the benefits to health and well-being are enormous. It can benefit your business, too, when you show appreciation for business partners, employees, customers, and vendors.

Here are five easy ways to bring more gratitude into your work and life:

  1. Think of five clients you can send thank you notes to. You can write them by hand or send a greeting card with a thank you message.
  2. On your customer service email templates, add a line before the closing that says, “We appreciate your business.” It does make a difference.
  3. Quick, right now, think of five things you are grateful for and list them off the top of your head. After you’re done, you should feel a little bit happier than you did a few minutes ago. Use this tool after you feel a negative emotion to move you back into positivity faster.
  4. Find part of your day that you don’t love, such as your commute to work. Change it to your gratitude commute, finding things along the way to be grateful for. You might be surprised how great you feel when you arrive at work.
  5. Let one of your employees know that you’re grateful for the work they do for you. You can do this verbally, with a note, or with a gift.

When you practice gratitude, you can’t help but feel happy for the things you have in your life. Try these five things on a regular basis to bring more gratitude and positivity into your work and life.

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Business Meals with Tax Reform

In Notice 2018-76, the IRS states that client and prospect business meals continue as tax deductions under the Tax Cuts and Jobs Act.

This is very good news indeed.

Under this new IRS guidance, you may deduct 50 percent of your client and prospect business meals if:

1)     the expense is an ordinary and necessary expense under Internal Revenue Code (IRC) Section 162(a) that is paid or incurred during the taxable year in carrying on any trade or business;

2)     the expense is not lavish or extravagant under the circumstances;

3)     the taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;

4)     the food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and

5)     in the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

To prove your business meals, follow the two easy steps below:

1)     Keep the receipt that shows the name of the restaurant, the number of people at the table, and an itemized list of food and drinks consumed.

2)     On the receipt, record the name or names of the person or persons with whom you had the meal and also record the business reason for the meal.

In the event that the receipt is not available, such as with the purchase of hot dogs and drinks at a baseball game while sitting in the stands, make sure to make a written note of the expenditures immediately after the game.

If you charge a business meal to a credit card, the credit card statement provides your proof of payment. When possible, always pay by credit card or write a check so that you have clear proof of payment.

Proof of payment is not proof of what you purchased, so in addition to proof of payment, keep the receipt with the notations as described earlier. With this combination of proof of payment and receipt with notations, you have what we call audit-proof documentation.

Posted in Accounting, Bookkeeping Tips, Business Taxes, Business Tips, General Tips & Tricks, Individual Taxes | Leave a comment

Mortgage Interest with Tax Reform

The recent tax reform contains big changes to how much you can deduct in mortgage interest for tax years 2018 through 2025. During this seven-year period, you may not deduct any interest on prior or current home equity debt, with certain exceptions.

Exception alert. Your home equity loan may include acquisition or home-improvement debt, and that debt continues as deductible under the recent tax reform rules.

Example. Billy took out a $90,000 home equity loan in 2015. He used $50,000 to remodel portions of his home and used the remaining $40,000 for his daughter’s college tuition. Billy’s total home mortgages never exceeded $1.1 million. Under the new law, Billy may deduct 5/9 of his home equity loan interest in 2018.

Acquisition debt. When you buy your main home or a second home and take out mortgages secured by those homes, your mortgages are called acquisition debt. You can add acquisition debt when you improve your main or second home, and that new debt is secured by the home you improved.

Refinancing alert. Your acquisition debt does not increase when you refinance unless you use the new monies to improve the home.

Example. Tom bought a home in 2010 and took out a $500,000 mortgage that he secured with the home. In 2018, Tom has paid down his mortgage to $430,000, and his home has increased in value to $800,000. Tom refinances the home and takes out a new mortgage in the amount of $600,000, secured by the home.

If Tom uses none of the new money to improve his home, his mortgage interest deduction in 2018 is based on the $430,000 of mortgage principal that remained as of the date of his refinancing.

To put this in perspective, your original acquisition debt never increases on that original home. To increase your debt eligible for the home mortgage interest deduction, you need to use the new debt to improve the home.

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Your Perfect Work Day

How well do you love the way you spend your typical workday? What would a typical workday look like if you had absolutely no constraints? Here’s a fun exercise to get you thinking about your future and how you can make small changes in your current day to move it toward your ideal day.

Get comfortable and begin jotting out what your ideal day looks like. Start with what you do before you get to work. How do you start your day? With a workout or breakfast or something else? What does breakfast consist of? Where are you eating? What do your surroundings look like?

How do you get to work? What is your commute like? List the sights, sounds, smells. Once you get to work, what do you do first? Will you spend time on the phone? With whom? At the computer? Do you go somewhere?

Do you get a nice break for lunch? Write it all down in detail, and continue until your post-workday routine. Who are you with? Where are you? What do you do?

Here’s a partial sample:

“Lunch with my two friends at our favorite Mexican restaurant on the beach. We laugh a lot, share stories, and part with hugs and handshakes. After lunch, I work on my favorite work project, which challenges me to think about how to help my employees gain new skills. While I work, I listen to my favorite music CD. In a few hours, I am ready for a stretch break and walk outside to water the plants. After break, I return calls, talking with my clients and catching up on how to best serve them.  …”

OK, now it’s your turn. Here are some questions to consider while you do this exercise:

  • What’s important to you to spend time on?
  • What’s enjoyable that you would really like to have as part of your daily routine?
  • What activities will give you a nice balance of accomplishment, relaxation, and socialization, even during work?
  • What do you need to include in your ideal day to get your needs met?

Change One Thing

Getting to your ideal day can take time. Don’t try to change your whole routine all at once. What one or two things can you pull out of your ideal work day description that you could bring into your current work day to brighten it with happiness? In the description above, this person might block out time to find employee training, go out for lunch instead of eating at her desk, make a new playlist, delegate tasks that are not part of her ideal day, or take more time when returning client calls.

Make gradual changes in your current day to improve it. With each change, you’ll be moving toward the realization of your ideal day.

Remember, if your ideal day doesn’t include bookkeeping but your current day still does, we’re here for you.

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How to Survive a Worker’s Comp Audit

If you have employees, you have the distinct honor once per year of being part of a worker’s compensation audit. You likely receive a form in the mail, an email request, or a phone call that will ask you about your payroll numbers and employees for the prior year.

Worker’s compensation is an insurance program that covers employees in the case they get hurt on the job. Each employee receives a classification code that describes the type of work they do, and a rate is figured based on the classification and its risk factors.

If you’ve hired anyone throughout the year, you might need to get a new classification by contacting your provider. If you have employees working in different locations (especially different states), that matters too.

The audit form will typically ask for gross payroll numbers by employee or by category or location of employee. That’s easy enough, but seldom does the policy run along your fiscal year, so the payroll figure needs to be prorated to match the policy period.

Your numbers need to tie back to the numbers reported on your quarterly payroll reports for both state and federal. The provider may also want copies of your 941s and your state payroll reports.

Once you’ve submitted your numbers, the insurance provider will calculate whether they owe you or you owe them additional fees.

The worker’s compensation audit happens every year (even if you pay worker’s comp premiums each pay period, some companies still request an annual audit). It’s not difficult, but it is time-consuming.

Posted in Business Taxes, Business Tips, Cost-Savings Tips, Expense Reduction Tips, General Tips & Tricks, Payroll Tips, Profitability Tips | Leave a comment

Tax Reform Doubles Down on S Corp Reasonable Compensation

The Tax Cuts and Jobs Act (TCJA) tax reform gives you a valuable 20 percent deduction on your pass-through business income if you have the right business and the right taxable income.

The S corporation is a pass-through entity. That’s one step in the right direction.

In addition, the S corporation gives you some ability to maneuver your 20 percent deduction. One strategy involves lowering your S corporation salary to realize both a reduction in payroll taxes and the new Section 199A 20 percent deduction.

But beware: not paying yourself an appropriate salary as an S corporation owner can torpedo your deductions, causing extra taxes and penalties.

Reasonable compensation is now more important than ever.

Reasonable Compensation 101

If you own your S corporation and provide services to your S corporation, the law says:

  • You are an employee of your S corporation.
  • Your corporation must pay you reasonable compensation as wages for the services that you perform. Reasonable compensation is generally what you’d pay a third party to perform the services that you perform.
  • If you fail to pay yourself reasonable compensation, the IRS can re-characterize your S corporation distributions as wages, making you and your S corporation liable for all payroll taxes.

And now, thanks to tax reform, Section 199A is an important factor in your reasonable compensation decisions.

What Section 199A Says

Your W-2 wages factor into your Section 199A deduction in two key ways:

  1. Reasonable compensation doesn’t count as qualified business income for calculating your Section 199A deduction.
  2. Your corporation’s total wages (including your reasonable compensation) increase your Section 199A deductions when you are in the phaseout ranges (and above the phaseouts if you are in an in-favor business).

In light of tax reform, you might be thinking about increasing your Section 199A deduction by not paying yourself correct reasonable compensation. Incorrect, unsupported compensation is a no-no.

Reduced Salary

If you reduce your salary, you increase your S corporation’s pass-through income, and that can increase your Section 199A deduction if you have the right taxable income and the right business. But that comes with significant risks:

  • The IRS can re-characterize your S corporation distributions into wages, hitting you with retroactive payroll taxes, penalties, and interest.
  • IRS re-characterization would also reduce your pass-through income, reducing your Section 199A deduction.
  • IRS re-characterization of your S corporation distributions as wages prevents them from counting toward the Section 199A wage limitations because you didn’t report them on a timely Form W-2.
  • You pay less into Social Security, ultimately reducing your monthly benefit in retirement.

Zero Salary

There’s one limited circumstance where you can legally pay yourself zero reasonable compensation as an S corporation owner.

If you don’t provide any services to your S corporation (or only minimal services) and you neither receive nor are entitled to receive any remuneration from your S corporation, then you aren’t an employee of your S corporation—and you don’t have to pay yourself reasonable compensation.

By arranging your S corporation operations to meet the zero-salary requirement, you can

  • eliminate FICA taxes on your salary,
  • maximize your S corporation pass-through income (and your Section 199A deduction), and
  • use the wage income you pay your employees to run the company for Section 199A limitation purposes.

Takeaways

  • Make sure you know the numbers before making big changes to win the new Section 199A tax deduction.
  • Tax reform makes paying yourself reasonable compensation as an S corporation owner more important than ever.

Tax reform creates a new urge to look at your business entity and the net taxes you pay because of that entity.

Posted in Business Taxes, Business Tips, Cost-Savings Tips, Decision-Making Tips, General Tips & Tricks, Payroll Tips, Profitability Tips | Leave a comment

Should You Have a Financial Dashboard?

A quick glance is all you need to check your fuel gauge, speed limit, engine temperature, and RPM when you’re driving down the road. Your car’s dashboard is designed to focus you on what’s important and what you need to know to have a safe trip.

Your car’s dashboard items, if they applied to business, would be called key performance indicators or KPIs. Unlike a car’s, the KPIs of your business vary depending on your business goals and what’s important to you. Common ones might include your cash balance, how fast you get paid, how much revenue is coming in, and whether you’re making plan. There are literally hundreds of them to choose from, and many of them are not derivable from your financial statements, such as number of orders, client satisfaction levels, and employee turnover.

Would it be useful to have a dashboard of KPIs for your business so you can know what’s working and get alerted to what needs focus? Here are the steps to creating a dashboard for your business:

  1. Decide on the KPIs you want to track. Selecting 6-10 to create and track is a good place to start.
  2. Select a tool that will provide you with the KPIs in the format you desire. There are many great add-ons to your accounting software that will instantly crunch the financial KPIs for you and present them in insightful formats, including charts, graphs, dashboards, and reports.
  3. Create any new processes to calculate the new KPIs and get them entered into the dashboard app.
  4. Hold a review meeting to go over the KPIs and determine any action based on the review.

There are many great KPIs available right in your accounting system, which might be plenty to get started with. And there are some real gems outside your accounting system that will take a bit of work to calculate. In any case, we can help you through this process.

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How to Cut Costs with Fixed Assets Management

Fixed assets are special kind of assets in your business. They include land, buildings, equipment, furniture, and vehicles that your company owns. While we frequently look at expenses to cut costs, fixed asset management is another place we can look to find ways to better utilize our resources and, in some cases, improve your profits.

Fixed asset management is a discipline that requires keeping good records of the assets a company owns. In the case of furniture and equipment, many businesses place an asset tag on the item and assign it a number that goes in a spreadsheet where data is kept about the item.  There are also software apps more sophisticated than spreadsheets that track all of the fixed assets for a company, including original cost, depreciation method and history, and tax treatment.

You never know how many of an item you might have until you record and count them.  How many computers (and computer parts) do you have lying around your office?  Extra desks and chairs? Maybe you even have extra office space or extra land.

Part of being a great entrepreneur is fully utilizing all the resources you have at your disposal.  Where can you put to better use the extra assets you have? Could you sell the surplus items?  Or donate them for a write-off? Do you have extra room to rent out to a tenant, earning rent?

Sometimes we’re so focused on operating the core of our business that we don’t see what else is a money maker right in front of us. In addition to focusing on income and expenses from operations, consider the resources you have in your fixed assets.

At the very least, consider developing a spreadsheet that tracks the major items your business owns. Or reach out to us, and we’ll help you develop a fixed assets schedule and tracking process for your business.

And if you do sell some of your fixed assets, be sure to reach out to us so we can help you book the transactions properly.

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5 Tips on Bringing Home the Bacon

Whether you call it bacon, Benjamins, or big bucks, cash – and having enough of it – is key to running your business. Here are five tips related to managing and getting the most out of your business cash.

1-      All banks are not the same.

Choose your bank wisely, and don’t be afraid to switch if you need to. Banks know they have a “high switching cost,” which means it’s one big time-consuming hassle for customers to change banks.

A couple of things that are important when choosing banks (some of which we never knew to ask five years ago) include:

  • Are you able to connect your accounting system with free bank feeds, saving you hours and hours of accounting work?
  • How automated is your bank? The more automated, the fewer errors, and the more likely the bank is to have competitive services, features and prices.
  • What is their policy on holding large deposits?
  • Do they offer ACH services?
  • Does your payroll withdrawal need to be approved each pay period?

2-      Keep the number of cash accounts to a functional minimum.

Certainly, you’ll need at least a business checking account, often a business savings account, a business credit card account, and perhaps a petty cash fund. You may also want a separate account for payroll; a lot of companies do. But if you need more accounts, there should be a functional business reason to support them. That’s already a lot of accounts to reconcile and keep track of each month.

3-      Reconcile all of your cash accounts every month.

Keeping all of your cash accounts reconciled each month is a good idea. If a bank error, accounting mistake, or even fraud occurs, you can catch it and get it resolved more quickly than if you delay.

You’ll also have more accurate information about your balances and can move and manage your money better.

4-      Maintain a cushion in your checking account.

If your checking account hovers close to zero more often than not, you may be wasting precious time watching your bank balance instead of spending time to manage your business. If you make a small error, you may get hit with costly overdraft fees, making your cash situation even worse.

Instead, consider depositing a fixed amount, like a cushion, that you never spend. You won’t get overdraft fees, and you won’t have to watch your balance so closely. You may give up some interest income, but the time freed up and the reduced worry will be worth a few extra pennies.

5-      Watch your liquidity.

Cash is to business as water is to people; we can’t live without it. Make sure you have enough to cover future obligations, and when possible, build up several months of reserve for emergencies. Anything that you can liquidate quickly, such as accounts receivable, can count toward this fund too.

Try these five cash flow tips to keep bringing home the bacon in your business.

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Three Tips to Maximize Your Social Security

Social security is one of those topics that seems to be minimized by statements like, “You can’t count on it,” and “By the time you reach retirement age, it won’t matter.” Those statements are not only incorrect; they contribute toward a lack of education on what’s possible.
Social security is still a large part of how most seniors will be able to fund their final 20 to 30 years of life. The options we take toward claiming the benefits that are rightly ours are often permanent and can affect our lives and our finances significantly, often by tens of thousands of dollars.
No matter your age today, here are three things you’ll want to dive deeper into when the time is right for you.
Claim date
For retirement purposes, most people will claim their social security payouts any time from age 62 to age 70. It’s your choice to decide when you make the claim and start your benefits. But, and it’s a very big but, the amount you get each month will vary depending on your claim date. Generally, the later you wait, the higher your payout will be.
The federal retirement age for social security purposes depends on when you were born and creeps up a little each year. If you were born in 1954, your retirement age is 66 years old. If you file your social security claim on your retirement age, you’ll get 100 percent of your benefit. If you claim at 70, you’ll get 132 percent of your benefit, which can make a huge difference in payout over your lifetime: tens of thousands of dollars of difference. If you claim early at age 62, you’ll get far less.
Taxability
Your social security income may be taxable if you earn income in the same years you are collecting social security and if you surpass an earnings threshold. This takes many seniors by surprise. There are ways to plan for this, and they are so specific to each family circumstance and often so complicated that software has been developed to calculate all of the situations.
Eligibility
The amount of your social security payment is affected by dozens of factors, including family members’ ages, how much they paid into social security, pensions, previous marriages, and disabilities, to name a few. If any of your family members are disabled, there are payments for that in some cases.
If you are divorced and were married for more than 10 years, you are eligible for spousal benefits. And if you are married, you are also eligible for spousal benefits. If your spouse has passed away, you are eligible for survival benefits, which could increase an existing payment if your spouse earned more than you did.
Social security is clearly a topic where you don’t know what you don’t know. It’s so complex at this point that most people should work with an advisor that has software that can show multiple claiming options that optimize their lifetime payout or meet their financial retirement goals. If we can help, please reach out.
Posted in General Tips & Tricks, Individual Taxes | Leave a comment