IRS audits now routinely review S corp payments to shareholders to see if payroll taxes are being avoided by treating payments to shareholder-officers as loans or shareholder distributions of cash or property.
An officer performing services for a corporation is entitled to payment; those payments are wages. For federal employment tax purposes, corporate officers are employees.
Avoiding employment taxes by treating compensation as cash distributions, expense reimbursements, or loans rather than as wages is illegal.
Make sure you are paying your shareholders correctly! Get a check-up of your books.
Wednesday, December 31, 2008
Friday, November 28, 2008
Christmas Tax Tips
Tax tips: Gifts to employees and company parties
Nontaxable gifts. Fruit baskets, hams, turkeys, wine, flowers and occasional entertainment tickets, such as to a show or sports event, generally are nontaxable as de minimis fringe benefits.
Taxable gifts. Gift certificates (“cash in kind”) are wages subject to FIT, FITW, FICA, and FUTA—even for a de minimis item. For example, a gift certificate for a turkey is taxable even though the gift of a turkey is not. Cash gifts of any amount are wages subject to all taxes and withholding.
Parties and picnics. The cost of occasional parties is nontaxable to employees and their families as a de minimis fringe—if they are infrequent and for the purpose of promoting employee health, goodwill, contentment, or efficiency. Examples: occasional holiday celebrations, cocktail parties and company picnics. Such parties are fully deductible to the business (they are not subject to the 50% limit on business meals).
Get your books in order for the end of the year. Consider hiring a freelance bookkeeper if you don't already have one.
Nontaxable gifts. Fruit baskets, hams, turkeys, wine, flowers and occasional entertainment tickets, such as to a show or sports event, generally are nontaxable as de minimis fringe benefits.
Taxable gifts. Gift certificates (“cash in kind”) are wages subject to FIT, FITW, FICA, and FUTA—even for a de minimis item. For example, a gift certificate for a turkey is taxable even though the gift of a turkey is not. Cash gifts of any amount are wages subject to all taxes and withholding.
Parties and picnics. The cost of occasional parties is nontaxable to employees and their families as a de minimis fringe—if they are infrequent and for the purpose of promoting employee health, goodwill, contentment, or efficiency. Examples: occasional holiday celebrations, cocktail parties and company picnics. Such parties are fully deductible to the business (they are not subject to the 50% limit on business meals).
Get your books in order for the end of the year. Consider hiring a freelance bookkeeper if you don't already have one.
Friday, November 21, 2008
Health Savings Account Fact Sheet
As the cost of health care coverage continues to rise, Health Savings Accounts provide access to affordable health care coverage for small business owners, employees, and the self employed.
• A Health Savings Account (HSA) is a tax preferred account owned by an individual used to pay for current and future medical expenses, including deductibles, co-payments and other forms of cost-sharing.
• HSAs are funded by tax deductible contributions. Both employees and employers may contribute to the employees’ HSA, which is different from other tax-preferred health care coverage which limits contributions to only one party.
• HSAs are available to individuals covered by HSA-eligible health plans, like high deductible plans and other consumer-directed health plans.
• HSAs are portable, meaning that the individual has ownership of the resources in the HSA. An individual is not dependent on a particular employer, should the individual change jobs or become unemployed. Instead, the HSA travels with the individual.
• Individuals with HSAs have flexibility to use their HSA account funds to pay for current medical expenses or save the money in the account to pay for future medical expenses.
• Today’s health-care environment often presents high or unexpected bills. HSAs matched with the individuals HSA-eligible insurance provide security against high or unexpected bills.
• Since the HSA is owned by the individual, the individual has control over the account. This lets the individual make all decisions about the account; including how much to put in the account, whether to save the account for future expenses or for current medical expenses, which medical expenses to pay with the account, and which company will hold the account.
• For small business owners, HSAs avoid the administrative time and costs, since employees self-administer their HSA.
• Small business owners can determine how much they want to contribute to their employees’ accounts and are able to choose the frequency with which they make such contributions. No minimum contributions are required.
For more information on HSAs, visitwww.hsa.gov
• A Health Savings Account (HSA) is a tax preferred account owned by an individual used to pay for current and future medical expenses, including deductibles, co-payments and other forms of cost-sharing.
• HSAs are funded by tax deductible contributions. Both employees and employers may contribute to the employees’ HSA, which is different from other tax-preferred health care coverage which limits contributions to only one party.
• HSAs are available to individuals covered by HSA-eligible health plans, like high deductible plans and other consumer-directed health plans.
• HSAs are portable, meaning that the individual has ownership of the resources in the HSA. An individual is not dependent on a particular employer, should the individual change jobs or become unemployed. Instead, the HSA travels with the individual.
• Individuals with HSAs have flexibility to use their HSA account funds to pay for current medical expenses or save the money in the account to pay for future medical expenses.
• Today’s health-care environment often presents high or unexpected bills. HSAs matched with the individuals HSA-eligible insurance provide security against high or unexpected bills.
• Since the HSA is owned by the individual, the individual has control over the account. This lets the individual make all decisions about the account; including how much to put in the account, whether to save the account for future expenses or for current medical expenses, which medical expenses to pay with the account, and which company will hold the account.
• For small business owners, HSAs avoid the administrative time and costs, since employees self-administer their HSA.
• Small business owners can determine how much they want to contribute to their employees’ accounts and are able to choose the frequency with which they make such contributions. No minimum contributions are required.
For more information on HSAs, visitwww.hsa.gov
Friday, October 31, 2008
Women in Business
Women are rapidly leaving the traditional workplace and following their dreams into the small business world.
Here is some advice from Intuit Financial Freedom Foundation targeted towards women.
Intuit's advice:
Go for it – Every day, 1,600 women entrepreneurs in the United States take a leap of faith to start a small business and become their own boss.
Embrace technology – Tap into the multitude of online communities, social networking tools, and free services that help women network, start a business, and manage finances. Advances in technology give women looking for work-life balance the flexibility to work on their time and their own terms, according to the Intuit Future of Small Business Report.
Know your limits – Avoid costly overdraft fees and spend within your means by tracking finances.
Invest in you – Invest in your education and a healthy lifestyle to extend your possibilities and life span.
Organize and prioritize – File receipts in one place to save time and stress at tax time.
Lend a hand – Give back to the community with time or household items. This both helps those in need, and creates valuable tax savings.
Don't feel you have to do it all by yourself either. There are people out there with skills to help you stay on track and grow. Hire a professional freelance bookkeeper so you can focus on growth.
Here is some advice from Intuit Financial Freedom Foundation targeted towards women.
Intuit's advice:
Go for it – Every day, 1,600 women entrepreneurs in the United States take a leap of faith to start a small business and become their own boss.
Embrace technology – Tap into the multitude of online communities, social networking tools, and free services that help women network, start a business, and manage finances. Advances in technology give women looking for work-life balance the flexibility to work on their time and their own terms, according to the Intuit Future of Small Business Report.
Know your limits – Avoid costly overdraft fees and spend within your means by tracking finances.
Invest in you – Invest in your education and a healthy lifestyle to extend your possibilities and life span.
Organize and prioritize – File receipts in one place to save time and stress at tax time.
Lend a hand – Give back to the community with time or household items. This both helps those in need, and creates valuable tax savings.
Don't feel you have to do it all by yourself either. There are people out there with skills to help you stay on track and grow. Hire a professional freelance bookkeeper so you can focus on growth.
Wednesday, October 15, 2008
Keeping on Course
With the stock market roller coastering every day and more banks in trouble these are pretty serious times. If you are a small business owner it's more important than ever to stay on top of your books so you know where you stand financially at all times.
The credit crunch is happening and it is real. You need to know what your cash flow is and where your expenses are going. By reviewing your profit and loss statement and balance sheet on a regular basis you can keep from getting surprised.
If you don't have the time to keep your books up to date, outsource it to an independent bookkeeper. It will be worth it in the long run.
The credit crunch is happening and it is real. You need to know what your cash flow is and where your expenses are going. By reviewing your profit and loss statement and balance sheet on a regular basis you can keep from getting surprised.
If you don't have the time to keep your books up to date, outsource it to an independent bookkeeper. It will be worth it in the long run.
Saturday, October 11, 2008
Saving Energy at the Office
Try these simple steps to save on your utility bills.
- Use energy-efficient light bulbs, such as CFL's and LED's.
- Consider sensors that automatically turn off lights when an area is not in use.
- Turn off your electronics. Even in standby mode they are using electricity.
- Try virtual meetings to cut down on travel expenses.
Thursday, October 2, 2008
Debt Reduction Consequences
As money gets tighter and tighter you may find yourself in the situation of not being able to pay all or part of a debt. You may negotiate with your creditor to have part or all of your debt forgiven.
When a debt is forgiven or reduced the creditor will issue a Form 1099-C Cancellation of Debt for the amount forgiven or discharged. This needs to be reported as income on your tax return.
When a debt is forgiven or reduced the creditor will issue a Form 1099-C Cancellation of Debt for the amount forgiven or discharged. This needs to be reported as income on your tax return.
Wednesday, September 24, 2008
Accounting for "Forgiven Debt"
With the current economic conditions and the growing uncertainty over the financial markets more and more companys may end up in the situation of having to account for 'forgiven' debt.
When your company’s debt is forgiven, you include the forgiven amount in gross income for tax purposes. The exception is cancellation of a debt to the extent that the payment would have been a deduction.
For example: You use a consulting firm from which you obtain service on credit. You are having trouble paying your account, but are neither bankrupt nor insolvent, so the consulting firm forgives part of your invoice. How do you book the cancellation?
The solution depends on your method of accounting:
· If you use the accrual basis, you include cancellation of the debt as income because, under the accrual method, expenses are recognized when incurred, not when paid.
· If you use a cash basis, you do not include the debt cancellation in income because payment for the services would have been a deductible business expense.
These hard times make for some complicated accounting issues. Get the help you need - hire an independent bookkeeper. They can make sense of these issues for you.
When your company’s debt is forgiven, you include the forgiven amount in gross income for tax purposes. The exception is cancellation of a debt to the extent that the payment would have been a deduction.
For example: You use a consulting firm from which you obtain service on credit. You are having trouble paying your account, but are neither bankrupt nor insolvent, so the consulting firm forgives part of your invoice. How do you book the cancellation?
The solution depends on your method of accounting:
· If you use the accrual basis, you include cancellation of the debt as income because, under the accrual method, expenses are recognized when incurred, not when paid.
· If you use a cash basis, you do not include the debt cancellation in income because payment for the services would have been a deductible business expense.
These hard times make for some complicated accounting issues. Get the help you need - hire an independent bookkeeper. They can make sense of these issues for you.
Thursday, September 18, 2008
These Tough Times
Every day it seems there is a new batch of doom and gloom in the financial sector. Stock market is falling, banks are failing, investment firms are teetering...... The sky is falling.....
Now is the time to make sure that your own finances are in good order. Do you know where your business stands as far as income to debt ratio? How about your personal finances?
You need to lay things out so that you can budget accordingly to get through this stormy weather.
Get your financial data into a software program. Whether it's just your personal finances or your business too. Only good planning will get you through this.
If you need help, consider a freelance bookkeeper to help you get a handle on things.
Now is the time to make sure that your own finances are in good order. Do you know where your business stands as far as income to debt ratio? How about your personal finances?
You need to lay things out so that you can budget accordingly to get through this stormy weather.
Get your financial data into a software program. Whether it's just your personal finances or your business too. Only good planning will get you through this.
If you need help, consider a freelance bookkeeper to help you get a handle on things.
Tuesday, September 9, 2008
Freelance Bookkeepers vs. Employees
Freelance bookkeeper services run on average about $50-$70+ an hour. Let's compare this with the cost of hiring an employee. An employee's actual cost is 2 to 2 1/2 times their salary. Let's factor in some of the inevitable expenses that come with hiring an employee.
- Health/Dental/Vision Benefits
- Equipment and Space
- Supplies
- Retirement Plans
- Insurance
- Unemployment
- TAXES (Freelancers are self-employed and pay their own taxes.)
- Overtime Payment
Someone to administer and oversee all of the above. If you calculate the cost of all of the above, plus the actual salary, you can see how expensive it is to hire an employee.
Plus you will only be paying for time actually worked - not a flat 8 hours per day regardless of how much time is spent on actual work.
Thursday, August 28, 2008
Vacation Pay - The Ins and Outs
1. Apply all withholding taxes to vacation pay.
2. You can accrue paid vacation differently by the job, because it is a matter of company policy, not federal law. For example, give managers two days' paid vacation for each month worked, a clerk one or no days. Or, base paid vacation on salary, years worked or a mix of standards. But the policy should be in writing, made known to employees and applied consistently.
3. You need not include paid vacation days in overtime calculations. For example, if an employee works 40 hours, Monday-Thursday and takes a paid vacation day on Friday, you need not include the paid Friday hours when determining whether the employee is entitled to overtime pay.
4. If vacation pay is included in a normal paycheck, withhold for the entire check over a longer period. For example, if you pay weekly and include one week’s paid vacation, withhold for a two-week period.
5. You must pay earned or accrued vacation if the employee quits. Have a written policy that clearly states who is or is not entitled to accrued vacation pay at termination. Reminder: Employees may be entitled to unused vacation pay under ERISA (covers early retirement) if there is a written policy or a pattern or practice of paying unused accrued vacation to such employees.
Important: These are the rules under federal law. Where appropriate, also check your state laws.
2. You can accrue paid vacation differently by the job, because it is a matter of company policy, not federal law. For example, give managers two days' paid vacation for each month worked, a clerk one or no days. Or, base paid vacation on salary, years worked or a mix of standards. But the policy should be in writing, made known to employees and applied consistently.
3. You need not include paid vacation days in overtime calculations. For example, if an employee works 40 hours, Monday-Thursday and takes a paid vacation day on Friday, you need not include the paid Friday hours when determining whether the employee is entitled to overtime pay.
4. If vacation pay is included in a normal paycheck, withhold for the entire check over a longer period. For example, if you pay weekly and include one week’s paid vacation, withhold for a two-week period.
5. You must pay earned or accrued vacation if the employee quits. Have a written policy that clearly states who is or is not entitled to accrued vacation pay at termination. Reminder: Employees may be entitled to unused vacation pay under ERISA (covers early retirement) if there is a written policy or a pattern or practice of paying unused accrued vacation to such employees.
Important: These are the rules under federal law. Where appropriate, also check your state laws.
Wednesday, August 13, 2008
Keeping Track in Tough Times
We all know the economy is not at it's best right now. Everyone is looking for ways to trim expenses and boost profits. One area you definately don't want to neglect is your accounting. It is your books that will show you whether you are doing well or not, which makes keeping them accurate more important than ever.
That doesn't mean that you need a full time bookkeeper or even a part time one. Depending on the size of your business you may just need someone to come in once or twice a month and crunch the numbers into your software program.
Keeping it up-to-date will enable you to generate meaningful reports that can help you see where you are spending, where you can cut back and what your bottom line is.
That doesn't mean that you need a full time bookkeeper or even a part time one. Depending on the size of your business you may just need someone to come in once or twice a month and crunch the numbers into your software program.
Keeping it up-to-date will enable you to generate meaningful reports that can help you see where you are spending, where you can cut back and what your bottom line is.
Thursday, August 7, 2008
A Monthly Financial Review
In order to determine the profitability of your business each month you should look at your income statement, also known as a profit and loss statement. If you are keeping your books with a software program such as QuickBooks, once your data is entered you can just go to the report function and the software will automatically create the report for you.
You should review the report to see where your expenses were and if any of them were out of the ordinary. You will also see how profitable a month you had.
By taking a look at the statements each month you can keep expenses in check and not be surprised at the end of the year.
If you do not have time to enter the data yourself, you should consider hiring a freelance bookkeeper/accountant so that you are able to track where you are at financially all year long.
You should review the report to see where your expenses were and if any of them were out of the ordinary. You will also see how profitable a month you had.
By taking a look at the statements each month you can keep expenses in check and not be surprised at the end of the year.
If you do not have time to enter the data yourself, you should consider hiring a freelance bookkeeper/accountant so that you are able to track where you are at financially all year long.
Wednesday, July 30, 2008
Paying Part-Time Employees
Part-Time Employees are no different from your regular employees. You need to withhold FICA from any amount they pay. It doesn't matter whether they are retired, have a full-time job elsewhere or only work one day a week. If eligible they will receive any overpayment of FICA back on their 1040 at the end of the year.
Here's a big one that is getting some employers in trouble. If a former employee returns as an 'independent contractor' to do the same job they were doing as an employee - they are employees. The IRS is targeting individuals who receive a W-2 and a 1099 from the same company in a given tax year.
The length of employment does not determine worker status. All employment taxes apply even if the individual only works one or two days, or even part of a day.
With part-time employees providing benefits is optional. You do need to cover yourself by having a written plan indicating which benefits apply to which workers. Generally, you do not need to pay for holidays or provide other benefits to part-time employees.
Some states may have special laws regarding payment of part-time employees so it is always advisable to check.
Here's a big one that is getting some employers in trouble. If a former employee returns as an 'independent contractor' to do the same job they were doing as an employee - they are employees. The IRS is targeting individuals who receive a W-2 and a 1099 from the same company in a given tax year.
The length of employment does not determine worker status. All employment taxes apply even if the individual only works one or two days, or even part of a day.
With part-time employees providing benefits is optional. You do need to cover yourself by having a written plan indicating which benefits apply to which workers. Generally, you do not need to pay for holidays or provide other benefits to part-time employees.
Some states may have special laws regarding payment of part-time employees so it is always advisable to check.
Thursday, July 24, 2008
4 Strategies for Small Business Growth
Set a Goal
Create a business plan and/or monthly goals to track. Each month take a step back and see if you are meeting your goals. Use your financial reports to see where you are at. Make adjustments as needed.
Marketing
Determine what your core market is and develop a plan to target that market. Don't try to reinvent the wheel by targeting a market that really isn't adaptable to your business.
Customer Relations
Keep in contact with the customers you have. A happy customer will be a great source of referrals. An unhappy customer will, of course, have the opposite effect.
Is It Working?
Periodically review your strategies and keep the ones that are working for you. If you are finding some of your efforts are not producing any results it is time to change them. Don't stick with something that is not working.
Create a business plan and/or monthly goals to track. Each month take a step back and see if you are meeting your goals. Use your financial reports to see where you are at. Make adjustments as needed.
Marketing
Determine what your core market is and develop a plan to target that market. Don't try to reinvent the wheel by targeting a market that really isn't adaptable to your business.
Customer Relations
Keep in contact with the customers you have. A happy customer will be a great source of referrals. An unhappy customer will, of course, have the opposite effect.
Is It Working?
Periodically review your strategies and keep the ones that are working for you. If you are finding some of your efforts are not producing any results it is time to change them. Don't stick with something that is not working.
Wednesday, July 16, 2008
Benefits of Using Software
Many people start out thinking they can just keep track of their income and expenses with their check book and a receipt box. Which you can do, but your accountant is not going to be very happy at tax time.
There are also those that use spreadsheets and templates to organize income and expenses into different categories. When that is done, they still need to generate financial statements which will involve yet another spreadsheet.
The simplest way to handle your business finances is to purchase a financial software program such as QuickBooks to organize all of your income expenses. You will only need to enter the data once and be able to generate professional, comprehensive financial reports.
Most programs also have the advantage of merging with your CPA's tax software for seamless and painless tax preparation.
Visit Keep It Simple Accounting for discounts on your QuickBooks product purchase and to schedule a Software Implementation and Training session.
There are also those that use spreadsheets and templates to organize income and expenses into different categories. When that is done, they still need to generate financial statements which will involve yet another spreadsheet.
The simplest way to handle your business finances is to purchase a financial software program such as QuickBooks to organize all of your income expenses. You will only need to enter the data once and be able to generate professional, comprehensive financial reports.
Most programs also have the advantage of merging with your CPA's tax software for seamless and painless tax preparation.
Visit Keep It Simple Accounting for discounts on your QuickBooks product purchase and to schedule a Software Implementation and Training session.
Thursday, July 10, 2008
A Quarterly Checkup
Even if you do your own bookkeeping, you may want someone to look it over before you give it to your accountant. Many accountants are blunt about sloppy books or bank statements that don’t reconcile. They will tell clients they must file for an extension, redo their books or get another accountant.
A quarterly checkup by an accounting professional can save you time and money by ensuring that your books are current and accurate.
A quarterly checkup by an accounting professional can save you time and money by ensuring that your books are current and accurate.
Tuesday, July 1, 2008
Why Hire a Professional Bookkeeper?
You're starting your own business and one of the things you are considering is doing your bookkeeping yourself. Who needs a professional? How difficult can it be?
First, consider whether doing the books yourself is the best use of your time. Accounting is very detail-oriented. If your books are full of errors come tax time it will be costly having your CPA correct them in order to file an accurate tax return.
Secondly, if you are spending your time on your books, how will you develop and grow your business?
Hiring a professional, be it weekly, monthly or quarterly will allow you the time to do what you need to do to keep your business tracking forward.
First, consider whether doing the books yourself is the best use of your time. Accounting is very detail-oriented. If your books are full of errors come tax time it will be costly having your CPA correct them in order to file an accurate tax return.
Secondly, if you are spending your time on your books, how will you develop and grow your business?
Hiring a professional, be it weekly, monthly or quarterly will allow you the time to do what you need to do to keep your business tracking forward.
Wednesday, June 25, 2008
Outsourcing Your Accounting
Let's face it. Times are tough right now. Money is tight everywhere. Do you really need to have someone sitting at a desk 5 days a week doing your bookkeeping? Or could it be handled in a couple of hours per week?
It's pretty hard to find someone to work a couple hours a week as a traditional employee. The solution is to outsource it to an independent contractor. This way you also avoid the cost of employee benefits and workers compensation premiums.
If you are currently doing your own bookkeeping, stop and think whether it is the best use of your time. Would your hours be better spent bringing in new customers and business? Outsourcing your bookkeeping could be a way to become more profitable.
It's pretty hard to find someone to work a couple hours a week as a traditional employee. The solution is to outsource it to an independent contractor. This way you also avoid the cost of employee benefits and workers compensation premiums.
If you are currently doing your own bookkeeping, stop and think whether it is the best use of your time. Would your hours be better spent bringing in new customers and business? Outsourcing your bookkeeping could be a way to become more profitable.
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