by Pete McAllister | Accounting News, Bookkeeping, Business Consulting, IRS, News, Professional Services, Retirement, Tax, Tax Planning
With additional guidance and regulations released consistently since President Trump signed the Tax Cuts and Jobs Act of 2017 into law, one thing remains clear: strategic tax planning is key to lowering a business’s total tax liability. Read on for some moves on lowering your 2019 business tax bill.
Establish Tax-Favored Retirement Plan
Current tax rules allow for significant deductible contributions, so if your business doesn’t already have a retirement plan in place, it’s worth considering. Small business retirement plan options include 401(k), SEP-IRA, SIMPLE-IRA, and the defined benefit pension plan. Some of these plans can be established up until December 31 and allow for a deductible contribution for the 2019 tax year, except for the SEP-IRA and SIMPLE-IRA, which mandate a set-up deadline of October in order to make a contribution for the same year.
Review Your Reports
The end of the year is typically a time for businesses to begin goal setting for the next year, so it’s crucial to have a firm grasp on how your business performed financially this year. Make sure your books are up to date and accurate so you have a clear picture before diving into next year’s plan.
Defer Income If It Makes Sense
Depending on where your income level is, you can potentially cut your tax bill by postponing any end-of-the-year income until January 1 or later. Ask your accountant if shifting receivable income to the new year makes sense for your business.
Purchase Business Essentials to Take Advantage of Deductions
Upgrade equipment and furniture, stock up on office supplies, take care of repairs, and make vendor payments in advance in order to maximize deductions. And thanks to the TCJA, you can claim 100% bonus depreciation for qualified asset additions that were acquired and put in place in 2019.
Make Charitable Contributions
Tis the season for giving…and claiming a deduction for the fair market value of your donations. In addition to money, think outside the box and contact a program that sponsors families for the holidays. They often need food, bedding, toys, cookware, and clothing. It’s a great way for employees to feel like they’re making a difference too. Just don’t forget to get the necessary documentation and receipts to keep with your records.
Start Preparing for Next Year
If you put these tips into action, you’ll be better prepared at this time next year. For instance, you’ll already have a retirement plan in place. By going through the process of tax preparation this year, you have the opportunity to create systems for organization that will expedite the process next year.
by Pete McAllister | Business Consulting, Business Entity Selection, IRS, News, Tax, Tax Consulting, Tax Planning
With the overwhelming amount of pressure and decisions to make when starting a small business, stress can cause even savvy industry gurus to fall for common startup mistakes. In the best scenarios, mistakes will set you back a bit, but in worst-case scenarios, they can hurt your potential and outlook for long-term success. Below are common startup mistakes that can have a negative impact on your small business.
Miscalculating Startup Costs
The perils of starting a business with an insufficient budget, or an underestimated one, can be a shot in the foot before you even get running. Plan to have at least six months’ worth of income in the bank before officially cutting the ribbon to open your business. This will give you some time to get up and going, garner some clients, and generate invoices and payment.
Neglecting to create a marketing strategy
Most new businesses are going to have to put some brain power and cash behind a good marketing plan, and this should be done well in advance of turning on the lights for customers and clients. These plans should include online, offline, social media, and any other means of marketing to get the word out. Will marketing and social media be outsourced, will you handle it personally, or will you bring someone on board to solely handle this task?
Failing to be frugal
Whether through a bank loan, a generous loan from a relative, sales of your own assets, or years of saving your own money, you’re going to have some capital to spend on rent, equipment, products, employees, etc. Keep in mind that profits won’t roll in overnight. Spend your savings wisely, do your research, and make your money stretch.
Thinking you can be a one-man operation
Even if you’re a one-man or one-woman business in the beginning, you’ll need people in your corner. You’ll inevitably want to shoot around ideas with someone; you may need someone, even on a very part-time basis, just to handle invoices and office files; you’ll want feedback, advice, and even potential contacts. Consider if it makes sense for your business to create a board of advisors.
by Stephen Reed | Accounting News, News, Tax, Tax Planning
Are your employees reimbursed for work-related travel expenses? If not, you might want to reconsider. Changes under the Tax Cuts and Jobs Act make reimbursements even more attractive to employees.
The new tax code implemented significant changes to moving and travel expenses, including business-related travel expenses incurred by employees. Under the previous law, work-related travel expenses that weren’t reimbursed were generally deductible on an employee’s individual tax return (subject to a 50% limit for meals and entertainment) as a miscellaneous itemized deduction. However, many employees weren’t able to take advantage of the deduction because they a) didn’t itemize deductions, or b) didn’t have enough miscellaneous itemized expenses to exceed the 2% of adjusted gross income (AGI) floor that applied.
With the new tax code, business travel is still entirely deductible, but not by individual taxpayers because miscellaneous itemized deductions, including employee business expenses, are no longer permitted to be claimed on individual tax returns. Instead, only businesses are able to deduct these expenses, which is why business travel expense reimbursements are now more significant to current employees and more attractive to prospective employees.
In order to be deductible, travel expenses must be valid business expenses and the reimbursements must adhere to IRS rules – either with an accountable plan or the per diem method.
Accountable Plan
Employee expenses reimbursed under an employer’s accountable plan do not contribute to the employee’s income. The accountable plan is a formal agreement to advance, reimburse or grant allowances for business expenses. To qualify as an accountable plan, it must meet the following criteria:
- Payments must be for “ordinary and necessary” business expenses
- Employees must substantiate these expenses (including amounts, times, and places) monthly
- Employees must return any advance or allowances they can’t substantiate within a reasonable time, typically 120 days
Plans that fail to meet these guidelines will be treated by the IRS as “non-accountable”,
and reimbursements will be included in the employee’s gross income as taxable wages subject to withholding and employment taxes (employer and employee).
Per Diem
In some cases, the per diem method may be used. Instead of tracking actual business travel expenses, employers use IRS tables to determine reimbursements for lodging, meal, and incidental expenses. Substantiation of time, place, and amount must still be provided, and the IRS imposes heavy penalties on businesses that routinely pay employees more than the appropriate per diem amount.
If you have any questions about the TCJA’s impact on your business, please feel free to reach out to me at [email protected].
by Jean Miller | Accounting News, News, Professional Services, Retirement
As you approach retirement you’re probably going to be asking yourself when to collect social security benefits. After all, the longer you wait, the more money you can secure. For instance, as long as you’ve paid into the program for 40 quarters (or roughly 10 years), you can start collecting as early as age 62, though full social security retirement age ranges from 65 to 67 for people born after 1943. If you can hold off a few more years, however, your benefit increases by about 8% every year until age 70.
Experts recommend that one thing to look at is whether or not you can afford to wait. Do you have financial flexibility with other assets that can cover your expenses, or do you need the extra monthly payment to keep with the lifestyle to which you’ve grown accustomed? If it’s the latter, you may be forced to withdraw sooner or make changes to your lifestyle. What about existing investments? If you collect early, your investments can grow longer, but they would have to grow by at least 8% a year just to equalize the loss from collecting early.
As you decide when to start withdrawing social security, take into account the age at which you’re planning to retire. If you’re still in the workforce when you become eligible to receive benefits, you can start collecting social security. However, there are some potential downsides to consider. For example, if you haven’t reached your full retirement age, you lose $1 for every $2 you earn above the $15,480.00 earning limit. Your benefits are recalculated to recover those lost benefits once you reach full retirement age, but it can take up to 15 years just to restore the loss.
Another consideration to look at is your marriage status. If you’re married, experts recommend that the higher earner in the marriage hold off on collecting benefits for as long as possible. However, it’s possible for the higher earner to file for benefits at retirement age and then suspend them, which could allow your spouse to collect a spousal benefit equal to ½ of your full retirement benefit. Meanwhile, your benefit continues to grow until age 70.
Lastly, consider your health. If you’re in poor health, you might be better off taking benefits early. According to the Social Security Administration, if you live to the average life expectancy for your age, you’ll get about the same amount of benefits no matter when you start collecting. The longer you live beyond that age, the more you’ll benefit by delaying payments.
With so many factors to consider, there is no “right” age to start collecting social security benefits, so just be sure that you’re making an informed decision when the time comes.
by Pete McAllister | Accounting News, News, Professional Services, Tax
Big Leadership Mindset: How the Practices and Philosophies of the World’s Most Successful Entrepreneurs Can Benefit Small Businesses
Self-made millionaires and billionaires don’t just happen by luck or chance, though sometimes luck and chance play a role. In large part, the world’s leading entrepreneurs demonstrate that innovation, perseverance, and strategic investments – in business and in life – are common denominators for lasting success.
Take Care of Your People and Your Customers
“The key to success in business is all about people, people, people,” says billionaire entrepreneur Richard Branson. “It should go without saying, if you look after your people, your customers and bottom line will be rewarded too.” Real estate entrepreneur and software business leader Tej Kohli agrees. “While strategy, market positioning, and coming up with a long-term plan are all important, focus on making the individual sales and creating happy customers. None of that strategic planning is any good if you can’t keep the lights on because you’re not making enough sales.”
Do the Work
“There are no shortcuts,” says Mark Cuban. “You have to work hard and try to put yourself in a position where if luck strikes, you can see the opportunity and take advantage of it.” This sentiment echoes the formula for success of deceased oil tycoon J. Paul Getty: “Rise early, work hard, strike oil.”
Take Risks
“The biggest risk is not taking any risk,” says Facebook founder Mark Zuckerberg. “In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” But there’s a difference between playing smart and taking risks just for the sake of risks. Heed the warning of Warren Buffet, who says, “Never invest in a business you cannot understand. Risk comes from not knowing what you’re doing.”
Shake Things Up
John D. Rockefeller said, “If you want to succeed, you should strike out on new paths, rather than travel the worn paths of accepted success.” And Groupon co-founder Brad Keywell agrees. “I’ve been involved with companies that hit dead ends, had business ideas I couldn’t get off the ground, been in situations that I desperately wanted to succeed but were on a path to failure. But each setback and adversity could be traced back to the same flawed plan: I had approached the game the way it had always been played.”
Think Long Term
In an age of get-rich-quick schemes, it’s important to remember that there are no shortcuts to lasting success. Jeff Bezos, founder of Amazon, has said that Amazon’s decisions are based on its goal of long-term market leadership – not short-term profits. “Long-term thinking levers our existing abilities and lets us do new things we couldn’t otherwise contemplate,” said Amazon founder Jeff Bezos. “Seek instant gratification – or the elusive promise of it – and chances are you’ll find a crowd there ahead of you.”
Play to Your Strengths
Media CEO Gary Vaynerchuk advises to forget about your weaknesses and bet on your strengths. Founder of Spanx, Sara Blakely agrees. “As soon as you can afford to, hire your weaknesses. What you’re not good at is usually what you don’t like.”
Embrace Failure
“It’s fine to celebrate success, but it’s more important to heed the lessons of failure,” says Bill Gates. “How a company deals with mistakes suggests how well it will bring out the best ideas and talents of its people, and how effectively it will respond to change.” Perhaps Gates took a play from inventor and businessman Thomas Edison’s playbook, who once said, “I have not failed. I have just found 10,000 ways that don’t work.”
