Archives for May 2012

2012 Small Business Tax Law Changes:What you need to know

May 30, 2012 by mrice

Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.

2012 Small Business Tax Law Changes: What You Need to Know

New year. New tax law changes. 2012 doesn’t see a ton of tax law changes, but there are several you need to be aware of. Let’s dive right in, shall we?

Write-offs. If you lease or finance used or new machinery or equipment during 2012, you won’t be able to write off as much as you could last year. In 2012, businesses can deduct $139,000 (down from $500,000 in 2011) of the full purchase price (maximum purchase price of $2 million) of leased or financed equipment under Section 179 of the Internal Revenue Tax Code. Off-the-shelf computer software used in business in 2012 is also available for the Section 179 deduction.

Bonus Depreciation. The first year bonus deduction of new equipments is cut in half: it drops to 50 percent in 2012, down from 100 percent in 2011.

Payroll taxes. The temporary payroll tax cut originally designed to stay in place until February 29, 2012 has been extended through the end of the year. This means employees will continue to see a payroll tax cut of two percentage points through the remainder of the 2012 calendar year. The reduction will continue to hold the Social Security tax withholding rate at 4.2 percent of wages, down from 6.2 percent.

Qualified retirement plans contributions. Up from its 2011 limit of $49,000, employers can contribute up to $50,000 (and receive a tax deduction) to SEPs and profit-sharing plans in 2012. The limit for pension plans (defined benefits plans) benefits is $200,000 in 2012, up from $195,000 in 2011.

Tax-free transportation for employees. For 2012, companies can pay tax-free parking expenses of $240 per month per employer. This is up from $230 in 2011. However, the limit on monthly assistance for van pooling and monthly transportation passes drops from $230 a month in 2011 to $125 in 2012.

Expired R&D credit. Intended to provide deductions for small businesses and startups for research expenses, the R&D credit has expired. However, Congress has reinstated it retroactively in the past, so there’s a possibility it may come back for 2012. Keep a look out.

Worker classification. As part of its “fresh start” initiative, the IRS unveiled a new program entitled the Voluntary Classification Settlement Program (VCSP) to allow employers to reclassify misclassified independent contractors as employees voluntarily for federal employment tax purposes. In exchange for the voluntary reclassification, the IRS will offer a reduced employment tax liability of 10 percent, no interest or penalties, and no employment tax audit.

What’s the Bottom Line?
It’s a good idea to meet with your tax advisor early in the year to review the 2012 tax law changes. This will not only help you save on 2012’s tax bill, but budget more accurately for the remainder of the year.

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TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.

Fraud:It can happen to you

May 25, 2012 by mrice

Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.

Fraud: It can happen to you

Do you know how to detect it or protect yourself? Most of us want to believe the best of people and therefore we are naive and believe it will never happen to us. When in reality, small and mid-size businesses are impacted at a much higher percentage than large corporations. Why? Smaller businesses tend to take fewer precautionary measures to prevent fraudulent behavior.From my experience, it is usually done by a family member, long time employee, or friend that’s been given too much freedom with too few controls. For most of us, it is an innate belief that we trust people unless they give us a reason not to. However, you must not be naive. You need to know that it is very much a reality that could happen in your business and you need to be aware of why it happens, how to identify if it is happening, and what to do if it has happened.

Why does fraud happen? Usually it is a mixture of three aspects that sets the stage:

Opportunity – an opportunity for fraudulent behavior is provided by the company unknowingly. Small businesses are more prone to these because of the lack of separation of duties.
Pressure – personal pressures can put people over the edge and cause them to be irrational in their thinking. They may have medical issues, financial issues, or a variety of other personal situations that are influencing their judgment.
Rationalization – the employee believes they can rationalize their behavior. They need the money more then the company, the company won’t ever notice, and a million other similar types of insidious thoughts.

To someone who commits fraud, they can rationalize their behavior in a variety of different ways and will go to extreme measures to cover their tracks. Small business owners believe it won’t happen to them as they often consider their employees like family. However, it is critical that you are able to keep a separation of thoughts between what happens at work and what happens outside the four walls of your business. No business is 100% safe.

What are five popular types of fraud?

Claiming additional payroll hours or falsifying an employee.
Stealing merchandise or cash.
Giving unauthorized discounts to friends and family.
Selling private business information to outsiders.
Exaggerating on expense reports

The biggest way to identify if it is happening in your business is to implement a control process that includes separation of duties. Here are a few easy to implement activities that can help identify and/or prevent fraud:

Payroll – hand deliver the paychecks. This will help identify if there are any “false” employees. A process for tracking hours will help to minimize extra hours appearing on anyone’s time card. This can be done by having a manager sign off on subordinate’s time sheets or by having a time
Theft of cash or merchandise – have controls in place that ensure separation of duties. Those who receive the money should be different than those who have done the invoicing and depositing. Same goes for inventory. There should be a checks and balances for purchase orders, receiving and invoicing.
Unauthorized discounts – have a sales system in place that tracks any time discounts are given. When you can retrieve a discount report, then you will be able to easily identify anything out of the ordinary variances.
Selling private information – this is a difficult one to protect. You should have everyone sign an agreement at the time of hire to notify them that they are going to be exposed to confidential information and what their responsibilities are and consequences should they disclose to outsiders. Computer systems and paper work should also be protected with passwords, lock and key and whatever other measures may be warranted to minimize unnecessary access.
Expense Reports – require receipts on ALL reports for reimbursement with no exceptions. Also establish guidelines so that if they fall outside those guidelines then they may risk not being reimbursed without prior approval.

Unfortunately all we can do is implement protective measures to the best of our ability. There is no 100% fool proof way to guarantee it won’t happen to us. However, you need to ensure you are assessing your risk and implementing separation of duties to try to minimize fraud in your company.

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Employee or Indepedant Contractor?

May 20, 2012 by mrice

Hire an Employee or Use an Independent Contractor?

Small business owners often need someone to help them with specific tasks. These tasks may range in scope from designing a brochure to writing product descriptions or answering telephones part-time. What is typically challenging for many small business owners is the additional burden of hiring someone on a full-time basis for part-time tasks. This is when it becomes necessary to make a decision between hring an employee and using an independent contractor.

Business hiring decisions

Small business owners often find that the cost of hiring a full-time or part-time employee is costly and often creates more paperwork than is warranted. This may be when it is time to consider an independent contractor. However, it is important to note the IRS rules that apply to independent contractors before you do so.

The IRS offers three basic rules that separate an employee from an independent contractor. They are:

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?”

If the tasks that you need to have accomplished can be done by an outside worker and these questions can be answered in the negative when the tasks are accomplished, you can use the services of an independent contractor versus hiring an employee.

The impact on your taxes

When you hire an independent contractor, you deduct the expenses associated with paying them from your taxes by reporting the income to the IRS and the contractor on a Form 1099. As a small business owner, you have no obligation to withhold any type of taxes, the contractor is responsible for taxes on their own.

There are many instances where it is more beneficial for a small business owner to outsource work to an independent contractor. Overall it saves paperwork, you need not provide equipment or supplies and you do not have to withhold taxes. In many cases, the services of an independent contractor will be a more cost effective option.

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Save money with high deductible medical plans

May 15, 2012 by mrice

How High Deductible Medical Plans Save Money

If you’re like most employers, you’ve been squeezed by increasing premiums for health care benefits for yourself and your employees. Chances are, you’re on the lookout for ways to control those escalating health care costs while still providing your workers with the quality coverage for catastrophic care they need for themselves and their families.

That’s where a HDHP/HSA plan comes in.

HDHP/HSA Basics

HDHP/HSA stands for “high deductible health plan/health savings account,” an increasingly popular option among employers. In fact, about 17 percent of all employers have moved to offering HDHP/HSA plans for their employees in order to save money on health insurance premiums. Here’s how it works:

A high-deductible health plan saves on insurance premiums by having employees pick up more of the cost of routine medical care and small emergencies. Since truly major medical events are still comparatively few and far between, a higher deductible goes a long way to helping to control insurance premiums for workers and their employers. Currently, the law requires these plans to set minimum annual deductibles of $1,200 for individual plans, and $2,400 for family plans.

Contributing to an HSA

To help offset the burden of higher deductibles, though, the law also allows those who have a qualified HDHP to contribute pre-tax dollars to a health savings account. Any contributions grow tax free, and can be withdrawn tax free to pay for qualified medical expenses. The catch: Any withdrawals for any purpose other than to pay for qualified medical expenses are subject to income tax and a penalty of 20 percent.

As an employer, you can also match your employee contributions to their own HSA. As of 2012, covered individuals can contribute up to $3,100 for individual plans or $6,250 for family plans each year. though a 20 percent penalty, plus income taxes, applies to withdrawals for any other purpose.

Qualifying

Not everyone can qualify for an HSA. To contribute, you must first own or be covered by an HDHP. You cannot qualify for an HDHP, however, if you also qualify for a traditional major medical plan.

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Put it in writing!

May 10, 2012 by mrice

Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.

The Importance of Written Agreements

While a gentleman’s agreement might be good in theory, generally it is best to avoid this type of agreement as a business owner. Friendship is wonderful, but business is business. Business owners who operate without written agreements may find themselves at substantial risk.

Clarifying Expectations

When you enter into an agreement to provide services, a written agreement serves as a model for defining the responsibilities of each party. Without a written agreement, if a dispute arises, you may find yourself providing services that are beyond your original expectations. Let’s face it, time is money and if you have to spend additional time providing unexpected services, it may cost you significantly.

Payment Expectations

Written contracts leave no room for error on payments. When an agreement is verbal, there may be disputes regarding when payments are made and how much those payments are. Removing any doubt about payment is a crucial component of a well-written small business contract. A written contract also means that if a dispute about payment arises, you have recourse through legal channels.

Disagreements Cause Losses

When you fail to have a written contract with a client or provider, you stand a greater risk of losing time and money. Not only will you find yourself in a “but I said…” situation, you may not have any opportunity to recoup funds that are due to you.

Small business owners should think carefully about accepting any client without a written agreement. While it may initially seem that a handshake is all that is needed to secure the deal, problems may occur later that will cause deep regret. Work with your clients closely, establish a firm policy of working with a written contract and spell out all of the details of your agreement. Should any disagreements occur after the signing of a contract, you will have a written document that proves what everyone agreed to originally.

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Tracking bills in Quickbooks is worth the effort!

May 5, 2012 by mrice

Tracking Bills in QuickBooks, Worth the Effort

Next to payroll, paying bills is probably your least favorite task in QuickBooks. You don’t have to use this feature – you can keep stacking bills on your desk, scrawling the due dates on a paper calendar, and writing checks.

If you’re still operating this way, though, you’re missing out on the numerous tools that QuickBooks offers to track your accounts payable, including the ability to:

Enter bills as they come in

Set reminders for bills due

Pay bills easily

Locate a bill or payment quickly

Enter bills as (or after) you receive items

Link bills to purchase orders

Have instant access to a bill’s status

Settling your debts

It’s good to set reminders for bills. Go to Edit | Preferences and click Reminders. Make sure that that Show Reminders List… box is checked, then click Company Preferences. Find the Bills to Pay row and enter the advance notice you’d like. Indicate whether you want to see a list or a summary, then click OK.

When bills are due, click the Pay Bills icon or select Vendors | Pay Bills. A window opens displaying all outstanding bills. You can pare this down by selecting a date in the Due on or before field and filtering by vendors.

You can easily select the bills you want to pay.

Enter a check mark next to the bills you’re paying, and change the amount in the Amt. To Pay field at the end of the row if necessary. At the bottom of the screen, you can set the payment date and type, use any discounts or credits, and make sure the correct payment account is selected. When you’re done, click Pay Selected Bills.

Tip: You can have credits and discounts automatically applied by going to Edit | Preferences | Bills.

After You’ve Paid Up

There are a number of places where your bills appear in QuickBooks, including:

The Unpaid Bills Detail report

The A/P Aging Detail report

The Vendor Center

QuickReports

In the Recent Transactions pane of some forms

On the bills themselves

You can just pay bills by using Banking | Write Checks or Enter Credit Card Charges. But the payoff for tracking bills is instant access to your accounts payable status, better relations with vendors, and a more insightful accounting of your company.