With a new President and a new Congress, we don’t know yet how much will actually change in 2017 related to taxes and accounting. Here’s what we do know so far…
Santa Claus is coming to town and Uncle Sam isn’t far behind. Here are some year-end tax tips to help ease the pain when you file your 2016 income tax returns. Remember, failing to plan is planning to fail.
Small Business Moves:
Are there any purchases that you’re planning to make in early 2017? If your cash flow allows, purchase the items in 2016 and get the deduction sooner.
In order to defer some income, hold off on invoicing until 2017. Once again, only do this if your cash flow allows.
If you have any stocks that are underperforming, now is a great time to unload them. You can use these losses to offset any capital gains from earlier in the year. You can also offset up to $3,000 against ordinary income (i.e. wage income) so if you have something that isn’t performing like you had hoped, perhaps it’s time to sell.
Conversely, if you have a capital loss carryover from a previous year, it may be a great time to unload a winner. You can offset your current year gains against prior year losses if they are similar gains (long-term gains offset long-term losses, short-term gains offset short-term losses).
If you haven’t maxed out your retirement account contributions, you can contribute more pre-tax dollars and get a tax deduction, thereby lowering your taxable income.
With the holiday season in full swing, it’s a great time to help out in your community or with a cause that is near and dear to you. Even if you don’t have money to contribute, you can still donate clothing, furniture and other goods to local charities and get a deduction for the value of your donation. Be sure to get a receipt and file it with your other tax documents
These are suggestions but this is not all-encompassing. If you have any questions, please do not hesitate to reach out to me.
On May 18, 2016, the United States Department of Labor announced that it is increasing the salary threshold for jobs exempt from overtime from $23,600 annually to $47,476 annually. If you have an employee who is paid $47,476 or less on a salaried basis, you will be required to keep time records for all hours worked and to pay overtime for work in excess of 40 hours in any given week. This new rule becomes effective December 1, 2016.
The Fair Labor Standards Act requires that ALL employees be paid overtime if they work 40 or more hours in any given week. However, in addition to making $47,476 or less, the employee’s position must not fall into a category that is exempt from overtime. Exempt categories include all professional, executive, administrative, computer and outside sales positions.
Bottom line: It’s going to be important to classify employees’ positions correctly and to track hours to ensure there are no grey areas that can get you into trouble. It’s tough enough running a small business. The last thing you want is the Department of Labor breathing down your neck.
There is no doubt that this will have a significant impact on many small businesses. Plan ahead and make sure you understand the full financial impact of this new regulation on your business.
We started 2015 with a very simple plan: focus on working with clients we enjoy working with. We now have a community of clients that share our values, our sense of humor, and our love of GIFs… and we couldn’t be happier. We’re excited to have added so many wonderful clients to the roster and to see many of our existing clients growing, overcoming challenges, and getting more out of their work.
In 2015 our clients reminded us that success takes many forms. Aside from the focus on top line growth and bottom line profit, we saw many clients doing more exciting and engaging work, improving the amount and quality of time they spend with their families, and simply enjoying their day-to-day more than they had been. For 2016 we want to continue that trend, and we look forward to talking with you about what’s driving you forward in the new year.
Thank you for a wonderful 2015. We are truly fortunate to be surrounded by such talented and wonderful human beings. Onward and upward!
Every entrepreneur I know works long, often stressful hours trying to manage staff, clients, and deadlines. It isn’t uncommon to see people putting off their bookkeeping until tax time. This can be a costly mistake. As we’ve talked about in many blog posts (see Cash is King for just one example) there are many reasons why bookkeeping and accounting shouldn’t be at the bottom of your priority list.
At the very least, you need to track your income and expenses monthly. There are several ways to track costs that won’t take a lot of time. We recommend Quickbooks and Xero. There are pros and cons for each, but the main difference is the user interface. You can feel comfortable to choose between the two simply based on which you find more visually appealing. Both systems provide:
Easy to use invoicing modules that allow you to email or print your invoices, as well as track your accounts receivable.
Online banking feeds that allow you to link your online banking for easy integration into the bookkeeping program. This saves you hours in keypunching, as well as ensuring that all transactions are captured.
The ability to run monthly profit and loss reports. Run those and review them as often as you can (once a month is our recommendation).
The best option is to utilize one of these systems in addition to hiring us to act as your CFO. We can help you pinpoint any unusual variances or trends and ensure that you’re maximizing your profits. If you aren’t ready to take that step, at a minimum be sure you know what is coming in and going out monthly.
Every business depends on solid cash flow to be able to run without any hiccups. It’s difficult when cash flow is strained and you have to divert your attention on managing that versus focusing on generating revenues (i.e. running your business).
Visibility into future cash flow is crucial. While sometimes it may feel like you need a crystal ball, there are things you can do to improve your forecasted information.
Understand your fixed expenses
Some costs may fluctuate from month to month but there are expenses such as rent, utilities, insurance, and core staff that remain consistent, or are predictable enough to forecast out a few months into the future. Being mindful of these expenses and always prepared to meet them is crucial to your business’s sustained success.
Know what drives your variable costs
For most of our clients, the biggest variable cost is staffing (payroll and freelancers). Look at your current and projected revenue streams as well as any out of the ordinary big expenses you know you’ll be incurring in the next few months and plot them out. Look for gaps in these figures to gauge if you will need more staff or less. Neither long or short-term hires should be made without having analyzed the information you have available.
Be prepared for what you don’t know
You may not know where the next specific dollar is coming from, but you should have a general idea about how much work you will have (and how much income you will earn) and be able to project when those funds will come into your business. If you can’t answer that question with any certainty you need to have a back-up plan (i.e. capital from partners to the business, bank loan, etc.) to ensure you can stay afloat during a dry spell.
Don’t forget about the terms
While the work may be done over the period of several months, your terms dictate when you will be able to invoice, as well as when you will be paid for your services. Don’t take on a large, long-term project without plotting out when you will be paid for services. For instance, if you have a 3-month project to be billed upon completion and you bill on net 30-day payment terms, you won’t have any cash for 120 days. That’s four months worth of fees and expenses, which is a long time especially for a small business.
Need help puling all of these pieces together, or just a double check on your assumptions? Reach out and ask us about our cash forecasting services so you can run your business with confidence.
If you recently left your full-time job to freelance, start your own business or even retire, you are probably feeling pretty great about not having to work for ‘the man’ any more. But that freedom comes with an asterisk: making quarterly estimated tax payments. While employees have their taxes withheld from their weekly paychecks, self-employed taxpayers are required to pay their own taxes over the course of the year
Minimum payment requirements
Taxpayers are required to pay in at least 100% of either their prior year’s tax or current year’s estimated tax, whichever is lower. For higher income taxpayers whose adjusted gross income was more than $150,000 (or $75,000 if married and filing a separate return) the required amount is 110%. Payments are due in four installments on 4/15, 6/15, 9/15 and 1/15.
Minimum isn’t necessarily best
If your income is fairly stable, you can simply divide last year’s tax by four to calculate your quarterly payments. But if you are like most self-employed there’s a bit more variability. When we have clients who have unpredictable income and/or large swings, we recommend they make their quarterly payments based on what they anticipate owing, rather than just last year’s tax. This helps avoid the dreaded scenario of having made money all year but having none of it left when the tax is due.
What happens if you don’t make estimated payments
The penalty for failure to make estimated tax payments is relatively mild compared to other penalties (3% on the underpaid balance), however we don’t want the IRS getting any more of your $ than they’re entitled.
Sales tax is most commonly associated with items purchased in a store or the extra line item on your restaurant tab. Many people starting a new business don’t realize that it’s not quite that simple, especially in New York City. There are in fact a whole host of things that are not subject to sales tax. But more importantly, there are many services that are subject to sales tax.
We have had several clients start businesses without realizing they have overlooked this important detail. In NYC certain services are subject to a city sales tax, including but not limited to beautician services, tanning, manicure/pedicure, certain exercise classes and, of all things, credit rating services. New York State requires you to register your business for sales tax prior to collecting it. If you don’t register and don’t collect sales tax, you will be responsible for the taxes that you didn’t collect, along with interest and penalties. This is another reason it’s important to give us a call when you start a new business, or offer a new product or service.
For a complete list of what is and what isn’t subject to sales tax, refer to the link below. This list contains many asterisks so it’s important to read the fine print.
A good business will likely grow and with that comes more employees and less control over every aspect of your business. Setting up a well thought out system of internal controls can help to mitigate that. If processes are in place and consistently followed you’ll be better able to ensure that things are running as you would like them to run. Here are some examples:
Pricing: Make sure you have a relatively consistent pricing system. Yes, you can still offer discounts to valued customers/clients, but overall there should be consistency in what you charge for services and products. If you’re a service provider, a standard hourly rate for various types and levels of services is common. For product pricing, use a standard cost multiplier. For instance, if a cog costs you $10, mark it up to $20 or $25 for sale in your retail store. For a manufacturing company, this is a little bit more complex since there are labor costs to incorporate, but the same principle should be applied.
Contract approvals: Make sure everyone knows what they can and cannot contractually sign. For example if you receive orders of goods from a supplier, perhaps any worker can accept up to $500 of goods, but anything over that amount requires manager approval. If negotiating a contract, assign a dollar limit to what employees can commit to without your approval.
Invoice approvals: Assign an approver for each invoice. Each approver should be able to review the invoice, note what the invoice was for, and approve for payment if everything is in order. Assign dollar limits to invoices and make sure the people ordering the items are the ones providing approval. If this is for goods received, you should be able to match the invoice with a packing or order slip.
Check signers: Assign limits to the dollar amounts for which an individual can sign. For instance, all checks under $500 can be signed by one person and anything for more than that requires two signatures.
These may seem simple and obvious but the absence of these processes and control mechanisms is surprisingly common. Taking a bit of time to implement these internal controls will give your business the tools that it needs to grow while still making sure you’re in the driver’s seat.
No this isn’t a blog post about The Brady Bunch, but that was a catchier title than “Third Party Accounting Solutions” and it’s actually pretty relevant. Bear with me and you’ll see how this relates to your growing business…
When it’s time to change, you’ve got to rearrange who you are into what you’re gonna be.
Traditional bookkeeping services are a necessity for any business to get their bills paid and get the books ready for tax time. A good bookkeeper is invaluable to a small business, but there comes a point in any growing business’ path where they need information that a bookkeeper just can’t provide. Here are some of the situations where clients realized it was time to hire us to provide third party accounting solutions:
Cash flow and revenue planning: In many businesses there can be huge cash flow swings throughout the year due to the timing of projects, seasonality of revenues, and other factors that can feel random if you aren’t intentionally planning your cash flow. With our third party accounting we will act as your Chief Financial Officer and will work with you to plan for future cash needs, predict cash shortfalls, and understand your cash flow cycles so you can grow your business with confidence rather than flying by the seat of your checkbook.
Analysis: Understanding how to measure the effectiveness of your efforts is crucial to making smart business decisions. Working with your accounting team can help you break down your revenue streams to find what areas are performing well and which are lagging, as well as diagnose and provide actionable steps to improve profitability. The accounting team can also spot negative trends in expenses and alert you to this so that actions can be taken before the trends become worse.
Process improvement: Many times we find businesses are still holding on to processes that made sense when they were at 10 transactions per month and one employee, but are now a total time-suck when they are at ten or a hundred times that volume. We’ll look at how you handle your invoicing, payables, and other information tracking for not only the best way to handle those processes now, but also the best way to scale them with your growth in the future. We can also work with you on your job estimates and invoicing to ensure that you are costing your jobs properly and not leaving money on the table.
Tax planning: With your bookkeeping and accounting teams working together, taxes can be planned for rather than responded to, and incorporated into your cash flow and growth plans. This means no more sucker punches on April 15th throwing a wrench in your cash flow.
If you think your business is ready for the next step in its growth story, reach out to us and let us help you write the next chapter. Sha na na na, na na na na na, sha na na na na…