Is it time to upgrade your business’s accounting software?
By now, just about every company uses some kind of accounting software to track, manage and report its financial transactions. Many businesses end up using several different types of software to handle different accounting-related functions. Others either immediately or eventually opt for a comprehensive solution that addresses all their needs.
Although there’s some truth to the old expression “if it ain’t broke, don’t fix it,” companies often soldier on for years with inefficient or outdated accounting software. How do you know when it’s time to upgrade? Look for certain telltale signs.
It’s slowing us down
Accounting software is intended to make your and your employees’ lives easier. Among its primary purposes are to automate repetitive tasks, save time and provide quicker access to financial insights. If you or your staff are spending an inordinate amount of time wrestling with your current software to garner such benefits, an upgrade may be in order.
There’s also the issue of whether and how your business has grown recently. While some software developers market their products as “scalable” — that is, able to expand functionality right along with users’ needs — your mileage may vary. Keep a running list of the accounting functions your company needs and use it to assess the viability of your software.
Some lack of functionality can be relatively obvious. For example, many employees today need mobile access to accounting data, whether because they’re working remotely or traveling for the business. If your software makes this difficult — or, more dangerously, lacks trustworthy cybersecurity — it may be time to upgrade.
In addition, think about integration. As mentioned, some companies wind up using several different kinds of accounting-related software, and these various products may not “play well” together. In such cases, upgrading to a broader solution is worth considering.
There are various products specifically designed for small businesses. Growing midsize companies might be ready for enterprise resource planning (ERP) software, which integrates accounting with other functions such as inventory, sales and marketing, and human resources.
It’s getting us in trouble
The accounting software needs of most businesses tend to gradually evolve over time, making it tough to decide when to invest in an upgrade. However, there are some glaring red flags that can make the decision much easier — though they can also pressure companies into making a rushed purchase of new technology.
For instance, though privately owned companies aren’t required to follow the same accounting standards as publicly held ones, they still need sound financial reporting for tax purposes and possibly to comply with state or local regulations. If you’ve run into trouble with tax authorities or other agencies because of accounting mistakes or inconsistencies, an upgrade could help.
And, of course, financial reporting isn’t only about taxes and compliance, it plays a huge role in obtaining loans, attracting investors, and perhaps winning bids or arranging joint ventures. If you and your leadership team believe you’re being outcompeted because you can’t make the right strategic moves, investing in better accounting software may be one of the steps you need to take.
Last but not least, we mentioned cybersecurity above, but it bears repeating: Any indication that your accounting software is vulnerable to hackers or internal fraud should be regarded as an immediate call to action. Fortify your existing software or find a more secure product.
Business imperative
Long gone are the days when companies could rely on a dusty ledger and ink to record their financial transactions. The right accounting software is a business imperative. We’d be happy to help you assess your current needs and decide whether now’s the time to upgrade.
© 2024
Taking your spouse on a business trip? Can you write off the costs?
A recent report shows that post-pandemic global business travel is going strong. The market reached $665.3 billion in 2022 and is estimated to hit $928.4 billion by 2030, according to a report from Research and Markets. If you own your own company and travel for business, you may wonder whether you can deduct the costs of having your spouse accompany you on trips.
Is your spouse an employee?
The rules for deducting a spouse’s travel costs are very restrictive. First of all, to qualify for the deduction, your spouse must be your employee. This means you can’t deduct the travel costs of a spouse, even if his or her presence has a bona fide business purpose, unless the spouse is an employee of your business. This requirement prevents tax deductibility in most cases.
If your spouse is your employee, you can deduct his or her travel costs if his or her presence on the trip serves a bona fide business purpose. Merely having your spouse perform some incidental business service, such as typing up notes from a meeting, isn’t enough to establish a business purpose. In general, it isn’t enough for his or her presence to be “helpful” to your business pursuits — it must be necessary.
In most cases, a spouse’s participation in social functions, for example as a host or hostess, isn’t enough to establish a business purpose. That is, if his or her purpose is to establish general goodwill for customers or associates, this is usually insufficient. Further, if there’s a vacation element to the trip (for example, if your spouse spends time sightseeing), it will be more difficult to establish a business purpose for his or her presence on the trip. On the other hand, a bona fide business purpose exists if your spouse’s presence is necessary to care for a serious medical condition that you have.
If your spouse’s travel satisfies these requirements, the normal deductions for business travel away from home can be claimed. These include the costs of transportation, meals, lodging, and incidental costs such as dry cleaning, phone calls, etc.
What if your spouse isn’t an employee?
Even if your spouse’s travel doesn’t satisfy the requirements, however, you may still be able to deduct a substantial portion of the trip’s costs. This is because the rules don’t require you to allocate 50% of your travel costs to your spouse. You need only allocate any additional costs you incur for him or her. For example, in many hotels the cost of a single room isn’t that much lower than the cost of a double. If a single would cost you $150 a night and a double would cost you and your spouse $200, the disallowed portion of the cost allocable to your spouse would only be $50. In other words, you can write off the cost of what you would have paid traveling alone. To prove your deduction, ask the hotel for a room rate schedule showing single rates for the days you’re staying.
And if you drive your own car or rent one, the whole cost will be fully deductible even if your spouse is along. Of course, if public transportation is used, and for meals, any separate costs incurred by your spouse aren’t deductible.
Have questions?
You want to maximize all the tax breaks you can claim for your small business. Contact us if you have questions or need assistance with this or other tax-related issues.
© 2024
If you didn’t contribute to an IRA last year, there’s still time
If you’re gathering documents to file your 2023 tax return and you’re concerned that your tax bill may be higher than you’d like, there might still be an opportunity to lower it. If you qualify, you can make a deductible contribution to a traditional IRA right up until the April 15, 2024, filing date and benefit from the tax savings on your 2023 return.
Who is eligible?
You can make a deductible contribution to a traditional IRA if:
- You and your spouse aren’t active participants in an employer-sponsored retirement plan, or
- You or your spouse are an active participant in an employer plan, but your modified adjusted gross income (AGI) doesn’t exceed certain levels that vary from year to year by filing status.
For 2023, if you’re a joint tax return filer and you are covered by an employer plan, your deductible IRA contribution phases out over $116,000 to $136,000 of modified AGI. If you’re single or a head of household, the phaseout range is $73,000 to $83,000 for 2023. For married filing separately, the phaseout range is $0 to $10,000. For 2023, if you’re not an active participant in an employer-sponsored retirement plan, but your spouse is, your deductible IRA contribution phases out with modified AGI of $218,000 to $228,000.
Deductible IRA contributions reduce your current tax bill, and earnings within the IRA are tax deferred. However, every dollar you take out is taxed in full (and subject to a 10% penalty before age 59½, unless one of several exceptions apply).
IRAs are often referred to as “traditional IRAs” to differentiate them from Roth IRAs. You also have until April 15 to make a Roth IRA contribution. But while contributions to a traditional IRA are deductible, contributions to a Roth IRA aren’t. However, withdrawals from a Roth IRA are tax-free as long as the account has been open at least five years and you’re age 59½ or older. (There are also income limits to contribute to a Roth IRA.)
Here are two other IRA strategies that may help you save tax:
1. Turn a nondeductible Roth IRA contribution into a deductible IRA contribution. Did you make a Roth IRA contribution in 2023? That may help you in the future when you take tax-free payouts from the account. However, the contribution isn’t deductible. If you realize you need the deduction that a traditional IRA contribution provides, you can change your mind and turn a Roth IRA contribution into a traditional IRA contribution via the “recharacterization” mechanism. The traditional IRA deduction is then yours if you meet the requirements described above.
2. Make a deductible IRA contribution, even if you don’t work. In general, you can’t make a deductible traditional IRA contribution unless you have wages or other earned income. However, an exception applies if your spouse is the wage earner and you’re a stay-at-home parent or homemaker. In this case, you may be able to take advantage of a spousal IRA.
What’s the contribution limit?
For 2023 if you’re eligible, you can make a deductible traditional IRA contribution of up to $6,500 ($7,500 if you’re 50 or over).
In addition, small business owners can set up and contribute to a Simplified Employee Pension (SEP) plan up to the due date for their returns, including extensions. For 2023, the maximum contribution you can make to a SEP is $66,000.
If you want more information about IRAs or SEPs, contact us or ask about it when we’re preparing your return. We can help you save the maximum tax-advantaged amount for retirement.
© 2024
Small businesses can help employees save for retirement, too
Many small business owners run their companies as leanly as possible. This often means not offering what are considered standard fringe benefits for midsize or larger companies, such as a retirement plan.
If this is the case for your small business, don’t give up on the idea of helping your employees save for retirement in a tax-advantaged manner. When you’re ready, there are a couple account-based options that are relatively simple and inexpensive to launch and administrate.
SEP IRAs
Simplified Employee Pension IRAs (SEP IRAs) are individual accounts that small businesses establish on behalf of each participant. (Self-employed individuals can also establish SEP IRAs.) Participants own their accounts, so they’re immediately 100% vested. If a participant decides to leave your company, the account balance goes with them — most people roll it over into a new employer’s qualified plan or traditional IRA.
What are the advantages for you? SEP IRAs don’t require annual employer contributions. That means you can choose to contribute only when cash flow allows.
In addition, there are typically no setup fees for SEP IRAs, though participants generally must pay trading commissions and fund expense ratios (a fee typically set as a percentage of the fund’s average net assets). In 2024, the contribution limit is $69,000 (up from $66,000 in 2023) or up to 25% of a participant’s compensation. That amount is much higher than the 2024 limit for 401(k)s, which is $23,000 (up from $22,500 in 2023).
What’s more, employer contributions are tax-deductible. Meanwhile, participants won’t pay taxes on their SEP IRA funds until they’re withdrawn.
There are some disadvantages to consider. Although participants own their accounts, only employers can make SEP IRA contributions. And if you contribute sparsely or sporadically, participants may see little value in the accounts. Also, unlike many other qualified plans, SEP IRAs don’t permit participants age 50 or over to make additional “catch-up” contributions.
SIMPLE IRAs
Another strategy is to offer employees SIMPLE IRAs. (“SIMPLE” stands for “Savings Incentive Match Plan for Employees.”) As is the case with SEP IRAs, your business creates a SIMPLE IRA for each participant, who’s immediately 100% vested in the account. Unlike SEP IRAs, SIMPLE IRAs allow participants to contribute to their accounts if they so choose.
SIMPLE IRAs are indeed relatively simple to set up and administer. They don’t require the sponsoring business to file IRS Form 5500, “Annual Return/Report of Employee Benefit Plan.” Nor must you submit the plan to nondiscrimination testing, which is generally required for 401(k)s.
Meanwhile, participants face no setup fees and enjoy tax-deferred growth on their account funds. Best of all, they can contribute more to a SIMPLE IRA than they can to a self-owned traditional or Roth IRA. The 2024 contribution limit for SIMPLE IRAs is $16,000 (up from $15,500 in 2023), and participants age 50 or over can make catch-up contributions to the tune of $3,500 this year (unchanged from last year).
On the downside, that contribution limit is lower than the limit for 401(k)s. Also, because contributions are made pretax, participants can’t deduct them, nor can they take out plan loans. Then again, making pretax contributions does lower their taxable income.
Perhaps most important is that employer contributions to SIMPLE IRAs are mandatory — you can’t skip them if cash flow gets tight. However, generally, you may deduct contributions as a business expense.
Is now the time?
Overall, the job market remains somewhat tight and, in some industries, the competition for skilled labor is fierce. Offering one of these IRA types may enable you to attract and retain quality employees more readily. Some small businesses may even qualify for a tax credit if they start a SEP IRA, SIMPLE IRA or other eligible plan. We can help you decide whether now is the right time to do so.
© 2024