Does Your Accountant Ever Call You?
The world is a bit different now and the nature of tax, finance, and accounting is evolving rapidly. The role of the Certified Public Accountant (CPA) is changing. Taxpayers want value-driven relationships instead of transactional exchanges in the hurried weeks of tax filing season.
This begs the question – Does your accountant ever call you?
You may be asking, “Why should my accountant call me?” The answer is the accountant that calls you is proactively and strategically thinking about your tax planning. The accountant that isn’t calling is waiting for tax season to come so they can shuffle a few numbers, fill out a few forms, and get your return out the door along with several hundred others. Don’t get me wrong – tax compliance is important and essential. It’s a key part of what CPAs do but… it’s not the solution for reducing your tax bill.
How do you find tax savings? Tax-Planning.
Strategic tax planning and the execution of those plans over many years is the way to reduce your tax bill. Remember, taxes are something most people will have to pay, every year, for almost their entire lives. Also remember, all the money that you have to live on, invest, grow, and improve you and your family’s life is what is left AFTER taxes. Tax reduction over your lifetime is one of the keys to wealth building. The wealthy know this, and the Internal Revenue Code is designed to provide opportunities to those that seek them.
The accountant that calls you is the accountant that cares. If he or she can’t reach you by phone, they e-mail. If not e-mail, then mail. If not mail – carrier pigeon? I think you follow.
The point is that the modern CPA should be taking a proactive role in educating you on, and initiating, tax planning. They see you every year in the spring – but what about July or November? Mid-year conversations are the cornerstone of successful planning. Tax planning can be as simple as a 30-minute conversation to discuss a life event (baby on the way?) or a major transaction (how about that home sale you’re contemplating?). It can also be as detailed as multi-scenario tax projections to show you the exact impact of strategies, in dollars, over many years.
Get an accountant that cares enough to call. A good strategy can serve you for many years – a check in once or twice a year can be used to update that strategy as you go. No surprise tax bills, no missed opportunities after the close of the year – just life-long savings and more money in your pocket.
Want to learn more about working with a modern CPA who is focused on your strategic tax planning?
Contact us today using the form below:
2020 Q1 tax calendar: Key deadlines for businesses and other employers
Here are some of the key tax-related deadlines affecting
businesses and other employers during the first quarter of 2020. Keep in mind
that this list isn’t all-inclusive, so there may be additional deadlines that
apply to you. Contact us to ensure you’re meeting all applicable deadlines and
to learn more about the filing requirements.
January 31
- File 2019 Forms W-2, “Wage and Tax Statement,” with the
Social Security Administration and provide copies to your employees. - Provide copies of 2019 Forms 1099-MISC, “Miscellaneous
Income,” to recipients of income from your business where required. - File 2019 Forms 1099-MISC reporting nonemployee
compensation payments in Box 7 with the IRS. - File Form 940, “Employer’s Annual Federal Unemployment
(FUTA) Tax Return,” for 2019. If your undeposited tax is $500 or less, you
can either pay it with your return or deposit it. If it’s more than $500,
you must deposit it. However, if you deposited the tax for the year in
full and on time, you have until February 10 to file the return. - File Form 941, “Employer’s Quarterly Federal Tax
Return,” to report Medicare, Social Security and income taxes withheld in
the fourth quarter of 2019. If your tax liability is less than $2,500, you
can pay it in full with a timely filed return. If you deposited the tax
for the quarter in full and on time, you have until February 10 to file
the return. (Employers that have an estimated annual employment tax
liability of $1,000 or less may be eligible to file Form 944, “Employer’s
Annual Federal Tax Return.”) - File Form 945, “Annual Return of Withheld Federal
Income Tax,” for 2019 to report income tax withheld on all nonpayroll
items, including backup withholding and withholding on accounts such as
pensions, annuities and IRAs. If your tax liability is less than $2,500,
you can pay it in full with a timely filed return. If you deposited the
tax for the year in full and on time, you have until February 10 to file
the return.
February 28
- File 2019 Forms 1099-MISC with the IRS if 1) they’re
not required to be filed earlier and 2) you’re filing paper copies.
(Otherwise, the filing deadline is March 31.)
March 16
- If a calendar-year partnership or S corporation, file
or extend your 2019 tax return and pay any tax due. If the return isn’t
extended, this is also the last day to make 2019 contributions to pension
and profit-sharing plans.
© 2019
2 valuable year-end tax-saving tools for your business
At this time of year, many business owners ask if there’s anything they can do to save tax for the year. Under current tax law, there are two valuable depreciation-related tax breaks that may help your business reduce its 2019 tax liability. To benefit from these deductions, you must buy eligible machinery, equipment, furniture or other assets and place them into service by the end of the tax year. In other words, you can claim a full deduction for 2019 even if you acquire assets and place them in service during the last days of the year.
The Section 179 deduction
Under Section 179, you can deduct (or expense) up to 100% of the cost of qualifying assets in Year 1 instead of depreciating the cost over a number of years. For tax years beginning in 2019, the expensing limit is $1,020,000. The deduction begins to phase out on a dollar-for-dollar basis for 2019 when total asset acquisitions for the year exceed $2,550,000.
Sec. 179 expensing is generally available for most depreciable property (other than buildings) and off-the-shelf computer software. It’s also available for:
- Qualified improvement property (generally, any interior improvement to a building’s interior, but not for the internal structural framework, for enlarging a building, or for elevators or escalators),
- Roofs, and
- HVAC, fire protection, alarm, and security systems.
The Sec. 179 deduction amount and the ceiling limit are significantly higher than they were a few years ago. In 2017, for example, the deduction limit was $510,000, and it began to phase out when total asset acquisitions for the tax year exceeded $2.03 million.
The generous dollar ceiling that applies this year means that many small and medium sized businesses that make purchases will be able to currently deduct most, if not all, of their outlays for machinery, equipment and other assets. What’s more, the fact that the deduction isn’t prorated for the time that the asset is in service during the year makes it a valuable tool for year-end tax planning.
Bonus depreciation
Businesses can claim a 100% bonus first year depreciation deduction for machinery and equipment bought new or used (with some exceptions) if purchased and placed in service this year. The 100% deduction is also permitted without any proration based on the length of time that an asset is in service during the tax year.
Business vehicles
It’s important to note that Sec. 179 expensing and bonus depreciation may also be used for business vehicles. So buying one or more vehicles before December 31 may reduce your 2019 tax liability. But, depending on the type of vehicle, additional limits may apply.
Businesses should consider buying assets now that qualify for the liberalized depreciation deductions. Please contact us if you have questions about depreciation or other tax breaks.
Small businesses: Get ready for your 1099-MISC reporting requirements
A month after the new year begins, your business may be required to comply with rules to report amounts paid to independent contractors, vendors and others. You may have to send 1099-MISC forms to those whom you pay nonemployee compensation, as well as file copies with the IRS. This task can be time consuming and there are penalties for not complying, so it’s a good idea to begin gathering information early to help ensure smooth filing.
Deadline
There are many types of 1099 forms. For example, 1099-INT is sent out to report interest income and 1099-B is used to report broker transactions and barter exchanges. Employers must provide a Form 1099-MISC for nonemployee compensation by January 31, 2020, to each noncorporate service provider who was paid at least $600 for services during 2019. (1099-MISC forms generally don’t have to be provided to corporate service providers, although there are exceptions.)
A copy of each Form 1099-MISC with payments listed in box 7 must also be filed with the IRS by January 31. “Copy A” is filed with the IRS and “Copy B” is sent to each recipient.
There are no longer any extensions for filing Form 1099-MISC late and there are penalties for late filers. The returns will be considered timely filed if postmarked on or before the due date.
A few years ago, the deadlines for some of these forms were later. But the earlier January 31 deadline for 1099-MISC was put in place to give the IRS more time to spot errors on tax returns. In addition, it makes it easier for the IRS to verify the legitimacy of returns and properly issue refunds to taxpayers who are eligible to receive them.
Gathering information
Hopefully, you’ve collected W-9 forms from independent contractors to whom you paid $600 or more this year. The information on W-9s can be used to help compile the information you need to send 1099-MISC forms to recipients and file them with the IRS. Here’s a link to the Form W-9 if you need to request contractors and vendors to fill it out: https://bit.ly/2NQvJ5O.
Form changes coming next year
In addition to payments to independent contractors and vendors, 1099-MISC forms are used to report other types of payments. As described above, Form 1099-MISC is filed to report nonemployment compensation (NEC) in box 7. There may be separate deadlines that report compensation in other boxes on the form. In other words, you may have to file some 1099-MISC forms earlier than others. But in 2020, the IRS will be requiring “Form 1099-NEC” to end confusion and complications for taxpayers. This new form will be used to report 2020 nonemployee compensation by February 1, 2021.
Help with compliance
But for nonemployee compensation for 2019, your business will still use Form 1099-MISC. If you have questions about your reporting requirements, contact us.
Is multicloud computing right for your business?
Cloud computing — storing data and accessing apps via the Internet — has been widely adopted by businesses across industry and size. Like many technological advances, though, new derivatives continue to emerge — including so-called multicloud computing.
Under this approach, companies don’t rely on a single cloud service; rather, they distribute their data and computing needs among several providers. Popular options include Amazon Web Services (AWS), Google Cloud Platform and Microsoft Azure.
Various advantages
The strategy offers various advantages. For example, like any cloud computing arrangement, it provides scalability. As your needs expand or drop, you can readily adjust your storage capabilities to keep a lid on costs.
Multicloud computing also is a way to hedge your bets. Every cloud provider has downtime at some point but, if you use multiple clouds, you can switch critical workloads and applications to a cloud that’s up and running. And it helps you avoid “vendor lock-in,” or getting restricted to a single provider’s infrastructure, add-on services and pricing models.
Improved performance is another factor. Using several providers based relatively close to you geographically means fewer “network hops” between servers. This reduces latency (the delay between a user’s request and the provider’s response), jitter, packet loss and other disruptions.
Many businesses prefer the “a la carte” nature of multicloud computing. Different providers may have different features that you need to meet your technical or business requirements. For instance, you might choose a pricier but more secure cloud for applications with sensitive data and a cheaper alternative for less sensitive data. Similarly, a business that relies heavily on Windows might use Azure for internal operations but tap AWS for its website and Google Cloud for machine learning.
Potential pitfalls
Some companies find themselves engaging in multicloud computing without ever deciding to do so. Unintentional multiclouds can result from “shadow IT,” whereby different departments or business units start using public clouds on their own accord and then one day turn to IT for help.
Whether multicloud computing develops from shadow IT or a conscious strategic decision, it comes with potential pitfalls. Managing multiple clouds can prove complex. You can use integrated suites of software known as “cloud management platforms” to administer multiple clouds. But these platforms tend to take a “least common denominator” approach, treating multiple clouds as a single cloud by focusing on storage, network and computing functions. As a result, you may find it difficult to leverage each cloud provider’s distinctively useful features.
Total costs
Last but certainly not least, you must consider the total cost of ownership of any multicloud strategy. Although the availability of alternative providers may increase your bargaining power, the cost of paying several vendors can go beyond the upfront prices and monthly fees. You may also incur additional fees for items such as licensing and integration. We can help you perform a cost-benefit analysis of any multicloud solution you’re considering.
© 2019
A shadow board could shed light on your company’s best future
In many industries, market conditions move fast. Businesses that don’t have their ears to the ground can quickly get left behind. That’s just one reason why some of today’s savviest companies are establishing so-called “shadow” (or “mirror”) boards composed of younger, nonexecutive employees who are on the front lines of changing tastes and lifestyles.
Generational change
Millennials — people who were born between approximately 1981 and 1996 — have been flooding the workplace for years now. Following close behind them is Generation Z, those born around the Millennium and now coming of age a couple of decades later.
Despite this influx of younger minds and ideas, many businesses are still run solely by older boards of directors that, while packed with experience and wisdom, might not stay closely attuned to the latest demographic-driven developments in hiring, product or service development, technology, and marketing.
A shadow board of young employees that meets regularly with the actual board (or management team) can help you overcome this hurdle. Ideally, the two boards mentor each other. The older generation shares their hard-earned lessons on leadership, governance, professionalism and the like, while the younger employees keep the senior board abreast of the latest trends, concerns and communication tools among their cohort.
Other benefits
You also can tap the shadow board for their input on issues that directly affect them. For example, would they welcome a new employee benefit under consideration or regard it as irrelevant? Similarly, you can use the board to “test drive” strategies targeting their generation before you get too far down the road.
And your shadow board can serve as generator of new initiatives and innovations, both employee- and customer-facing. Some companies with shadow boards have ended up overhauling their processes, procedures and even business models based on ideas that first emerged from the younger employees’ input.
Another benefit? Shadow boards can keep traditionally job-hopping Millennials from jumping ship. Many are eager to get ahead, often before they’re equipped to do so, and they don’t hesitate to look elsewhere. Selecting younger employees for a shadow board sends them the message that you see their potential and are invested in grooming them for bigger and better things. It also facilitates succession planning, a practice too many businesses overlook.
The right approach
Don’t establish a shadow board just for appearances or without true commitment. That can do more harm than good. Younger generations see lip service for what it is, and word will spread fast if you’re ignoring the shadow board or refusing to seriously consider its input. When done right, this innovative effort can pay off in the long run for everyone involved. Our firm can help you further explore the financial and strategic feasibility of the idea.
© 2019
At the very least, update the financials in your business plan
Every new company should launch with a business plan and keep it updated. Generally, such a plan will comprise six sections: executive summary, business description, industry and marketing analysis, management team description, implementation plan, and financials.
Now, ideally, you would comprehensively update each section every year. But if the size, shape and objectives of your company haven’t changed all that much, you may not need to make major revisions to the entire plan. However, at the very least, you should always review and revise your financials.
Explain your route
Lenders, investors and other interested parties understand that descriptions of a business or industry analysis may be subject to interpretation. But financials are a different matter — they need to add up (literally and figuratively) and contain realistic projections in today’s dollars.
For example, suppose a company with $10 million in sales in 2019 expects to double that figure over a three-year period. How will you get from Point A ($10 million in 2019) to Point B ($20 million in 2023)? Many roads may lead to the desired destination; your business plan must explain its route.
Let’s say your management team decides to double sales by hiring four new salespeople and acquiring the assets of a bankrupt competitor. These assumptions will drive the projected income statement, balance sheet and cash flow statement referenced in your business plan.
Justify assumptions
When projecting the income statement, you’ll need to make assumptions about variable and fixed costs. Direct materials are generally considered variable. Salaries and rent are usually fixed. But many fixed costs can be variable over the long term. Consider rent: Once a lease expires, you could relocate to a different facility to accommodate changes in size.
Balance sheet items — receivables, inventory, payables and so on — are generally expected to grow in tandem with revenues. The financials in your business plan must accurately and reasonably justify the assumptions you’re making about your minimum cash balance, as well as debt increases or decreases to keep the balance sheet balanced. And these amounts must be current.
From a lending perspective, your bank will be expected to fund any cash shortfalls that take place as the company grows. So, realistic cash flow projections in your business plan are particularly critical. The financials section should outline how much financing you’ll need, how you intend to use those funds and when you expect to repay the loan(s).
Keep it fresh
Your business plan needs to tell an accurate, objective story of your company — where it’s been, where it is right now and where it’s heading. Keep the whole thing as fresh as possible but pay special attention to the numbers. We can help you review your financials, arrive at reasonable assumptions, and express your objectives and projections clearly.
© 2019
Setting up a Health Savings Account for your small business
Given the escalating cost of employee health care benefits, your business may be interested in providing some of these benefits through an employer-sponsored Health Savings Account (HSA). For eligible individuals, HSAs offer a tax-advantaged way to set aside funds (or have their employers do so) to meet future medical needs. Here are the key tax benefits:
- Contributions that participants make to an HSA are deductible, within limits.
- Contributions that employers make aren’t taxed to participants.
- Earnings on the funds within an HSA aren’t taxed, so the money can accumulate year after year tax free.
- HSA distributions to cover qualified medical expenses aren’t taxed.
- Employers don’t have to pay payroll taxes on HSA contributions made by employees through payroll deductions.
Who is eligible?
To be eligible for an HSA, an individual must be covered by a “high deductible health plan.” For 2019, a “high deductible health plan” is one with an annual deductible of at least $1,350 for self-only coverage, or at least $2,700 for family coverage. For self-only coverage, the 2019 limit on deductible contributions is $3,500. For family coverage, the 2019 limit on deductible contributions is $7,000. Additionally, annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits cannot exceed $6,750 for self-only coverage or $13,500 for family coverage.
An individual (and the individual’s covered spouse, as well) who has reached age 55 before the close of the tax year (and is an eligible HSA contributor) may make additional “catch-up” contributions for 2019 of up to $1,000.
Employer contributions
If an employer contributes to the HSA of an eligible individual, the employer’s contribution is treated as employer-provided coverage for medical expenses under an accident or health plan and is excludable from an employee’s gross income up to the deduction limitation. There’s no “use-it-or-lose-it” provision, so funds can be built up for years. An employer that decides to make contributions on its employees’ behalf must generally make comparable contributions to the HSAs of all comparable participating employees for that calendar year. If the employer doesn’t make comparable contributions, the employer is subject to a 35% tax on the aggregate amount contributed by the employer to HSAs for that period.
Distributions
HSA distributions can be made to pay for qualified medical expenses, which generally mean those expenses that would qualify for the medical expense itemized deduction. They include expenses such as doctors’ visits, prescriptions, chiropractic care and premiums for long-term care insurance.
If funds are withdrawn from the HSA for other reasons, the withdrawal is taxable. Additionally, an extra 20% tax will apply to the withdrawal, unless it’s made after reaching age 65, or in the event of death or disability.
As you can see, HSAs offer a flexible option for providing health care coverage, but the rules are somewhat complex. Contact us if you’d like to discuss offering this benefit to your employees.
© 2019
6 ways to ensure your marketing plan drives sales
“Love and marriage,” goes the old song: “…You can’t have one without the other.” This also holds true for sales and marketing. Even the best of sales staffs will struggle if not supported by a well-researched and carefully executed marketing plan. Here are six ways to ensure your marketing plan is likely to drive strong sales:
1. Keep customers aware of all your products and services. Among the fundamental objectives of any marketing plan is to familiarize those who buy from you with everything you’re offering. But what often happens is that customers get overly focused on just a few products or services, which in turn limits sales. Make sure your marketing plan maintains the visibility of your total product or service line.
2. Distinguish your products and services from those of competitors. Your salespeople will stand a much greater chance of success if your customers believe you’re the only place to get precisely what they’re looking for. Your marketing plan should emphasize the distinctive value offered by your products or services and how they differ from those of competitors. A key part of this effort involves monitoring the competition’s marketing activities and responding in kind.
3. Benchmark your marketing/advertising budgets. Are competitors outspending you? If so, your sales staff is fighting an uphill battle. To find out, use competitive intelligence and publicly available industry data to determine the average marketing and advertising budgets for companies of similar size and specialty in your area.
4. Search for new markets. While your sales staff is out on the front lines, your marketing team needs to be spending time back at the office looking for additional buyers (or types of buyers). Undertake this research carefully and methodically. When you believe you’ve found a new market, adjust your marketing plan as necessary and train salespeople on how to best traverse this unfamiliar terrain.
5. Track new leads generated through marketing. A good marketing plan not only keeps existing customers engaged and informed, but also pulls in new prospects. Do you know how successful your company has been at doing so? Your sales team may be able to generate some leads themselves, but your marketing department must do its fair share. If it’s not, something needs to change.
6. Update your marketing plan regularly. Coming up with a comprehensive, viable marketing plan isn’t easy. Once they’ve got one, many businesses make the mistake of sticking with it too long, leaving their sales departments to struggle in a dynamic, ever-changing marketplace.
Review your marketing plan often, at least quarterly, and adjust it based on both hard numbers (metrics and sales results) and feedback from your sales staff. Our firm can help you identify, track and better understand the analytical data that aligns a good marketing plan with strong sales figures.
© 2019
How to treat your business website costs for tax purposes
These days, most businesses need a website to remain competitive. It’s an easy decision to set one up and maintain it. But determining the proper tax treatment for the costs involved in developing a website isn’t so easy.
That’s because the IRS hasn’t released any official guidance on these costs yet. Consequently, you must apply existing guidance on other costs to the issue of website development costs.
Hardware and software
First, let’s look at the hardware you may need to operate a website. The costs involved fall under the standard rules for depreciable equipment. Specifically, once these assets are up and running, you can deduct 100% of the cost in the first year they’re placed in service (before 2023). This favorable treatment is allowed under the 100% first-year bonus depreciation break.
In later years, you can probably deduct 100% of these costs in the year the assets are placed in service under the Section 179 first-year depreciation deduction privilege. However, Sec. 179 deductions are subject to several limitations.
For tax years beginning in 2019, the maximum Sec. 179 deduction is $1.02 million, subject to a phaseout rule. Under the rule, the deduction is phased out if more than a specified amount of qualified property is placed in service during the year. The threshold amount for 2019 is $2.55 million.
There’s also a taxable income limit. Under it, your Sec. 179 deduction can’t exceed your business taxable income. In other words, Sec. 179 deductions can’t create or increase an overall tax loss. However, any Sec. 179 deduction amount that you can’t immediately deduct is carried forward and can be deducted in later years (to the extent permitted by the applicable limits).
Similar rules apply to purchased off-the-shelf software. However, software license fees are treated differently from purchased software costs for tax purposes. Payments for leased or licensed software used for your website are currently deductible as ordinary and necessary business expenses.
Software developed internally
If your website is primarily for advertising, you can also currently deduct internal website software development costs as ordinary and necessary business expenses.
An alternative position is that your software development costs represent currently deductible research and development costs under the tax code. To qualify for this treatment, the costs must be paid or incurred by December 31, 2022.
A more conservative approach would be to capitalize the costs of internally developed software. Then you would depreciate them over 36 months.
Third party payments
Some companies hire third parties to set up and run their websites. In general, payments to third parties are currently deductible as ordinary and necessary business expenses.
Before business begins
Start-up expenses can include website development costs. Up to $5,000 of otherwise deductible expenses that are incurred before your business commences can generally be deducted in the year business commences. However, if your start-up expenses exceed $50,000, the $5,000 current deduction limit starts to be chipped away. Above this amount, you must capitalize some, or all, of your start-up expenses and amortize them over 60 months, starting with the month that business commences.
We can help
We can determine the appropriate treatment for these costs for federal income tax purposes. Contact us if you have questions or want more information.
© 2019