New 2018 Tax Withholdings May Bring an Unwanted Surprise

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The Treasury Department recently announced revisions to the 2018 withholding tables to reflect the changes spurred by the Tax Cuts and Jobs Act (TCJA).  Included in the law, employers can use worker’s existing W-4 Forms already on file to make the adjustments to their withholding.

 

What that means for employers:

Since it isn’t mandatory for employees to review their W-4 form after their initial employment, employers may want to reach out to workers to encourage them to thoroughly review their pay stubs after the first payroll with the new withholding rates. Additionally, new forms will be forthcoming from the IRS, so employers will need to again communicate with workers about completing the new form to update their individual withholdings.

 

What the changes mean for workers:

Some 90 percent of workers will see an increase in their weekly pay as a result of the TCJA according to Government estimates. The Tax Policy Center estimates that about 80 percent of all filers will see a tax cut, while approximately 5 percent will see an increase, and no change for the remaining 15 percent.

 

What’s the issue?

Many Americans haven’t reviewed or even seen their W-4 Form since they were hired, so changes to the withholding could have more serious impact on a family that has grown or shrank over the years. Tax payers who are either under or over-withholding aren’t going to see the full impact of the change until it comes time to pay their 2018 income taxes – too late to make what could be costly changes.  “The results could vary dramatically from one individual to the next,” says Steven Feinberg, CPA and owner of Appletree Business Services in Londonderry, NH. “We are encouraging both employers and employees to review their withholdings,  compare it to their current situation and make any necessary changes now rather than waiting a full year to see what the impact might be.”

New Tax Brackets for 2018

Single Rate Married
Above $500,000 37% Above $600,000
$200,001-$500,000 35% $400,001-$600,000
$157,501-$200,000 32% $315,001-$400,000
$82,501-$157,500 24% $165,001-$315,000
$38,701 -$82,500 22% $77,401-$165,000
$9,526-$38,700 12% $19,051-$77,400
Up to $9,525 10% Up to $19,050

Source: Joint Explanatory Statement of the Committee of Conference, H.R.1

The new withholding tables have been adjusted to include new larger standard deductions, lower tax rates and the repeal of the personal exemption. What the tables couldn’t include is how the changes would affect individuals differently. For example, the reducing alternative minimum tax, expanded child credits and repeal of deductions on the state and local levels. All of these items can come into play and impact what an individual might normally ‘expect’ for an annual tax refund.

 

Tax officials at the US Treasury and the IRS are working on a revised W-4 form, which they hope to release sometime in February 2018.

 

Those at risk for under-withholding could include employees who receive bonuses, stock options or commissions because the withholding rate for that population has dropped from 25 percent to 22 percent. Additionally, parents with dependents over the age of 17 are also losing a key tax credit of $2,000, replacing it with just $500. Couple that with the loss of the personal exemption, and those tax cuts aren’t looking nearly as attractive as they were on the surface.

 

Another item to remember is that the tax penalty for underpayment, meaning the requirement of taxpayers to pay in at least 90 percent of what they owe by April 15th still carries a 4 percent interest rate quarterly. “Waiting and finding out that you substantially owe more income taxes could be coupled with a pretty hefty penalty,” continues Feinberg.

 

To learn more about the new 2018 payroll withholding changes, talk with a Professional Small Business Advisor by clicking on Find an Accountant at the top of the page.

 

 

 

 

 

What the End of Net Neutrality May Mean for Your Small Business

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Net neutrality is the concept that the internet service providers should provide equal access to web sites regardless of content or the source. The idea is that by allowing equal access everyone, big business or small, average Joe or superstar has the same access to information on the Net.

 

The current net neutrality laws were carried over in the Obama administration in February of 2015 with a vote of 3-2. Under the direction of Thomas Wheeler as chairman of the Federal Communications Commission, many were concerned that his lobbyist past and membership in the National Cable and Telecommunications Association would shift net neutrality in the direction of big corporate internet providers. What happened was a strong support for the American consumer. Zoom forward two years and net neutrality is once again up for debate as a new administration makes moves to threaten access.

How can changes in net neutrality impact small business?

  • Internet Service Providers (ISPs) may have the ability to limit the speeds of the internet based on websites or apps frequented.
  • IPSs may be able to charge each website for data prioritization, which would give increased speeds while browsing that site.

Still puzzled about how shifts in net neutrality could impact you? Think of it this way, on the school playground there’s always a big, threatening kid who bullies the other smaller kids into giving over their lunches, paying for his snacks or some other egregious ‘fee’ for simply breathing in his space. ISPs, if left to their own devices, may become like those playground bullies, charging small businesses exorbitant fees just to play in the same playground as everyone else.  Worse yet, because your mom only gives you enough money to buy lunch but some kids have lunch money and an allowance, the playing field shifts further because they can afford to pay more for better access to the playground. Net neutrality means that your small business gets the same internet speeds and access as Target, Walmart and your local diner. It’s fair and equal for all. Loss of net neutrality will cost your business in lost marketing opportunities, a tightened sales pipeline and less access and online sales.

 

It is important that small businesses recognize what is being threatened and let their voices be heard. If you don’t agree with the changes happening, make a call or send an email to your local representatives and senator.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

ACA Reporting Extension Announced

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If you were panicking about getting those pesky Forms 1095-B and 1095-C’s out to your employees by January 31, 2018, there’s a little good news.  The IRS announced an extension on December 22, 2017 that now provides additional time for Applicable Large Employers (ALEs), those employers with 50 ore more full time employees, to prepare and send the Form 1095-B/1095-C to report information about each employee’s offer of health coverage, affordability and month’s actually covered by the employer plan.  Employers that also offer employer-sponsored self-insured coverage will also use Form 1095-C.  The new deadline, which is a 30-day extension from the original and is automatic, is now March 2, 2018 to provide the Form 1095-B or 1095-C to individuals.  Due dates for filing the 2017 information returns with the IRS are not extended and remain February 28, 2018 for paper filers and April 2, 2018 for electronic filers.

 

But you thought that the Tax Cuts and Job Act (TCJA) of 2017 put an end to employer ACA reporting?

Well, yes and no.  The only item related to the Affordable Care Act was the repeal of the individual mandate, which was the penalty for not actively seeking out and obtaining health coverage.  The penalty still remains in effect throughout 2018 and will be $695 per adult or 2.5% of household income in excess of tax filing thresholds, whichever is greater. Employers must continue to report under Section 6055 and 6056 of the Internal Revenue Code regarding minimal essential coverage (MEC). This information is reported on Forms 1094-C (the IRS transmittal) and 1095-C, the employee informational form. For other plan sponsors such as multi-employer plans, health plan issuers, etc., the reporting is done on Forms 1094-B and 1095-B respectively.

 

Employees do not need to submit the 1095-B or 1095-C with their 2017 individual income tax return.

If you have questions or still aren’t clear on your business’ responsibilities, talk with a Small Business Advisor. You can find one in your area by clicking on the Find an Accountant link above.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Review Your Healthcare Options – Now.

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There are over 27 million self-employed entrepreneurs and micro-businesses in the United States. If your small business is anything like the other 27 million, you’re probably struggling with the constant upheaval in the health insurance market. Now is the time to review your small business health insurance.

What should you be looking for in small business healthcare coverage?

  • If you are insuring yourself or just your family, you’ll want to review your current health care needs.
  • Does anyone in your family need to see a doctor or specialist on a regular or frequent basis?
  • Do you currently have prescriptions for yourself or family members?
  • What about bigger ticket items such as planning for a baby or needing a surgery in the coming plan year?

Answers to these questions can help you determine how much insurance you’ll need and where the break-even point is between premium costs, the initial cost of the plan, and other plan costs such as copayments, amounts you pay towards a service, and coinsurance and deductibles, the portion you are responsible for before your insurance kicks in. All of these costs add up to your total costs for the plan. The more you know before you start, the better prepared you’ll be to make a solid financial choice.

Small business Health Options Programs (SHOP) and Health Care Exchanges – Are you insuring just yourself or do you have employees to cover as well? If you are just looking for insurance as a self-employed individual or family, the healthcare.gov website is a great starting place.  Created as part of the Affordable Care Act, the SHOP exchange allows you to review health plan offerings in your state, including prescription drug coverage, copayments for things like doctor visits, specialists and lab tests along with more major events like maternity care and surgery. If you have changes in your healthcare needs since last year, taking a look at these differences can significantly impact your bottom line each month.

Private Healthcare Exchanges – Unlike the public exchanges, private exchanges are just that, private. You can elect to join a private exchange and then select how much coverage you are willing to pay for your employees, also called Defined Contributions. Employers agree to a set dollar amount, say $750 a month and then employees can shop the exchange and select the plans and coverage levels that best suit their needs.  Employers can put restrictions on how the dollars are spent, for example, $500 must be spent on medical insurance and then the remaining funds can be spent on other coverages like dental, vision or voluntary insurances, or the employee may have the option to spend the dollars any way they see fit on the exchange.

Direct Insurance – Offering insurance to your employees? There are rules in the Affordable Care Act about the type of insurance plans that you can offer your employees.  The plans must offer a minimum essential coverage (MEC) for items such as preventative care, annual physicals, child well visits, mammography and other services. You can shop for these plans yourself, which means that you’ll also be responsible for all paperwork, open enrollments, claim issues, eligibility and billing, or enlist the help of an insurance broker. Additionally, some insurers don’t sell small group insurance on a direct basis, so your options may be even more limited without the help of a broker.  If your business belongs to a trade association, there may be additional insurance buying power available.

While health insurance may seem confusing and overwhelming, know that help is out there. Start by working your budget and understanding your basic health care needs. From that point, you can make decisions about the type, level and individuals you’ll be covering.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

 

Profit versus Cash Flow

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Every small business financial advisor has heard it before, “If my business is profitable why don’t I have any money?” The way cash flows in and out of your business is a lynchpin for understanding business finance.  There is also a huge difference between making money and managing it.  So often entrepreneurs start a business because they love creating a new widget, or offering a leading-edge service, but they have little to no business management experience. Terms like forecasting, budgeting and cash flow are meaningless until the monthly bills come due and payroll can’t be covered. Rather than waiting until there’s a problem, let’s make a pact to learn the basics for how profits and cash flow operate.

Lesson #1 Profit and Cash Flow are Different

Profit is revenue minus expenses. That means any monies left over after all the bills are paid is considered profit. Conversely, cash flow refers to the influx and outflow of cash in the business, i.e. where is the money going and why. If you go to the store to buy milk and you have no money, you have a cash flow problem. If you have money expected to you in two months, that makes buying milk nearly impossible now even though profitability is promised at a later date.

 

The other crux is that a business selling additional widgets (i.e. increasing sales) does not necessarily immediately increase cash flow, in fact, more often than not, the increased sales will immediately reduce it. Now you’re thinking, if sales help to generate revenue, why wouldn’t I want more sales?  Sales, especially where widgets are concerned will require an immediate additional cash outlay to manufacture, package, and distribute the item(s). All of these steps must occur well in advance of delivery and invoicing and another ten to 45 days or more can go by before the company is paid for the products. That timeframe between production of the widget and payment of the widget is where cash flow management lives.

Lesson #2 – Look at your options.

Precise cash flow management, much like a synchronized swimming routine, must occur in a timely, well-choreographed dance in order to keep the business operating, expenses covered and employees paid. Part of this monetary routine can include:

Collections – Where are your current account receivables? Are they current or in arrears and if so, how far? By placing your attention on existing receivables and making efforts to encourage payments, cash flow will be improved. For invoices that are more than 90 days past due, consider a collection agency or some other type of arrangement.

Delaying cash payments – Review how your orders are placed for materials with vendors. Can you set contracts for orders where a percentage is paid up front and the remaining balance paid in 15 or 30 days? This will improve cash flow as it will remain in-house longer.

Raising Additional Capital – If you cannot meet your financial obligations within the necessary time, it may be necessary to solicit additional cash through loans, issuing capital stock, employee ownership or some other type of arrangement.  Again, planning and attention to cash flow can help with strategic timing and more attractive interest rates and loan agreements. Covering debts in a crisis mode will inevitably mean less attractive interest payments and possibly selling more ownership than originally intended.

 

Lesson #3 – Too much competition can kill revenue.

That’s right, the one thing that makes capitalism work is competition, yet competition can be the very thing that can take a business under the quickest. How? When businesses are constantly bidding for business and trying to shave off profit margins in order to win the contract, those pennies, nickels and dollars can all add up to no actual profit at the end of the day. Yes, the business has lots of money moving through the business, but not much staying in the bank accounts. Try to be brutally honest with yourself and your bidding so that you know up-front if your business can afford to take a reduction in costs or even a loss in order to gain business.  Make sure that you are working from real numbers and in partnership with your finance team in order plan for losses on one contract and profits on another.

There are volumes of books and doctoral theses on the process of cash flow and cash management which can be consulted. If you don’t have that kind of time, it may be time to bring in some additional financial advisory assistance. Reach out to a PASBA Small Business Advisor and learn how they can help you make sense of your business.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

 

IRS Tax Notices Explained

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You filed your taxes, processed all of your W-2s and 1099-Cs and think your federal reporting is in great shape – until you receive the dreaded IRS tax letter. Your stomach knots, your mouth goes dry and suddenly a clammy panic takes hold. “Be calm!” says Appletree Business Services owner Steven Feinberg, CPA.  “There are all kinds of notices and letters the IRS can send, so take a deep breath and review the letter carefully,” he continues.  Often there are ample instructions on what the IRS needs a taxpayer to do.  In the event you have questions, you can always reach out to the IRS directly or contact your local Professional Small Business Advisor.

 

The IRS sends notices and letters for a variety of reasons. The most common are:

  • There’s a balance due.
  • The taxpayer is due a larger or smaller refund that what was originally filed.
  • There is missing or unreported income from another source.
  • The IRS has a question regarding the tax return.
  • Random selection – that’s right, each year the IRS randomly selects taxpayer reviews based on a statistical algorithm.
  • The IRS needs to validate the taxpayer’s identity – i.e. the SSN doesn’t match the name.
  • The IRS made a correction or change to the return.
  • The IRS is notifying of a delay in the return.
  • Final notice of intent to levy and notice of your right to a hearing.

If your correspondence indicates that a response is requested, it is in your best interest to respond within the given time frame to help reduce or eliminate additional penalties, or preserve your right to appeal if you don’t agree with their findings.  If you are required to respond or take action in the letter, you will want to include the CP or LTR number found on either the top or bottom right-hand corner of the correspondence. Be sure to take down the agent’s ID number, name and the date and time you spoke.

Let’s review the most common types of IRS letters and what they might mean for your situation.

CP2000 Notice – issued when the income and/or payment information doesn’t match information reported on the tax return.

CP11 – This letter is sent when there are changes to a tax return or a balance due.  The IRS has made a change to the tax return and there is now a balance due.

CP12 Notice – This notice is issued when the IRS corrects one or more mistakes on a taxpayer’s return and a payment has become an overpayment or an original overpayment amount has changed.

CP-90 – Final Notice of Intent to Levy and Notice of Your Right to a Hearing – This is the only notice that permits the IRS to take action against a taxpayer. If you have received this notice, you have already received several other communications from the IRS. Once this notice is delivered, you have 30-days before the IRS is legally entitled to take action. You can request a meeting with an IRS appeals officer or start collection due process.

If you are required to pay additional taxes to the IRS and you agree with their findings, you still have a few options available to you:

  • Pay the amount due in its entirety
  • Pay a portion of what you owe
  • Apply for an Online Payment Agreement or Offer in Compromise.

A note about IRS letters: Beware of suspicious notices or letters that were designed to look like they came from the IRS. If you are suspicious, you can call the IRS hotline at 1-800-829-1040. Remember that the IRS will never ask taxpayers for personal information via email or social media sites.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

 

 

 

Generational Shifts in the Workplace

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Baby Boomers are delaying retirement and continuing to stay in the workforce. This trend in postponed retirement can have substantial impact on other generations within the workforce seeking advancement and career changes. According to the ADP Workforce Vitality Report released in June 2017,  “[the boomer] age group experienced 4.8 percent job growth during the first quarter of 2017, more than any other age group.” Additionally, the Pew Research Foundation found that “nearly two-thirds of workers older than 65 hold full-time jobs” of 35 hours a week or more.  While there are many reasons for the delay in retirement, four primary catalyst include:

Finances – Baby Boomers are concerned that they do not have enough cash to last for their entire retired years. Shifts in employer pension programs to self-funded or corporate match 401k retirement programs means that less money is guaranteed or available in retirement years.  Plus, the more years worked, the fewer years need to be pulled in taking retirement dollars out of an account. Retirement accounts can continue to grow (yes, money must start being taken out by age 70 ½ ) but waiting longer can increase those payouts. Additionally, delays in retirement can also mean a delay in collecting Social Security. Waiting to take Social Security from age 62 to age 70 can mean an additional growth of 8 percent annually. In a recent Employee Benefit Research Institute study found that “26 percent of workers plan to work until age 70, and another 6 percent say they will never be able to retire.”  With less and less workers able to save for retirement or have not nearly enough to carry them through their retirement years, they continue to work full time and extend their careers well into their 70s.

Healthcare – Staying on the company health plan can mean better health plans as well as other ancillary benefits like group and voluntary life and disability insurance and even access to critical illness, accident, hospital or whole life plans, not to mention the ongoing employer contributions to a 401k.  Studies have also found that continuing to work has health benefits, too.  Researchers at Oregon State University found that in an ongoing study of individuals age 50 and older, those who continued to work had an 11 percent lower chance of death from all causes than their ‘retired’ counterparts.

Demand – Employers need the experience and institutional knowledge of the baby boomer generation. Much of this knowledge has not been passed down to younger generations, leaving a large gap in training and experience that employers are willing to pay to keep.

Lifestyle – The average life expectancy has increased substantially allowing baby boomers a healthier life and more productive time to continue working. Older employees who once targeted 55, 60 or 65 as a retirement age are now looking to 70 or 75. Employers wanting to keep those experienced workers on hand are offering more creative ways to stay engaged at the organizations while providing flexibility and even reduced work weeks.

How can you keep your baby boomers engaged? Think about developing a talent retention program. Like Millennials who have certain expectations from their employers, baby boomers may need a few tweaks to their employment terms to stay happy and focused. Flexibility is the biggest request. Consider providing a flexible work schedule or even offering full-time 30+ employment benefits so baby boomers can ease into a slightly shorter work week while still providing experience, leadership and a great work ethic to the organization.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Steps to Closing Your Business

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Closing a business is never an easy decision, but the speed in which it can occur depends on your tactics. If you are a sole proprietor, you could close up shop without consulting any other parties. That’s not necessarily the wisest move, especially if you value your reputation both personally and professionally.  Take the time to devise a closure plan that takes all aspects of the business into account.

 

Business type will dictate how quickly you can move closure along. If you have a limited liability corporation (LLC) or partnership, you will need to review your articles of incorporation to determine how dissolution must be handled, partners must be consulted and even potential buy out plans must be considered. The buy-out is when your partner(s) may choose to purchase your portion of the company allowing you to walk away while they maintain ownership of the brand and all of its assets. You’ll need to put the final dissolution agreement into writing as well.

 

The more complicated your business, the more likely you will need to enlist outside counsel.  Even if you are a sole proprietor, if you have employees, a large book of business/clients, or vendors you’ll want to work out a solid plan for communicating the business’ closure. This will help ensure that all concerned parties are notified and involved in conversations about how and when the business will halt operations. For employees, there are local, state and federal employment laws to be reviewed and abided.

 

Collect outstanding debts – before you tell anyone you’re closing the business make every effort to collect on accounts receivables. To spur payments along, consider offering a discount for prompt payments, but remember, you don’t want to tip your hat that the business is closing, so try not to put new early payment deep discounts in the forefront or your clients and vendors will catch on quickly.

 

Sell off the inventory. You’ll want to sell as much of your inventory as possible. If you are a retailer with roots in your community, a going out of business sale may become a large event. Prepare for all aspects of the sale including possible large crowds and crowd control. You may even need to contact the local police department to manage traffic and crowds. If after all of the sales and final closing you still have inventory, you can consider several options:

·        Internet auctions on sites like eBay or craigslist.com.

·        Hire an auctioneer to sell off the remaining inventory

·        Bring in a liquidator. This may be a last resort but can help you sell of the remaining stock for pennies on the dollar.

 

Notify your vendors. In some instances there will be contractual or legal requirements on how to notify your suppliers, vendors, and creditors of the business’ closure.  Send a certified letter notifying them of the date of the closure and how you will handle any outstanding debts. Include information on the deadline for submitting claims and a statement that claims will be barred if not received by the deadline, a list of information that the creditor should send in order to file a claim and a mailing address.

 

File dissolution documents including a Certificate of Dissolution, certificate of cancellation or other such type of form. If your business is an LLC or corporation, you will need the partners or board to meet and vote on the dissolution including a written consent form which should be included in your corporate record. Corporations will also need to file IRS Form 966, Corporate Dissolution or Liquidation.

 

Cancel registrations, licenses, permits and business names. If your business has registered to do business in other states, you’ll also need to file cancellation forms in each state.

 

Take care of your employees and comply with all local, state and federal labor laws. This will be a multi part process that should include:

·        Issuing final paychecks

·        Reimbursement of expenses – including a process for employees to file expense reports after they have completed their last ‘official’ day of work.

·        Collecting any company property such as laptops, cell phones, credit cards or other assets.

·        Continuation of benefits – If your business has more than 20 employees and you offer group health insurance, you’re legally required to provide information on continuation of health benefits in compliance with the Consolidated Omnibus Budget Reconciliation Act (COBRA).

·        Deactivate all company passwords, door security codes and other electronic access to the business.

File your final IRS Form 940 and Form 941.  Depending on your state, you may need to obtain a tax clearance, also called a consent to dissolution which provides your business a good standing with regard to taxes. You cannot receive a tax clearance unless all of your tax payments are current and paid in full.

 

There are many more steps to closing a business, but this brief list will help to point you and your business in the right direction. As with any major business decisions, it is always wise to seek guidance and advice from experts.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Retirement Plannning for Small Business

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Business owners, especially those born between 1946 and 1966, are at a higher risk of not saving for retirement. In fact, the 2016 Retirement Preparedness of the Boomer Generation by the Insured Retirement Institute showed that “American’s today are less prepared and less confident about their prospects for a comfortable retirement than ever before.” The issue isn’t a lack of wanting a retirement savings, for everyone wants a secure future, rather it’s more about how to parse limited available dollars to start and maintain a retirement savings. More important is the critical need to change the entrepreneurial mindset from the sale of the business as the retirement nest egg to actively saving now.  Selling the business is a dangerous plan as market volatility can shift quickly and at all the wrong times. What if there’s another recession or an industry shift inhibiting a profitable sale of the business? Often the contingency plan is to ‘delay retirement’ which brings its own set of issues related the owner’s health, quality of life and business sustainability.

 

One way employers can build confidence in their futures is to establish a business retirement plan for themselves and their employees using one of four available small business retirement plan options:

·        SEP IRA

·        SIMPLE IRA

·        Solo 401(k)

·        SIMPLE 401(k)

 

Which retirement savings plan is best for you and your business?

SEP Plans – Simplified Employee Pension (SEP) plans are a tax-deductible retirement plan and are a good choice if you are the company’s only employee.  Employers typically set up an Individual Retirement Account (IRA) or annuity for each plan participant. You can contribute up to 25 percent of your compensation, up to $53,000. If you have employees, you will also need to fund SEP-IRAs for them as well.

 

SIMPLE Plans – If your business has 100 or less employees who received at least $5,000 in compensation last year, a SIMPLE IRA plan may be a good business fit. Under the SIMPLE plan, employees can choose to make salary reduction contributions rather than receiving these amounts as part of their pay. As the employer, you will make matching or non-elective contributions to the plan as well. Two types of SIMPLE plans are the SIMPLE IRA and SIMPLE 401(k).

 

Qualified / Defined Benefit Plans – These plans involve a more complicated set of rules than the SEP and SIMPLE plan rules. Defined-Benefit Plans have employees’ retirement benefits pre-determined by their compensation, years of service and age.  For example, the plan may specifically outline that an employee will receive $100 per month at retirement or provide a graduated retirement benefit based on the employee’s last five years of employment wages.

 

Qualified plans have an adoption agreement and basic plan document which outline how the plan must operate. The employer formally accepts the plan by passing a resolution, completes the adoption agreement, and notifies the employees with a summary plan description (SPD). Note that defined-benefit plans are becoming increasingly rare.  If you have a third party administrator (TPA) handling your 401(k), they should provide the SPD and many of the administrative requirements of the plan.

 

Qualified / Defined Benefit Plan advantages:

·        Increase contribution amounts

·        Increased deduction limits

·        Increased flexibility in plan designs

Contributions to qualified and defined benefit plans must be paid in quarterly installments, due 15 days after the end of each quarter.

 

Solo 401(k) plans – Only available to self-employed individuals without any employees the Solo 401(k) plan can be a good option for sole proprietorships The IRS allows a contribution, pre-tax up to 25% of your compensation pus an employee’s contribution of up to $18,000 (or $24,000 if you’re 50 or older). Total contributions cannot exceed $53,000.

SIMPLE 401(k) –A group retirement plan available for businesses with 100 or fewer employees, the SIMPLE 401(k) is a versatile savings program. The nice feature of this plan is that employees can borrow against the money in the account and make penalty-free withdrawals due to financial hardship. Just remember that any ‘borrowed’ amounts must be repaid or penalties will be enforced. Maximum contribution amounts for 2017 are $12,500 and $15,500 for people age 50 and older.

The limit on elective deferrals, other than catch-up contributions is $18,000. The limits apply for participants in SARSEPs, 401(k) plans (excluding SIMPLE plans), section 403(B) and section 457(b) plans.

 

A Few More Details

The defined contribution limit, other than for catch-up contributions is $54,000 for 2017. The catch-up contribution maximum for 2017 is $6,000 and $3,000 for SIMPLE plans. Additionally, the catch-up contribution cannot exceed the lesser of the catch-up contribution limit, or the excess of the participant’s compensation over the elective deferrals that are not catch-up contributions.

There are tax credits for starting a new plan, too. The credit equals 50 percent of the cost to set up and administer the plan and educate employees about the plan up to a maximum of $500 per year for each of the first three years of the plan. To take the credit, use Form 8881, Credit for Small Employer Pension Plan Startup Costs. Retirement savings contributions credit is also available for those employers, including self-employed individuals, who make contributions to their plan. Maximum contribution eligible for the credit is $2,000. To take this credit, use Form 8880, Credit for Qualified Retirement Savings Contributions.

From sole proprietors to small business owners with less than 100 employees, there’s a retirement plan that can fit your needs and your budget.  The important message is to start a plan, continue to invest and build the retirement you envision.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com. 

 

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

 

New to Small Business?

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If you started a new business in 2016, then April of 2017 is a first big milestone for your company. That’s the month when your first reported tax documentation is due to the IRS. Depending on your business type, you may be responsible for not only the business’ filings, but also other shareholders or partners involved in the enterprise.  If you have employees, then you’ll have another layer of documentation such as W-2 and 1099s.  What are all of these requirements and how do you know if your business is ready to prepare and distribute them correctly? Let’s review some of the basics starting with your company’s business entity.

Business Type Matters

If you haven’t already met with a small business advisor to discuss the business entity type, you should.  While you can’t change your entity type from the preceding year, you can impact next year’s taxes by making a change, if necessary.  There are many differences between sole proprietorship, partnerships, limited liability corporation (LLC), S corporation and C corporations. 

Sole proprietors can deduct “ordinary and necessary” business expenses like any other business entity, however, more in-depth tax deductions and advantages aren’t always available. It is essential that sole proprietors keep separate and distinct bookkeeping from personal and household expenses including separate checking accounts and credit cards.

Partnerships are formed by two or more individuals. For tax purposes, income and losses from the partnership are reported on Form 1065.  Income taxes are paid on the partnership directly, rather the partners are taxed on their share of the partnership income, regardless of whether they take money out or reinvest it back into the business. Additionally, partnerships have personal liability for any financial debts the business incurs.

A limited liability corporation (LLC) has varying rules from state to state. The IRS has the option to treat the LLC as either a corporation, partnership or in a single-member LLC, a sole proprietor.  The benefit of an LLC is that if offers the protection of a corporation from personal entanglement in debts accrued by the business (unless the loans or debts are personally guaranteed).

Corporations are the most complicated structurally and are not the best option for new business start-ups.  Over time, as the business gains revenue and growth, shifting to a corporate structure may make sense. Remember that both S and C corporations require shareholders, a board of directors, and very involved set of taxation rules.  The transition to corporate status is not something that should be done lightly or without outside advice and counsel.  S corporations offer small business owners the advantage of paying taxes at the shareholder level, rather than being subject to higher corporate rates.  C corporations can deduct a wider range of expenses but must also deal with the double taxation issues.

 

Business Licenses

Certain industries are required to obtain a business license on a federal level. Business types included in the requirement are agriculture, alcohol, aviation, firearms, ammunition and explosives, fish and wildlife, transportation, mining and drilling, nuclear energy, and broadcasting. Additionally, there are business licenses required for certain professionals. This is to protect the public and ensure that the professionals providing the products or services have the correct educational degrees and qualifications. 

 

Tax / Employer Identification Number (TIN/EIN)

Often the same none-digit tax identification number, these numbers can be the same or different. Sole proprietors often use their own Social Security Number as their TIN for tax purposes.  Other businesses, such as C-Corps, S-Corps, partnerships, and LLCs are required to obtain an EIN. Any business that pays wages, files pension or excise tax returns or simply wants to avoid using their personal SSN can sign up for an EIN by completing Form SS-4 or apply online via IRS.gov.

Estimated Tax Payments

Start-up business owners are exempt from making quarterly tax payments in the first year of the business’ operation; however, they are responsible for submitting them for subsequent years.  If you are filing quarterly payments for the first time, you’ll want to review last year’s income, tax credits, and deductions to calculate your expected tax burden.  If you anticipate owing more than $1,000 for the tax year, you must begin paying quarterly tax payments.  If you fail to submit at least 90% of the taxes owed, you may be subject to penalties.

Self-employment tax

Comprised of Social Security and Medicare, self-employment tax is paid by individuals whose income is not subject to employer withholding. Self-employed individuals are responsible for both the individual portion of the self-employment tax and the half traditionally paid by an employer (also you). To reduce this financial impact on the business owner, the IRS allows the deduction of the employer-equivalent portion of the self-employment tax.  For example, if you owe $10,000 in self-employment tax, you can deduct half, or $5,000, which reduces your overall taxable net income.  

W-2 and 1099s

If you have employees, even just one, then you are responsible for providing each employee Form W-2  which outlines what the employee received in wages and any contributions to health care, federal and state taxes and other payments. As an employer, you are also responsible for collecting the federal and state tax withholdings and making quarterly payments to the federal and state agencies on behalf of the employee. If you don’t have employees but do utilize the services of an independent contractor, then payments for services rendered can be provided on a Form 1099-MISC. The red Copy A of the 1099-MISC must be filed with the IRS. Bear in mind that you can only send an original copy of this form, not downloads from the IRS website. The black and white Copy B and C versions can be downloaded and completed for distribution to your independent contractors.  

If you would like to learn more about how to prepare your small business for its first tax filing or obtain guidance on future years, talk with a Small Business Advisor by clicking on the Find an Accountant link on this page.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

 

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.