On-line (Cloud) Computing for Small Business

More and more office applications are moving to cloud from spreadsheets and word processing programs to accounting systems. Some are even free of charge (Google Sheets and Wave Accounting) but others are available for a subscription fee. For the small business owner who wants to be able to access all of their data from anywhere they are on any device they are using, cloud computing is becoming more and more the solution of choice.

If you are interested in learning more about the options available to small businesses, this article from PC Magazine highlights several cloud computing options available.

New Method for Calculating the Home Office Deduction (Journal of Accountancy)

Very simply, the new method available for tax years 2013 and after, allows you to calculate your home office deduction by multiplying the square footage of your home office by $5 (max = 300 square feet or $1,500). The qualifications for taking the home office deduction remain the same.

See the full article from the Journal of Accountancy below:

In Rev. Proc. 2013-13, issued in January, the IRS gave taxpayers an optional safe-harbor method to calculate a deduction for expenses of a business use of a residence under Sec. 280A, effective for tax years beginning in 2013.

Individual taxpayers who elect this method can determine the deduction by multiplying the allowable square footage by $5. The allowable square footage is the portion of the dwelling used in a qualified business use, up to 300 square feet; thus, the maximum safe-harbor deduction is $1,500. The safe harbor is elected on a timely filed original tax return (instead of on Form 8829Expenses for Business Use of Your Home, which is used for the actual-expense method), and taxpayers are allowed to change their treatment from year to year. However, the election made for any tax year is irrevocable.

No depreciation is allowed for the years in which the safe harbor is elected, but it is permitted in years in which the actual-expense method is used. The revenue procedure gives detailed examples of how depreciation is calculated in a year after the safe-harbor method is used.

To use the safe-harbor method, taxpayers must continue to satisfy all the other requirements for a home office deduction, including that the space be used exclusively for the qualified business purpose and that an employee qualifies for the deduction only if the office is for the convenience of the taxpayer’s employer.

The deduction under the safe-harbor method cannot exceed the amount of gross income derived from the qualified business use of the home, minus business deductions unrelated to the qualified business use of the home. Unlike the limitation under the actual-expense method, however, a taxpayer cannot carry over any excess to another tax year; nor can there be any carryover from an actual-expense method year to a safe-harbor year. Taxpayers sharing a home (for example, roommates or spouses, regardless of filing status), if otherwise eligible, may each use the safe-harbor method, but not for qualified business use of the same portion of the home. The revenue procedure contains detailed rules for use of the home for part of the year. Taxpayers who have a qualified business use of more than one home for a tax year may use the safe harbor for only one home and must use the actual-expense method for the other home or homes.

Lease versus Buy

It’s a question that you should ask every time you are deciding to buy a car or purchase a business asset of any significance… if you have the option to lease or to buy, that is. Often times the answer is not obvious even when you compare the monthly payments and any amount required to paid up front. Also, there are intangible benefits of both options that do not have anything to do with the money that often enter into the decision, but putting the numbers down on paper is necessary to see which option is financially better for you or your business. Please contact me if you need help in ‘crunching the numbers’ on your next lease versus buy decision.

Here’s a link to a useful lease versus buy calculator for an automobile.

The Employer Mandate in the Affordable Care Act Delayed until 2015

A mandate in the Affordable Care ActPresident Barack Obama‘s signature domestic law, will be put partially on hold until 2015.

The mandate requires companies with at least 50 or more full-time employees to provide healthcare coverage or face penalties up to $3000 per worker. Large employer groups have welcomed the delay, while others are concerned it will leave too many Americans without insurance.

See full article here.

Most Common Bookkeeping Mistakes

1. USING THE WRONG ACCOUNTING METHOD

There are two main business accounting methods: cash and accrual. Cash accounting is the simpler method because it’s based on the actual flow of cash in and out of a business. The cash method is used primarily by sole proprietors and businesses with no inventory. On the flip side, accrual accounting records income and expenses as they occur, whether cash has actually changed hands or not.

As they grow and become more complex, most small businesses should switch to accrual accounting, because this makes it easier to accurately match revenue to expenses. Otherwise, the business might look profitable during months with few expenses and unprofitable during months with large expenses, with no way of really knowing the difference.

2. COMBINING PERSONAL AND BUSINESS FINANCES

It’s critical that personal and business finances be kept separate at all times, regardless of a company’s size. That’s why one of the first things new business owners should do is open a business checking account and deposit all business income into this account.

The next step is to work with an accountant to devise an earnings management strategy dictating how cash is removed from the business to meet personal expenses and savings goals. Your earnings management strategy will be driven by such factors as how much of your profits need to be reinvested back into the company, the timing of payments for large business expenses, your cyclical or seasonal cash flow needs, and your long-term personal financial strategy.

Click here for 8 more common bookkeeping/accounting mistakes.

USA Today: The importance of sending 1099s

If you don’t file 1099s for your contractors, you lose protections from the federal government.

Small businesses hate paperwork.

And small businesses really hate paperwork from the Internal Revenue Service. But you’d better take care of one bit of paperwork from the IRS and do it quickly because an important deadline is approaching: Thursday, Jan. 31.

That’s the deadline for filing the 1099-MISC form.

COLUMN: Taxes are your spinach

MORE: Rhonda Abrams column index

What most people in business simply refer to as “1099s” are the forms businesses must send to any independent contractors they’ve used in the past year.

Perhaps you paid a tech consultant to help you maintain your computers. Perhaps you hired a marketing consultant to manage your Facebook accounts, or maybe you used an electrician to wire new offices.

If you paid any individual $600 or more in 2012, the IRS wants to know about it.

Small businesses like using independent contractors. They provide services on an as-needed basis, giving small companies much-desired help and expertise with flexibility. But the IRS scrutinizes few areas as much as the use of independent contractors.

One way to make sure you stay out of hot water is to be sure to file 1099s for all your contractors on time.

Whom must you send a 1099?

 

  • Any individual you’ve paid more than $600 for services during 2012.
  • Anyone — other than a real-estate agent — you’ve paid rents to during 2012.
  • Any lawyer to whom you’ve paid more than $600 in legal fees during 2012, whether incorporated or not.

 

Who don’t you have to send a 1099?

 

  • Employees on your payroll who receive a W-2.
  • Corporations. If an independent contractor has incorporated his or her business, or you’ve used a service provider that is a corporation, no 1099 is needed.
  • People you’ve hired for personal, nonbusiness, services.

 

If a company fails to file a 1099 for its independent contractors, it can have serious — and expensive — consequences. That’s because the IRS is on the lookout for companies that abuse independent contractor/employee status.

As a business, you can treat employees in one of two ways: as an employee or as an independent contractor. Many businesses would prefer to treat employees as independent contractors. Here’s why:

If you treat workers as employees, you pay additional taxes: Social Security, Medicare, unemployment, worker’s compensation, and the like, and workers get more protections under federal and state labor laws.

If you treat them as independent contractors, you pay no additional taxes and they get very few worker protections.

Eureka! You like the independent contractor choice better.

Equally obviously, the federal government, states and cities want to make certain that anyone doing the work of an employee gets treated — and protected — as such. It’s also far easier for the IRS to ensure that taxes are paid from employees via withholding than from independent contractors.

Few areas of employment law are murkier than those dealing with independent contractors. IRS guidelines on who qualifies are not crystal clear.

The main issue the IRS tries to determine is who “controls” the worker. Auditors look at three areas:

Behavioral. Does the worker control how he does the work? The IRS looks at issues such as who controls:

 

  • When and where the worker does the work.
  • What tools or equipment the person uses.
  • Who determines where the person purchases supplies.
  • What order or sequence of work to follow.

 

Financial. Does the worker have a significant investment, such as owning his own tools; can she make a profit or loss; does she make their services available to others, work for other businesses?

The relationship. How permanent is the relationship, do you have written contract, is the worker responsible for his or her own benefits, and is the work performed a critical and regular part of the business?

The IRS is particularly aggressive in pursuing companies that intentionally — or unintentionally — pay workers as independent contractors instead of employees.

But the IRS does provide some protection for businesses that make mistakes in good faith. Agents will look to see whether a business relied on advice of a lawyer or accountant, followed industry practice, treated workers consistently.

But, and this is important, a company that fails to file a Form 1099 for an independent contractor has absolutely no protection.

So don’t let Jan. 31 slip by without getting those 1099s in the mail.

Rhonda Abrams is president of The Planning Shop and publisher of books for entrepreneurs. Her most recent book is Entrepreneurship: A Real-World Approach. Register for Rhonda’s free newsletter at PlanningShop.com. Twitter:@RhondaAbrams. Facebook: facebook.com/RhondaAbramsSmallBusiness.Copyright Rhonda Abrams 2013.

QuickBooks Online: A review from the CPA Practice Advisor

QuickBooks Online is a product more and more of my clients are using. It’s accounting in the “cloud” which allows you to access your accounting records from anywhere you can access the internet. You can give your accountant access to view your file so that there’s a greater opportunity to review your books mid-year.

Here’s the review.

Year End Checklist for businesses

Closing Your Books

As you are cleaning up your accounting records for year-end, here are some steps you can take now to make tax-time easier:

  • Verify that you have W-9 forms for each of your independent contractors or at least have their Tax Identification Number on file.  You will need this information in order to prepare 1099 forms in January. Going forward, it’s a good practice to obtain a completed W-9 form from each new vendor before you pay them.
  • Review your Accounts Receivable.  Are all of them collectible?  If you have any bona fide bad debts on your hands, it is time to write them off before year-end. You should also review your receivables to reconcile them against your customer accounts, confirming the balance of each.
  • Review your Accounts Payable. Wherever possible, you should reconcile your vendor accounts against a statement from that vendor.
  • Reconcile all of your bank accounts using the year-end bank statements. When reconciling your bank account, be careful to review any “Uncleared” transactions, as they may be duplicate entries, checks that were lost in the mail, or simply entries that should have been deleted.
  • Reconcile all of your credit card accounts, lines of credit and outstanding loans.
  • If you carry inventory, it’s time to do a physical count of your inventory and reconcile it against the inventory reported on your balance sheet. Take this opportunity to adjust your inventory for shrinkage, spoilage, or obsolescence.
  • Make a list of all new equipment and other fixed assets acquired during the year, including the purchase date, amount and description.  If you’ve disposed of any old equipment, whether by selling it or by putting it in the dumpster out back, make a note of that, too.
  • Review your payroll liability balances (941, Michigan Withholding, unemployment, etc.) and adjust if necessary. Also double-check that all payroll tax forms have been filed as necessary.
  • Similarly, review your sales tax liability balance and confirm that your sales tax filings are up-to-date.
  • For paper records, prepare to archive any records that you need to retain. For any records considered vital, make a copy that can be kept off-site.
  • Finally, make a backup of your QuickBooks file or accounting records file to be kept off-site.

W-2s and 1099s

1. If you have employees, you must send W-2s to your employees by January 31st.

2. If you make payments to non-corporate taxpayers in excess of $600 for services or rent, you must file form 1099 to your subcontractors and/or landlord. If you have not already obtained the tax ID of the subcontractor or landlord, use form W-9. 1099s are also due to the recipients on January 31st.

If you would like me to fill out your W-2s or 1099s, please contact me with the appropriate information. If I have already been preparing your payroll and payroll tax returns, I will automatically prepare your W-2s, but will most likely need the information to prepare any 1099s you are required to issue.

New Taxes in the Affordable Care Act (“Obama Care”)

Here are some of the new taxes you’re going to have to pay to pay for Obamacare:

  • A 3.8% surtax on “investment income” when your adjusted gross income is more than $200,000 ($250,000 for joint-filers). What is “investment income?” Dividends, interest, rent, capital gains, annuities, house sales, partnerships, etc. Taxes on dividends will rise from 15% to 18.8%–if Congress extends the Bush tax cuts. If Congress does not extend the Bush tax cuts, taxes on dividends will rise from 15% to a shocking 43.8%. (WSJ)
  • A 0.9% surtax on Medicare taxes for those making $200,000 or more ($250,000 joint). You already pay Medicare tax of 1.45%, and your employer pays another 1.45% for you (unless you’re self-employed, in which case you pay the whole 2.9% yourself). Next year, your Medicare bill will be 2.35%. (WSJ)
  • Flexible Spending Account contributions will be capped at $2,500. Currently, there is no tax-related limit on how much you can set aside pre-tax to pay for medical expenses. Next year, there will be. If you have been socking away, say, $10,000 in your FSA to pay medical bills, you’ll have to cut that to $2,500. (ATR.org)
  • The itemized-deduction hurdle for medical expenses is going up to $10,000. Right now, any medical expenses over $7,500 per year are deductible. Next year, that hurdle will be $10,000. (ATR.org)
  • The penalty on non-medical withdrawals from Healthcare Savings Accounts is now 20% instead of 10%. That’s twice the penalty that applies to annuities, IRAs, and other tax-free vehicles. (ATR.org)
  • A tax of 10% on indoor tanning services. This has been in place for two years, since the summer of 2010. (ATR.org)
  • A 40% tax on “Cadillac Health Care Plans” starting in 2018.Those whose employers pay for all or most of comprehensive healthcare plans (costing $10,200 for an individual or $27,500 for families) will have to pay a 40% tax on the amount their employer pays. The 2018 start date is said to have been a gift to unions, which often have comprehensive plans. (ATR.org)
  • A”Medicine Cabinet Tax” that eliminates the ability to pay for over-the-counter medicines from a pre-tax Flexible Spending Account. This started in January 2011. (ATR.org)
  • A “penalty” tax for those who don’t buy health insurance. This will phase in from 2014-2016. It will range from $695 per person to about $4,700 per person, depending on your income. (More details here.)
  • A tax on medical devices costing more than $100. Starting in 2013, medical device manufacturers will have to pay a 2.3% excise tax on medical equipment. This is expected to raise the cost of medical procedures. (Breitbart.com)

Source: http://finance.yahoo.com/blogs/daily-ticker/taxes-going-pay-pay-obamacare-145413745.html