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Five ways the new tax code will affect your small business

It’s 2019! And with the start of the New Year, comes a new tax season!

 

With the newly enacted Tax Cuts and Jobs Act, or TCJA, nearly every business’s bottom line will be affected differently from previous years.  

1.Deductions

New provisions and hefty changes define this section of the new tax law.

Depending on the income and type of business, you may now be able to deduct up to 20 percent of qualified business income.

There’s also a change in limits of deductions for meals and entertainment. You can continue to deduct 50 percent of a business meal, but with stricter requirements. Entertainment must be billed separately from food or drinks.  The entertainment expense deduction is eliminated.

2. Depreciation

From now until 2023, TCJA allows 100 percent bonus depreciation for qualified property acquired and placed in service after 9/27/17 and before 1/1/2023. Section 179 election for depreciable business assets increased to the maximum deduction of $1 million and the phase-out threshold to $2.5 million.

3. Changes to fringe benefits  

TCJA has prohibited cash, gift cards and other non-tangible personal property as an employee achievement award, but it is awarding employers that offer paid family and medical leave a credit.   The qualified bicycle commuting reimbursement is included in gross income and wages for commuting reimbursements. Moving expense reimbursement are also to be included in employees’ wages.

4. Business structure and accounting methods

In the past, if your business had an average annual gross receipt of $5 million or less, you could use the cash method of accounting. Now, the TCJA has expanded this to $25 million.

5. Opportunities for investments

The TCJA offered benefits to investors in specific opportunity zones as well as a 20 percent credit for rehabilitating certified historic structures.

The new tax code can be a bit confusing for those outside of the accounting industry, but with help from an experienced accountant, you might find that your business will greatly benefit from these new laws. With the Bean Team, we can help you get your business’s finances in order for tax season and help ensure you’re compliant with the new laws.

For more information on the new tax laws, visit https://www.irs.gov or contact us today!

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3 accounting topics to focus on as 2018 comes to a close

The is almost over, so you are most likely closing out your books for the corporate income tax return and finalizing financial statements for the year. Accountants enjoy these details, accounting stuff and making sure that the books and records are nice and tidy. The resulting neat and completed year-end package is the pretty curb appeal but requires a lot of foundation building and organizing sourced documents. Below is a review of a few of the important year-end topics to help you with the final preparation of 2018 financial records.

Preparing for Annual Income Tax Return

To close out the year and prepare for the annual tax filing, you should organize accounting records to provide to your tax preparer. These documents will be used to prepare the return and ultimately substantiate income reported, deductions taken, etc. on the returns.  Reports from the accounting software are part of this support but are not the exclusive supporting records. Other accounting records typically used include:

  • Payroll tax filings (941’s, 940, W-3)
  • Bank reconciliations
  • Closing statements
  • Loan documents
  • Inventory valuation calculations
  • Sales tax filings
  • Organizational documents (operating agreements, ownership percentages.)  

In the event of an IRS audit the business will need paper or digital records to substantiate the reported figures claimed on the tax filing form.  Retaining receipts is very important to support business expenses, especially if the transaction was conducted using a credit card. The credit card statement itself will not provide adequate support.  

Mileage Log

Keep a business mileage log.  If you are using personal vehicles for business purposes this log will provide the basic support needed for the deduction. This log should include:

  • Beginning and ending year odometer reading
  • Beginning and ending odometer reading for each business trip
  • Date of business travel
  • Description of where you went for business

By keeping an accurate mileage log you are entitled to a deduction for those miles.  

Taxpayers may qualify to use the optional annual issued standard mileage rates for calculating deductible cost of operating an automobile for business, charitable, medical or moving expense purposes.  The 2018 standard business mileage rate is adjusted to 54.5 cents per mile. Unreimbursed employee travel expenses which are reported as a miscellaneous itemized deduction are suspended for taxable years beginning after December 31, 2017, and before January 1, 2026.  The deduction for moving expenses are also suspended for the same taxable years. Activity duty members of the armed forces of the United States may qualify for an 18 cents per mile deduction.

A taxpayer may also elect to calculate the auto deduction using the actual expenses.  Adequate records will need to be maintained as documentary evidence to support the expenses claimed.  The mileage log will still be needed which will also assist with allocating these expenses to the business usage.  

Client and Prospect Business Meal Deductions

As of the date this article is prepared, the IRS has not issued proposed regulations on business meals deductions under the Tax Cuts and Jobs Act nor have they listed any new or changed standards.  The proposed regulations should provide details for what records will be needed for providing support. Meanwhile documentation should provide proof of payment and occurrence.

Maintain receipts to support business meals and entertainment expenses.  These receipts should include:

  • Date
  • Name of the restaurant (location)
  • Who was in attendance
  • Business purpose of the meal (ex. Lunch meeting to discuss timeline of tax preparation, etc.)

Often business expenses are overlooked when they are paid from personal funds. To help prevent this oversite, use one credit card exclusively for business purposes which will also support proof of payment.     

You may deduct 50 percent of your client and prospect business meals if the expense is:

  • Ordinary and necessary expense incurred during the taxable year in carrying on any trade or business
  • Not lavish or extravagant under the circumstances
  • The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages
  • The food or beverages are provided to a current or potential business customer, client, consultant, or similar business contact
  • In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages are stated separately from the cost of the entertainment on one or more bills, invoices or receipts

Hopefully, these topics will assist you prepare for your 2018 income tax returns and be audit ready of if needed.

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Mistakes To Learn From

All business owners make mistakes. It is an unfortunate truth. After all, we’re only human! In certain industries, these mistakes can lead to serious consequences. It is the job of any good business owner to identify what these possible errors are, and avoid making them. Luckily, we have seen them all. Accountants and bookkeepers are very familiar with both extremes of running a business. We see everything from the totally unprepared, to the utterly flawless. In the midst of all of this, we have learned a thing or two.

 

Who You Gonna Call?

One of the most costly errors a business owner can make is overconfidence. Starting a business requires a great deal of dedication and knowledge. However, no one person is expected to know the intricacies of each aspect of business ownership. The wisest man knows that he knows not. It is important to swallow your pride (and cough up a few dollars) sometimes, and let someone who is trained handle the task. Every bookkeeper will tell you, starting new books isn’t difficult, but fixing old ones can be a nightmare. Hiring a subcontractor may seem like a major expense, but it is nothing compared to the damage control you will have to do if things go poorly doing it yourself.  

 

It’s Nothing Personal, Just Business

This cliche line has probably been uttered in a hundred different movies, but actually holds some merit. Something we see a lot, especially with new business owners, is that they often use their own personal funds to bolster their company. Owner investments are fine, they are a must. However, when it comes to using company money, things get a bit more complicated. Unfortunately, many business owners will use a company card for personal reasons, in lieu of taking draws.

This is costly for a couple reasons. First, it takes more time for your bookkeeper to sift through the transactions to find what is actually a business expense. Secondly, many say to themselves “I will pay it back”, and never do. Companies have been drained this way. Lastly, this sort of behavior, if paired with improper bookkeeping and poor records, can be a red flag for the IRS. And no one wants to audited. Business card. Personal card. Have two, keep them separate. 

 

Cash Is King

This one may seem obvious. The saying has been around for a while, yet people seem to forget it. There are so many ways to pay for goods and services now, that we often forget we need to have cash in the bank to back it all up with. In my bookkeeping years, I have seen companies pay thousands a year in bank overdraw fees. I have seen companies unable to make payroll because there are insufficient funds. I have seen owners buy things they don’t need, and spend far too long paying for it. The unfortunate truth is that many businesses operate at a loss for a while before they can start making money. However, you are only making money if it goes into the bank.

 

Organized Chaos

Let’s be honest, we aren’t as organized as we should be. Sometimes, we get lazy, and don’t put something back where we found it. This happens in business as well. We start off with the best intentions, and follow all the protocols, but after time complacency usually gets the best of us. Unfortunately, in the business world, this type of behavior can seriously hurt a company. It may start innocently enough, with little consequence, but over time it will bleed into the day-to-day functions, and efficiency of your work. Don’t let messy books, or a messy work space bring you down.

 

I know what you’re thinking, “That’s all common sense! Why would you make a post about that?” Well, when the number of times seeing these mistakes becomes too high to count, then maybe it’s time to address them. These are all easily solvable mistakes. Better than fixing them, is never making them at all. Hopefully this friendly reminder from your local accountants will help prevent them in the future!

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A Bookkeeper’s Tool

Bookkeeping always seems like a mysterious, dark art. It is never seen done in person, yet you give someone a bunch of transactions and receive a neat, orderly report in return. As confusing as it may seem from the outside, bookkeeping is very straight forward these days, with the help of some very useful programs. There are probably hundreds of bookkeeping programs available, each with their own pros and cons. At the Bean Team, we are QuickBooks fans.

So what can QuickBooks do that makes it so special, and universally used? The first, and arguably most important factor is usability. QuickBooks is marketed as a user friendly program. Which it certainly is, to a certain extent. The company that made the program is aptly named Intuit. And their programs are indeed, intuitive. Obviously, there is a learning curve, as with any program. But for most new users, they will find they are able to post invoices and deposits with very little  instruction. That being said, a basic understanding of bookkeeping goes a long way.

QuickBooks has also adapted a fair amount to the modern age. The program has been in circulation since the 90’s. Much has changed in the digital environment since that time. Intuit has done a very good job of keeping the iterations of QuickBooks modern, while still holding on to their more old fashioned customer base. It is a balancing act that many companies could learn from.

You see, while many of the basic functionality of the program has remained the same, new add ons, integrations, and internet linked features have been added to keep it up-to-date. These changes aren’t solely for appearance’s sake. With QuickBook’s success, has come a throng of followers that aim to create a shinier, more modern take of double entry accounting programs. And for the most part, they have succeeded. Web based bookkeeping programs like Xero, have taken many customers away from Intuit. Lured by a whole host of integrations, and streamlined bank feed downloads, many amateur bookkeepers have jumped ship.

While I, and many other bookkeepers, may concede that Xero is in fact easier to pick up and use, it is far less comprehensive than QuickBooks. Following a trail of transactions can be difficult, and often makes any form of forensic accounting painful. It lacks the tools, and ability to enable a bookkeeper to truly be in control of a company’s finances. If all you need is a place to download your bank feed, and assign them to an account, then Xero is perfect. 

When it comes down to it, QuickBooks is the most versatile. It can be used by many different skill levels, and is very in tune with what most accountants, bookkeepers, and business owners need when maintaining healthy books, no matter the industry. Obviously, it is important to do your research, and see what fits best with your business. Don’t blindly take my word for it. And no, I’m not getting paid by Intuit to plug their product, but if that is an option, I’m game. Really, I have used a hand full of accounting and bookkeeping programs, and always come back to QuickBooks as my go-to. Don’t get me wrong, it has its quirks like any other computer program, but at the end of the day it does the things I need it to, and without too much fuss.

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Preparing for 2018 Taxes


As we approach the end of 2017, tax time is around the corner. The changes of the Trump Tax Plan and the post card tax return will happen in 2018. So, we have another year of the old rules and forms. While taxes can be really complicated, getting your taxes done can be a breeze, you just need to hold on to a few pieces of paper and be prepared to answer a few questions for your accountant. Here are few tips for making sure this tax season is pain-free.

 

  • Form Numbers Are Your Friend! Trying to decide what to hold on to for your tax return can be overwhelming. Many times, tax preparers will get a stack of every piece of paper that has a number and a dollar sign on it. While we do appreciate detail, we also appreciate getting you a return as quickly as possible! The most important tax documents will have a form number. These are the most important things to hold onto. If you get something in the mail that says “Tax Document” on the envelope, chances are it is a form of some variety and it should be kept.
  • The Many Faces of 1099s. 1099s come in all shapes and sizes. The type will be designated by either a letter or a word added on to the end. For example, a 1099 that tells you how much money you earned in bank interest is a “1099-INT”. The most common type is a 1099-MISC, or Miscellaneous. This is typically used to show money made as a subcontractor, or someone who wasn’t having taxes taken out of their earnings. If you receive any form of 1099, hold on to it. You will need to report it on your tax return.
  • Do you C? If you run your own business as a sole proprietor, you don’t need to file a separate return. You do, however, need to fill out a Schedule C on your individual tax return. The Schedule C, Profit or Loss From Business, requires your yearly numbers pertaining to income and expenses. Completing this schedule will be much easier if you have a bookkeeper. A bookkeeper will track your income and expenses by type, often corresponding with the required fields on the Schedule C. If you do not have a bookkeeper, and have not been tracking your expenses, you will have to provide your company’s bank and credit card statements for the year.
  • The Venerable W-2. Chances are, you will receive this in January or February. In short, the W-2 shows you how much you made, and how much was taken out for Federal taxes, Social Security and Medicare, and State Taxes (if applicable). It will also show you how much was taken out for any sort of health plan, or dependent care, along with several other items if they pertain to you. The W-2 is the backbone of your tax return. You should receive one from any job you worked at over the course of the year in which you were officially on a payroll. Basically, if you filled out a W-4, you will receive a W-2.

 

Filing your taxes doesn’t need to be some mystery. More than anything, it is about being prepared, and following instructions. Well, and having a great deal of patience. But as long as you have everything you need, and are willing to take the time to read items over, you will be able to file your taxes without any major hiccups.

 

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Outsourced HR Specialists


 

HR is one of the rare parts of business that is so extremely important, yet almost always gets overlooked. Why is this? Well, most companies believe they don’t have any HR issues. Business owners tend to think that they have a firm grasp on what is happening within their business, and if anything were to happen, they would be able to handle it. This is reactionary, rather than preventative, and is rarely a permanent fix to the problem.

Here are a few reasons why we think having an outsourced HR specialist on call is a good idea.

  1. If you have employees, you have HR compliance issues. It’s that simple. Between hiring, pay practices, benefits, and leave administration, there is a lot that can go wrong. Being prepared costs far less than the toll of any repercussions.
  2. A component of a healthy workplace environment is creating a clear, and transparent employee handbook so all guidelines are easily accessible. This is best done by a manager in tandem with an HR specialist.
  3. Discipline and termination are unfortunate facets of running a business. HR specialists can educate and guide business owners through the proper processes so as to avoid any compliance issues.
  4. Another key factor in covering your bases in all matters, is proper documentation. Having someone who knows the correct way to document all HR related issues will make ensure that there are no legal ramifications.

HR is always more than people think. Don’t make the mistake of assuming you have it covered. It is always better to be prepared, and go by the book. Hiring a professional who knows the laws and has the experience, is a valuable investment that will save you time, and a lot of hassle.

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