Small Business CPA

Posted by on Jul 9, 2012 in Accounting, Payroll, Small Business | Comments Off on Small Business CPA

Health Care Tax Credits and Your Small Business.

Posted by on May 4, 2012 in Accounting, Small Business | Comments Off on Health Care Tax Credits and Your Small Business.

· Are you a small business owner with less than 25 full-time equivalent employees?

· Do you pay an average wage of less than $50,000 per year?

· Do you pay for at least 50 percent of your employee’s health care coverage costs?


The Small Business Health Care Tax Credit may be an option for your company. Originated as part of the Health Care Reform Act in March 2010, small business owners are encouraged to offer their full-time employees health care coverage. As part of this push to provide workers with affordable healthcare coverage, a tax credit was included in the Health Care Reform Act to help defray a portion of the costs associated. Beginning in tax year 2010 and extending through 2013, the maximum credit is 35 percent of the average premium* for small business employers and 25 percent for small tax-exempt employers such as nonprofit charities. The Health Care Reform Act provided for a graduating increase in the tax credit beginning in 2014 expanding it to 50 and 35 percent, respectively.


If your small business isn’t making a significant profit for the 2011 tax year, don’t fret. The health care tax credit is eligible to be carried forward up to 20 years or backward five years to a time when your small business may owe more taxes. Since the total amount of health insurance premium payments will exceed the amount of the tax credit, small business owners can claim both the expense deduction for the health premium in excess of the credit along with receiving the tax credit. Lastly, the credit is also refundable, which can mean tax money returned to you in the form of a rebate check. If your small business had no taxable income for a qualifying tax year, you may be able to receive a refund so long as it does not “exceed your income tax withholding and Medicare tax liability.”


Find Your Total FTEs

To calculate your company’s total number of qualifying full time employees (FTEs), divide the total hours of service for which you pay wages to the employees during the year (not to exceed 2,080 hours for any employee) by 2. The resulting number (if not a whole number) is rounded to the next lowest whole number. To claim the Small Business Health Care tax credit, use Form 8941 to show the calculation of the credit and include it with your annual income tax return.


Seasonal Workers

Unfortunately, if you operate a seasonal business, such as an ice cream stand or a holiday shop at the mall, your business will most likely not qualify for the health care tax credit. However, if the seasonal worker is employed for more than 120 days during the tax year, s/he may become a qualifying worker. If your company pays health care premiums on behalf of seasonal workers, you may count those payments to determine the amount of your employer tax credit.


Ownership doesn’t count.

As a sole proprietor, partner in a partnership or as a shareholder owning more than 2 percent of an S corporation or an owner of 5 percent or more of other business types cannot be considered employees for the purposes of claiming the health care reform tax credit. Therefore, your wages or hours of employment cannot be used in calculating FTEs, premiums paid or average annual wages. Additionally, family members of the business owner(s) as a general rule cannot be included in the calculations either.


As with any tax deduction, it’s always smart to talk with your bookkeeper, small business accountant or tax professional to evaluate your situation and determine the best options.


* The average premium is determined by the Department of Health and Human Services and can be found by checking the web site for the average premium in the small group market in each state for the applicable tax year.


The Pros & Cons of Outsourcing Your Bookkeeping

Posted by on Jan 30, 2012 in Accounting, Payroll, Small Business | Comments Off on The Pros & Cons of Outsourcing Your Bookkeeping

Often small business owners are troubled by the question of whether to hire in-house bookkeeping personnel or outsource most of the record keeping. The answer to that question must be determined individually for each business owner depending upon numerous factors. A few things to consider when deciding are:

  •   Size of business
  •   Type of business
  •   Number of employees
  •   Size of payroll
  •   Number of weekly invoices & purchase orders

Generally, if you employ 50 or fewer people, then outsourcing your bookkeeping tasks is the best answer. Once your business grows to over 50 employees, it may be time to hire in-house accounting people. There again, the type of business should be considered.

A business like this could make dozens of sales each day, and they will no doubt be ordering new products each week in order to keep the shelves stocked. When your small business generates this much paperwork, then the best idea is to stay on top of it by hiring someone to process receipts, invoices and purchase orders on a daily basis. You could easily outsource your payroll, however, if you wanted to do so. Though there are only 5 employees to pay each week, an accountant should be involved so that when it comes time to file quarterly tax reports, he or she will have all that information already in a computer program.

Small business accountants know exactly when and what to file and will save you time and money by making sure everything is done on time thus avoiding penalties from the IRS. Normally, another good reason to work with a professional accountant has to do with IRS audits. Generally speaking, small businesses who employ a qualified accountant to handle record keeping are audited far less frequently than those who don’t. Remember that the less time you spend minding the record keeping, the more time you can spend growing your business and developing new business relationships.

Contractor or Employee – That is the Question.

Posted by on Jan 26, 2012 in Accounting, Small Business | Comments Off on Contractor or Employee – That is the Question.

Contractor or Employee – That is the Question.

As a small business owner, there are many challenges to understanding all of the tax codes regarding payroll taxes and how to treat different workers in your company. Finding the right answer to the contractor versus employee question can mean a big difference in how you treat that individual for tax purposes.

Let’s look at the semantics of each type of worker to better understand how it can impact your small business.

Independent Contractor
Doctors, lawyers, dentists, veterinarians, contractors, writers, graphic designers, and accountants are among just a few of the many professionals who often work as independent contractors. That doesn’t mean that in every instance these individuals can always be considered “independent”. Much depends on how, where, and under what supervision they perform their tasks.

For instance, a physician can work in the employment of a hospital or physician practice and be an employee that receives benefits and pays federal taxes out of each paycheck, while another physician colleague may work per Diem on a contract basis. The general rule from the IRS to determine if the individual is an independent contractor involves whether or not the payor has the right to control or direct only the result of the work and not what will be done and how or when it will be completed. Those receiving pay as an independent contractor are subject to Self-Employment Tax. Remember that for 2010, if you are considered self-employed you can also reduce your net self-employment tax by deducting your health insurance costs on Form 1040.

If you control specific details of your worker’s job such as what will be done and how it will be completed, then you are going to be considered an employer/employee relationship by the IRS. That means that as the business owner, you will be responsible for withholding and paying Federal Income Tax, Social Security and Medicare taxes on behalf of that worker. The IRS takes payroll taxes very seriously. Not only are you paying taxes as the business owner, you are also a third party payor collecting and submitting taxes on behalf of your employees.

Additionally, employers are responsible for paying Federal Unemployment (FUTA) and State Unemployment (SUTA) taxes. FUTA and SUTA taxes are not paid by employees or withheld from their pay. Failure to pay these taxes will result in heavy penalties and fines which can quickly snowball into substantial amounts if you aren’t meticulous in your reporting.

Effective January 1, 2011, taxpayers must deposit all depository taxes such as employment, tax, excise tax and corporate income tax, electronically using the Electronic Federal Tax Payment System (EFTPS). Each state has separate recording and payment systems so it’s important to check with your local and state revenue offices for details. And that’s just the beginning. Managing payroll tasks can be time consuming and confusing for many small business owners. Depending on the size of your staff and to alleviate worry and the risk of over or underpayment, it may be wise to invest in a payroll service to help manage your payroll and all of the changes that seem to come with the job.

To make a determination about how your business should treat an individual who performs work for your company, consider the following test from the IRS:

1) Does your business control or have the right to control what the worker does and how the worker does his or her job? If you control when, where or how the individual performs the work, then the worker is an employee.

2) Are the business aspects of the worker’s job controlled by the payer? For example, do you provide the tools, computer system or other means necessary for the individual to complete their work? If the employee works in your office, uses your computer systems or other tools to complete the tasks, then the IRS would consider that individual an employee.

3) Do you have written contracts or employee benefits for this individual? Does the employee receive vacation pay, retirement benefits, health insurance or other ‘benefits’ of working at your organization? If you answered ‘yes’ then the IRS would consider that individual an employee.

Once you answer these questions, review the results and see to what degree the responses fall in either the independent contractor or employee category. Not only are employers responsible for federal taxes and rules, but each state has its own rules pertaining to independent contractors and employees as well as payroll tax requirements. When in doubt, it is always best to consult a small business accountant or bookkeeper or a tax professional.

What’s Your Small Business Worth?

Posted by on Jan 26, 2012 in Accounting, Small Business | Comments Off on What’s Your Small Business Worth?

What’s Your Small Business Worth?

You’re working diligently on your business.  The finances are in reasonably good shape and you’re feeling pretty confident that the business is on solid financial ground.  But do you really know what your small business is worth?

The issue with many business owners is that they tend to inflate the real value of their business for many years.  Then when the time arises to sell, retire or pass the business down to a family member or partner, they are shocked at its true value.  By putting off what you could have done today, you’ve also lost critical time, often years, when you could have made preventive adjustments in your business strategy that would have provided a greater sales value.

What is a business valuation and why should you do one?

Business valuation is the process of discovering the true, fair, or ‘street’ value of your business.  There are a handful of tried and true methods for performing such assessments, but the most faithful is the Discounted Cash Flow where a company’s value is based on its ability to generate sustainable long term cash flow.  There are, of course, many other factors that come into play when doing a valuation including:

  • Liquidation Value – The amount of cash generated from complete sale of your business’ assets,
  • Excess Earnings – Earnings paid above and beyond the expenses,
  • Multiples Model – This is where earnings/sales are multiplied by the price to earnings (P/E) or price to sales ratio (P/S) of comparable public companies and,
  • Comparative Cash Flow – These are similar to housing marketing assessments done by real estate agents.

More difficult areas to assess include intellectual property and other intangible ‘value’ assets within the organization.  A PASBA small business accountant or business valuation firm can assist you with defining more esoteric ‘values’.

Reasons to perform a business valuation:

  1. Hard Facts – A valuation will enable you to truly understand and know the sale value of the business rather than making costly assumptions.
  2. Legal, tax, and planning purposes – In the event of a divorce settlement, estate planning, or forming partnerships, having all of your legal and tax issues addressed in advance will streamline the process.
  3. Growth – With the facts in hand, you can now plan for future growth, including raising capital, and take advantage of business opportunities as they present themselves.
  4. Transition / continuation planning
  5. Selling the Business

Depending on your motivation for performing a business valuation, there are several possible ways to interpret the data.  If you’re improving the value of your business for the purpose of selling, you’ll want the highest possible valuation.  If you’re seeking the valuation based on a future contribution to a charity or in gifting the business to a relative, you’ll want a lower valuation for tax purposes.  In litigation, the valuation can go either way depending on if you’re the defendant or the plaintiff.  No matter what the purpose, the best investment you can make is to utilize the most reputable business evaluator you can afford.

Why Worry About Accounting?

Posted by on Jan 26, 2012 in Accounting, Small Business | Comments Off on Why Worry About Accounting?

Why Worry About Accounting?

Understanding how your business functions financially is often one of the most overlooked yet important functions of being in business.  Beyond the necessity of cashflow and understanding where your money is going each month, is the critical matter of being able to adequately represent your business’ financial viability for creditors, vendors, bankers and even potential investors.  That’s why it’s important that you have an accurate representation of income with proof of that amount. This doesn’t become obvious to many business owners until the first time they need to purchase a house, buy a vehicle or seek funding to grow the business. Years often pass where the owner’s personal equity is grossly underreported making securing loans difficult if not impossible especially in today’s tighter lending market.

Owner’s Equity

To establish what the business and in many cases, what the business owner(s) are worth there are a few basic steps in making the calculation.  First, gather information on all personal assets including the home, jewelry, cars, vacation property, retirement, savings and any other personal belongings.  Next total all liabilities the individual has including outstanding debts such as a mortgage, credit card debt, student loans, or any other financial obligations.  Now take all assets and deduct liabilities.  This number will be the individual’s total net worth.

The same calculations hold true when looking for a business’ net worth.  Using the balance sheet, liabilities are subtracted from assets resulting in a net worth figure.  For corporations, the calculation will need to include shareholders/stockholders on the equity portion of the balance sheet.  Included in the stockholder section would also be line items for reserves, retained earnings, stockholder equity, and capital.

Two other reports which are critical to understanding the business’ financial health include the income statement, which reports the company’s profit and/or loss and the statement of cash flow, which provides a reporting of the business’ ability to generate cash.

If managing your small business is becoming overwhelming, there’s help available by contacting a trusted PASBA small business professional.  From accounting to bookkeeping, payroll, taxes and business consulting, you’ll find a network of resources just a phone call away.

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