Archive for the "Accounting & Bookkeeping" Category

It's all about attitude

I can still hear my mother's voice in my head telling my 14 year old self to watch my attitude.  And though she was threatening recriminations for my continued crabby tone, her advice goes way beyond my adolescent angst.  Don't we, as a general rule, tell ourselves to think positively, out of some subconscious superstitious fear of our negative thought suddenly materializing into absolute reality?  And while that one chipper neighbor may drive us a little crazy, there is great value to watching your attitude.

Most business owners work hard to maintain a positive attitude with their clients, but what about their employees? While perusing one of the accounting publications I follow, I found the following article…

Art of Accounting: My Boss Hated the Client By Edward Mendlowitz

Early on my boss took me to a client that I was to work on. He started to explain what needed to be done and what the client did, but then he said, “I hate this client—everything is always messed up and nothing ever makes sense.”

He also told me my work area was in the factory. I would probably have to move a chair next to a carton that would serve as a desk, and he warned me the lighting wasn’t too good.

His remarks were like a kiss of death. For the next five or six months, I dreaded going to the client, always thinking how messed up they were and nothing ever made sense. Then it dawned on me that I was the person doing the work, and things were in order. The carton I worked on was a few feet from where the client packed his shipments. When he did, he always chatted with me about his business, customers, employees and pricing strategies.

He also told me things he liked to do, such as going to the opera (which I did too) and vacations he took or would like to take. The client also would buy me a sandwich to have lunch with him. I got very friendly with him. And then I asked myself why I dreaded going there. I loved working there! It became my favorite client that I eagerly looked forward to visiting.

My boss's idle remark prejudiced me against the client, and it took me months to get over it.

The takeaway for me was that when I became a boss, I only said great things about a client, influencing the staff to like the client and eagerly look forward to working with them. Negative remarks about a client never left my lips! Actually, negative remarks were never applicable—my clients are all great!

And while I feel like I have the opportunity to work with great people, this article was a good gut check for me to take stock on my attitude.  And while the occasional bad day can always be forgiven, it's important not to let your bad attitude ruin your day or anyone else's.

“A bad attitude is like a flat tire. If you don't change it, you'll never go anywhere.” – Unknown

 

Marketplace Fairness Act – Update

The Marketplace Fairness Act was overwhelmingly passed in the Senate on May 6th with a vote of 69 to 27. The bill will now pass to the House of Representatives where analysts have declared the outcome to be less certain. The bill has not been scheduled on the House calendar but if it is passed President Obama is expected to sign it immediately for the bill to take effect at the beginning of 2014.

Sales Tax on Internet Purchases – Marketplace Fairness Act

There is a current piece of legislation that has a lot of business owners very concerned about their future tax liabilities.  The legislation, called the Marketplace Fairness Act (MFA), would require that state sales tax be collected on any internet purchase made by an individual in a sales tax collecting state. Currently, MN residents that make purchases on Amazon are not charged sales tax, but if the MFA passes sales tax will be added. States that do not have a sales tax, such as Montana, will not be affected. Congress is due to vote on the Marketplace Fairness Act of 2013 next week.

Supporters of the MFA have asserted that it will be highly beneficial to brick and mortar stores that have been previously disadvantaged by internet sales being exempt from collecting sales tax and will increase competition.  The supporters have also argued that this act will allow states to better enforce compliance of use tax laws that require individuals to pay a use tax on purchases that did not collect sales tax (ie internet sales) above a threshold.

Dissenters of the MFA have claimed that it will create an undue hardship on businesses trying to comply, and that business collecting tax for states where they do not have a physical presence, will not even get to benefit from the tax collected.  This last issue would affect the states without a sales tax the most because they won't bring in sales tax from other states, but they would be required to collect for those other states.

To reduce the hardship on businesses, the MFA would only require that businesses that have internet sales of $1 million or more be required to comply.  The act also requires all states to simplify their sales tax laws.  States will have two simplification options available to them.

Option 1: States have the option to adopt the Streamlined Sales and Use Tax Agreement which has been in the process of development over the last 11 years and in which 24 states, including Minnesota, have already adopted.  This agreement requires uniform tax definitions, rate simplification, state- level administration of all sales taxes, uniform sourcing, uniform and simpler exemption administration and state funding of the administrative cost.

Option 2: States can agree to meet five simplification mandates listed in the act.

  • Notify retailers in advance of any rate changes
  • Designate a single state organization to handle sales tax registrations, filings, and audits
  • Establish a uniform sales tax base for use throughout the state
  • Use destination sourcing to determine sales tax rates for out-of-state purchases (a purchase made by a consumer in California from a retailer in Ohio is taxed at the California rate, and the sales tax collected is remitted to California to fund projects and services there)
  • Provide free software for managing sales tax compliance, and hold retailers harmless for any errors that result from relying on state-provided systems and data

 

The Senate is expected to pass this bill within a week and then it will be sent to the House for further deliberation.  If passed business could be expected to comply as early as October 1st of this year.  For further questions on how this could affect your business or on compliance, feel free to contact us.  For more information, please visit the Marketplace Fairness Act's official website.

Sales Tax: Nexus in other states…

With the continuing trend to take business to the internet, companies can sell their product or service all over the country pretty easily.  But a company considering e-commerce should be aware of the tax effect and compliance requirements they will have to face. Specifically, businesses will have to consider the sales tax effect when selling to other states.  Sales tax can be a tricky subject especially when other states are involved, and what in the world does something called Nexus have to do with anything?

What is Nexus? Nexus generally means that a business has a physical presence in a state.  A physical presence could include having property, employees, or soliciting sales in a state.  The determination of nexus will be the primary component determining whether that state may impose a sales tax on your product or service.

If you have Nexus. If you determine you have a physical presence, or nexus, in a state, you may have a sales tax obligation in that state.  A sales tax obligation comes from selling a product or service that is taxable in that state.  Every state is different so once Nexus is established it is important to research to see if your product or service is taxable in that state.

Compliance. Another thing to consider when you have nexus is the compliance requirement.  This means that if your product or service does have a sales tax due, a business will need to consider the exemption rules and filing requirements.

Knowing when to collect sales tax and how much to collect can be a tedious process. If you are considering expanding your company to sales outside of your home state, please contact your CPA for assistance with this matter.

How can I deduct use of my vehicle for business?

A taxpayer may deduct the use of personal vehicles for business using one of two methods: the “standard mileage rate” method or the “actual expense” method. 

The standard mileage rate method: The IRS issues a per-mile rate that can be used to create a deduction based on miles driven for business. In 2012 the rate is 55.5 cents per mile. The deduction is created by multiplying the rate by the amount of business miles.  If you are a Schedule C business owner you can take this deduction on your Schedule C. If you incur the expense as an employee you can claim a deduction by filing form 2106, Employee Business Expenses. The amount reported gets reduced by any reimbursements received from your employer and ends up as a miscellaneous itemized deduction on  Schedule A of your 1040 & these types of deductions are limited to 2% of your adjusted gross income. NOTE: if you would like to use this method, you must make sure to do so in the first year that your vehicle is used for business purposes, and then in the subsequent years you may choose whichever method gives you the better deduction.

The actual expense method: If you use the actual expense method you must determine what it costs to operate your vehicle including gas, oil, repairs, insurance, registration, etc. You will multiply the actual cost by a percentage representing business miles divided by total miles.

Both methods require the taxpayer to keep good records of business mileage.  Make sure to note your mileage on your odometer at the beginning and the end of the year, and keep a log of every business trip with the date, total miles traveled and a description of the business activity.

Got A Mess?

We have the best intentions with our financial lives, but sometimes “life” gets in the way and the financial aspect of our lives may suffer.  Whether it is an illness, an unexpected job loss or a variety and combination of other things, it can happen.  Then, the tax reporting deadlines come upon us and we are not ready to file or the project seems too big to start.  So we don’t.  Or, we have an opportunity to refinance or start a new venture, but not having filed your tax returns can be a stumbling block.  That is where we come in.  Don’t worry about being embarrassed; we are here to help get the job done.  We will help organize the information and get the job done.  Our main goal is for you to SWAN – Sleep Well at Night.  If we can help, let us know.

Do you know enough to be dangerous?

You have a fantastic idea, product, clients, etc., you are busy doing the “critical inch” of what makes your business profitable, and you assume or blindly hope that the accounting will “fall into place” or “just happen.” The intensity and excitement of starting a new venture can be and usually is all consuming with a to-do list that is longer than the hours in a day. Does this sound familiar?

One of the major no-no’s in starting a new business is mingling personal and business funds.  Most new business owners have no choice but to use personal funds at the creation of their business.  This is understandable, however once an entity is registered, it is vital to open a business bank account and set up your accounting software.  Comingling funds can create huge headaches from not know the exact amount of money invested, spent on expenses, or accurate records for tax time.  If partners are involved, the headaches turn to migraines and undue stress is put on the budding enterprise.   If possible, involve professionals when starting a business and in maintaining financial records.  Business owners don’t start businesses so that they can be stuck tracking receipts, and rarely do they have the time to maintain perfect accounting records so they take short cuts or fall behind.  Don’t fall into this accounting pitfall, get help and get back to doing what you love. 

“You only cry once when you pay for quality.” – English Proverb

Don’t worry…. It’s just a survey.

The IRS will randomly select 20,000 individual taxpayers and 24,000 business entities in the upcoming month to participate in a survey.  The purpose of the survey will be to revise estimates of the time and money involved in matters relating to income taxes.  Some examples would be record keeping, planning, and preparation.  The point: don’t automatically worry if you get a letter from the IRS, it may be just a survey.

Do you know where your cash is?

It seems that every other week, there is some company in the news who discovered that one of their employees was stealing money.   Whether from using company credit cards personally, forging checks, or siphoning funds in other ways, companies are reporting huge losses due to fraud.  A study by the Association of Certified Fraud Examiners highlighted in their 2010 “Report to the Nations” that the median loss due to these types of fraud was $160 thousand dollars with a quarter of reported cases losing more than a million dollars.  They included that the potential loss due to fraud on a global level was more than $2.9 trillion dollars. Even when the theft is made in small amounts, these small amounts grow over the years and can be the cause of a company’s downfall. When the theft is discovered, the chance of ever recovering the full amount stolen is slim to none. 

 As a business owner, do you know where your cash is?

The basic principle to preventing fraud in your company comes from the Fraud Triangle. 

 

The Fraud Triangle, first coined by criminologist Donald R. Cressey, describes three factors that are present in every example of fraud.  A business owner has no control of an employee’s ability to rationalize fraud, or the financial pressure/ motivation that an employee faces.  What a business owner can control is opportunity.  Having a good system of checks and balances can be a good way to prevent opportunity.  Also restricted access to financial information could be a good way to prevent opportunity.  Most software programs have the ability to restrict certain users from sensitive information or tasks.  It is important for business owners to take advantage of these capabilities.  Lastly, it is very important to review your financial statements on a regular basis, and to compare them with prior periods.  This will make it easy to spot trends and inconsistencies that can be researched for accuracy. 

It can be easy for business owners, with limited time and funds to overlook these internal controls. However, it is important to be proactive in fighting fraud so your business can live to see another day.

The IRS uses Social Media

The IRS has joined the one billion users who take advantage of social media resources.  The following six resources will keep you up to date on changes and announcements as well as keeping you connected to your refund.

YouTube—They have begun posting short informational videos on YouTube on various topics.  You can watch videos or subscribe to their channel by going to the following link: http://www.youtube.com/user/irsvideos.

Widgets—The IRS now uses Widgets.  A widget is an application, or a link that will appear on websites, blogs, or social media networks that will direct the user to the IRS website for more information or to perform an action.

Podcasts—They have begun recording podcasts through iTunes.  Theses podcasts are short recordings with information on one tax-related topic each.  You can subscribe for free through iTunes or on the IRS website at http://www.irs.gov/newsroom/article/0,,id=179391,00.html.

Twitter—The IRS is now on twitter. The IRS posts tweets tax-related announcements, news for professionals, and updates for job seekers.  You can follow them by searching for their username @IRSnews.

Apps—They have a Smartphone application called IRS2GO.  This is a free application that will let you check your refund status, subscribe to tax updates by email, subscribe to their twitter feed, and lists contact information.

Facebook—Lastly the IRS has an official facebook page with tax information for tax professionals and those that are in need of help resolving long standing issues with the IRS. Find them at facebook.com/IRS. 

These resources should make it easy to stay on top of changes with the IRS.  The IRS reminds taxpayers that these sites are for informational purposes only and to refrain from posting confidential information as they will not be able to answer personal tax or account questions on these sites.  You should contact your accountant or the IRS directly for personal tax or account question. 

Knowledge is power—Get connected.