Lester Bahr CPA Accounting Blog
This income tax filing season will officially open on January 19, 2016 as that is the first date in which IRS will begin accepting tax returns.
For the first time in six years, IRS has received a significant amount of additional funding in the amount of $290 million which it says will be used to improve taxpayer services. Mostly, this will come from being able to hire up to 1,000 additional customer service representatives meaning that its phone service levels should improve.
This should be an improvement over the situation of the past year. In fact, a report recently released by the Government Accountability Office found the IRS had provided the lowest level of telephone service in fiscal year 2015 compared to prior years. Only 38 percent of callers who wanted to speak with an IRS representative were actually able to reach one.
Lester Bahr, CPA
was recently published as the cover story for this month's "Lehigh Valley Woman's Journal"
Entrepreneur business owners are fast gravitating toward the convenience of cloud based accounting systems like QuickBooks Online. Many try their hand at setting up their online books but soon realize they need some expert assistance since accounting and taxes probably are not a core competency they possess. But of course the efficiency and accuracy of running your business will be greatly enhanced if you get things started out correctly.
Just as you would not be very successful as an author writing a book unless you have full command of how to use language, you also won't likely be all that successful in business unless you understand how to use the language of business - and that is accounting.
The best place to get that expert guidance is from a CPA accounting professional who specializes in working with clients in this online eco system environment. After all, doesn't it make sense that if this is where you are going to run the backbone infrastructure of your business, then this is where you should be able to collaborate with your CPA professional as well?
Lester R. Bahr, CPA
Advanced Certified QuickBooks Advisor
Well, for starters, here are some things you need to first consider:
1. Do you have a written business plan? Have you selected an appropriate business name?
2. Is there a market for your products or service - at a price point that will allow you to be profitable?
3. Do you have access to sufficient financial resources to start and sustain the business realizing that it might take some time before it become profitable?
4. Have you done your homework as to what is the best business entity type to operate under? You have discussed it with an attorney and CPA, right?
5. Do you have all the necessary insurances in place?
6. How will you do your bookkeeping for the business? Very important that you get this all setup right from the beginning. Consider using QuickBooks.
Remember, success favors the well prepared when it comes to starting your own business. You can check out more business planning ideas here.
Lester R. Bahr, CPA
Just taking a few moments to bring out some highlights from the conference over the past two days. The following coming from the keynote address of Jim McGinnis, Vice President with Intuit Small Business Group.
The number of businesses continuing to move to the cloud with QuickBooks Online continues to grow exponentially. Intuit has just surpassed one million businesses now using QBO with new subscribers growing 57% in 2015 alone. Intuit is forecasting this number to reach 2 million small businesses using QBO within two years. At the same time smartphone mobile apps are also gaining ground as well.
Welcome to the connected firm of the future putting convenience, accessibility and better service through collaboration into the grasp of the business owner.
Lester R Bahr, CPA
Mortgage interest, real estate taxes, or rent, electric, gas, oil, water, sewer, internet, repairs, maintenance, insurance - plus any specific home office riders, depreciation - but all are limited to percentage of usage. Or, you can opt to use the new simplified home office deduction method. With so many home based businesses, you won't want to overlook these important deductions - IF they are applicable to your situation.
Lester Bahr, CPA
When it comes to adopting new technologies, many CPA's haven't exactly been early arrivals to the party. But, gradually more are seeing the light and finally entering the digital age in this fast-changing world we live in. We're seeing the emergence of more "virtual firms" that make the "bricks-and-mortar" building locations less necessary.
This evolution in how many of us as CPA's deliver client services has been made possible entirely by new technologies which become the foundation and epicenter of our practice. At the core of this business model is cloud based applications, portals, mobile apps, access to extensive web-based research and training resources, electronic document storage and a variety of communication mediums such as Skype, Face time, and Google and other platforms that allow anytime, anywhere access from regardless of location in the world. Within this new digital ecosystem, clients, professionals and staff can all collaborate much more effectively.
It has been my experience that all of these tools used together by a technologically progressive CPA serves to enhance the total client experience in receiving convenient, efficient, customized solutions that fulfill their needs. After more than a quarter century in the accounting profession, being involved in these trends has revolutionized my practice in a profoundly positive way - as I'm sure it has for many other CPA's
Lester R. Bahr, CPA
Working teenagers are treated just the same as adults for purposes of contributing to a ROTH IRA. Therefore, they can qualify to contribute to a ROTH IRA as long as they have earned income up the maximum of $5,000 per year. Sorry, but no, gifts from parents or other family members do not count as earned income.
The advantage of encouraging your teens to set up a ROTH IRA is that by starting very early and sticking with it, they can accumulate a substantial amount of wealth that is sheltered from paying tax on the income and capital gains each year within the ROTH IRA account.
Plus, due to the flexibility of a ROTH IRA, while primarily designed as a retirement tool, you can also withdraw the money to be used for qualified education expenses. While the earnings (but not the original contribution portions) of the withdrawals are taxable, they are not subject to the 10% early withdrawal penalty.
Another use for the ROTH IRA is that your child can eventually withdraw up to $10,000 toward the purchase of a house and those withdrawals are both penalty and tax-free.
Plus, by encouraging your children to setup and fund a ROTH IRA you will be teaching them good savings habits that will benefit them over their lifetime.
Lester R Bahr, CPA
With the Supreme Court ruling on ACA, millions of people will continue to have access to affordable health care in states which had not established marketplace healthcare exchanges.
This year, the individual mandate penalty will increase to the higher of 2% of annual household income or $325 per person, per year, with a maximum per family of $975. At the same time, the federal poverty guidelines which are used to determine if the individual qualifies for a subsidy have increased as well.
For applicable large employers with an average of 50 or more full time equivalent (FTE) employees in the prior year must now offer minimum essential coverage that is affordable to their FTE employees and their dependents. Otherwise, they will be subject to an employer shared responsibility payment.
Also, the forms 1095-B and 1095-C which had been optional in 2014, now become required filing by any company that provides minimum essential coverage to an individual (the 1095-B form) and by applicable large employers (the 1095-C form)
For my individual tax return clients: You will need to watch for these new ACA year end tax documents and be sure to provide them to me just as you would your W-2's and any other year end tax documents you receive.
Lester R Bahr, CPA
In a coordinated effort at focusing on the complexity of the tax code for small business owners, both the House and Senate held hearings on Wednesday with similar themes of looking at how tax compliance obligations hinder small business growth. Any steps toward making the tax code simpler for small business owners would certainly be a welcomed relief! Small business owners in particular are disproportionately affected by tax compliance complexity.
In one study conducted by the Small Business Association it was suggested that small businesses pay 67% more to comply with the tax code than large firms do simply because of their small size to absorb the tax compliance costs. For example the study found that on average, companies with less than 50 employees, on average, pay $1,518 per employee in tax compliance cost. Compare this to companies with more than 100 employees and the tax compliance cost comes down to $647 per employee.
While committee members on both side of the aisle were in agreement that the tax code has gotten way too complicated, I guess we will just have to wait and see if anything positive comes out of this for the benefit of the small business owner.
The Senate Finance Committee passed a tax extenders bill Tuesday, July 21st with a bipartisan vote of 23 to 3 that extends over 50 tax breaks for two years. The committee succeeded in passing a number of widely supported tax provisions that will provide some certainty in the tax code for the next two years. The bill would extend dozens of tax breaks that would otherwise have expired at the end of last year.
According to a recent study by Emergent Research and Intuit, "nearly 80% of U.S. small businesses will be fully adapted to cloud computing by 2020. The report described how small businesses will continue increasing their use of cloud technology in order to gain efficiencies and transform the ways they achieve their long-term goals.
The U.S. and global economies are going through a series of shifts and changes that are reshaping the economic landscape. The Cloud is making it possible for people to start a new small business, and reach out to parts of the world in their service offerings, or supply mechanisms in a way that was never before possible.
The IRS Safe Harbor deadline is rapidly approaching on
October 1st. Safe Harbor refers to the rule which
allows business owners and family members to contribute up to $52,000 each into
their 401(k) even if their employees choose not to contribute.
These plans are popular in businesses with up to about 10 employees usually. This
is great if you are a small business owner looking to reduce your tax
liability for 2014 and position your finances for how
to afford a long happy retirement. Here is how the plan works: A Safe Harbor 401(k) plan
automatically satisfies various non-discrimination tests for elective deferrals and
matching contributions. This is a significant benefit for plan sponsors,
because Average Deferral Percentage and Actual Contribution Percentage tests
generally limit how much highly compensated employees can contribute to a
401(k) plan. Among the important benefits of these plans is that it offers a more flexible way for business owners and highly compensated employees to save for their retirement. These individuals no longer have to depend on the participation of non highly compensated employees in the plan in order to attain maximum pretax deferral benefits for themselves.
The IRS Safe Harbor deadline is rapidly approaching on October 1st. Safe Harbor refers to the rule which allows business owners and family members to contribute up to $52,000 each into their 401(k) even if their employees choose not to contribute. These plans are popular in businesses with up to about 10 employees usually. This is great if you are a small business owner looking to reduce your tax liability for 2014 and position your finances for how to afford a long happy retirement.
Here is how the plan works:
A Safe Harbor 401(k) plan automatically satisfies various non-discrimination tests for elective deferrals and matching contributions. This is a significant benefit for plan sponsors, because Average Deferral Percentage and Actual Contribution Percentage tests generally limit how much highly compensated employees can contribute to a 401(k) plan.
Among the important benefits of these plans is that it offers a more flexible way for business owners and highly compensated employees to save for their retirement. These individuals no longer have to depend on the participation of non highly compensated employees in the plan in order to attain maximum pretax deferral benefits for themselves.
Well, that is certainly a very important step in launching your business. Here are 10 tips to also consider of equal importance to your business accounting services.
1. Don't neglect the importance of first creating a written business plan.
2. Educate yourself about different business entity structures and the advantages and disadvantages of each as this can greatly affect your taxes. Also, before you go ahead and incorporate in Delaware - because you've heard or been told that is a good thing to do, read my article on that topic first.
3. Make sure you have properly researched and completed all the leg work of filing new business registrations. This applies at the federal, state and local tax levels.
4. Setup a proper financial reporting accounting system. If this is not your strong suite, then do yourself a favor and hire a consultant. The investment you make upfront will pay big benefits in your company's future efficiency and organization.
5. Make your website the central foundation to your marketing efforts.
6. Be consistent in your branding efforts which begins with first selecting a good name for your business. Don't give mixed signals or create confusing brands.
7. Not every customer is a good customer. Don't extend credit to customers without first having done a credit check.
8. Research your competition and price your product or service appropriately. But don't get caught up in the trap of underpricing your product or service. Make sure you fully understand how to do a price estimating for whatever you will be selling.
9. Make sure you have good financial management skills. For example, how to setup and use a cash flow budget to manage liquidity. There is a lot more involved with running a successful business than just knowing your product or service inside and out. For example, one of the leading causes of business failure is running out of funding. Therefore, it is imperative that you understand the business financing process.
10. Educate yourself about all the factors related to hiring employees. Make sure you understand the laws. Also, if your are going to hire independent contractors, make sure you know what the qualifying factors are. Do not assume you can simply pay everyone as an independent contractor and thus avoid the hassles of setting up workers as employees. You can't do that!
The IRS has been hearing from taxpayers who claim to have received unsolicited calls from people claiming to be from the IRS. The IRS Commissioner warns taxpayers that the first contact with the IRS does not happen by telephone call. Rather, an official notice is always sent first by mail. The fraudulent telephone callers generally are threatening and demand immediate payment. If you get any telephone calls like this, you should hang up and contact the IRS or TIGTA to report the scam. Here is the link to IRS's website for more information http://www.irs.gov/uac/Newsroom/IRS-Repeats-Warning-about-Phone-Scams
This is a question I am often asked by small business owners. Frequently, my answer will be QuickBooks. So, here's why you should use QuickBooks. First of all QuickBooks dominates the small business accounting software market. But, it does more than just bookkeeping. When used correctly and completely, QuickBooks provides information essential to managing a business.
For example, QuickBooks can provide insight into how different parts or your business are contributing to its overall health and objectives by answering questions like: How do my financial results compare to prior periods? What is my profit on each product or service and which customers are most profitable? Who owes me money and who do I owe? How can I optimize my cash flow?
QuickBooks is adaptable to small business needs in managing general ledger, receivables, payables, inventory, job-costing and payroll functions using established double-entry accounting standards. All reports offer extensive flexibility in extracting and filtering information in virtually any format the business owner requires. Adding to its functionality, QuickBooks can also import data directly from many industry specific accounting applications which extends its versatility in retail, construction, medical and other areas. Plus, if your business begins to outgrow QuickBooks, you have the very easy option of expanding into QuickBooks Enterprise Solutions.
Unleashing the full potential of QuickBooks requires a correct setup and a clear vision of what information you need and how your business is likely to evolve over time. That is why planning, knowledge and experience are so important in designing the proper setup to best meet the needs of your company. Nowhere is this more important than in designing the chart of accounts which provides the basic financial foundation upon which everything else is built.
However, even with its many strengths, QuickBooks is not suited for every small business. Knowing when these exceptions apply will save you money, effort and frustration in not choosing QuickBooks. The insight of an experienced professional can be invaluable in identifying these situations. Therefore, I'd recommend you first discuss the options with me as I can save you much grief in the long run.
Lester Bahr, CPA, Advanced Certified QuickBooks ProAdvisor.