small business

2017 Q3 tax calendar: Key deadlines for businesses and other employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the second quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 31

  • Report income tax withholding and FICA taxes for second quarter 2017 (Form 941), and pay any tax due. (See exception below.)
  • File a 2016 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 10

  • Report income tax withholding and FICA taxes for second quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

September 15

  • If a calendar-year C corporation, pay the third installment of 2017 estimated income taxes.
  • If a calendar-year S corporation or partnership that filed an automatic six-month extension:
    • File a 2016 income tax return (Form 1120S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.
    • Make contributions for 2016 to certain employer-sponsored retirement plans.

© 2017

Accounting Services: Should I consider this service for my business?

by Liana Ellison, CPA

Accounting Services Manager at Atchley & Associates, LLP

 

Atchley & Associates, LLP provides accounting services of various levels to many of our clients. The levels of services vary from consulting with startup companies about their accounting set up all the way to outsourcing their accounting department to us. We are able to provide a custom level of service to meet our client’s needs. Some of the accounting services we provide at Atchley & Associates include:

  • Outsourced payroll, set up, reporting, support and consulting
  • Outsourced bookkeeping, reconciliations of accounts such as bank, credit cards, loans and lines of credit, and preparation of any adjusting journal entries
  • Review of systems utilized and internal processes, and make recommendations of accounting platforms and ancillary applications
  • Customized Financial Statement preparation
  • Preparation or support for various compliance such as personal property renditions, Forms 1099, and Sales Tax
  • Year-end accounting analysis and clean-up in preparation for tax return

In addition, our team can take the pressure off business owners or executive directors that may not have the expertise or time to review and supervise the work performed by their accounting department.  These leaders may not want to deal with having to worry about turnover or fraud in this critical position, and often engage us to support them in this area of their business or organization.

Our services are not specific to any one industry, therefore we are able to support various types of service industries including a number of non-profit clients.

I’ve put together some recent questions that our group has received and compiled them into a True or False Quiz as examples of how we support our client. As in every case, that correct answer is- “it depends”. However, you may find some helpful information for your business or line of work.

  1. A client inquired, I receive a cell phone allowance with my payroll of $50 a month, this taxable compensation to me- true or false?

False- this can be considered non-taxable compensation, as a non-tax fringe benefit IF

– The employer has an accountable plan and

– There is a business connection for the cell phone use and

– The allowance does not exceed the cost of employee’s monthly plan (requires substantiation). Any excess allowance would be considered taxable compensation.

  i. IRS Notice 2011-72

  1. I had the privilege to attend the Rotary scholarship luncheon last month with our partner, Harold Ingersoll, where Rotarians gave out over $43K in scholarships towards recipient’s tuition and higher learning. The Rotary Club of Austin is not required to issue a 1099 to these recipients for the amount received- true or false?

True- the Rotary Club of Austin is not required to issue scholarship recipients a 1099 since these funds were not in connection with any services performed for teaching, research or other services as a condition for receiving the scholarship. It may not prevent the recipient from picking it up as income on their personal return, but nothing is required to be reported to the IRS by the Rotary Club of Austin.

  i. Sec 117(b) and Regulations section 1.6041-3(n), Tax Topic 421

  1. I have an hourly (non-exempt) employee therefore I am only required to pay them at least once a month in the state of Texas- True or False?

False- per Texas Pay Day Law hourly (non-exempt) employees must be paid at least twice a month.

  i. Texas Payday Law section 61.011

  1. I bought a used iPad mini for my business for $199. Since the cost is less than $250, I don’t need to report this property on the Personal Property Rendition for Travis County– true or false?

False- per Travis County Appraisal District, ALL business personal property that is used in business must be rendered on the form, regardless of the amount.

  1. I just started a new business and have chosen QuickBooks Online as the application to provide record keeping for my business because I have heard it’s the best in the market- True or False?

Trick question- You might receive a different answer depending on who you ask. There are several new applications on the market that compare to QuickBooks Online. However, QuickBooks still retains a large portion of the small business market.

  i. Contact us to find out what might be the right fit for your business.

You can leverage our services for more answers to these types of questions in addition to receiving accurate reporting and record keeping.  Contact us for more information on how we can help your business.

 

Business owners: When it comes to IRS audits, be prepared

If you recently filed your 2016 income tax return (rather than filing for an extension) you may now be wondering whether it’s likely that your business could be audited by the IRS based on your filing. Here’s what every business owner should know about the process.

Catching the IRS’s eye

Many business audits occur randomly, but a variety of tax-return-related items are likely to raise red flags with the IRS and may lead to an audit. Here are a few examples:

  • Significant inconsistencies between previous years’ filings and your most current filing,
  • Gross profit margin or expenses markedly different from those of other businesses in your industry, and
  • Miscalculated or unusually high deductions.

An owner-employee salary that’s inordinately higher or lower than those in similar companies in his or her location can also catch the IRS’s eye, especially if the business is structured as a corporation.

Response measures

If you’re selected for an audit, you’ll be notified by letter. Generally, the IRS won’t make initial contact by phone. But if there’s no response to the letter, the agency may follow up with a call.

The good news is that many audits simply request that you mail in documentation to support certain deductions you’ve taken. Others may ask you to take receipts and other documents to a local IRS office. Only the most severe version, the field audit, requires meeting with one or more IRS auditors.

More good news: In no instance will the agency demand an immediate response. You’ll be informed of the discrepancies in question and given time to prepare. To do so, you’ll need to collect and organize all relevant income and expense records. If any records are missing, you’ll have to reconstruct the information as accurately as possible based on other documentation.

If the IRS selects you for an audit, our firm can help you:

  • Understand what the IRS is disputing (it’s not always crystal clear),
  • Gather the specific documents and information needed, and
  • Respond to the auditor’s inquiries in the most expedient and effective manner.

Don’t let an IRS audit ruin your year — be it this year, next year or whenever that letter shows up in the mail. By taking a meticulous, proactive approach to how you track, document and file your company’s tax-related information, you’ll make an audit much less painful and even decrease the chances that one happens in the first place.

© 2017

3 financial statements you should know

Successful business people have a solid understanding of the three financial statements prepared under U.S. Generally Accepted Accounting Principles (GAAP). A complete set of financial statements helps stakeholders — including managers, investors and lenders — evaluate a company’s financial condition and results. Here’s an overview of each report.

1. Income statement

The income statement (also known as the profit and loss statement) shows sales, expenses and the income earned after expenses over a given period. A common term used when discussing income statements is “gross profit,” or the income earned after subtracting the cost of goods sold from revenue. Cost of goods sold includes the cost of labor, materials and overhead required to make a product.

Another important term is “net income.” This is the income remaining after all expenses (including taxes) have been paid.

2. Balance sheet

This report tallies the company’s assets, liabilities and net worth to create a snapshot of its financial health. Current assets (such as accounts receivable or inventory) are reasonably expected to be converted to cash within a year, while long-term assets (such as plant and equipment) have longer lives. Similarly, current liabilities (such as accounts payable) come due within a year, while long-term liabilities are payment obligations that extend beyond the current year or operating cycle.

Net worth or owners’ equity is the extent to which the book value of assets exceeds liabilities. Because the balance sheet must balance, assets must equal liabilities plus net worth. If the value of your liabilities exceeds the value of the assets, your net worth will be negative.

Public companies may provide the details of shareholders’ equity in a separate statement called the statement of retained earnings. It details sales or repurchases of stock, dividend payments and changes caused by reported profits or losses.

3. Cash flow statement

This statement shows all the cash flowing into and out of your company. For example, your company may have cash inflows from selling products or services, borrowing money and selling stock. Outflows may result from paying expenses, investing in capital equipment and repaying debt.

Although this report may seem similar to an income statement, it focuses solely on cash. It’s possible for an otherwise profitable business to suffer from cash flow shortages, especially if it’s growing quickly.

Typically, cash flows are organized in three categories: operating, investing and financing activities. The bottom of the statement shows the net change in cash during the period. To remain in business, companies must continually generate cash to pay creditors, vendors and employees. So watch your statement of cash flows closely.

Ratios and trends

Are you monitoring ratios and trends from your financial statements? Owners and managers who pay regular attention to these three key reports stand a better chance of catching potential trouble before it gets out of hand and pivoting, when needed, to maximize the company’s value.

© 2017

Take small-business tax credits where credits are due

Tax credits reduce tax liability dollar-for-dollar, making them particularly valuable. Two available credits are especially for small businesses that provide certain employee benefits. And one of them might not be available after 2017.
1. Small-business health care credit
The Affordable Care Act (ACA) offers a credit to certain small employers that provide employees with health coverage. The maximum credit is 50% of group health coverage premiums paid by the employer, provided it contributes at least 50% of the total premium or of a benchmark premium.
For 2016, the full credit is available for employers with 10 or fewer full-time equivalent employees (FTEs) and average annual wages of $25,000 or less per employee. Partial credits are available on a sliding scale to businesses with fewer than 25 FTEs and average annual wages of less than $52,000.
To qualify for the credit, online enrollment in the Small Business Health Options Program (SHOP) generally is required. In addition, the credit can be claimed for only two years, and they must be consecutive. (Credits claimed before 2014 don’t count, however.)
If you meet the eligibility requirements but have been waiting to claim the credit until a future year when you think it might provide more savings, claiming the credit for 2016 may be a good idea. Why? It’s possible the credit will go away for 2018 because lawmakers in Washington are starting to take steps to repeal or replace the ACA.
Most likely any ACA repeal or replacement wouldn’t go into effect until 2018 (or possibly later). So if you claim the credit for 2016, you may also be able to claim it on your 2017 return next year (provided you again meet the eligibility requirements). That way, you could take full advantage of the credit while it’s available.
2. Retirement plan credit 
Small employers (generally those with 100 or fewer employees) that create a retirement plan may be eligible for a $500 credit per year for three years. The credit is limited to 50% of qualified start-up costs.
Of course, you generally can deduct contributions you make to your employees’ accounts under the plan. And your employees enjoy the benefit of tax-advantaged retirement saving.
If you didn’t create a retirement plan in 2016, it might not be too late. Simplified Employee Pensions (SEPs) can be set up as late as the due date of your tax return, including extensions.
Maximize tax savings
Be aware that additional rules apply beyond what we’ve discussed here. We can help you determine whether you’re eligible for these credits. We can also advise you on what other credits you might be eligible for when you file your 2016 return so that you can maximize your tax savings.
© 2017

New HRA offers small employers an attractive, tax-advantaged health care option

In December, Congress passed the 21st Century Cures Act. The long and complex bill covers a broad range of health care topics, but of particular interest to some businesses should be the Health Reimbursement Arrangement (HRA) provision. Specifically, qualified small employers can now use HRAs to reimburse employees who purchase individual insurance coverage, rather than providing employees with costly group health plans.

The need for HRA relief

Employers can use HRAs to reimburse their workers’ medical expenses, including health insurance premiums, up to a certain amount each year. The reimbursements are excludable from employees’ taxable income, and untapped amounts can be rolled over to future years. HRAs generally have been considered to be group health plans for tax purposes.

But the Affordable Care Act (ACA) prohibits group health plans from imposing annual or lifetime benefits limits and requires such plans to provide certain preventive services without any cost-sharing by employees. And according to previous IRS guidance, “standalone HRAs” — those not tied to an existing group health plan — didn’t comply with these rules, even if the HRAs were used to purchase health insurance coverage that did comply. Businesses that provided the HRAs were subject to fines of $100 per day for each affected employee.

The IRS position was troublesome for smaller businesses that struggled to pay for traditional group health plans or to administer their own self-insurance plans. The changes in the Cures Act give these employers a third option for providing one of the benefits most valued by today’s employees.

The QSEHRA

Under the Cures Act, certain small employers can maintain general purpose, standalone HRAs that aren’t “group health plans” for most purposes under the Internal Revenue Code, Employee Retirement Income Security Act and Public Health Service Act.

More specifically, the legislation allows employers that aren’t “applicable large employers” under the ACA to provide a Qualified Small Employer HRA (QSEHRA) if they don’t offer a group health plan to any of their employees. Annual benefits under a QSEHRA:

  • Can’t exceed an indexed maximum of $4,950 per year ($10,000 if family members are covered),
  • Must be employer-funded (no salary reductions), and
  • Can be used for only IRC Section 213(d) medical care.

QSEHRA benefits must be offered on the same terms to all “eligible employees” (certain individuals can be disregarded) and may be excluded from income only if the recipient has minimum essential coverage. There is a notice requirement and employees’ permitted benefits must be reported on Form W-2.

If you’re interested in exploring the QSEHRA option for your business, contact us for further details.

© 2017

2017 Q1 tax calendar: Key deadlines for businesses and other employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31

  • File 2016 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • File 2016 Forms 1099-MISC, “Miscellaneous Income,” reporting nonemployee compensation payments in Box 7 with the IRS, and provide copies to recipients.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2016. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2016. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2016 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

February 28

File 2016 Forms 1099-MISC with the IRS and provide copies to recipients. (Note that Forms 1099-MISC reporting nonemployee compensation in Box 7 must be filed by January 31, beginning with 2016 forms filed in 2017.)

March 15

If a calendar-year partnership or S corporation, file or extend your 2016 tax return. If the return isn’t extended, this is also the last day to make 2016 contributions to pension and profit-sharing plans.

© 2016

Signs of inventory fraud

Is your inventory being stolen by dishonest employees or customers? Inventory is a prime target for fraud schemes, second only to cash. And it doesn’t always involve the physical theft of items. Here are some early warning signs that your inventory has been targeted.

Know your risk profile

Some companies are more at risk for inventory fraud than others. Obviously, service companies with minimal inventory on hand bear little risk of inventory embezzlement; instead, it’s more common among retailers, manufacturers and contractors. In general, higher-value inventory items, such as electronics or jewelry, tend to be more attractive to thieves.

Sometimes, however, the inventory account is just a convenient place to hide financial misstatement ploys, such as skimming or bogus sales. Thousands of journal entries are typically made to the inventory account, and it’s closed out to cost of sales each year. So, thieves with access to the accounting systems may bury their scams in the inventory account. Then, victim-organizations may write off discrepancies between the computerized perpetual inventory records and physical inventory counts as external pilferage, obsolescence or errors — when, in fact, it’s due to intentional manipulation of the accounting systems.

Monitor inventory metrics

If your year-end inventory counts aren’t adding up, don’t just write off the discrepancy as a cost of doing business; investigate why. You can shed light on the situation by computing various inventory ratios, including:

  • Days in inventory (average inventory divided by annual cost of sales times 365 days),
  • Gross margin (sales minus cost of sales) as a percentage of sales,
  • Inventory as a percentage of total assets,
  • Returns as a percentage of annual sales, and
  • Shipping costs as a percentage of sales.

These metrics should be consistent over time and comparable to industry benchmarks. Sudden changes require immediate action.

Catch fraud early

The median duration — from inception to detection of a fraud scam — is 18 months, according to the 2016 Report to the Nations on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners. Many victims are unaware that inventory balances are inaccurate until they’ve accrued substantial losses. Diligent managers know the signs of inventory fraud and can identify anomalies early. Contact us for help investigating a suspected inventory scam.

© 2016

Depreciation-related breaks offer 2016 tax savings on business real estate

Commercial buildings and improvements generally are depreciated over 39 years, which essentially means you can deduct a portion of the cost every year over the depreciation period. (Land isn’t depreciable.) But enhanced tax breaks that allow deductions to be taken more quickly are available for certain real estate investments:

1. 50% bonus depreciation. This additional first-year depreciation allowance is available for qualified improvement property. The break expired December 31, 2014, but has been extended through 2019. However, it will drop to 40% for 2018 and 30% for 2019. On the plus side, beginning in 2016, the qualified improvement property doesn’t have to be leased.

2. Section 179 expensing. This election to deduct under Sec. 179 (rather than depreciate over a number of years) qualified leasehold-improvement, restaurant and retail-improvement property expired December 31, 2014, but has been made permanent.

Beginning in 2016, the full Sec. 179 expensing limit of $500,000 can be applied to these investments. (Before 2016, only $250,000 of the expensing election limit, which also is available for tangible personal property and certain other assets, could be applied to leasehold-improvement, restaurant and retail-improvement property.)

The expensing limit is subject to a dollar-for-dollar phaseout if your qualified asset purchases for 2016 exceed $2,010,000. In other words, if, say, your qualified asset purchases for the year are $2,110,000, your expensing limit would be reduced by $100,000 (to $400,000).

Both the expensing limit and the purchase limit are now adjusted annually for inflation.

3. Accelerated depreciation. This break allows a shortened recovery period of 15 years for qualified leasehold-improvement, restaurant and retail-improvement property. It expired December 31, 2014, but has been made permanent.

Although these enhanced depreciation-related breaks may offer substantial savings on your 2016 tax bill, it’s possible they won’t prove beneficial over the long term. Taking these deductions now means forgoing deductions that could otherwise be taken later, over a period of years under normal depreciation schedules. In some situations — such as if in the future your business could be in a higher tax bracket or tax rates go up — the normal depreciation deductions could be more valuable.

For more information on these breaks or advice on whether you should take advantage of them, please contact us.

© 2016