Jillian Smith CPA | Tax ManagerWe are pleased to announce that our own Jillian Smith has won the 2016 Practitioner Excellence Awards- Millennial Award this year!

The Accountex Practitioner Excellence Awards are a prestigious recognition by a distinguished panel of judges. Honorees are helping to shape the profession for the future and display excellence in service to the accounting community.

Please join us in congratulating Jillian!

More about the award here.

As a business owner or manager, you face countless decisions in the day-to-day operation of your enterprise. You’ll experience better success when you understand how each decision, policy, procedure, or process relates to your long-term goals and current business stage.

“He’s a zero to two guy!”

“She’s great at three through five, but don’t get her involved any sooner.”

Have you heard phrases like this and wondered what on earth someone was talking about? In all likelihood, they are describing the lifecycle of a successful business.

Every business operates across a continuum of stages – typically described using a scale from zero to ten. Having a proper perspective provides you with the confidence that you’re not making decisions in a vacuum and that you’re helping to keep your business on track.

 

Business Lifecycle

As you’d expect, no business goes from zero to ten without at least a few other steps on the continuum. Thinking about a business in terms of its life cycle stage gives a business owner or manager a healthy perspective from which to evaluate decisions and priorities.

Think of the scale of stages in four primary groupings:

 

Business Lifecycle Stages

The stages of any given business are NOT necessarily linear, but the vocabulary of stages helps you couch your understanding in the overall context of your business’s life cycle.

Owning a business can be like having a family. You have a lot of love and trust for the members of your family, but that doesn’t mean you don’t keep an eye on crazy Aunt Gertrude who’s been known to swipe a few bucks from your wallet once in a while.

While you don’t want to constantly be looking over the shoulders of your employees and questioning everything they do, it is important to be aware of the warning signs of fraud to help protect your ‘family.’

Generally, in business fraud comes down to one of these three:

  • Asset Misappropriation: This can be a plethora of things from embezzlement, stealing money from petty cash or checks, stealing inventory, submitting false expense reports or timecards, or stealing intellectual property.
  • Financial Statement Fraud: Falsifying or manipulating reports, inflating costs, alter earnings.
  • Corruption: Accepting bribery or kickbacks.

There’s commonly three circumstances that lead to fraud:

  1. The pressure or incentive to commit fraud – “My family is really struggling this month and I need to provide for them.” or “I have to meet my numbers this month or the boss will be upset.”
  2. The opportunity to carry it out – “I keep the petty cash in my desk and no one else really pays attention to what’s in there.” or “If I just change the date on these deposits, this month will look better.”
  3. The ability to rationalize or justify the fraud – “I have worked hard for this company and no one appreciates all I do.” or “I’ll work harder next month to make up the difference.”

These three circumstances come together to form the Fraud Triangle:

The Fraud Triangle

 

Avoiding Fraud

Now that you know what most likely precedes fraud you can devote energy to avoiding it. Put procedures in place that will ensure a checks and balance system and accountability is taking place in your business. Pay attention to your employees and the circumstances around them and just maybe Aunt Gertrude won’t snag that $50 from your wallet next time.

It’s back to school season and as your kids get older, it gets MORE expensive. (Sorry to break it to you parents of kindergarteners. You’ve only just begun!) In honor of everyone heading back to school, we thought we’d veer away from our typical business and entrepreneur discussions and offer some practical money advice for older teens and college students.

If you have teens, you’ve had the experience of them coming to you with their hand out for money… a lot. It might be general school supplies, another novel for English class, a laptop computer, lunch money, clothes, movie night – we could go on for days, but instead let’s focus on a possible solution to always being greeted by the outstretched palm. This magnificent strategy is a life skill we can all benefit from – learning to live within a budget.

We realize the idea is not new, but how many of us actually hold our kids accountable to their budget? (Do your kids have a budget? If so, do they really understand what a budget is and how it applies to them?) This strategy is one we actually have seen implemented quite successfully by a client with four kids – three of whom have now successfully graduated from college. We’re going to say that’s evidence of victory!

It’s a very straightforward process:

Step 1 – The student and parents sit down together and make a list of the student’s monthly needs and how much each should cost.

(The debate over what is a “need” and what is a “want” is an entirely different topic you’ve hopefully previously established boundaries around.) These needs should be split into categories and they can be as broad or specific as you prefer. For teens just starting out, think: driving age, we’d recommend no more than five categories.

Perhaps, as a starting point:

  1. Food
  2. Gas
  3. School Supplies
  4. Clothing
  5. Entertainment

Step 2 – Decide when (and how) the student will receive their funds.

If they are old enough to drive, perhaps a debit card linked to their own checking account is a wise choice? Many banks and credit unions offer ways to transfer funds from parent to student via online banking or apps as well as fee-free accounts for teens. If your goal is to help them learn to budget and plan, we suggest a monthly deposit.

Step 3 – As the student proceeds through their month, it is their responsibility to track their spending.

That includes how much they have spent, where and when the money was spent, and how that compares to their budgeted amount.

In the beginning, this step may need some coaching from a parent or other trusted adult. It can be as simple as two columns in a spreadsheet or on a piece of paper: my budget & my spending. Or, for the more ambitious and technically inclined, you can use a full scale money management program.

Whatever your choice of tracking method, step 4 is the one that provides motivation for your teen to use the system.

Step 4 – DO NOT give your student next month’s money until this month’s funds have been accounted for.

This is a great time to talk through the differences in their plans and their reality. Have they overspent? Were any categories under budget? Is it okay to borrow money from the gas fund to buy more clothes?

Getting Started

Are you ready to get started? We’ve got two pdf’s for you – one is a blank sample of a monthly tracking spreadsheet and the second is an example of how one teen used it. They may not meet your exact needs, and we certainly can’t guarantee your teen will agree with the numbers in the example, but they’ll at least get you thinking and talking. If you’d like a copy of our spreadsheet with formulas and calculations built in, comment below or send a note to: info [at] kuberneocpa.com.

Happy budgeting!

Click on either image below to open the PDFs:

Teen Budget Worksheet

Teen Budget Worksheet Sample

Every January business owners and individuals start to think about their taxes – do they owe money or will they get a refund? It’s a question we all ask. The answers start by calculating not only income, but also expenses. Have you considered that maybe you should think about those 1099’s BEFORE January? They really matter ALL year long. Here’s why:

For Business Owners

If you are a business owner, it is your legal responsibility to report payments made to employees or contractors. Wages paid to employees, which are subject to federal tax withholding, are reported to the IRS on the W-2 form and employees receive a copy. If you make payments to a contractor (typically someone who controls their own hours and productivity), they’ll need to receive a 1099 form that lists the total amount of payments made. It is important, before a contractor starts working for you, to obtain the information that will be necessary to prepare their 1099. Ask them to complete IRS form W-9 (https://www.irs.gov/pub/irs-pdf/fw9.pdf). It may seem like basic information, but it’s vital information to have at the end of the year. You can be fined for every 1099 you are required to issue that you do not.

For Subcontractors

If you find yourself receiving a 1099, it’s important to keep in mind that no taxes have been withheld from those payments. It is very possible that the full amount of money you received could be subject to both self-employment and income taxes. How will you report the income? Are there ways to offset it? Knowing what business expenses you can legitimately deduct to help reduce your taxable income is key. From mileage while driving to see a client to your cell phone use, ordinary and necessary business expenses can be deducted from your income to reduce your tax liability. Items that are “ordinary and necessary” are different for every business.

If you properly track your business expenses, whether as the person paying a subcontractor or as someone who receives subcontractor payments, there should be no reason to fear the 1099.

Whether you receive a 1099 or you think you may need to send someone a 1099, we can help!

So you’ve set up your businesscompared your product to the marketfound your breakeven point and your business is doing well. You even have enough work that you need to hire some help. How do you go about that? In today’s business climate there are typically two routes to take. You can either go with the standard employee or with a subcontractor.   Even though the actual work for hire may be the same, there are some significant factors that need to be considered in order to avoid potential aggravations and financial costs.

Hiring an Employee

You may want to bring them on as an employee if:

  • You, as the employer, are setting their hours
  • They work solely for you
  • They present themselves as a representative of your business (perhaps carry your business card)

In this case, as an employer you will be responsible for payroll taxes and perhaps workers comp insurance, health insurance or other benefits.

Hiring a Subcontractor

You may want to just subcontract the work out to an individual if:

  • You are okay with loss of control of how and when the work is done.
  • You only want them for one job or on a per-piece-of-work basis (this may involve fluctuating payments, unlike a steady salary)
  • They have other clients they do similar work for

Here’s the tricky part. The Department of Labor has been known to have a little beef with some subcontractor arrangements. They may contest the validity of the relationship. In other words, if you are bringing on a sub-contractor to get out of the payroll tax and insurance costs, you better be sure that the subcontractor can’t be considered in “essence” acting as an employee. For example, if the “sub” has been doing the same work solely for you over a period of time or has no other clients, then they could be deemed to be an employee. In that case, you could find yourself owing significant money in back taxes and penalties.

Making a Decision

Sometimes people make the choice between a subcontractor and an employee based on perceived liability if faulty work should be performed. While that is a consideration, it’s worth nothing that often there’s little difference when the work is performed on behalf of your company. It’s most important to evaluate WHAT work they will do, WHO will decide how and when that work is done and HOW their pay is determined.  Employee vs Sub: Consider WHAT work they do, WHO decides how it’s done and HOW they get paid.CLICK TO TWEET

These are just a few of the things to consider when trying to decide between a traditional employee or subcontractor.It may seem like an easy decision but it is important to take the time to weigh your options carefully.

We get it – you just finished filing your tax return. You thought you were done with all of the necessary business paperwork for the year. Then about half way through May you decide to clean out your inbox and you see a renewal reminder for your Annual Report. You’ve missed the deadline!

What can you expect?

The Annual Report is your yearly opportunity to update your business information. This includes the names or addresses of the registered agent, directors, officers, members, managers, or partners, and to change the address or update the EIN of the entity itself. Most states also requires a filling fee in order to keep your entity active and in good standing.

If you do not complete the Annual Report by the due date set by the state your entity is registered in, you will be charged a penalty for late filing. Some states also charge interest. Florida’s late filing fee is $400 in addition to the Annual Report filling fee. Unfortunately, no matter how good your excuse is, there is no provision for waiving the late fee.

In addition to the headache of a late penalty, if you are really late then your entity may be automatically dissolved which will cost you additional fees for reinstatement. In the state of Florida, this automatic dissolution is initiated if you have not filed your Annual Report by the 3rd Friday in September. It’s important to note that if your entity is automatically dissolved and that was your intent, then you are not subject to the late fee. The late fee only applies if you are late to file the Annual Report in order to keep your entity active.

What should you do now?

As soon as you discover you are late to file your Annual Report, you should file as soon possible. Make sure you are providing accurate, updated information and pay the necessary filing fee and the late fee. Also be sure to make a plan for next year of how to avoid filling late.

If your entity has been automatically dissolved and you wish to reinstate it, contact your state Division of Corporations and request the necessary reinstatement paperwork.

How can you prevent this from happening in the future?

Depending on the state your entity is registered in, your Annual Report may be due on a standard date (May 1st for the state of Florida), your entity’s anniversary date, fiscal year end, or state jurisdiction ID specified date. Because of the cost of failing to file your annual report, it is very important to set a recurring reminder for yourself to remember to submit by the due date. Many states send an automatic reminder email or renewal letter, but not all do, so stay vigilant!

Update: Some rules have changed for Meals and Expenses in 2018. Read our new blog post to learn more.

The IRS tells us that a business can deduct expenses that are “ordinary and necessary” and directly relate to active conduct associated with the taxpayer’s trade or business. In layman’s terms that means there must be a valid business purpose for a purchase to qualify as a deductible expense. While meals and entertainment may meet the IRS’s definition of a business expense, the caveat is that this expense is also related to personal consumption. It’s a fundamental income tax principle that items used for personal consumption are not deductible – i.e., everyone has to eat no matter what their trade is – but what if a personal expenditure also passes the IRS’s “ordinary and necessary” test for your business activity? How can you know what is and isn’t a tax deduction?

In the case of meals and entertainment (M&E), the IRS has decided to meet businesses halfway – literally. More specifically, the IRS has allowed for a 50% deduction for meals and entertainment that meet the business deduction test. But before you pick up that tab for lunch with that 50% deduction in mind, there are a few rules to consider:

Before you pick up that tab for lunch with a deduction in mind, there are a few rules to consider.CLICK TO TWEET

How should you substantiate your deduction?

You must be able to demonstrate that the M&E expense is “ordinary and necessary” and be able to prove that the expense was related to your trade’s active conduct or business activity. To do this, you must retain the receipt for your M&E expense along with a record stating who the meal was with and the business purpose of that meal. In the event of an audit, the IRS may ask for these records to validate your M&E deductions, so good record keeping is essential for any business owner.

What types of expenses are included in the 50% M&E deduction?

The most common type of M&E expenses are client business meeting and meetings with co-workers. This can include events such as lunch with co-workers or clients, golf outings to develop client relationships, and meals with vendors. Some other expenses that meet the 50% M&E deduction can include out-of-office meals while traveling and reimbursement for meal expenses for an employee on a business trip which is not included in the employee’s compensation.

What type of expenses are excluded from the 50% M&E deduction?

Any time that you eat out alone and you are not traveling you are ineligible for the 50% deduction. Just because you decided to eat out instead of bring your lunch to work doesn’t mean you can claim your meal; that’s a non-deductible personal expense. However, if you are out of town on a business trip eating out alone or with others qualifies you for the 50% M&E deduction.

Are there any types of M&E expenses that are fully (100%) deductible?

There are some opportunities for taxpayers to claim a 100% deduction. While it is not possible to provide a complete list of every exception, some of the more common examples of fully deductible M&E expenses include meals for the occasional in-office meeting, meal expenses incurred while attending promotional seminars or trade shows, and M&E expenses incurred for social or recreational purposes, such as holiday parties or company picnics. The IRS also allows business to fully deduct the cost of snacks and beverages provided to employees on the business premises, which can include coffee, snacks, bottled water, and similar items.

Conclusion

It’s important for any business owner or manager to develop a method to manage the day-to-day M&E expenditures. From establishing a meal allowance or a per diem plan, to keeping records and establishing a system for tracking expenses, Kuberneo can help you conduct an M&E review of your business to provide best practices for your company’s M&E expenditures.

The breakeven point is a critical threshold that any established business or startup should be aware of to achieve profitability.

No business owner starts their company or launches their product hoping to pour money down the drain. While making money may not be your only goal in running a business, it’s probably pretty high on your objectives. To actually start making money it’s imperative to know the threshold when you move from loss into profit – the breakeven point.

The goal of a breakeven analysis is to find the point where your revenues equal your costs. In a world of online tools and Excel spreadsheets, many small businesses take the breakeven calculation for granted. Too many entrepreneurs make the mistake of introducing their product or service to a market without fully researching the total costs involved in starting and sustaining a profitable business.

How can a breakeven analysis benefit your business?

  1. In setting your product’s price point
  2. Examining the impact of certain costs
  3. Assessing how sales will need to grow to justify additional investments into the company
  4. Identifying areas that are unprofitable and can be trimmed or improved
  5. Continuing to remain competitive when markets change

How do I conduct a breakeven analysis?

Conducting a breakeven analysis requires careful and diligent examination of costs and prices related to running your business. The key components of the breakeven analysis are:

  • Overhead costs
  • Variable costs
  • The selling price of your product or service
  • And, if you are a startup company, you may want to include initial startup costs in the breakeven analysis

The breakeven point can then be measured in by dividing your total fixed costs by your product’s contribution margin (the product price minus its variable costs). While this may be seem like a simple calculation, it can become very complex when a business has a wide breadth of products with multiple revenue streams.

Do you need more help?

Kuberneo CPA has the expertise to help your company fine tune its profit model by routinely conducting this kind of breakeven analysis. Is it time to hire an additional employee and increase overhead costs? Should you sell your product at a higher price? How will finding a less expensive source of supplies affect your bottom line? If you want refine your approach to price and costs management, please come in and talk with the Kuberneo CPA team.

Filing taxes under normal circumstances can be stressful, but waking up the day after the tax deadline and knowing you still haven’t filed can be downright terrifying. If you woke up this morning with a sinking feeling in the pit of your stomach we have two words for you: don’t panic. Yes, that’s right. Don’t panic. There are still steps you can take for handling this year’s taxes.

If you’ve requested an extension:

An extension extends the time to file your return, NOT the time to send in your payment (if one is due). Even if you filed an extension, if you owe taxes and have not paid them, time is of the essence.

If you haven’t done anything:

If you haven’t yet filed anything, it is imperative that you take action. Don’t be an ostrich – burying your head in the sand will not make the problem go away.

  • If you owe money, the IRS will continue to accrue penalties and interest.
  • If you are due a refund, there IS a time limit on how long you have to get your money back.

Missed filing your taxes? Don’t be an ostrich–burying your head in the sand won’t make it go away.CLICK TO TWEET

Let us help:

There’s nothing to take care of that sick-to-your-stomach feeling like having an advocate in your corner. Contact us today and let us help you regain control of your taxes AND your peace of mind.