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Are You Giving Your Taxes Year-round Attention?

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Nitya LLC Certified Public AccountantsGiving your taxes your full attention just once a year isn’t the best business strategy. Experts suggest that a year-round approach is better for your finances. Click through to learn the best ways to evaluate the impact of taxes throughout the year.

Numerous tax experts agree that addressing your tax liability effectively requires planning throughout the year. Those business owners who reap the most benefits consider their taxes year-round, rather than waiting to focus on tax payments just a few weeks before the filing date.

A typical small business qualifies for roughly a dozen tax deductions. For example, you may be able to claim deductions on the following:

  • Cars operated for business purposes
  • Business-related travel and entertainment expenses
  • Purchases of office supplies, furniture, equipment, and software programs
  • Telephone expenses
  • Contributions toward insurance policies, retirement plans, and pension funds

It’s surprising how many small businesses never take advantage of these deductions, mainly because they suffer from the “tax-planning-happens-but-once-a-year” syndrome. To fully benefit from these deductions, it’s important to maintain your expense records throughout the year.

Your goal should be to reduce your tax liabilities by retaining records of your purchases and determining the proportion of business costs in combined expenses. By monitoring your expenses closely all year, you can analyze each expense for its tax impact as it’s made. Additionally, smart business owners should contemplate three key steps to tax planning:

1. Invest in the most effective tax record tools for your business. Whether it’s spending roughly $30 on journals and tax books with a set of refill sheets costing less than $10 to do manual bookkeeping or investing up to $2,000 on the latest online software tax-filing applications, you will benefit from more rigorous and accurate recordkeeping. Sure, the initial investment could be significant, but regular monitoring should facilitate tracking expenses and making advance payments, which will save you money in the long run.

2. Determine when you need professional tax tips and planning advice. At times you will be able to justify paying for professional tax services, particularly if you need advice on unclear requirements in tax laws that could be in your favor. To prevent unnecessary complications and aggravations, you must avoid violating tax laws that may be applicable to your small business. If you are unsure of these laws, using the tools at your disposal, such as current software and online recordkeeping, and complementing those capabilities with professional advice when needed, can help you keep your taxes under control.

3. Establish year-round tax planning goals. A good tax-planning strategy will help you accomplish some of these goals:

  • Reduce the amount of taxable income
  • Claim any available tax credits
  • Lower your tax rate
  • Control the time when taxes must be paid
  • Avoid the most common tax-planning mistakes

Plus, a year-end review at the end of your fiscal year or “busy season” can be most effective if you’ve maintained clear records and an understanding of your financial position throughout the year.

Of course, this is just a general list. Not all deductions are available in all situations, and rules change frequently. Call our Rockville, MD CPA firm now at 301-728-0808 to find out how we can decrease your tax obligations. We offer a free consultation to new clients so contact us today.

5 Steps to the Successful Multi-Office Business

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Your company is expanding — and that’s great! You’ve grown from one office to two, three, or even more. But you need to be able to manage all of them to continue to grow. Click through for some help in multi-office management.

Each new office seems deserving of all your time, but there are still your existing offices, whose need for attention hasn’t diminished. Building, disseminating and maintaining a cohesive business strategy across multiple sites is a challenge, but you need to get it right to continue to be successful.

Step one: Information needs to be shared.

This means that no one is behind on information, and you create a sense of community. Technology makes this happen because it allows immediate, widespread communication. You must ensure that there is one main method of digital communication — inconsistently used initiatives quickly become difficult to manage effectively. Use the one tool that works well and commit to communicating relatively frequently through it. You may want to send a brief weekly email newsletter to all staff. The tricky part is working across time zones, so if possible, send official communications when all offices are open.

Step two: Your leadership team is your greatest asset.

Employing an excellent senior management team to undertake communication on the company’s behalf is as important as digital communications. Have a senior management team member assist in running the firm, coordinating each office to provide local leadership. It’s wise to have a strong chain of command and a team that integrates as much as possible with each other to keep everyone informed about work across the company. Strong departmental management complements the businesswide strategic vision.

Step three: Timing is everything.

It’s essential to maintain a top-level presence across all offices and to be a recognizable face to all employees. If your company is based in one region, try to visit each office every month. If your firm is spread across the country, visit every two or three months. Time your visits within a week of each other and give a little more attention in your weekly email newsletter to any office that hasn’t been visited in a timely manner.

It makes sense to prioritize visits according to the size of the office, while maintaining a high level of inclusion in digital communications to show staff that they are highly valued.

Step four: Integrate wherever possible.

Encourage cross-office collaboration to develop a wider understanding of the business as a whole. It’s healthy to work with a number of different people and conducive to caring about the business beyond each office’s four walls. One means of doing this is to give staff opportunities to shape the company’s image, such as by participating in brand workshops or to be personally involved in company improvements.

Step five: Don’t be afraid to try something new.

Always try new things and commit to change. What suits one business may not suit another. Be prepared to innovate to find what works for you. That’s why building a personal relationship with as many employees as possible works — you’re giving people a chance to mix with others they would never normally work with.

Don’t forget the value of old-fashioned face time among and across teams. By encouraging this, you will contribute to successful integration and a corporate culture across geographies. Local offices need to be held accountable for quality control, scheduling and improving systems, and such efficiencies may work companywide.

All of this can seem like a lot of hard work, but splitting time between offices and building a system of shared information is crucial to the overall success of multi-office businesses. By trying to achieve equilibrium, you create a happy workforce that delivers the best results.

Start planning your tax strategy today by calling 301-728-0808 now or request your free consultation online and we’ll contact you to discuss how we can reduce your tax burden.

Growing Pains: Structural Considerations for Growing Your Business

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Nitya LLC Accounting and Tax Services for your Growing BusinessAsk any small-business owner what he sees as the major challenges to growing his business, and chances are he’ll say: winning more sales. Ask any medium- or large-business owner what her major challenges have been, however, and she’ll probably say: structural growing pains — putting into place the necessary processes and structure to accommodate a higher volume of business. In fact, one of the most common reasons businesses plateau at a certain level is their inability — or unwillingness — to develop the structure needed for growth.

But aligning structural changes with sales growth is not simple. It is often more of an art than a science. The systems, processes, staff, and organization changes needed to grow are ongoing and dictated by myriad factors such as the nature of the business, its capital requirements and, ultimately, customer demands. Nonetheless, certain structural growth concerns — excluding financing and office/production space issues — are shared among all growing companies and fall into three overall areas: organizational structure, policies and procedures, and systems/technology.

Staffing/Organizational Structure

Among the most common growing pains small companies experience are those related to organizational structure. Organizational structure and reporting hierarchy for a 25-person company is quite different than it is for a five-person organization. Typically, an entrepreneur can manage fine until there are about a dozen people in the organization. At this point, the initial structure — where everyone usually reports to the owner — breaks down. In effect, nothing can be done without involving the owner, creating a communications log jam and a barrier to growth. A telltale sign of such a situation is the line of staff outside the boss’s office — waiting patiently for a decision before work can recommence. The best way to overcome or prevent this from happening is simple: Trust your key employees and learn to delegate. A good place to start is to look at where you are spending your time. You can still have final say on any important decisions, but you need not be involved with the time-consuming, day-to-day issues that can prevent you from focusing on larger, more strategic matters. It’s also important to formalize delegated authority with an organizational chart and job descriptions. These will help you better define functional expertise for a given job and for various departments across the organization, and provide the foundation for the growth of future personnel and key management staff.

Lack of functional expertise is another common growing pain of small companies. Too often, businesses fail to recognize that specific expertise is needed as they grow. Typically, small businesses are organized around the manager’s area of expertise, such as marketing, accounting, or production. This specialized expertise often prevents the business owner from recognizing problems that may arise in other parts of the business. It’s a good idea to periodically get an outsider’s opinion of where expertise may be lacking. These need not be paid consultants, but are often trusted business acquaintances. Tapping into this same group, you can also form an advisory board to give you periodic feedback on strategic direction.

Policies and Procedures

For most smaller businesses, written policies and procedures are often nonexistent and sometimes cursed. Typically, they are associated with the bureaucracy and inefficiency of big companies and the enemy of customer responsiveness and quick time to market. Not surprisingly, most smaller businesses have few documented operational policies or procedural guidelines. But it is precisely this lack of documentation — and the thought that goes into it — that can put a stranglehold on rapid growth. If your business is growing fast enough to require frequent additions to staff, formalized policies are a must for training purposes. Even if you are expanding at a moderate pace, documented policies will likely be necessary once you reach 20 or more employees.

What warrants a formal policy and what should be documented? This will depend on the nature of your business and average skill level of your employees. In general, however, it’s a good idea to document all HR policies in detail, expense approval authorization levels, inventory control policies, billing and collection procedures, and any operational policies that could materially affect your business if they went amiss. An annual budget and sales projection, updated monthly, are also a necessity if you are ever to obtain outside funding or sell your company. Later on, consider putting together a comprehensive policy manual where employees can get answers to questions when decision makers are unavailable.

As you grow bigger, you will also need to put into place more formalized communications channels for employees and customers. An informed and involved staff is usually a more productive and enthusiastic one; whereas a staff that is left in the dark often feels alienated and unappreciated. Regularly scheduled employee meetings, periodic e-mail updates, and a cascade communications policy are several ways to make sure your internal communications channels facilitate, not constrict, growth.

Is your business suffering from growing pains?

Here are some sure signs that structural changes may be in order.

  • Sales continue to grow but profits do not.
  • Everyone is working increasingly long hours.
  • People spend too much time putting out fires.
  • There are constant lines outside the boss’s door.
  • There are no regularly scheduled meetings or employee communications.
  • The “system” is constantly down.
  • Aging equipment is not replaced.

Systems/Equipment

Perhaps more obvious than organizational or procedural growing pains are those associated with systems and equipment. Smaller businesses are often the last to upgrade to new technology, usually due to cost. Yet the costs of not upgrading are usually much higher. Low productivity, frequent down time, and incompatibility with newer client systems can cripple a business that’s poised for growth. There’s also the matter of keeping up with your competitors both operationally and across product and service offerings.

The average computer is virtually obsolete in just three years, and most of the widely used software applications come out with new versions every two years, so keeping on top of technological advances must be an ongoing endeavor. Start out by working regular capital upgrade costs into your budget. Consider dedicating a full-time person to information technology (IT), if you don’t already have one, and make sure he or she is current on the latest technological developments in your field. Even though you may not be able to afford all the latest equipment, at least you’ll be on top of technology trends in the industry and know what your competitors are up to — or are capable of.

Find out how to cultivate a prosperous and long standing business with accounting solutions and tax strategies that yield profitability, sustainability, and growth. Contact our CPA firm at 301-728-0808 to work with a knowledgeable business consultant or request your free consultation online.

Crowdfunding — Exploring the Tax Implications

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Crowdfunding — or funding a project through the online contributions of many different backers — is becoming increasingly popular. If you are considering raising crowdfunding revenue or contributing to a crowdfunding campaign, you will need to address the many tax issues that can arise.

Background

While crowdfunding was initially used by artists and others to raise money for projects that were unlikely to turn a profit, others have begun to see crowdfunding as an alternative to venture capital. Depending on the project, those who contribute may receive nothing of value, a reward of nominal value (such as a T-shirt or tickets to an event), or perhaps even an ownership/equity interest in the enterprise.

Is It Income?

In an “information letter” released in 2016,1 the IRS stated that crowdfunding revenues will generally be treated as income unless they are:

  • Loans that must be repaid
  • Capital contributed to an entity in exchange for an equity interest in the entity
  • Gifts made out of detached generosity without any “quid pro quo”

The IRS noted that the facts and circumstances of each case will determine how the revenue is to be characterized and added that “crowdfunding revenues must generally be included in income to the extent they are for services rendered or are gains from the sale of property.”

Frequently, the IRS learns of the activity because crowdfunding entrepreneurs have used a third-party payment network to process the contributions. Where transactions during the year exceed a specific threshold — gross payments in excess of $20,000 and more than 200 transactions — that third party is required to send Form 1099-K (Payment Card and Third-Party Network Transactions) to the recipient and the IRS. Payments that do not meet the threshold are still potentially taxable.

If It’s Income

“Ordinary and necessary” business expenses are generally tax deductible, but deductions for expenses are limited if the IRS deems the activity a hobby rather than a trade or business. Generally, the IRS applies a “facts and circumstances” test to determine if you have a profit-making motive, which is necessary for a trade or business.

New Businesses

Favorable deduction rules may be available for certain types of expenses incurred in starting a new business. If eligible, the business may elect to expense up to $5,000 of those costs (subject to phaseout) in the year the business becomes active, with the remainder of the start-up expenditures deducted ratably over a 180-month period.

For Contributors

Campaign contributors should not assume that their gifts qualify as tax-deductible charitable contributions. Tax-deductible contributions must meet certain requirements, including that they be made to a qualified charitable organization. If gifts are made to an individual or nonqualified organization, you will generally need to file a gift tax return for gifts to any one recipient that exceed the gift tax annual exclusion ($15,000 for 2018).

These are just some of the potential tax issues that may arise.

Find out how to cultivate a prosperous and long standing business with accounting solutions and tax strategies that yield profitability, sustainability, and growth. Contact our Nitya LLC at 301-728-0808 to work with a knowledgeable business consultant or request your free consultation online.

Source/Disclaimer:

1Information Letter 2016-0036

Individual Tax Change Highlights for 2018

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Accounting and Tax - MDTax Rates Are Reduced

Under the rules in effect prior to 2018, seven income tax rates apply to individuals: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The new tax law retains seven tax rates, but modifies them as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. As under the prior law, rates increase with taxable income, and the income ranges for each bracket vary depending on filing status (single, married filing jointly/surviving spouse, married filing separately, or head of household).

Changes to the income tax brackets will lower the rates at many income levels. Here are a couple of general examples. A married couple filing jointly with taxable income of $85,000 in 2018 will have a marginal tax rate of 22% under the new law, compared with 25% under the prior law. A married couple filing jointly whose taxable income in 2018 is $250,000 will have a marginal tax rate of 24% under the new law, compared with 33% under the prior law.

The income levels affected by each tax rate will be adjusted annually for inflation. However, the new brackets are currently set to expire after the 2025 tax year.

Your Taxable Income Is Likely to Change

In addition to lowering the tax rates applied to your taxable income, the new law also modifies how taxable income is calculated. Here are some of the changes:

  • The basic standard deduction for 2018 is $12,000 for a single individual and $24,000 for a married couple filing jointly — compared to standard deductions of $6,500 and $13,000, respectively, under the prior rules.
  • The itemized deduction for mortgage interest payments is now allowable only on mortgage interest paid on underlying indebtedness of up to $750,000, as compared to $1,000,000 under prior law. Additionally, the act suspends the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build, or substantially improve the home that secures the loan.
  • The total itemized deduction for all state and local property and income (or sales) taxes is capped at $10,000 ($5,000 for a married taxpayer filing a separate return).
  • The personal exemption, which had been scheduled to be $4,150 under prior law, has been eliminated.

Under the new law, many more taxpayers are expected to find that claiming the standard deduction is more valuable than itemizing deductions, simplifying their filing tasks. Others may find that their itemized deductions have been substantially limited, particularly people who live in places with relatively high state and local taxes and housing costs.

The four changes listed above are set to expire after the 2025 tax year.

Future IRS Inflation Adjustments Will Be Smaller

Under the prior law, the IRS used the Consumer Price Index for “all-urban consumers” (CPI-U) to adjust various thresholds and limits each year to compensate for inflation. Under the new law, the IRS will use the so-called chained Consumer Price Index (chained CPI-U) instead.

CPI-U assumes that consumers buy the same things in the same amounts year after year and do not alter their behavior when prices change. Chained CPI-U assumes that consumers do shift their preferences to less costly alternatives. The differences between the indexes appear small from year to year, but over longer periods of time, chained CPI-U is expected to show noticeably less inflation than CPI-U. That is expected to reduce the amount of inflation indexing applied to tax brackets, deductions, and credits.

The new law makes this change permanent.

The Alternative Minimum Tax Lives On, But With Less Punch

The floor for triggering the alternative minimum tax has been raised. For married couples filing joint returns, the exemption is now $109,400 — up from the previously-scheduled exemption of $86,200. For those filing as single taxpayers, the new exemption amount is $70,300 — up from $55,400. Additionally, the income levels at which the exemption is phased out have increased.

These changes are set to expire after 2025.

Other Changes to Note

  • Child credit — Starting with the 2018 tax year, taxpayers can claim a $2,000 per child tax credit, or double the prior credit amount. The refundable portion of the credit has been increased to $1,400 per qualifying child, and other restrictions on the credit have been eased.
  • Charitable contributions — Generally, for those who itemize their deductions, the limit for claiming deductions for cash donations to qualified charitable organizations has increased from 50% to 60% of the taxpayer’s “contribution base” (generally, adjusted gross income exclusive of net operating loss carrybacks for the year).
  • Health insurance — Beginning in 2019, consumers will no longer be subject to penalty taxes if they lack health insurance.
  • Divorce and separation agreements — Generally, alimony paid pursuant to a post-2018 divorce decree or separation agreement will not be deductible by the payer and will not be included in the recipient’s gross income.
  • Education savings — Distributions from 529 plans will not be included in gross income where used to pay up to $10,000 per year of qualified education expenses at elementary and secondary public, private, or religious schools. Under prior law, only distributions for qualified higher education expenses were tax free. The $10,000 limitation on qualified elementary and secondary school expenses will apply on a per-student (not per-account) basis.
  • Estate and gift tax exemption — The basic exclusion amount has been increased to an estimated $11.2 million, up from $5.6 million under prior law.

Please keep in mind that this is a summary of selected highlights and should not be considered tax advice. To fully understand how the new tax laws affect your situation, please consult a qualified tax advisor.

From income tax preparation for individuals to complex corporate taxes for businesses, you’ll like working with Nitya LLC because we make filing taxes easy. Just send us your paperwork, receipts, and prior tax returns and we’ll take care of everything. Call 301-728-0808 or request a free consultation online.