When someone says the word “accountant,” they automatically think about taxes.
Ask any accountant and they’ll tell you that personal and business taxes definitely take up most of their time (think 60-70 hours a week) during the first four months of the year, otherwise known in the profession as tax season.
But if you own a business, there are plenty of other reasons to hire a CPA besides just completing your annual taxes. So many reasons, in fact, you should have an accountant you trust in your contact list for when business or financial issues come up.
Here are some common reasons your business might need an accountant:
Writing a business plan
Involving an accountant while you're writing your business plan may allow you to use accounting software to add financial projections and other reports to it. This will help you create a business plan that's realistic, professional and more likely to succeed.
Hiring a professional at this early stage will mean you get the benefit of their financial knowledge and advice right from the start. That could save you time and money compared with hiring one later in the process.
Advice about company’s legal structure
Not all businesses have the same legal structure – there are different types that are determined by a number of factors. Some might be called limited companies, limited liability partnerships or corporations, others could be sole traders or proprietors.
You should carefully consider each type before deciding which one best suits you. For example, you may do business as a sole proprietor, working on a self-employed basis and invoicing under your own name. If this is the case, you might be able to offset some of your living expenses against tax.
However, this also means you could be held personally liable for any business-related obligations. If your business fails to pay a supplier, defaults on a debt or loses a lawsuit, the creditor could legally come after your house or other possessions.
With a limited liability company structure, it's different. An accountant can explain the business structures available and help you choose the one that best suits you.
Help with the finances
Small business accounting can quickly become complex if you do it on your own. If you feel you're losing control of who owes you money and how much, an accountant can help you make sure nothing falls through the cracks.
You may also want to measure key business metrics, such as the ratio of salaries and other employee payments to total revenue. An accountant can help here by managing your payroll and producing graphs so you can see how the ratio changes over time.
They can help you understand your company's current financial situation at a glance, and help you monitor the pulse of your business and keep track of important things like cash flow.ve to let go, and learn to trust other people to handle some parts of your
Deal with the government
Some business owners are nervous about dealing with the government. This is why so many small business owners hire an accountant when the first tax filing is due.
But they can also help you deal with more than just tax returns. They can help your company interact with the government in other ways:
- Complete and file the required legal and compliance documents for your business
- Keep your company up to date with the latest tax laws
- Prepare annual statements of accounts
- Keep your company's status updated in the government's company register
- Maintain records of directors and other administrative personnel
- Organize and record share/stock allocation, such as when the business is formed, when a business partner leaves or a new partner joins
- Handle your payroll and ensuring that all employees' tax codes and payments are recorded correctly
For more information or to contact one of our CPAs to help with your business, call the Salem office at 330-332-4646 or East Liverpool location at 330-385-2160.
It’s that time of year again – tax time.
If you’re one of the millions expecting a tax refund this year, chances are you’re already thinking about how to spend that chunk of change. Maybe you’re thinking of buying a bigger TV, taking a well-earned vacation or upgrading your smart phone or computer.
All those ideas sound rewarding and exciting. But there are some smarter and more practical (but not quite as fun) ways to use your refund that might put you in a better financial situation and/or help others.
1. Replenish or start your emergency fund. Life happens. The washer breaks. You have to replace your car. Your spouse gets laid off from work. We usually don’t see life’s curveballs coming and when they do, it’s nice to be prepared. Having an emergency fund can help relieve some of the stress when hit with unexpected expenses or hardship.
Ideally, you should have about six months of expenses socked away. But not everyone can afford to do that and still survive day to day. So, consider taking all or some of your tax refund to start an emergency fund. This might be the only time of year you get such a large sum of money, so this is a smart use for it.
Since it wasn’t part of your regular paychecks, you likely didn’t plan on using it to pay monthly bills. So, you won’t even miss the cash. Put it in the bank for emergencies so when a “rain day” comes, you’ll have some money to deal with it.
2. Invest in your future. Depending on your age, retirement might sound far away. Or, it might be knocking loud at your door. Regardless, you know you won’t work forever. When the time comes to stop doing the job you’re doing, you’ll need money to live on for the rest of your days.
A forward-thinking use for your tax refund is to boost your retirement savings, so that the money can continue growing while you’re still earning an income for today. Consider investing the refund in an IRA, Roth IRA or other retirement account. You’ll thank yourself later.
3. Donate. Maybe you’ve always wished you had enough money to be able to donate to important community causes or organizations. Now, you do. Consider using all or part of your refund to a worthy cause, your church or a non-profit organization. Your gift will be appreciated and you’ll feel good about being able to help. Plus, you might be able to write off the donation on your taxes the next year.
So before you go out and blow all of your refund, give some thought to putting it to good use. Consider using part of it for something fun now, then take the rest to invest in your future or the future of others.
Running a household or a business isn’t easy. There are many day-to-day decisions to be made, and tasks to get accomplished to ensure that things run smoothly. Sometimes, these things can’t be done well without a little help.
We don’t cook dinner, repair cars or provide healthcare for our individual and business clients, but they do rely on our expertise to ensure that their finances are in order. The service we provide to our clients allows them to do what they do best – be hands-on with their families or customers without worrying about the complicated world of finance.
Recently, I’ve had a few conversations with clients about why a business or individual would choose to hire a CPA from smaller firm, rather than a larger regional or national firm. The reason they gave was that they liked the fact that our principals (owners) work so closely on their account, instead of passing it off to a “junior accountant” whom the client doesn’t even know.
We take the extra time to get to know our clients’ financial situation, as well as our clients personally. We not only value their business, but also their friendship.
More than just math
A couple came into my office with their tax return that they had completed themselves. They needed my advice on how to respond to an Internal Revenue Service correspondence they had received. They walked out with peace of mind that we helped them resolve the issue and commented: “Now I understand why I should have a Certified Public Accountant prepare my ‘simple return.’”
With constantly changing tax laws, complex business arrangements and complicated home situations, there’s no such thing as a ‘simple tax return’ anymore. Doing taxes is about more than doing correct math. It’s about having the most updated tax law knowledge and helping families and businesses pay the least legal amount of income taxes possible so they’ll be in the best financial shape as they can.
Our accountants continually attend training sessions to increase their knowledge in order to be advocates for our clients when they need us. We can’t properly service our clients without that knowledge.
We act as a controller for a lot of entrepreneurs that do an excellent job at their vocation, but lack the time and or energy to deal with the administrative functions associated with running their business. We have the expertise, including a certified QuickBooks consultant and staff knowledgeable in the application and use of SAGE and DAK Easy software to assist in the accounting function. We assist companies with one employee to as many as 50 or more employees with payroll preparation and related regulatory filing requirements.
Our tax and business clients aren’t just located in Ohio. We are knowledgeable about laws in Ohio, Pennsylvania and West Virginia. Our firm also frequently files tax returns for clients in most of the 50 states. We have even filed international tax returns or tax forms for individuals with international holding and investments.
Any individuals or business owners needing assistance with taxes or other financial services can contact BWLK’s Salem office at 330-332-4646 or East Liverpool office at 330-385-2160.
Giving back to your community by serving on the board of a non-profit organization is an honor, but one that comes with responsibility.
Board members are accountable for the non-profit's actions and have fiduciary duties to the organization. They are also legally required to be informed, active participants in corporate governance and to act in ways that help further of the nonprofit's charitable mission.
To help non-profit board members fulfill your duties and protect themselves, the Ohio Attorney General's Charitable Law Section has developed a number of resources.
1. A pre-recorded webinar contains an overview of the legal obligations of board members. This webinar can be viewed anytime and can be found at http://www.ohioattorneygeneral.gov/Business/Services-for-Charities/Charitable-Webinars.
2. The state offers a monthly one-hour live webinar on board governance that explains board members’ fiduciary duties and how to fulfill them. This webinar is at noon on the first Wednesday of each month. Register for the webinar at http://www.ohioattorneygeneral.gov/Training-and-Education/Nonprofit-Board-Governance-Webinars.
3. The Charitable Law Section will provide live training on board governance issues throughout the state if your organization is willing to host a training and invite other charitable organizations to attend. To inquire about hosting a training, send an email to CharitableLaw@OhioAttorneyGeneral.gov.
4. There are numerous publications online. The most popular publications are "Guide for Charity Board Members" and "Avoiding Theft in Your Nonprofit." These and other publications can be found at http://www.ohioattorneygeneral.gov/Business/Services-for-Charities/Resources-for-Nonprofit-Board-Members.
5. Board members can subscribe to the Nonprofit Newsletter, an electronic newsletter prepared by the Charitable Law Section at http://www.ohioattorneygeneral.gov/Media/Newsletters.
Now that the 2017 tax season is over for most individuals and businesses, it’s time to turn attention to next year. Especially because the Tax Cuts and Jobs Act of 2017, which is considered to be the largest tax overhaul in 30 years, will have a significant effect on income tax returns next year.
The law will eliminate and change some deductions for the 2018 tax year. That means that when you filed your return just recently, that will be the last time you'll see several deductions on your tax forms, at least until 2025.
Here are a few of the deductions involved that will have the biggest impact on most individuals and businesses:
Standard $6,350 deduction
This might be the biggest piece of good news for you as a taxpayer. The standard deduction will increase starting next tax year. While single taxpayers were only eligible for a $6,350 standard deduction this year, that amount will nearly double in 2018 to $12,000 for individuals.
Married couples will get a standard deduction of $24,000 for 2018, up from $13,000 for 2017. Head of household filers will see a bump in their standard deduction from $9,550 to $18,000 in 2018.
Now for a little bad news. You will lose your $4,050 personal and dependency exemptions. These aren’t technically deductions, but these exemptions allow you (taxpayers) to subtract $4,050 from your taxable income for each dependent you claim.
The increase in the child tax credit my help offset this loss of personal exemptions, but it might not help everyone.
Unlimited state and local tax deductions
Starting in 2018, deductions for state and local taxes – known as SALT deductions – will be capped at $10,000. While this will certainly benefit you if you live in Ohio or Pennsylvania, residents in South Florida, New York and California and other states where people pay high property taxes, will see the biggest boost.
Miscellaneous itemized deductions
Unreimbursed work expenses is just one of several miscellaneous itemized deductions that have been disallowed under the new law. Also gone are the unreimbursed qualified employee education expenses deduction, itemized deductions, include costs related to tax preparation services, investment fees and professional dues.
Deduction for moving expenses
If you relocated for a new job that year, you might have been able to deduct your moving expenses from your 2017 taxes, assuming you met criteria laid out by the IRS. This criteria states you must be moving to a job location at least 50 miles farther from your old house than the distance from your old house to your old job.
However, for 2018, that deduction is eliminated for everyone except armed forces members.
In the past, couples had the option to set up alimony agreements to allow the person making payments to deduct that money from their federal taxes. That won't be an option in 2019. The deduction is being eliminated for any divorce commencing after Dec. 31, 2018.
While some of these tax changes could benefit you, it’s clear that some are disappointing. If you think you’ll get the short end of the stick because of these changes, there is a silver lining - many provisions of the Tax Cuts and Jobs Act will expire in 2025 unless Congress votes to extend them. That means it could just be a matter of time before cost-saving deductions make a comeback.
To find out specifically how these changes (and others), will affect you going forward, speak to your accountant.
When it comes to the federal tax code, about the only thing most individuals and business owners understand is that everyone has to pay taxes. The questions about how much, how often and when, are complicated issues that accountants can help resolve.
Thanks to the recently passed Tax Cuts and Jobs Act, arguably the most significant change to the Internal Revenue Code in decades, the tax code just became a little more simplified for individuals and corporations. The law reduces tax rates for individuals and corporations and repeals many deductions until at least 2025. The changes take effect after December 31, 2017.
The changes include cuts and benefits for both individuals and corporations. Here are a few highlights of the significant changes affecting both individuals and corporations.
Individual Income Tax Changes
Business Tax Changes
To learn specifically how the new tax law will affect your future personal or business taxes, contact a CPA at BWLK’s Salem office (330-332-4646) or East Liverpool location (330-385-2160).
By Daniel Wolfe
So you’ve already mailed this year’s tax return and are looking forward to using that large tax refund check to book a nice vacation this summer. You’re watching the mailbox every day with great expectations. Then, the bad news hits.
What you thought was a nice big check is instead a letter from the IRS that you’re being audited. Yes, you’re among the 1 percent they’ve chosen to investigate. Better put that trip on hold – for now.
What is an IRS audit?
An IRS audit is a review/examination of an organization's or individual's accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct.
The more money you make, the bigger the chance is that you’ll get audited. But mostly, the IRS is looking for certain “red flags” on your tax return. For example:
- You made $80,000, but donated $40,000 to charity
- You wrote off 100% of your vehicle as a business expense
- Large losses appear on your return
- Data submitted to the IRS does not correspond or does not appear on the return you submitted
Regardless of the reason, many fear receiving that IRS audit letter. Will you have to pay back thousands of dollars in taxes? Will you have to pay interest and penalties? Will they audit your past tax returns? Are you going to jail?
Don’t panic. You can get through this by taking a few important steps:
Figure Out What the IRS Wants
A letter from the IRS doesn’t always mean you are being audited. Sometimes the agency is just looking for more information or clarification. You need to determine what part of your tax return is being audited – often, IRS auditors have questions on a portion of the return, not all of it.
Find Your Documentation
Now you know what the IRS is looking for. The next step is to build your case by collecting your documentation. Find as much information as you can.
If you haven’t kept much, you might need to reach out to third parties like your bank, financial planner, the charities you’ve donated to, etc., to see if they have anything in their records that could help you.
Get Professional Help
Don’t contact the IRS on your own, or ignore the letter.
You need professional help. To represent you before the IRS, a return preparer must be a CPA, attorney, or an enrolled agent, which refers to an individual who has passed a comprehensive IRS examination. Unless your preparer possesses one of these credentials, you'll need to find someone else to represent you.
If you’re looking for some guidance on how to respond to an IRS audit letter, call Dan at 330-385-2160 or email him at Dwolfe@bwlkcpa.com..
By Alfred Fricano
In the fourth and final part of this blog series, we’ll explore the benefits of organizing your new business by combining the features of an LLC and an S corporation.
There are certainly benefits of establishing your business as an LLC, but then electing to have it treated as an S corporation by the IRS for tax purposes.
To accomplish this, you'll have to make the special election with the IRS using Form 2553. It's no more difficult than setting up a corporation and then electing S corporation status. But it may have some added benefits, like:
Consider the pros and cons
Obviously, you need to carefully consider the pros and cons of different forms of business organization. Be sure to consider how all the aspects - legal, tax and operational - of each organizational form will impact your unique business enterprise.
Setting up an LLC and then electing treatment as an S corporation may just give you the best of both worlds - the ease of administration of the LLC and the tax planning opportunities of the S corporation.
Seeking professional advice from a CPA or tax attorney is always a wise practice when making choices like this that can affect your business for many years to come.
By Gene Byler
As a Certified Public Accountant (CPA), I am required to take continuing education requirements to keep up to date on the newest financial accounting and tax laws. State and federal laws and policies sometimes change often, and to best serve and protect our clients, we must stay current.
To that end, I attended a two-day Ohio Society of CPAs conference in Cleveland. One of the updates I received was related to the new partnership audit rules that became law in November 2015. This is the biggest change affecting partnership taxation since the creation of the Limited Liability Company (LLC).
About the new partnership audit laws
Under prior audit rules, the IRS dealt with each individual partner in the partnership or LLC, which made the task difficult. So difficult that the IRS rarely conducted audits. However with the new law change, the IRS, in most cases, may assess any additional tax or its related penalties and interest against the partnership as a whole, thus eliminating the need to assess each partner.
Since this assessment will be made against the partnership in the year that the audit is concluded, and payment will be made from the partnership assets in that year, the assessment will be the responsibility of the partners in the year the audit is concluded. That’s instead of to those who were partners in the year under audit.
Any income difference will be taxed at the highest individual tax rate (currently 39.6%). Although there are opt-out rules, there is no best solution.
This legislation also introduces the new role of “Partnership Representative” who will act on behalf of the partnership (and therefore the partners) when dealing with the IRS. This authority includes the ability to bind the partnership and the partners in audits and other proceedings, including settlement authority and decisions on procedural issues such as whether to proceed to litigation. These powers are significantly broader than the old Tax Matter Partner (TMP).
How it could affect partnership agreements
All these changes create significant issues that may require amendments to an LLC’s operating agreement. These modifications could include:
Consider a proactive response
These new rules are complex and are still evolving. A discussion with your tax adviser would help you make the best decisions for your partnership on how to best address them. It’s a matter of when, not if, that we will see a significant increase in partnership audits by the IRS. Your business could be next, and we can help you be proactive before it happens.
By Alfred Fricano
Congrats! You’ve started your own business. With any new venture there is usually mountains of paperwork and important business decisions that need to be made.
This four-part blog series is focused on one of those decisions: choosing to organize as an LLC, an S Corp or a combination of both. Each has its advantages and pitfalls. If you missed Part 1 and Part 2 you can read them here.
In Part 3, we discuss the pros and cons of operating as an S Corp, including what an S Corp is, its most important features and the benefits of being one.
What is an S Corp?
An S Corporation is a corporation formed by complying with state incorporation statutes that then elects (by submitting Form 2553 to the IRS) to pass corporate income, losses, deductions and credits through to its owners (shareholders) for federal tax purposes.
S corporation owners report the income and losses on their personal tax returns and are assessed tax at their individual income tax rates. Thus, S corporations avoid double taxation on the corporate income.
Limitations on S Corps
Certain limitations are placed on a corporation that seeks treatment as an S corporation. But if these limits don't interfere with your business plans, the S corporation may be a good choice for you. The main S corporation limitations include:
• It must be a U.S. corporation.
• It must have no more than 100 shareholders. However, all members of a family are counted as a single shareholder. Spouses are also counted as a single shareholder.
• Its shareholders can only be individuals, certain trusts, and estates - they may not be partnerships, corporations or non-resident aliens.
• It can have only one class of stock. But, it can have voting and non-voting stock within that single class of stock.
• Certain financial institutions, insurance companies, and domestic international sales corporations are ineligible.
Advantages of S Corps
A key benefit of the S corporation is its ability to minimize overall tax liability for you and your business. Because of its nature as a corporation, only the wages paid to its owner/employees are earned income that is subject to FICA tax (Social Security and Medicare).
Other net earnings that pass-through to the owners are considered dividend income. This means those payments not subject to SECA tax and — provided the shareholder material participates in the business — they are not considered passive income. Thus, an S corporation can do some tax planning that cannot be accomplished in a typical LLC.
How much should you pay yourself?
The ability to split income between compensation and dividends became even more important in 2013 when two new Medicare taxes were imposed on higher-income taxpayers. One was a 0.9 percent surtax on all compensation over $200,000 ($250,000 for married filing jointly).
The other was a new 3.8 percent tax on investment (passive) income if the taxpayer's modified adjusted gross income exceeds $200,000 ($250,000 for married filing jointly). Thus, the ability to split income can aid in reducing exposure to these new taxes.
Of course, the compensation that you pay yourself must be reasonable not too low or too high -if you want the arrangement to stand up to IRS scrutiny.
Reasonable compensation turns on many factors, but can be summed up by a "yes" answer to the question: "Is the compensation what would be expected for an individual with the background and qualifications in other companies of this size in this industry?
More features of S Corps
In summary, the most important features of the S corporation include:
• Limited liability for owners
• Pass-through of income to owners, avoiding double taxation
• The business exists independent and separate from the owner/shareholders
• Complex administrative operation - more forms and filings required, more formal meetings and record keeping requirements imposed (bylaws, meeting minutes, written resolutions, etc.)
• Profit-sharing restrictions - earnings distributed proportionate to capital contributions of shareholders
• Flexibility in distributing earnings of the corporation by paying wages and salaries to owner/employees and passing-through other net earnings as passive income to owners
Hire a professional accountant
When starting a business, deciding to organize as an S Corp or LLC can have a major impact on your tax responsibilities and liability. It’s not a decision to attempt to make on your own or take lightly. Seeking the counsel of a professional tax accountant can save you money and legal trouble down the road.
In Part 4 of this series, we’ll discuss the advantages and disadvantages of organizing in a way that takes the benefits of both an LLC and an S Corporation.
By Alfred Fricano
You’ve taken the leap and started your own business. You might already have a business name, a product line or list of services and office supplies. But before you put out the “Open” sign, you need to take care of one of the most important things: the paperwork.
Choosing to organize your enterprise as an LLC, an S Corp, or a combination of the two will have legal and tax implications. In Part 2 of this four-part blog series, we’ll look at the pros and cons of becoming an LLC.
LLC Offers Limited Liability and Flexibility
An LLC, or a Limited Liability Company, is a business structure authorized by state statutes. It is a structure designed to provide the limited liability features of a corporation along with the tax efficiencies and operational flexibility of a sole-proprietorship or a general partnership.
As a pass-through entity (unless it chooses tax treatment as a corporation), all of an LLC's profits and losses pass through the LLC to its owner(s), known as member(s). As with a proprietorship or partnership, each individual member reports the profits and losses on his or her federal tax return. This avoids the double taxation to which a regular corporation and its owners are subjected.
However, the LLC still provides a limit on the personal liability of its member(s) in much the same way a corporation does. Typically, a member's personal liability is limited to his or her investment in the LLC.
This feature distinguishes the LLC from a sole proprietorship or general partnership, in which each owner is subject to liability for all of the debts of the business.
Features of an LLC
The features of an LLC may make it an excellent choice of structure for your new business enterprise. The following summarizes the most significant features of the LLC:
Serves as a pass-through of income to owners, avoiding double taxation (unless corporate treatment is elected)
Ease of operation - fewer filings, forms, start-up costs, formal meetings and record keeping requirements
Fewer profit-sharing restrictions - earnings distributed as members see fit; not based on percentage of capital contributions
Entire net earnings of LLC passes through to owners in the form of self-employment income subject to 15.3 percent SECA tax (self-employment tax for Social Security and Medicare).
Tax Classification for LLCs
The IRS does not recognize the LLC as a taxpayer classification for federal tax purposes. Federal tax treatment is separate and distinct from the limited liability provided to members under state law. Whether an LLC is treated for federal tax purposes as a sole proprietorship, a partnership or a corporation, the members are still shielded from liability.
For tax purposes, by default, an LLC with one member is treated as a sole proprietorship. By default, LLCs with more than one member are treated as partnerships. However, an LLC can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election.
Once it has elected to be taxed as a corporation, an LLC can file a Form 2553, Election by a Small Business Corporation, to elect tax treatment as an S corporation.
If you’re starting a new business or are interested in more information about how your business can benefit from forming an LLC, contact our office.
In Part 3 of this series, we’ll discuss the advantages and disadvantages of organizing as an S Corporation.
By Alfred Fricano
So, you’re ready to leave the safety and security of your office cubicle and blaze a new trail into entrepreneurship? You have a wonderful vision for a unique new service or special product and are ready to start a small business – congratulations!
You need a business plan
Your passion and vision are a good starting point. Now what you need is a business plan. That’s where things can get complicated. You’re not just a freelancer – you’re a living, breathing business enterprise. How you choose to organize your business will have consequences - legal, liability and tax-related.
This blog will be the first in a four-part series that will help you determine which type of company your new venture should be. Specifically, you’ll learn about the differences between a Limited Liability Company (LLC) and an S Corporation. Each has benefits and shortcomings, which we will discuss. In some cases, your business could have the best of both worlds – we’ll explain how.
The goal of this blog series is to start the conversation by giving you a basic understanding of the options, and offer our assistance in helping you choose the one that’s best for your business.
LLC, S Corp or both?
Business owners, and even attorneys and accountants, can get bogged down in the debate over which is best - the LLC or the S corporation. But it's not necessarily an either/or proposition.
Rather, you can set up an LLC and later elect to have the LLC treated as an S corporation. If your LLC operates an active trade or business, and payroll taxes on the owner or owners are high, you may find that an S corporation is the best choice.
Both organizational forms share the characteristic of "passing-through" their income to the owner(s). Both also provide their owner(s) limited liability protection. But each has some distinguishing features, too. You, as a new business owner, will want to consider the differences as you choose the form for your enterprise.
A few of the main differences include:
· An LLC is easier to operate and administer.
· An LLC offers more flexibility in allocating percentage of profits or losses among the owners.
· Compared to a typical LLC, an S corporation offers more flexibility in paying its earnings to owners as either earned income in the form of salaries and wages or as distributions.
· An S corporation is easier to deal with for various tax planning purposes.
Before choosing one of these options - or a combination of the two – you should determine which features are most important to you and your business. We’ll help you do that.
Next time: Part 2
In Part 2 next time, we’ll discuss the benefits of an LLC, how it’s structured and things to consider when deciding whether to organize your business in this manner.
By Gene Byler
If you’re a business owner, chances are you are well aware of the legislation that will change how employers pay workers for overtime, effective December 1.
The bad news is that your business will probably be affected at some point. The good news is that you have until Dec. 1 to develop a plan that allows your business to meet the new requirements while minimizing the negative financial impact to your bottom line.
New law basics
Let’s take a look at the legislation.
The last major change in the law regarding overtime pay was made in 2004. So you’ve been operating under those old rules for 12 years, unless your company hasn’t been around that long. The new regulations increase the salary threshold needed to qualify for overtime exemption from $455 per week ($23,660 per year) to $913 per week ($47,476 per year.) and affect 4.2 million workers.
The new law also automatically updates the salary threshold every three years, based on wage growth over time, increasing predictability.
Any business that employs workers with salaries under the new threshold should consider their best course of action or face paying thousands in higher wages. Your company could also be subject to employee lawsuits for failure to comply with the rules. Your business is NOT exempt, no matter how big or small it is.
These regulations may be in response to several recent lawsuits filed by mangers and assistant managers in recent years. Workers at Chipotle, Dollar General, JPMorgan Chase, Bank of America and Wells Fargo have filed lawsuits claiming their overtime hours are not being compensated appropriately. In many cases, the duties of hourly employees are being done by salaried personnel since they don’t get paid the overtime.
What can you do?
There is no one-size-fits-all way for businesses to prepare for the new overtime rules. Employers have a variety of choices, such as:
Business owners need to start planning now in order to determine which response is best suited for their business. That process is best navigated with the assistance of an employment attorney and a professional accounting firm.
An accounting firm can assist you in determining which employees are likely to be affected, help with tracking non-exempt employees’ hours, help you update record keeping procedures, and advise on how to clearly communicate changes to policies and procedures to employees.
If you need help developing a plan to ensure that your business will comply with the new overtime rules, contact a CPA in our Salem or East Liverpool office.
By Alfred Fricano
If you’ve ever had your wallet stolen or discovered that someone has hacked into your personal information online, you understand how time-consuming and annoying identity theft can be.
Canceling your credit cards, putting a hold on any outstanding checks, getting a new Social Security card and jumping through hoops to get the money back that someone spent on your behalf isn’t fun.
While identity theft is a threat year-round, tax-related identity theft is a growing problem this time of year.
What is tax-related identity theft?
Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. You may be unaware that this has happened until you file your return and discover that a return has already been filed using your SSN. Or, the IRS may send you a letter saying it has identified a suspicious return using our SSN.
You’d think that if someone was going to put forth so much effort to steal your tax identity that they’d at least have the courtesy to pay your tax bill, right?
Instead, they have eyes for your big tax refund check. Yes, the one you’re counting on to pay for this year’s family vacation or as a nice down payment on a new car.
Fortunately, there are some simple ways you can prevent the crooks from swiping your money – and identity. Not only will these save you money, but they will also save you months and months of phone calls and headaches while trying to straighten out the mess.
1. Don’t let the IRS owe you a big refund. A big chunk of change each spring sounds great. But why wait to have access to that money? You can reduce the withholdings from your work paychecks so that instead of waiting around for a big check later (the crooks are waiting on it, too), you can have that money now. If you’re not used to that “extra” cash, sock it away in a savings account and pay yourself later.
2. Secure important documents. Store your important papers, like Social Security cards, in a safe and secure location, and don’t discard any documents with your SSN on them. Copies of tax returns should be kept in a locked file cabinet or safe.
Also, resist giving businesses your SSN or other personal information just because they ask for it. Often, it is not required, and giving out this information is risky.
3. Protect online information. You should protect personal computers by using firewalls and anti-spam or anti-virus software, updating security patches, and regularly changing passwords for Internet accounts with sensitive information, such as online banking sites. Do not make passwords simple enough to guess, like your address, birthday, wedding anniversary, etc.
4. Hire a professional accountant. The IRS is continually looking for better ways to protect taxpayers against tax identity theft. Unfortunately, there are still some who fall for email phishing scams and bogus websites, which attempt to steal their information. Certified Public Accountants (CPAs) are highly trained in tax preparation and have direct access to many important resources through the IRS that can help educate clients about avoiding and dealing with identity theft.
Alfred Fricano can be reached at 330.385.2160.
By Daniel Wolfe
The thought of receiving your tax refund check as fast as you can say “1040” sounds pretty enticing. The faster you get the cash, the sooner you can purchase that new smart TV or book this year’s trip to the beach.
This time of year, “tax shops” lure taxpayers with promises of “guaranteed maximum refunds,” $50 gift cards, and accurate results. All this, for the cheapest tax prep fees out there.
But, just like in life, you often get what you pay for. If something sounds too good to be true, it probably is. And, when it comes to messing with the IRS, you can’t afford to cut costs or corners just so you can walk out the tax shop door with a check in your hand.
In order to protect yourself, consider hiring a professional accountant to prepare your return. Certified Public Accountants (CPAs) specialize in business and personal tax preparation, along with other financial services.
Why Choose a CPA?
Here are 3 important reasons to choose a CPA over a tax shop this tax season:
1. Education. CPAs are highly educated. In order to be a CPA, you must have 150 credit hours of college education, equivalent to 5 years of college, have worked in the industry for at least 2 years and pass a very stringent exam (only about 25% of those taking the exam pass it for each time the exam is given). CPAs are required to have annual continuing education courses in order to maintain their licenses.
2. More than just taxes. Having a CPA prepare your tax return establishes a relationship with someone who will be your adviser on other financial matters. CPAs have comprehensive knowledge of financial affairs and can assist in dealings with the bank, mortgage company and business decisions.
3. Protect you against IRS. CPAs are one of three classes of professionals that can represent you in front of the IRS, should you or your business be audited. “Joe” at the tax shop will not be able to protect you against the IRS.
Dan Wolfe is a partner at Byler, Wolfe, Lutsch & Kampfer. He can be reached at 330.385.2160 or DWolfe@bwlkcpa.com.
By Richard Lutsch
One question we frequently hear from our clients is: Does my non-profit need an audit?
An audit is an official examination of an individual's or organization’s financial statements as a whole, typically by an independent Certified Public Accountant, with the purpose of expressing an opinion on those statements. This process is very thorough and time-consuming, and can sometimes be costly for a non-profit with a limited budget.
Our answer depends on the needs of the organization or the requirements of other third parties. If an organization that funds the nonprofit requires that an audit be performed, then we make that recommendation.
However, sometimes we find that the non-profit doesn’t need an audit, but instead can benefit from a service called “agreed upon procedures.”
What is an agreed upon procedures engagement?
Simply, this is an agreement made in advance between the nonprofit organization, accountant and sometimes another vested third party, that allows the accountant to review and report upon pre-determined financial areas of concern. The procedures are determined at the onset of the engagement, performed and reported on at the conclusion of the engagement.
For instance, the primary item of concern for most nonprofit organizations is cash. In this scenario, the accountant compares a sampling of checks written against invoices and against the endorsement on the back of the check for accuracy. Perhaps the organization is concerned about the collection and use of restricted funds and related deposits into the bank.
The purpose of this agreed upon procedures engagement would be to determine whether or not the transactions are being processed and recorded in a proper manner. The accountant performing this service does not provide an opinion, but only reports the results of the tests.
There are several reasons why an organization would choose an agreed upon procedures engagement rather than an audit. It offers a considerable savings over the cost of an audit, is narrower in scope, and generally is more focused on the concerns of the organization.
Before making any decisions about the review of your non-profit’s financial situation, you should consult an accountant who specializes in this area. You may be surprised to learn what can be done to reduce the risk of loss of your nonprofit organization’s assets.
By Daniel D. Wolfe
One of the classic comedy movies of the last 30 years, Vacation, is about to hit the screen again but this time it is the son of Clark Griswald, Rusty, who is taking his family to the mythical Wally World.
Most people found humor in the movie due to the old “been there done that” feeling. Making and preparing for a trip, as in the movie, includes detailed preparations, ups and downs and many unexpected moments.
Like a trip, financial planning is a life-long event that takes us from the early years of adulthood into retirement. While the ups and downs in the movie make us laugh, these same events in reality are not so funny if we are not prepared.
Here are four major elements of a roadmap for this journey called Life.
We are ready to go so what now?
Our family has made several trips to visit the Great Mouse in the South and the journey was easy to start because we began from home. But in the world of finance, most people do not know where home is or the starting point of the trip.
I have always recommended the preparation and maintenance of a personal financial statement. The first part of such a statement lists the things we own, called our assets, and the value of those items. That would include bank accounts, investment accounts, real estate holdings, retirement accounts, personal autos, cash value of life insurance and anything else of financial value.
The next part of the statement is the listing of what we owe, or liabilities. These may include mortgages, auto loans, student loans, credit card balances and other debts.
The difference between these two items, assets and Lliabilities, is your net worth. It should be our intention to always keep that number positive.
This calculation gives us our starting point for the trip. While on our trip, we should compare the changes in our personal financial statement from time to time to see if our financial resources are increasing.
Do we have a vehicle that can take us where we want to go?
My wife always chuckles when we get ready for a trip. I change the oil, inspect the tires and belts and of course perform the official waxing.
I want to make sure our car can make it to our destination and keep us secure and comfortable along the way. We cannot achieve this without understanding and controlling our vehicle.
Financial planning presents us with the same issue and to help us we will need to prepare a budget. A budget details how we allocate our income to make sure we stay on the roads that will get us to our destination. Think of it a financial GPS.
Budgets can be sophisticated or simple, written in detail or summarized carefully. We all have a tendency to be surprised where our money is going upon examination, but we should not live with those surprises.
Our budget should detail our sources of income, at least monthly, and where our expenditures are going. We should always plan for normal living expenses and savings for anticipated needs.
You can find some simple budgets and many financial tools in our website’s Financial Tools section. Budgets are critical to any financial plan
Did we pay our AAA bill this year?
Flat tires, breakdowns, toll roads, bathroom breaks and other unexpected things can disruptour vacation.
When preparing a financial plan, we need to reduce our risk of encountering the unexpected, like an unplanned (but welcomed) baby, a lost job, a sudden sickness or worse.
Risk-reduction strategies like buying insurance, accumulating extra savings and so forth can inhibit our enjoyment of life. But inadequate risk mitigation can be catastrophic.
Part of our plan should be identifying our risk and determining the best way to protect ourselves while not spending everything we have to do so.
Hey! I forgot to ask, where are we going?
We know where we are starting and we have the roadmap, but where are we going?
In the late 1990s and most of the 2000s, I would jump on my motorcycle with my friend and our adult sons and take a 4-6 daytrip. Our trip plan would be as simple as “Let’s go South,” or “East”… you get the point.
It would be nice if life was so flowing, but it isn’t. We need to define where we are heading because it is not pleasant to accept an unplanned destination that is not in any way, shape or form what we had hoped for.
In planning for retirement, we need to understand what it’s going to take in the form of pension benefits, self-funded retirement plans, investments and Social Security to meet our anticipated cost of living.
Income and expenses are different during retirement. Where we have mortgage payments now, we will have potentially higher medical cost during retirement. Meanwhile, whereas our current income may include annual pay raises, retirement will likely bring a fixed income. Moreover, the estimated return in our investments may not be what we had hoped for.
Our destination must be defined as much as possible and adjustments to our current living and adjustments to a different, more affordable destination may be required.
I hope and pray that each one of you plan well, live long and enjoy the trip.
Dan Wolfe is a partner at Byler, Wolfe, Lutsch & Kampfer. He can be reached at 330.385.2160 or DWolfe@bwlkcpa.com.
By Denny Kampfer
No matter what industry your small business is in, managing payroll isn’t always as straight-forward and hassle-free as you might think.
Payroll is a business obligation that involves more than just paying your employees. It includes dealing with employees’ personal information, handling payroll taxes and adhering to government regulations.
Failure to develop sound procedures that are well executed could result in harsh repercussions like missed paychecks and tax penalties that hurt your company’s bottom line and reputation.
Here are four tips to consider that will help streamline your payroll process.
Make sure employees' information is current.
Tax laws change on a regular basis. So do your employees’ circumstances. Stay up to date on the status of your workers. Changes in marital status, family size, annual income or deductions may prompt the need for adjustments to employees’ tax information. Make sure employees inform you of any changes so you can update your payroll system. Keep records of wages and tax payments while they are employed by you. These records may be needed by employees when applying for home loans or other forms of credit.
Pay your employees on time.
This may go without saying, but it’s vital that you pay your employees on time, every time. The most common wage payment schedules are weekly, bi-weekly and monthly. If you don’t pay on time, you might be subject to penalties. Your employees rely on regular wages, so if a paycheck is late or is for a wrong amount, it’s a big deal. One effective way to pay your workers on time is to set up direct salary payments through your bank.
Automate state and federal taxes.
Consider using payroll software that automatically accounts for state and federal taxes for you. This will ensure that the money needed for payroll taxes is applied correctly and prevents a costly mistake if you forget about payroll tax deposits.
There are no penalties with the IRS for depositing your payroll taxes too frequently, however there can be large penalties for depositing late. Also, paying payroll taxes when employees are paid eliminates any temptation to use that money for other business expenses.
Hire a payroll expert.
You probably don’t have the expertise, time or interest to handle payroll effectively. Because it is vitally important that payroll goes smoothly to keep the IRS and employees happy, consider hiring an accounting firm specializing in payroll management to take care of it.
While it may seem like an extra expense, it could save your company money – and hassle – in the long run. It will also free you up to focus on running and growing your business.
For more information on payroll management and other business and accounting matters, contact us at 330-332-4646 in Salem and 330-385-2160 in East Liverpool or online at www.bwlkcpa.com.