Watch out for squirrels!

I came home from work the other day and pulled my truck into the driveway to see several squirrels running through the trees. They were jumping from limb to limb and tree to tree—fast as lightning! I stood there for a few minutes watching them in awe before opening the rear door to my truck and emptying out the backseat.

Suddenly, a squirrel jumped into the backseat of my truck!

He immediately locked eyes with me then screamed in my face before running away. Yes, he screamed! He was just as shocked as I was.

It was as if he was too preoccupied playing with his squirrel friends to notice that anyone was around. When he found himself in my truck, he immediately realized he was somewhere he didn’t want to be, face-to-face with something that could be a potential threat to him.

It made me think about all the times that I’ve been too preoccupied with my own activities, only to take a moment to look up and realize that I was somewhere I didn’t want to be.

It was a good reminder for me to have purpose, vision, and direction, and to keep those things front and center. The ability to stay focused is an important part of daily life, no matter your career, responsibilities, or primary functions. It’s crucial to be able to focus on what you’re doing at all times.

Distractions can sidetrack and even discourage us from staying focused and going positively forward toward our short-term and long-term goals. This encounter with the squirrel was a great real-life reminder for me to stay the course and be intentional with every decision I make.

Date night questions

My wife and I are very intentional about having weekly date nights on Friday. Sometimes our dates are simple–just grilling on the patio. Other times we’ll treat ourselves to a nice dinner out.

After so many years of marriage, it can become difficult to continue improving and deepening your relationship. It’s easy to get comfortable and forget there is still so much more to learn about each other!

Mundane daily questions like, “How was your day?” are important, but they don’t tell the full story. And those questions don’t usually lead to deeper communication.

Throughout our relationship, my wife and I have made it a priority to ask fun, creative, and deep questions to get us talking.

Think about your spouse—you asked a lot of questions while you were dating to get to know each other better, right? There’s no reason that should stop now that you have made a commitment to one another!

Here are some of the questions my wife and I have asked each other recently on our Friday night dates:

  • What was the very first thing you thought about me?
  • What did you learn about marriage from your mom and dad?
  • What do you think is the best thing about our relationship?
  • What did you learn about marriage from my mom and dad?
  • If you could have dinner with one person from history (who is already deceased), who would it be and why?
  • What is the thing that I have done for you that has had the greatest impact on you?
  • Let’s say we can travel anywhere, and money is not an object. Where do we go? Why?
  • You’re marooned on an island, and you are allowed one song, one book, and one picture. What would you choose?

Use only two to three questions each date night, and really talk about your answers in detail. The point is to get to know your partner on a deep level all over again. This will increase your feelings of closeness, connection, and romance, which we all know is the whole point of date night!

Even if you’ve known each other a long time, even if you assume you know the answer, ask anyway. It’s good to hear what you already knew in your spouse’s words, and you may just be surprised.

I hope you and your spouse enjoy asking each other these questions as much as my wife and I did!

Tax planning: based on gross sales or net revenue?

Your business’ gross sales and net revenue figures are both important pieces of the income tax puzzle. You’ll report both numbers on your business tax return, but you’ll also factor in other items that will affect the final amount you’re taxed. Depending on your business structure, taxes are either assessed to the company or to its owners.

Whether taxes are assessed to your company or you specifically, that can be a lot of information to keep track of (and track down once tax season rolls around).

I rarely come across a business owner who knows their net revenue to date. It’s difficult to keep track of sales minus business expenses, depreciation, the cost of goods sold, and other factors.

However, if you ask any business owner how much they’ve made that year, they’ll usually have a good idea off the top of their head.

If you’re practicing the “tax bucket” savings plan I recommended recently, you’ll need to know how much to deposit into your savings account each month. I work with my clients to determine what percentage of their gross sales to deposit into their tax bucket.

For example, if a company has $30k a month in gross sales and we’ve estimated their tax liability, we can then calculate a percentage of their gross sales to be set aside for taxes. In this example, the company’s income tax liability is 3% of $30k, or $900 a month. If sales fluctuate, so does the deposit. When sales are down, they need to deposit 3% of $20k, or $600 a month.

It’s a simple way to approximate your tax liability. The IRS won’t let you use an estimate, but I find it’s helpful for the business owners I work with!

Want to talk with a professional to make sure all aspects of your tax needs are squared away? Let’s have a conversation.

Big tax bill? Try a tax bucket

What happens when paying the balance due after filing taxes seems like an impossible feat? It can be a tough pill to swallow.

With the right preparation, though, you can set yourself up right for next year’s filing!

Some business owners find that they have to beg, borrow, and steal to pay the tax man on time. But that can be avoided with some simple planning!

I recommend creating a “tax bucket” savings account that will do nothing but store all of your tax money until it’s time to send it to the IRS. The name of that account should literally say “Tax Account” or something very similar, so you’ll remember to never touch it—unless it’s time to pay the IRS.

First, you’ll need to work with your tax planner to determine your estimated tax liability for the current year. Then you’ll break down that big number into bite-sized pieces. Depending on whether you want to make daily, weekly, monthly, or quarterly deposits into the account, you’ll estimate the recurring amount and frequency you’ll need to deposit.

In addition, the “tax bucket” savings account has the added benefit of accruing interest. You could actually make money while saving it for the IRS!

If this year’s tax-filing deadline will be a “pay” day for you and you can’t pay your tax bill, make sure you do file your return on time. This way, you’ll avoid the IRS’ failure-to-file penalty of 5% per month (up to a maximum of 25%) of your balance due. You’ll still face a penalty each month your bill is outstanding, but it’s only 0.5% of the amount you owe.

Read to start making estimated payments into your “tax bucket,” but not sure how much to deposit? Call us today to schedule a consultation on tax liability for your business.

How long do I have to keep records?

Good tax record keeping may be the most important record keeping you do for your company.

You don’t want tax time to roll around and have to panic because your company doesn’t have its tax records in order. Tax records in disarray can cost you deductions—and if you happen to be audited, could create a problem costing you money.

After all, you want to get all the deductions you can and be able to back them up.

The IRS requires you to keep the last three years that you’ve filed. In January 2017, that means you’ll need to have records from 2014, 2015 and 2016. But I’m a believer that if a pinch of salt is good, then two is better. If the IRS requires you to keep three years of records, five years would be better. And if you keep those receipts for seven years, you’re never going to have any regrets.

Why would you need to keep records for longer than the required three years? It’s possible that in the fourth or fifth year after the initial purchase, you may pay off a vehicle or make an upgrade to a copy machine. If you do, it would be helpful to be able to reference those receipts for the current year’s deductions.

Once you’ve decided how long you will keep company records for tax purposes, you’ll need to set up a safe and organized system for storing them.

I organize my receipts by month. I put all my receipts for each month in a manila envelope, then file it in a box. After we file our taxes, I stick that box up in the attic with the year clearly labeled. When seven years have gone by, I shred the oldest year of tax receipts. Don’t forget—you never want to throw those kinds of receipts in the trash. It’s important to destroy them.

If you need help navigating the complexities of document management for tax purposes, let’s talk. Give us a call so we can chat about your needs.

What you need to keep to justify your expenses

Keeping track of receipts for your small business is very important: it keeps you organized and on budget, and it can be a big money-saver when you file deductions at tax time. According to the IRS, good records will help you:

  • Monitor the progress of your business
  • Prepare your financial statements
  • Identify sources of your income
  • Keep track of your deductible expenses
  • Keep track of your basis in property
  • Prepare your tax returns
  • Support items reported on your tax returns

Keeping records isn’t just helpful for filing your taxes and monitoring your finances—it’s a legal requirement imposed by the IRS. But which records do you need to keep? And which ones should you send to the shredder?

The IRS is not a big fan of estimating your expenses. If you are going to claim a deduction, you’re going to need to keep track of:

  • When: The date of the transaction
  • Where: Where you bought the item
  • What: What the item was
  • Why: What purpose it served in your business

There are three crucial documents you must keep—I call these three documents the Golden Triangle. You have to keep the receipt from the store, the statement from the credit card company, and a bank statement showing it was accurate. When, where, and what are generally found on the store receipt, which is why the IRS loves when you keep them.

In order to claim a deduction, the purchase has to have proven economic impact. To prove economic impact, you’ll need all three proofs of purchase. Amazon and Walmart are great examples of why you’d need to document well, because you can buy everything from these companies.

If you have a bank statement from Walmart, it doesn’t automatically mean the purchase was for office supplies. You could’ve purchased that night’s dinner or a new digital camera for your family’s vacation. You have to retain the receipt that says you made a business purchase for items like pens, paper and ink cartridges.

While receipts, bank statements and credit card statements are crucial to your business record keeping, there are other documents you may also need to keep on file for the future. Not sure whether or not you’re keeping track of everything you need? Give us a call and let’s talk about your company’s needs.

Big bonuses for small businesses with tax depreciation

As the 2016 tax year draws to a close, it’s time to start evaluating your tax liability. Part of the IRS Code was enacted to help small businesses by allowing them to take a depreciation deduction for certain assets (capital expenditures) in one year, rather than depreciating them over a longer period of time.

Taking a deduction on an asset in its first year is called a “Section 179 deduction.” It’s beneficial to a small business owner to take the full deduction for the cost of the item immediately, rather than being required to spread out the deduction over the item’s useful life.

By allowing businesses to deduct the full amount of the purchase price of equipment, Section 179 is a fantastic incentive for businesses to purchase, finance or lease equipment this year.

Ordinary and necessary expenses can be deducted, like pens and pads of paper. The useful life of a pen is a month and a pad of paper is a week or so. Their useful life is short, so they are considered expenses.

A conference table isn’t like a pen in that way, though. The cost of the table is high and the useful life is longer, so it has to be set up and depreciated.

Code Section 179 allows us to write the table off like it’s a pen for one year. Computers or printers also have a relatively high cost and long useful life. That’s the type of item that Section 179 is for.

You can buy these items in December and write them off in the same year. However, there are some restrictions to keep in mind:

  • 2016 deduction limit is $500,000. This deduction is good on new and used equipment, as well as off-the-shelf software. This limit is only good for 2016, and the equipment must be financed or purchased and put into service by end of day, Dec. 31, 2016.
  • 2016 spending cap on equipment purchases is $2,000,000. This is the maximum amount that can be spent on equipment before the Section 179 deduction available to your company begins to be reduced on a dollar-for-dollar basis. This spending cap makes Section 179 a true small business tax incentive.
  • Bonus depreciation is 50% for 2016. Bonus depreciation is generally taken after the Section 179 spending cap is reached. Note: Bonus depreciation is available for new equipment only.

As a general rule, if it’s a larger purchase for long-term use, it probably qualifies for Section 179 depreciation. If you have further questions about Section 179 or other aspects of your taxes, give us a call!

One way to mitigate tax liability this year

One of the most common questions clients ask me is how to control their tax liability for the current year. And business owners, of course, want to know what they need to do heading into the new year.

As a general rule, I never, ever bet on what’s to come. I only bet on what has happened. Some clients will come to me with pie-in-the-sky plans for the future, but nothing concrete. We have to look realistically at what’s to come in the upcoming year and plan appropriately.

Now, if clients know for a fact that they’ll be launching a new product, opening a new location, or have a large purchase order in hand, I’ll bet on that in the future.

If their business is going to stay the way it was in 2016 and there’s no big changes, then I always look backwards and not forwards. I don’t plan for what we can’t predict.

But if you have an expense you know for certain will occur in 2017, there’s a way you may choose to write that off for your 2016 taxes.

This particular way to mitigate tax liability is to write off definite future expenses in the current year. That’s a specific accounting strategy, and it means that the client who chooses to use it is a “cash basis tax payer.” You know that if you pay expenses in the year 2016, you can write them off in 2016. But you can also pay for (and write off) expenses that are going to occur in 2017.

Take rent, for example. If your rent is $1,000 a month, you can write a check to your landlord for $12,000 on December 31, 2016, to cover rent through 2017. You can deduct this expense in your 2016 tax filing.

Anything you pre-pay for tax reasons has to be used up within 12 months. That means that you can’t pay two years’ worth of rent and expect to receive a tax deduction for that second year. You can also pre-pay insurance, utility bills, office supplies, advertising, and other expenses you know you’ll have.

By accelerating expenses that you know you’re going to spend in the following year, you can budget more accurately and help your tax situation that much more. If you have any questions about how we can help you mitigate your tax liability, we’d be happy to talk with you.

Urgent W-2 and 1099 filing changes for tax year 2016

deadline

Congress recently enacted legislation changing W-2 and 1099-MISC filing dates for tax year 2016.

For this filing year, all W-2s and 1099-MISC forms need to be filed with the Social Security Administration before January 31, 2017.

In essence, the IRS and taxpayers will be on the same Jan. 31 schedule.

The purpose behind the tighter deadline is to allow the IRS to match W-2s and W-9s with tax returns as they’re filed to reduce tax fraud and identity theft. It’s a good change, but one that most employers are unaware of.

Previously, the filing deadline for W-2s with the SSA had been the last day in March, if filed electronically. But the IRS wasn’t very strict about that deadline.

In 2017, not only will the deadlines be enforced, there will also be a $250 penalty for each form that’s filed after Jan. 31, 2017. Keep in mind, if you have one W-2, you also have to issue one W-3, so that’s two $250 penalties.

Just a reminder—your employees have to fill out a W-4 form, and your contract service providers fill out a W-9. (If the contractor was paid less than $600 total, you don’t need to report it, unless they’re an attorney.)

With these new deadlines, it’s now more important than ever to be prepared by year-end for W-2 and 1099-MISC processing. Make sure you’re following these best practices:

  • Before paying any vendor, require them to complete Form W-9. Obtaining vendor information up front ensures you have their information during 1099 preparation.
  • Starting now and through December, review your vendor files to ensure you aren’t missing any data such as a legal name, address, employer identification numbers or Social Security numbers.
  • Review your employee files for missing addresses and Social Security numbers.
  • Request updated addresses from employees in December so W-2’s will be mailed to the correct address.
  • URGENT: If you don’t have W-9s for all your contractors, get them. This week.

I can’t stress how important it is to make sure you have complete and accurate W-9 and W-2 forms. That’s true every year, but the updated due date means you’ll need to have all your information together sooner than you may be used to. Those fines will add up quickly.

If you’re unsure of your paperwork, block our time this week to gather those forms from all your contractors and employees. Want to talk to someone about what you need to prepare? Give us a call; we’d be happy to help.

Changed business filing deadlines for 2016 tax returns

tax-day1

In 2015, President Obama signed the Surface Transportation and Veterans Health Care Choice Improvement Act.

Given the title, it may be surprising that a bill primarily dealing with highway infrastructure funding has a large impact on tax returns (particularly business returns), but it does.

The new law changes deadlines for some businesses filing 2016 tax returns in 2017. The chart below shows a quick breakdown of who it affects and how.

The due date changes with the most impact will likely be those changes for Partnership tax returns (Form 1065) and C Corporation tax returns (Form 1020). Essentially, those due dates have swapped.

The significant reorganization of due dates is intended to assist individuals involved in pass-through entities in receiving information they need to prepare their individual returns in a more timely fashion.

These new dates might come as a surprise to unprepared businesses, but rest assured, we’ve got you covered. In fact, when filing deadlines approach each year and we haven’t heard from a client, we’ll go ahead and file an extension on their behalf. And there’s no downside to filing an extension.

If a company we file an extension for has gone out of business or chosen to file with another CPA, that extension won’t hurt them. But it does provide air cover if they’ve gotten a little behind or lost track of time.

That may not be standard practice, but we really do care about our clients. We do everything in our power to keep them from paying avoidable penalties!

If you need a tax preparer in your corner, call our office at 405-341-7044 to schedule a time to visit with us about your 2016 filings.