News

Increased technology has allowed the outsourcing of many business roles, but could this also include your C-suite, or leadership, roles? This is becoming especially common for the CFO (chief financial officer) and CMO (chief marketing officer) positions. Less common roles, like chief investment officers or chief information security officers, may be outsourced as well if they are required for the company’s operations. Companies today can hire for these roles on a part-time or fractional basis.

With the modern ability to work remotely, individuals in these roles have the ability to work for multiple clients from one source. Traditionally, companies have had numerous layers of management. But with the growth of information technology and increased automation, companies today are able to operate under a leaner structure.

Is it right for your company?

The companies benefiting the most from this trend of part-time executives are small and mid-sized companies. They can tap into the expertise and leadership of these executives without paying for a full-time role they can’t afford and realistically, don’t require for business operations. Cyclical or seasonal operations can produce long lulls for some of these roles, so it’s more cost-effective to pay a more qualified part-time executive than a less experienced, full-time executive.

The alternative

A small business owner’s first instinct is to not hire for the role at all, but instead, to try to take on some of the tasks in addition to their ownership and leadership roles. We caution, however, that this can end up being a more time-consuming, and less cost-effective, solution. Owners are already being pulled in numerous directions. Adding these additional roles to your plate, for the sake of saving some money, can lead to long-term costs from mistakes and errors that may be incurred by novice work.

Rather than take on these roles yourself, consider outsourcing as a solution for filling these roles with part-time, qualified candidates.

Memorial Day has come and gone, and whatever weather your June finds you in, summer is here. What does that mean for your small business? For some, it might mean a slower time in the office, but for others, it’s a time to capitalize on their seasonal business income influx. Regardless of your specific situation, everyone can make the most of their summer by taking notice of the goals and projects that are important to year-round business success.

Utilizing downtime

Do your employees take the kids on vacation and hit the river or lake in the summer? Are there fewer clicks on your website and social media pages? Get productive during this downtime, and set a few summer goals for your business. Improve operations that your company struggled with during a different time of the year or tackle a project that’s been on the back burner. Declutter, streamline, and generally improve your business and its systems.

On the flipside, does your business peak during the summer months? Perhaps you’re in the field of lawn and garden products, pool systems or air conditioning services? Evaluate your staffing needs so you aren’t surprised by a leap in demand. Capitalize on the business increase with employee incentive plans.

Improve your business

If you haven’t already, get your business a mobile website that is optimized for search engine functionality. Get your business up and running on all the applicable social media platforms as well. While the clicks are down in summer, streamline these digital processes to make real-time engagement with your followers easier during the busier months.

Take this time to target your top prospects. If it’s a season for focus in your realm, it just might be their time to consider new offers as well. Use this period to plan for the rest of the year, especially for a big fall marketing plan push prior to the holiday season. Foresight in your planning will take some of the stress out of managing your small business. Is it time for a new look—for your office or your brand? Summer is a great time to work on rebranding anything and everything from your office space to your marketing materials.

Increase employee productivity

Don’t let productivity slump this summer season. Gather employees and use the extra time on your hands to reconnect and get feedback. Host an employee appreciation party or campaign to encourage employees to continue to stay busy during the slow times. Offer an incentive for increased productivity with an employee promotion campaign. In companies where sales are a key component, offer an extra incentive for increased sales during the summer, much like you would during the holiday season.

April 15 may be in your rear view mirror, but your business still has tax-related obligations throughout the year. Don’t let these dates sneak up on you unexpectedly. Know what you need to file and when for the upcoming year:

June 17, 2019: Q3 Estimated Quarterly Income Tax Payments Due

If your business pays estimated quarterly taxes, and these payments were prepared along with your Simma Flottemesch & Orenstein tax return, this is the deadline for your Quarter 2 payment.

September 16, 2019: Q3 Estimated Quarterly Income Tax Payments Due

Time to make your Quarter 3 payment.

September 16, 2019: S-Corp and Partnership Extension Deadline

Did you receive an extension for your S-Corp or partnership tax return? Then this is your deadline for submitting the return and payment.

October 15, 2019: Extension Deadline for Individuals, Sole Proprietors, LLCs and Corporations

This is the deadline for submitting your return and payment for any extended individual, sole proprietor, LLC or C-Corp tax returns.

December 31, 2019: 401(k) Deadline

Any contributions to you or your employee’s 401(k) but be completed by the end of the year if they’re to count toward your 2019 return.

January 15, 2020: Q4 Estimated Quarterly Income Tax Payments Due

The taxes that were estimated for Quarter 4 are due in mid-January.

January 31, 2020: 1099 and W-2 Mailing Deadline

For your traditional employees, you must get their W-2 forms in the mail by the end of January. Any 1099s for contractors you worked with during 2019 must be postmarked by January 31 as well.

March 16, 2020: S-Corp and Partnership Tax Return Deadline

S-Corps and partnerships must file their 2019 tax return and submit payment by March 16, a month before the individual return deadline.

April 15, 2020:

• Tax filing deadline for individual, sole proprietor, LLC and C-Corp returns
• Q1 estimated quarterly income tax payments due
• Simple Employee Pension (SEP) contribution deadline
• IRA contribution deadline, for both traditional and Roth IRA accounts

When you’re running a business, determining where to spend your money can be a difficult decision. All businesses, but especially small businesses, look to make informed decisions on expenditures. With the growth of technology and software, some small business owners are opting to save money by doing their own bookkeeping. But is this option for everyone? No. Consider the pros and cons of diving into performing your business’s bookkeeping duties before you consider yourself a savvy spender.

CPAs vs bookkeepers

There are numerous functional differences between the roles and responsibilities of CPAs versus bookkeepers. While the two often work closely together to fulfill client needs, they are not interchangeable. Bookkeepers manage the day-to-day financial operations of the business. This includes recording all types of transactions related to money moving in and out of the company. This role also usually encompasses invoicing, bill paying and payroll processing. Additionally, bookkeepers prepare reports, both monthly and yearly, to provide a clear picture of the business’s financial standing.

CPAs, on the other hand, are accountants that have passed the certification requirements of their state’s accounting board. This certification outlines the minimums on education and experience before these accountants can perform their role of advising business owners and preparing financial statements. An accountant will utilize the reports prepared by a bookkeeper to interpret the immediate and projected financial health of the business, as well as advise owners on financial decisions. CPAs are required to stay up-to-date on the latest laws and regulations that affect your businesses finances.

Bookkeeping applications

Accounting software cannot replace the knowledge and experience of your CPA. However, some businesses are seeking to replace their bookkeepers with modern bookkeeping technology. These computer applications aim to automate your financial processes, and the best versions do so by connecting the software to your business’s bank account and credit cards. When choosing a software, it’s also important to find a system that is capable of generating necessary financial reports. Both Quickbooks Online from Intuit and Xero are ranked high as software for small business accounting and bookkeeping. FreshBooks and Zoho Books are also in the top rankings, although FreshBooks is best for freelancers because of its strong invoicing tools and Zoho is best for really small businesses. All have monthly plans that are similar in price.

Considerations

Be cautious about that sticker price and take it at face value. While these automated tools may seem like simple, cheaper solutions than hiring a bookkeeper, there are some variables to consider. First, not all of these applications are easy to use or quick to learn. What is your time worth? Most business owners have a full plate of duties and responsibilities, so adding bookkeeping to that agenda can be a taxing endeavor. In which case, it may pay more dividends to enlist an expert. The money that automated bookkeeping services may save you could be eaten up by the time that it costs you to become familiar with it. These programs, while automated, are not one hundred percent reliable. There may be occasional downtime for updates and maintenance to the program. Also, it can difficult to know all the functions you will require from software when you start out doing your own bookkeeping, and customer service for these platforms is not created equal. Don’t jump into this decision lightly, and consider the pros and cons for yourself and your business by trying to tackle the task of doing your own bookkeeping.

What is the business relationship between you and the people who do work for you? Are they employees or independent contractors? The implications of these scenarios can have big effects on your business operations, especially for small businesses. The two are very different working relationships, and incorrectly classifying your workers will likely lead to repercussions with the IRS.

Employees

Employees provide services for an employer. They are under an implied or express contract of hire, and this contract allows the employer to determine the details of work performance. The IRS determines whether an individual is an employee or contractor based on degrees of control and independence in the working relationship. Under common-law rules, “anyone who performs services for you is your employee if you can control what will be done and how it will be done.” Employees will fill out a Form W2, while an independent contractor completes a 1099-MISC. The default classification for workers is W2 employees.

Pros

Employers have complete control and direction over an employee’s work and wages or salary during their work time. This means, they determine training, job requirements and responsibilities for the position. Full-time employees perform 30 or more hours of work for you per week. Less than 30 would qualify the worker as a part-time employee. Generally, employees have an ongoing commitment to you and your business. Employees enjoy job security, and the lack of job security for freelancers usually leads them to charge more per job. Tasks can be permanently delegated to your employees, while freelancers have no obligation to be on call for you or your business.

Cons

There are laws and regulations you must uphold, being in charge of employees. These are required by both the state and federal government, and include regulations related to pay, overtime and other work rules. In the tax realm, if you have employees, your business is required to comply with payroll tax requirements. This includes paying half of Social Security and Medicare taxes, and collecting the other half from the employee. You are also responsible for paying unemployment insurance and worker’s compensation insurance. The added overhead of these expenses is often what drives employers to misleadingly employ independent contractors. While you are not required to offer benefits like health care and vacation time, full time employees will often expect these fringe benefits.

Independent Contractors

The IRS qualifies independent contractors in the following way: “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” Here, the other party is self-employed, so the two parties are acting in a working relationship between two businesses, where one is providing a service to the other. When you hire an independent contractor, you can assign duties or projects, with an imposed deadline, but you cannot dictate how the job is completed. Thus, most independent contractors are hired with a contract that provides a defined period of employment, with the option to renew as many times as needed.

Pros

Independent contractors can complete work and projects for multiple employers, but often provide their own tools for completing the job. They are ideal for smaller, as-needed projects for your business. As a whole, small business owners prefer to hire as-needed freelance work. Pay is usually hourly or outlined in a contract, and you are not held to a salary. Besides being responsible for their own taxes, contractors are also responsible for their own permits and professional licenses, if needed for the task.

Cons

Independent contractors are entitled to set their own hours of work. There are very little tax responsibilities you will be held to for independent contractors you hire. You will report any contractor’s income on a form 1099-MISC, but, as the hiring agent, you do not have to withhold any taxes from your payments to a contractor. However, contractors have no responsibility to you or your company, in terms of loyalty. They are free to take on work on a first term, first serve basis. In addition, they work under their own brand, not your company’s.

The difference

If the work required needs to be completed under your supervision or you have control over the tools and equipment used to complete the work, then you are hiring an employee. Also, if the work is long-term or essential to your business, you are employing an employee, not an independent contractor. If the work is not essential to your business operations, is short-term and can be done without supervision, then hiring an independent contractor is applicable.

Misclassifications

If the IRS believes you are misclassifying your workers, it may be cause for an audit. If you incorrectly classify an employee as an independent contractor, you could be liable for unpaid employment taxes. Workers who feel they have been misclassified can file Form 8819, Uncollected Social Security and Medicare Tax on Wages for the entire duration of their compensation period. If you are still having trouble deciding which category your workers fall into, file Form SS-8 with the IRS: Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Graduating this spring? Congratulations! Graduation is a huge milestone along the road of adulthood. It marks a shift into a new chapter of your life, and, with it, your tax situation will inevitably change.

Understand your tax obligation

Up to this point, what role have you had in your tax situation? Rein in your record keeping—this means collecting the documents that detail your sources of income, receipts, student loan interest payments, and any interest you earn on your accounts. If you’re self-employed, you must keep records of your tax-deductible expenses, and consult your Simma Flottemesch & Orenstein CPA to determine your estimated tax payments for the year.

Take interest in your interest

When you’re repaying your student loans, you’re also repaying the added interest. When it comes time to do your taxes, you can subtract the interest you pay from your taxable income. If you earned less than $65,000, you can deduct up to $2,500 from your taxable income. If you earned between $65,000 and $80,000, the maximum deduction amount is reduced.

*Note: If the loan is in your parents’ name, he or she receive the deduction. If the loan is in your name, but you’re a dependent on your parent’s tax return, neither receive the deduction.

Continue your education

In today’s job market, a lower level degree may not achieve all of the skills training or job requirements you need. If you opt to continue your education, utilize the Lifetime Learning Credit. As a single filer, if your modified adjusted gross income is $65,000 or less ($130,000 if you’re filing a joint return), the credit could help you recoup up to $2,000 per year spent on post-secondary coursework. While this credit doesn’t require that you are enrolled in a degree program, you must receiving the coursework from an eligible educational institution.

Utilize company programs

It is becoming less common for recent graduates to receive benefits in the workplace. So, if your employer offers benefits, utilize them. Contribute as much as you can to the company 401(k)—you’ll be receiving free money down the road if your company offers a contribution matching program. Know when enrollment deadlines for HSAs and FSAs roll around in your workplace. These accounts shelter your funds from taxation.

Save, save, save

Retirement may seem like a long ways off, but saving early will set you up for success later in life. You can deduct up to $5,500 of your contributions to a traditional IRA each year. This money will only grow during your lifetime. What’s more, you may qualify for the saver’s credit. This credit could reduce your tax bill by up to $1,000 ($2,000 if married filing jointly). The value of your individual credit is determined by your contributions. Consult your Simma Flottemesch & Orenstein professional for details that apply to your individual situation.

Stash from your side gig

Freelance and contract positions are an expanding realm in the modern job market. There’s a sense of freedom and empowerment that comes from being self-employed, but your taxes aren’t automatically being withheld from your income throughout the year. Rather than face a huge tax bill in the spring (and maybe a penalty for not making estimated payments), most would advise that you set aside 25 percent of what you earn.

With this step, you’re facing numerous life changes, including your tax scenario. Arm yourself with the knowledge to confidently carry forward, and consult your tax professional for changes that are specific to your situation.

Whether the results of this most recent tax season had a positive or negative impact on your bank account, it’s important to consider how long you should retain your tax documents. This includes a copy of your tax return and any documents providing support of income or deduction items, as well as evidence for any credits received.  A period of limitations is determined by the IRS based on the time in which you could amend a return to claim a credit or refund, or during which the IRS can assess additional tax.

The general rule of thumb is three years. This means you should retain a copy of your return and supporting documents for that return until three years from the filing due date. For example, you should keep the information regarding the return that was due April 15, 2019 until April 15, 2022, at the very least. Keep in mind, these periods are federal guidelines. States may have their own statute of limitations.

Exceptions

There are a lot of “buts” in tax circumstances. Fittingly, if you claim a bad debt deduction or a loss from worthless securities, retain your records for seven years instead of three. If you have ever filed a fraudulent return, or forgotten to file a tax return, the IRS requires you keep your financial records for your lifetime.  Finally, if for some reason, 25 percent of your income was not reported on your tax return, the IRS has up to six years to impose additional tax.

Period of limitations

The IRS has provided the following information on a period of limitations for different scenarios:

1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
2. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
5. Keep records indefinitely if you do not file a return.
6. Keep records indefinitely if you file a fraudulent return.
7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Disposal

A good scanner has made the electronic retention of these records fairly efficient. However, when disposing of your records and prior tax returns, it’s important to shred any physical documents that may bare identifiable information. Poorly disposed of documents could make you susceptible to identity theft. For electronic information, be sure to have strong security software in place. Keep in mind, that although the IRS may no longer have a use for your records, they could be needed by your insurance company or creditors, in some cases.

Today’s the day: tax day, April 15. This day is as much ritual to our country as national holidays. However, despite the ceremonious processes that accompany it, it’s more of an anti-holiday in the eyes of most taxpayers. Some years, tax day shifts slightly to accommodate Emancipation Day (a holiday in the District of Columbia), but for the most part, falls on April 15 if the date doesn’t fall on a weekend. So how did April 15 become the deadline for settling our debts to the government?  We bring you a brief history of Tax Day.

The 16^th Amendment to the Constitution, ratified in 1913, established the right of the federal government to directly tax individuals. This Amendment was adopted on February 3, 1913, so Congress opted for March 1 of 1914 to be the first filing deadline. However, this amendment didn’t impose an income tax—that arrived with the passage of the Revenue Act of 1913 on October 3, 1913. This act stipulated that individuals with an annual income exceeding $3,000 for single filers or $4,000 for married couples were required to file a return. Those numbers sure have changed!

The new deadline became March 15 when the Revenue Act of 1918 was passed, giving taxpayers a couple extra weeks to gather their tax materials. It wasn’t until 1955 that the Internal Revenue Code of 1954 established April 15 as the new deadline. The explanation for the change was to help taxpayers as the tax laws became more complex and convoluted. House Ways and Means Committee Chair, Daniel A. Reed, expressed that this extra month would also help accountants, tax preparers and the IRS spread out their tax season workload. Another theory arose: that as the income tax applied to more of the middle class the government was issuing more refunds, and the extension of the deadline allowed the government to otherwise utilize those funds longer.

Interestingly, the previous deadline of March 15 symbolically corresponded with the Ides of March—a date on the Roman calendar that served as a deadline for settling debts. As Benjamin Franklin famously said, “In this world nothing can be said to be certain, except death and taxes.” While he wasn’t referring to federal incomes taxes at the time, it’s a fitting sentiment. Taxes are woven into the fabric of our country from their establishment in the Constitution. While today may not feel like a holiday to you, tomorrow is a holiday of sorts for your CPA. Congratulations to you and your CPA on surviving another tax season.

The IRS requires that deductible business expenses must be both ordinary and necessary for business operations. If an expense is common to your trade or business, it is an ordinary expense. A necessary expense is helpful and appropriate to the operations of your business or trade. Deducting these qualifying expenses lowers your income tax bill. Even common business expense deductions may not apply to your specific small business. Working with a CPA from Simma Flottemesch & Orenstein will help you hone in on what expenses apply to your business, and how to make the most of these deductions.

Common small business deductions

Advertising: 100 percent of costs associated with advertising and promotion of your business, including business cards, are deductible.

Business meals: business-related meals that can be supported with proper records (amount, date, location and business relationship of other diner(s)) are 50 percent deductible. *Tip: on the back of the receipt, write down the purpose of the meal, who you dined with and what you discussed.

Business insurance: business insurance costs can be deducted on Schedule C.

Car: if your vehicle is used solely for business purposes, all the costs associated with its operation can be deducted. More commonly, vehicles are used for business and personal use, in which case only the costs associated with business-related usage can be deducted. When you claim mileage for business use of your vehicle, there are standard mileage deductions that change yearly, or you can deduct actual costs. In 2018, the standard mileage rate was 54.5 cents per mile, while that amount has increased to 58 cents per mile in 2019.

Charitable contributions: both corporations and individuals can deduct charitable contributions to qualified organizations on their tax returns.

Depreciation: large business items depreciate over their lifetime of use. Higher priced items with a longer life of use should be depreciated, rather than deducted upfront.

Education: costs associated with training or improving the knowledge and skills of you and your staff add value to your business and are fully deductible. These costs, for classes, seminars, subscriptions, books, workshops, etc., must increase your expertise in your current field, not qualify you for a different career.

Home office: the IRS has standardized this deduction—you can deduct $5 per square foot of your home that is used for your business. This amount maxes out at 300 square feet. It’s important that this area of your home qualify under three areas: exclusivity, regularity and precedence. This means that the area must be used exclusively for business, be used regularly for business operations or responsibilities, and be used as the principal place for conducting important business activities. A portion of renter’s or homeowner’s insurance can also be included in this deduction.

Insurance premiums: whether your business owner’s policy covers malpractice, flood insurance, cyber liability coverage, business continuation insurance or all of the above, the costs are fully deductible.

Interest and bank fees: interest that is incurred on business loans or credit cards, in addition to fees and bank charges on your business bank accounts, can be claimed on Schedule C.

Legal and professional fees: the fees charged by Simma Flottemesch & Orenstein to prepare your tax return are included in these deductible fees. These fees would also include any bookkeeping fees charged by a bookkeeper or bookkeeping service.

Medical expenses: as a small business, you may qualify to claim a tax credit up to 50 percent of premiums paid for employees, which would be a better tax break than a deduction. If you are self-employed and paying your own health insurance premiums, those costs are generally deductible. However, there are some exceptions, like if your spouse has an employer plan you could opt to participate in. Consult your tax professional to determine how this deduction applies to your specific situation.

Rent and utilities on business property: if your business operates in a rented space, the cost of renting the facility is fully deductible. Additional deductible utilities for the operation of this space include electricity, internet and phone charges (mobile or landline).

Salaries and wages: what you pay employees for salaries, wages, bonuses, commissions and taxable fringe benefits are deductible business expenses. Owners do not qualify as employees.

Supplies: business office supplies, furniture and other equipment are all deductible. It’s important to keep all receipts related to the purchase of these items. In today’s digital age, office electronics can also be included. Think of your laptops, tablets, smartphones and the software used to operate them in relation to business activities.

Travel expenses: a business trip will only qualify as business travel if it is ordinary, necessary and away from the city or area in which you conduct business. Travel must last longer than one normal day’s work. Potentially, the deductible expenses from this travel may include transportation-related costs, meals, lodging, parking, tolls, tips, business calls, etc.

This list is by no means exhaustive, but it is a starting point for determining what business expenses are deductible on your return. Every scenario is different, and your tax professional will determine which deductions you qualify for. It’s important to keep records throughout the year of these expenses.

Self-employment taxes are established by SECA tax—Self-Employment Contributions Act tax. This tax is a stand-in for FICA paid by employers and employees. When you are employed, withholding covers Social Security and Medicare program contributions. Employers must also make additional contributions to these on behalf of each employee. Self-employment taxes exist to contribute to these programs by the self-employed. The self-employed do not escape these tax obligations, and are instead burdened with the full contribution, rather than sharing the FICA contributions with their employer.

If you earn $400 or more from your self-employment income, you are required to file a tax return. Generally, 92.35 percent of your net earnings from self-employment are subject to the self-employment tax. Your contributions will be made in the following way: 12.4 percent to Social Security for the first $128,400 of earnings (for 2018) and 2.9 percent to Medicare on all earnings.

Figuring the tax

Schedule SE helps you calculate how much self-employment tax you owe. This amount is then reported on your 1040 as “Other Taxes.” Fortunately, a portion of your self-employment tax payments can be deducted as an adjustment to income on your 1040. Whether you itemize deductions or not, you can claim 50 percent of your self-employment tax payment as a taxable income deduction.

Estimated taxes

Again, when you work as an employee, withholding throughout the year contributes to your total tax liability. When you’re self-employed, this isn’t an automatic mechanism. Therefore, it may be worth paying estimated taxes throughout the year, in quarterly installments, to avoid underpayment penalties. Discussing your options and forming a plan with a Simma Flottemesch & Orenstein team member will help you prepare for and determine your best course of action.

Reducing your self-employment tax

If you’ve read our previous posts on the tax implications of selecting your business entity, then you should know that S Corp elections have the opportunity to reduce your self-employment tax liability. Under this entity, you would be paid a salary out of earnings and the remaining profits would be distributed to yourself, shareholders, partners or left in the business. The amount in excess of your salary is subject to income tax, but not self-employment taxes. In an upcoming blog, we delve into determining a reasonable salary from your S Corp.

Schedule C calculates your net profit from self-employment. Be very thorough in preparing this form, deducting every possible business expense. Business expenses must be ordinary and necessary to operate your business. Deducting these expenses will lower your net profit, and, in turn, lower your self-employment tax bill. We will dive more in-depth on what qualifies as a deductible business expense in our next blog.