The Maryland Comptroller reminds taxpayers that the state’s annual sales tax holiday on qualifying Energy Star products will occur on February 16-18, 2013. On those days sales tax will not apply to purchases of air conditioners, clothes washers, furnaces, heat pumps, standard-size refrigerators, compact fluorescent light bulbs, dehumidifiers, and programmable thermostats that have been designated as meeting or exceeding the applicable Energy Star efficiency requirements developed by the U.S. Environmental Protection Agency and the U.S. Department of Energy. News Release, Maryland Comptroller, January 16, 2013
It’s time to file various tax returns once again. Among the tax deadlines you may be required to meet in the next few months are the following:
The American Taxpayer Relief Act of 2012 approved by Congress just after we plunged over the “fiscal cliff” restores and modifies several expired tax breaks, but doesn’t address other issues. Here are the highlights of the new law’s provisions for individual taxpayers.
Emotions add zest to life. They propel us to our feet when our favorite running back scores a touchdown. They warm us at an inspirational concert or movie. But in the realm of business, emotions sometimes hinder good choices. In fact, business owners and managers often let emotions dominate the decision-making process.
This is especially true when choices are based on “sunk costs.” Broadly defined, sunk costs are past expenses that are irrelevant to current decisions. For example, many firms hire consultants who sell and install software. In some cases, a company is still waiting – three or four years into the contract term – for a functional and error-free system. Meanwhile, costs continue to escalate. But are those costs relevant? Managers, especially those who initially procured the software and contractor, may reason that pulling the plug on a failed contract would be “wasting all that money we’ve spent.”
Not true. That money is “sunk”; it’s beside the point. Deciding to continue with a non-performing contract instead of staunching the flow of cash and changing course is irrational. It may be difficult to admit that a mistake was made. It may bruise the ego of the decision maker. But abandoning a failed contract is often the wisest decision. The only relevant costs are those that influence the company’s current and future operations.
Let’s say your firm hires a new salesman. You spend thousands of dollars sending him to training seminars. You assign mentors who take time from their busy schedules to provide on-the-job coaching and oversight. But despite your best efforts, the new hire isn’t working out. He doesn’t fit your firm’s culture; he doesn’t grasp the company’s goals and procedures; he doesn’t generate adequate revenues for the business.
As a manager, what should you do? At some point, you may need to terminate that employee and start over with someone else. But what about all that time and money you spent training and mentoring the new salesman? Those costs are irrelevant; they’re “sunk.” You can’t get them back. So the best decision – as of today – may involve cutting your losses and starting anew.
Other examples of sunk costs may be found in the areas of product research, advertising, inventory, equipment, investments, and other types of business expenses. In each of these areas, companies spend money that can’t be recovered, dollars that become irrelevant for current decision making. Throwing good money after bad won’t salvage a poor business investment – or a poor business decision.
The IRS and the Social Security Administration have published some inflation-adjusted numbers for 2013. Use these numbers as you begin your tax and financial planning for 2013:
Soon after I tweeted out a link to our last blog post, I started getting text messages from good friend Michael Connelly, who knows a thing or two about running a small business. He started out by saying that we missed a few of the to-do items, and after reading all of his texts, I decided they were worth sharing with everyone. Here they are, counting down to #1...
5. Learn creative responses to the question "Are you crazy?"
4. Make note - when times are tough, you will quickly find out who of your family and friends are on your side.
3. Prepare yourself to say no to work if it doesn't fit your skills or personality, even if you desperately need the money.
2. Plan, but resolve to go on gut instinct.
1. Take a two week vacation now. In will be years before you get another one.
There is an almost endless list of things to do when you start a new business. Here is a brief list of some of the most important ones:
*Write a business plan.
*Consider location issues.
*Decide on the legal form of entity for the business.
*Get necessary licenses.
*Register with tax authorities.
*Involve your advisors.
Business plan. Your business plan will be useful to you and to lenders. It should present who will own the business and what the legal entity will be. It should identify your qualifications to run this type of business. You should identity your market, the products or services you will sell, and how you intend to advertise to prospective customers. The business plan should spell out the funds needed for start-up and the source of those funds. The plan should contain projected financial statements for the first couple of years. It should also address any insurance requirements and possible lease agreements. The business plan should be lengthy enough to cover the necessary items but brief enough to serve as an operating guide. It should be referred to on a regular basis and adjusted as needed.
Location. Where you locate may be one of your most important decisions. If your business will be online sales, you could operate out of your garage. But if you intend for customers to visit your establishment, it must be located in suitable surroundings. Does the general area tie into your product/service line? Is access or parking an issue? Do the other businesses in the area compliment yours; do they have similar clientele?
Legal form. Under what legal form of business do you want to operate? Should you incorporate, operate as an LLC, a partnership, or sole proprietorship? It is imperative that you discuss these options with your accountant and attorney early in the business planning stage. There are very valid tax and non-tax reasons for selecting a given entity.
Licenses. Your accountant and attorney can also assist you with applying for the necessary permits and licenses. This should be done early on to avoid possible delays.
Taxes. Your accountant will see that you have the proper registration with taxing and filing authorities such as the IRS, the state agencies for tax filings, and worker’s insurance if you have employees.
Advisors. You should run your business ideas past your business advisors before you make sizable financial commitments. Who are your advisors? You will have an ongoing need for a banker, an insurance agent, an attorney, and an accountant. You will benefit by involving them early and frequently.
If you have questions about operating your business, please contact us. We are here to assist you.
-C. Ryan Hastings, CPA, CVA
In my last post, I discussed a simpler financial reporting framework that is still pending (get your comments in by January 30), but that's not all that's new on the small business accounting front.
The new Private Company Council (PCC) created by the Financial Accounting Foundation met for the first time in early December. This article (scroll down to the bullet points towards the bottom of the linked page) delineates the process of how future changes can be requested by the public and how they will be approved and implemented.
As I offered before, I think this is a positive step forward for the small businesses of America - our clients. More often than not, the items that the above-linked article lists as target areas of the PCC skew our clients' financial results rather than bring clarity. But all of this good news got me thinking...
In my mind, these developments in the private company reporting arena beg the question of what is happening with IFRS (International Financial Reporting Standards). Only a few years ago, we were being told that IFRS was the way of the future- U.S. companies will be required to comply with the standards that the rest of the world uses, and that the global economy would eventually demand globally-standard reporting methodologies.
So, we CPA's started looking into IFRS, and the more we read about it, the less we liked it. Turns out IFRS isn't really a set of accounting rules, its a bunch of broad 'standards' (without specific rules like we see in US GAAP) that unfortunately can and will be manipulated to some users' benefit. And IFRS isn't really a global standard - its just the standard that all other standards are built on (for example, Malaysia might have different add-on standards or rules than Indonesia). So two benefits we were being sold on - less accounting fraud and global accounting cohesiveness - were non-factors.
Adding to the madness, the lack of specific rules in IFRS would make reporting a nightmare for those of us who like to follow the rules. FASB Chairman Leslie Seidman seems to echo my thoughts in her December 4 speech (live tweeted by someone at the Journal of Accountancy):
Here's to hoping that the recent advances in private company reporting and the continuing questions about the viability of IFRS mean that we can keep our current standards, now improved for use on Main Street, and not just Wall Street.
U.S. Regulators Doubt Benefits of IFRS Adoption
FASB, IASB union fragile amid SEC indecision on IFRS
- Jeff Miller
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