As always, should you have any questions or concerns regarding your tax situation please feel free to call.
Mileage rates for travel are now set for 2019. The standard business mileage rate increases by 3.5 cents to 58 cents per mile. The medical and moving mileage rates also increase by 2 cents to 20 cents per mile. Charitable mileage rates remain unchanged at 14 cents per mile.
Remember to properly document your mileage to receive full credit for your miles driven.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
Cloud-based applications, extensive communication channels, and other new technologies make it easier to run your business out of your home. If you qualify, many home business expenses are deductible. Think you might qualify? You must first pass these tests.
This chart from the IRS gives some direction on the types of expenses that are deductible. As always, proper substantiation is required to take the deduction, so keep all receipts and statements in an organized fashion.
Sound confusing? Perhaps. If the additional work of tracking specific expenses is too much to handle, a simplified home office deduction calculation is also available to small businesses to lower their tax bill. Please call should you need help in navigating this part of the tax code.
Accurate overhead allocations are essential to understanding financial performance and making informed pricing decisions. Here’s guidance on how to estimate overhead rates to allocate these indirect costs to your products and how to adjust for variances that may occur.
What’s included in overhead?
Overhead costs are a part of every business. These accounts frequently serve as catch-alls for any expense that can’t be directly allocated to production, including:
How are overhead rates calculated?
The challenge comes in deciding how to allocate these costs to products using an overhead rate. The rate is typically determined by dividing estimated overhead expenses by estimated totals in the allocation base (for example, direct labor hours) for a future period of time. Then you multiply the rate by the actual number of direct labor hours for each product (or batch of products) to establish the amount of overhead that should be applied.
In some organizations, the rate is applied company wide, across all products. This is particularly appropriate for organizations that make single, standard products — such as bricks — over long periods of time. If your product mix is more complex and customized, you may use multiple overhead rates to allocate costs more accurately. If one department is machine-intensive and another is labor-intensive, for example, multiple rates may be appropriate.
How do you handle variances from actual costs?
There’s one problem with accounting for overhead costs: Variances are almost certain. There are likely to be more variances if you use a simple company wide overhead rate, but even the most carefully thought-out multiple rates won’t always be 100% accurate.
The result? Large accounts that many managers don’t understand and that require constant adjustment. This situation creates opportunities for errors — and for dishonest people to commit fraud. Fortunately, you can reduce the chance of overhead anomalies with strong internal control procedures, such as:
Cost accounting can be complex, and indirect overhead costs can be difficult to trace. We can help you understand how to minimize the guesswork in accounting for overhead and identify when it’s time to adjust your allocation rates. Our accounting pros can also suggest ways to monitor cost allocations to prevent errors and mismanagement.
The phrase “payroll recordkeeping” may conjure images of paystubs and W-4s. But there are other aspects that often fly under the radar and lead to administrative slip-ups. Here are three examples.
1. Fringe benefit records
The tax code provides an explicit recordkeeping requirement for employers with enumerated fringe benefit plans, such as:
Tax code provisions regarding fringe benefit records don’t specify how long records pertaining to fringe benefits should be kept. Presumably, they’re subject to the four-year rule that’s widely applicable to payroll recordkeeping. Thus, you should retain them for at least four years after the due date of any federal income, Social Security and Medicare taxes for the return period to which the records relate or the date such tax is paid, whichever is later.
Caution: To the extent that any fringe benefit records must also comply with ERISA Title I, a longer retention period of six years applies.
2. Unemployment tax records
The Federal Unemployment Tax Act (FUTA) requires employers to retain records relating to compensation earned and unemployment contributions made. Such records must be retained for four years after the due date of the Form 940, “Employer’s Annual Federal Unemployment Tax Return,” or the date the required FUTA tax was paid, whichever is later.
In addition, be sure to retain records substantiating:
Remember, record retention requirements are also set by the federal Department of Labor and state wage-hour and unemployment insurance agencies.
3. IRS informational returns
The Affordable Care Act (ACA) requires certain employers to file informational returns with the IRS — namely, Forms 1094-B, 1095-B, 1094-C, and 1095-C.
The B Forms are filed by minimum essential coverage providers (some self-insuring employers) to report coverage information. Meanwhile, the C Forms are filed by applicable large employers to provide information that the IRS needs to administer employer shared responsibility under the ACA, as well as receipt of premium tax credits. (Forms 1095-B and 1095-C are also furnished to individuals.) Retain these forms for at least three years from the reporting due date.
Also retain information returns and employer statements to employees on tip allocations for at least three years after the due date of the return or statement to which they relate.
Paying employees is a complex task on its own; naturally, the record keeping involved can be challenging as well. Our firm can offer further assistance.
Planning for major events can sometimes cause a sense of dread. Whether it’s planning a honeymoon, a long family trip, or a business exit, it’s easy to say, “I’ll do it later, when I’m less busy.” While planning a business exit should never encompass your entire life, there are several reasons why you should keep your planning momentum going, instead of planning in fits and starts.
Why It’s Important to Create Planning Momentum Now
On the surface, it might make sense for you to wait until you are ready to exit to start planning for it. But you might take for granted how indispensable you are to your business’ success. In other words, if you were ever to leave the business, the business might be worth less, if not worthless. For example, a business that is primarily reliant on its owner and her industry relationships for maintaining cash flow might be worth $10 million when the owner is present but only $5 million when the owner is not present, reflecting the extent to which she is tied to key customers. Making the business less reliant on you can do two things:
Experience shows that once business owners are ready to exit, they tend to have less motivation to do the things that prepare the business for their exits (e.g., finding next-level management, improving company cash flow). This implies that creating and maintaining planning momentum early and throughout can be the difference between exiting on your terms and exiting on someone else’s terms.
Planning Momentum Can Speed Up the Process
Typically, it takes 5-10 years to properly plan for, implement, and see the results of planning for a business exit. This assumes that you and your Advisor Team consistently work on, work through, and update planning. Failing to keep the momentum going can stretch that timeline even longer. Sometimes, it can mean that the planning never gets done at all.
Think about the last big project you did. When you had no interruptions and could focus on the task at hand, you managed to get the project done more quickly. Once distractions began to appear, it took time away from the bigger project. When you went back to it, you likely had to reacquaint yourself with what you were doing in the first place, which took even more time away from you.
Though consistent planning can’t eliminate all distractions, it can speed up the planning process. Because the Exit Planning Advisor and Advisor Team do most of the planning work—based on your goals, needs, and wants—keeping your planning momentum going can get you through the process more quickly. Proper planning usually results in fewer responsibilities—and thus, fewer distractions—for you, since one goal of planning is to position the business to thrive without you.
Planning Momentum Removes Inertia
It can be much more difficult for you to create and implement a successful Exit Plan if you constantly start and stop every month or more. Without consistent planning flow, you and your Advisor Team are likely to become frustrated and apathetic, which can torpedo your efforts to create and implement your Exit Plan.
Consistently progressing through your planning process—even in small, incremental steps—is much more likely to produce the results you expect because ideas and solutions stay fresh. Progress tends to build on itself, which can make it easier to solve bigger problems or achieve bigger goals. For instance, if your business needs a next-level management team to increase its value, you’re more likely to find and hire the right talent if you’re constantly looking for one, rather than only looking when it’s convenient. If you only do planning when it feels urgent, you might miss out on opportunities to positively affect your company’s value, add a competitive advantage, or find a suitable buyer for your business.
Planning Momentum Lowers Costs
It’s no secret that good Exit Planning Advisors and Advisor Teams cost money. The upshot is that those advisors are motivated to be as efficient as you reasonably demand. By maintaining momentum, you can minimize the amount you pay your advisors while maximizing the return. Top advisors typically want to do high-quality work, but they work with many clients. They’ll admit that they need to refresh their memory, revisit issues, or make updates for changes in laws, regulations, or markets. This step backward in order to make the right next step forward can turn into additional fees for you.
Maintaining planning momentum can be a challenge when considering your daily obligations, but it’s a surmountable challenge. If you’d like to discuss strategies that can maintain your planning momentum or how to get back into the swing of planning, please contact us today.
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