Help Wanted: You Have Options!

Many people have complained about the worker shortages this year. If you need additional workers in order to grow your business, here are some ideas for your consideration. 

Where to Look for Workers

We may think of workers as only being employees, but there are a lot more options if you’re open-minded.  Here’s a list of places to find workers of all kinds:

  • Recruiters
  • Employment agencies
  • Online job portals, such as Indeed, SimplyHired, and ZipRecruiter.
  • Social media, including LinkedIn Jobs
  • Your own website, email list, or employee referrals
  • Temp agencies
  • Specialized online job portals that cater to your industry and business type
  • Virtual assistant organizations
  • Day labor online sites and pickup areas
  • Job matching sites such as Upwork, Fiverr, and Freelancer.
  • Colleges, when you need interns and entry-level workers
  • Your local unemployment office
  • Small business development centers
  • Virtual assistant agencies or businesses
  • Chambers of Commerce and other business organizations
  • Professional organization directories where a license is needed, such as hair stylists, dentists, or CPAs
  • Friends, colleagues, competitors, and neighbors; your own personal or business network
  • Craigslist and local classified ads
  • High school guidance counselors if you want to hire straight out of high school
  • Outsourcing to a company that provides the labor that does what you need
  • Volunteer matching sites

Options for Adding Workers/Labor

There are many ways you can increase labor in your business. The obvious is hiring employees.  Beyond employees, there are many more options than you might first think:

  • Contractors, where you have a contract for a particular job and meet all of the IRS and other compliance requirements
  • Temp workers, where you “lease” an employee who stays on the temp agency payroll or hire them outright with a limited term of employment.
  • Part-time workers on your payroll
  • Companies that you outsource the work to and contract with as vendors to provide a particular service. They may outsource your labor needs or simply have labor as a component of the product or service you have contracted them to supply.
  • PEO, or professional employer organizations, act as a client’s employer and hire their employees as well as manage payroll and other HR compliance tasks.
  • Interns, which are unpaid positions. Check your state and local rules for laws regarding hiring interns. 
  • Volunteers.  This is common if you have a nonprofit organization. 

With all of these options available, it should be a bit easier to find ways to add labor and grow your business.

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The American Rescue Plan Act Creates ERTC Windfall for Startup Businesses

The American Rescue Plan Act extended the Employee Retention Tax Credit (ERTC) for the third and fourth quarters of 2021.  It has also expanded the pool of eligible employers who can take the credit to include businesses started during the pandemic.

A Recovery Startup Business (RSB) is a business that was started after February 15, 2020 and has average annual receipts of no more than $1,000,000.  While under the CARES Act, an employer had to experience a full or partial suspension of operations due to COVID-19-related governmental orders or a significant decline in gross receipts to take advantage of the ERTC, an RSB does not need to meet those requirements.

The time period to claim this credit for an RSB is from July 1, 2021 through December 31, 2021.  It can be claimed on an originally filed Form 941 or an amended 941.  As with other businesses, the credit continues to be capped at 70% of qualified wages limited to $10,000 per employee per quarter ($7,000 per quarter per employee), but an RSB is also limited to a maximum $50,000 in ERTC per quarter, regardless of the number of employees. 

For new businesses, this is an incredible tax benefit and a great safety net to the normal struggles of any startup. The goal is to get employment back to pre-pandemic levels. The total benefit could be as high as a $100,000 cash infusion for 2021, so it’s definitely worthwhile for eligible employers to take advantage of this while available!

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Re-Imagining Your Chart of Accounts

The Chart of Accounts is the backbone of your accounting records. It is a list of all of the accounts – bank, loan, asset, revenue, and expense – in your General Ledger, which holds all of your accounting transactions.

Think of your Chart of Accounts as a collection of buckets that hold dollars of items related to your business. Each bucket should be meaningful and have a purpose. For example, if you have three checking accounts, you need three buckets on your Chart of Accounts to hold the transactions for each bank account.  It would not make any sense to have more or less than exactly one bucket for each checking account. 

While it’s standard to have certain buckets or accounts for assets, liabilities, and equity, the number of buckets that you create for revenue and expenses can vary greatly from company to company.  It makes sense to create and design your accounts for what you need for tax, accounting, and decision-making purposes in your business. 

Let’s say you are a hair stylist.  Do you want your revenue to be in one big bucket? That’s all that Uncle Sam requires. But for decision-making purposes, you may want to break out men’s and women’s services, or cuts versus color and other treatments, or both. In that case, you would have four revenue accounts: men’s cuts, men’s color, women’s cuts, and women’s color.  This type of detail would help you see where your revenue is highest so that you can better manage your supplies as well as target your marketing to that group.    

Having certain expense accounts matched to the tax requirements can reduce extra work at tax time. For example, separating travel costs – hotel and airfare – from meals and entertainment is a common one, as is keeping meals and entertainment separate.

The goal is to get your Chart of Accounts working for you. If, when you first set up your accounting system, you accepted the default Chart of Accounts, it may be time to redesign and restructure the list so it serves your needs better. Here are some additional considerations.

  • What revenue or expenses do you want to watch more carefully? Should they be broken out in more detail? You can also use subaccounts to group transactions.
  • Is there cleanup work to do due to misspelling or other duplication?
  • Have you interviewed all the financial information users in your company to see how they need the data organized? 
  • What spreadsheets could be eliminated if the Chart of Accounts was better organized?
  • Does your Chart of Accounts support your budgeting process? If two people are responsible for controlling spending from one account, would it be useful to break it out?
  • Do you have too many accounts? Or too few? (Most people have too many due to poor data entry hygiene.)
  • Are you properly using other categorizing features in the accounting system, such as classes, divisions, and custom fields? 
  • What reports could produce better information for taking profit-focused actions in your business if the Chart of Accounts stored the transactions differently? 
  • How could key performance indicators be better linked to the Chart of Accounts?

These questions can help you begin thinking about how your Chart of Accounts can better serve you.  After all, it’s your business, your accounting system, and your Chart of Accounts. 

And if we can help you through the redesign process, please let us know. 

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Categories: July 2021 Newsletter

Child Tax Credit Payouts – What to Expect

The Child Tax Credit (CTC) is not new, but it was expanded as part of the American Rescue Plan Act of 2021, and you may be wondering what that means and how it will impact your situation.  The biggest takeaway is that instead of waiting until filing your 2021 tax return (in 2022) to take advantage of the credit, you can instead opt to receive part of the credit in advance, during 2021.

First, the overall amount of the credit was increased for taxpayers under a certain income level.  For those individuals, the CTC is $3,600 for each child 5 and under, and $3,000 for each child between the ages of 6 and 17.  This is an increase from $2,000 per child under the existing rules.  To receive the full amount of the expanded credit, your Adjusted Gross Income (AGI) must fall within the following limits:

  • Single Filer – $75,000 or less
  • Head of Household Filer – $112,500 or less
  • Joint Filers – $150,000 or less

Beginning on July 15, 2021, IRS will begin sending monthly payments to parents with eligible dependent children.  These payments represent an advance on the full CTC, and the rest can be claimed on the 2021 tax return.  The full monthly payment will be $300 per child under 6 or $250 per child 6 to 17 years old, and will be paid each month from July to December 2021.  Keep in mind that if you are over the above income thresholds but within the existing income thresholds for receiving the CTC, you can still receive up to $2,000 per child, just like in years past.

To automatically receive these payments if eligible, you need to have filed a tax return for 2020 by the extended May 17,2021 filing deadline, even if you are usually a non-filer.  You are eligible for these payments even if you do not have any income to report or taxes due.  If you were not able to file by then, you will still get the higher credit amount if eligible, but will need to wait until filing your 2021 tax return to take advantage of it.

If you would prefer to NOT receive the advance payments and instead take advantage of the full CTC when filing your 2021 tax return, you will be able to opt out using an online portal that IRS will be opening on July 1, 2021.  There will also be another portal where you can update your information, such as changing the number of dependents you have.

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Categories: July 2021 Newsletter

Business Meal Deduction Changes from the Consolidated Appropriations Act

The Consolidated Appropriations Act that was signed into law December 27, 2020 includes a temporary provision allowing a 100 percent write-off for business meals from January 1, 2021 through December 31, 2022.  The food and beverages must be provided by a restaurant, although they do not need to be consumed on a restaurant’s premises. The deduction also includes any delivery fees, tips and sales tax.  This is an increase from the 50 percent deduction that applied for 2020 and earlier years.

It is important to note that other than lifting the 50 percent limitation on deductions for meal expenses, this legislation doesn’t amend any of the other rules related to business meal deductions.  Therefore, to be deductible:

  • Business meals should still have a business purpose and involve dining with current or prospective customers, clients, suppliers, employees, partners, or professional advisors.
  • The food and beverages should not be lavish or extravagant under the circumstances.
  • You or one of your employees must be present when the food or beverages are served.

Although meals are 100 percent deductible, entertainment expenses are still disallowed.  So, while taking a client out for a dinner is tax deductible, the cost of the baseball game after dinner is not.  Furthermore, if an entertainment event includes food and beverages, they must either be purchased separately from the entertainment or broken out on a separate invoice or receipt.  Be sure to update your chart of accounts to make an account for meals and another for entertainment.

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Categories: May 2021 Newsletter

What Is Internal Control?

In accounting, a key term to know is “internal control.” Internal control is the series of processes and procedures that are performed within the organization to ensure the integrity and accuracy of the financial information and reporting of that organization.  Internal control is very important to consider in order to protect the business owners, employees, vendors, investors, and other stakeholders.  

In a small business, maintaining good internal control is often a challenge since staff size is smaller and resources are limited. Yet, it is essential to understand so that the business owners understand what risks they are taking every day in their businesses.  A good system of internal controls can help the organization reduce the risk of fraud, safeguard against loss, and demonstrate good business practices.

Key Concepts

Segregation of duties is the first of three key concepts of internal control. It means that tasks should be assigned to different people when there is a risk that having everything assigned to one person could hide errors or even theft.  For example, the person who opens the mail and receives checks should not be the same person who applies the check to the correct customer in Accounts Receivable. 

Delegation of authority is the second key concept of internal control.  While the owner has ultimate control, they cannot do everything. They must delegate to staff. Staff have the responsibility to maintain internal controls in their area of responsibility. 

System access is the third concept of internal control. Access to documents, rooms, computers, applications, and other items should be on a need-to-know basis to reduce risk. While one person might have system access to enter a transaction, they should not also be the one to have system access to review or approve that same transaction. 

Business Operations

Every aspect of the business should be considered while setting up the company’s policies and procedures.  In a small business, an easy way to develop internal controls is to review each major transaction flow and implement the controls needed. 

On the customer side, this includes receiving the customer order, sales contracts, shipping, invoicing, managing accounts receivables, collections, bank deposits or merchant reconciliations, and cash management. It can also include customer service, pricing, and promotional activity.

On the vendor side, the process includes adding controls for vendor selection, purchase orders, receiving, bill pay, managing accounts payable, payments, managing travel and expense accounts, and company credit cards.

Depending on the company, additional areas that need to be reviewed for internal control include inventory and supply chain management and government contracts, if any. 

When hiring, the process of hiring, onboarding, training, evaluating performance, and payroll should be considered.  Safety is also an important consideration.

A very large part of internal control development should focus on the information technology operations of the company. Areas include user access and controls, password management, naming conventions, physical security, disaster recovery, and network and applications development, updates, and change control. Data entry should also be considered and is best included when developing controls for the customer, vendor, and employee functions.

Additional functions that need internal control processes include treasury and financing; financial reporting, budgeting, and planning; records storage, access, retention, and destruction; asset management; and insurance. 

Internal controls can be applied to small businesses as well as large organizations. It’s all about being able to feel confident that your business is operating with financial integrity, accuracy, efficiency, and a reduced risk of failure. If you have questions about how internal control applies to your business, be sure to reach out to us any time.         

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Categories: May 2021 Newsletter

Partner Capital Accounts Required to be Reported on Tax Basis for 2020

In response to the Tax Cuts and Jobs Acts of 2017, there were a number of changes to the disclosure requirements for partnerships and LLCs filing as partnerships – specifically, on the K-1s of Form 1065 returns, some of which became effective for the 2019 tax year. 

For the current (2020) tax year, however, the most significant change relates to the reporting associated with partner capital accounts.  Beginning with the 2020 year, partnerships are required to report capital accounts for partners using the tax basis method.  The prior rules allowed the capital accounts to be reported in accordance with Generally Accepted Accounting Principles or Section 704(b).  This will no longer be permitted.

According to IRS, most partnerships/LLCs taxed as partnerships have already been reporting capital accounts on a tax basis.  For those taxpayers, no change is required.  

For partnerships that were not using tax basis, the “transactional approach” must be used to switch to tax basis for capital reporting purposes. Under that approach, partnerships use partner contributions, the partner’s share of partnership net income or loss, withdrawals and distributions, and other increases or decreases using tax basis principles, instead of reporting using other methods such as GAAP. 

For those partnerships that have never used tax basis, since many partnerships would have difficulty reconstructing tax basis, the IRS is allowing them to re-figure beginning basis using one of a number of options including the modified outside basis, modified previously taxed capital, or Section 704(b) methods.  These options are all described on page 32 of the Form 1065 instructions. 

The same basis method should be used for each partner.  IRS is not assessing penalties as long as the calculation is done with “ordinary and prudent business care.” 

“Small partnerships,” which are defined as having less than $250,000 in total receipts under $1 million in total assets, are exempt from reporting capital accounts on the tax basis.

The IRS is hoping this new disclosure will assist in assessing compliance risk and result in fewer audits for compliant taxpayers.

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Categories: April 2021 Newsletter

5 Tips to Spice Up Working from Home

We’ve been in a pandemic for what seems like five years now, right? All joking aside, if you’ve been lucky enough to work from home this past year, then it’s possible that you are in the process of going stir-crazy. Or maybe you’re simply ready to shake things up a bit.

Working from home has its benefits. Yet, if you are someone who enjoys going to the office every day, chatting with co-workers in person, attending meetings that aren’t all virtual, and having a little spontaneity each week, then we’re here to help. Here are five tips to boost your WFH (working from home) environment.

Take Short Breaks

Taking regular breaks throughout the day is so important, and more so now than ever before! Without a doubt, these breaks will help you mentally (that is, keep you from going stir-crazy), but they can also help your work productivity and quality. These breaks don’t need to be—and shouldn’t be—long or strenuous.

Walk the dog. Stand up and do some light stretches. Run up and down your stairs. Go outside into your backyard. Dance to a song. Do a quick chore, like emptying or loading the dishwasher. Call a friend. Or choose your own favorite break activity.  The goal is to get the blood flowing and the fog cleared from your mind.

Switch Up Locations

Get creative and switch up your location. If you have a yard or patio of some sort – and good weather — that allows you to sit outside and work, perfect! If not, try working from the living room, the dining room, the kitchen, even the bedroom. The idea here is to change your surroundings a couple of times a week so that you don’t feel stuck or get lost in the monotony of a daily routine.

Treat Yourself with Lunch

Everyone needs something to look forward to, and what is better to look forward to than food? Depending on your budget, treat yourself to a special lunch once a week, every other week, or monthly. Consider trying new restaurants, different foods, places that you’ve always wanted to eat at but haven’t had the opportunity to do so. Not only will this be fun for you, but you will also be supporting small, local businesses. Win-win!

Dress for Success

We can probably all agree on one thing: sweatpants are comfortable! As such, it can be difficult to trade in the sweats for jeans or dress pants every day. After all, if you’re working from home and there’s no dress code to enforce, it can be hard to dress for success. Yet, doing so can give you a little burst of inspiration to get through the day. You can keep your outfits casual just as long as you have fun getting dressed. For example, you could have Sandal Mondays or Blue Shirt Fridays. Again, just have fun with it!

Create a New Playlist

Does music motivate you? Are you able to work and listen to music at the same time?  If so, create different music playlists to listen to throughout your day. Try listening to various genres or new artists, anything that keeps you alert and stimulated, even excited about your workday. Depending on the type of music you enjoy listening to, you can even get up periodically and take dance breaks (Tip #1)!

Keep your day fresh, and boost your productivity and mood by using your imagination and trying the tips above.

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Categories: April 2021 Newsletter

American Rescue Plan Act

The recently passed American Rescue Plan Act (ARP) of 2021 provides additional relief to taxpayers impacted by the COVID-19 pandemic. The 2020 individual filing and tax payment deadline has been moved from April 15 to May 17, 2021. This relief does not apply to estimated tax payments that are due on April 15. Victims of February winter storms in Texas, Oklahoma and Louisiana have until June 15, 2021, to file and make payments. Following is a brief overview of some of the key provisions of ARP.

Categories: Tax Tip Tuesday

What is the Difference Between Your Marginal Tax Rate and Your Effective Tax Rate?

Have you heard the phrases “marginal tax rate” (or tax bracket) and “effective tax rate” and wondered what the distinction is between them? In order to explain the difference, it is first important to note that in the United States, we do not pay a flat tax – we are on a graduated system and therefore pay taxes in tiers.

Let’s say that you are a Single filer, and you have taxable income of $60,000 for the 2020 tax year. According to the IRS tax tables, that puts you in the 22 percent tax bracket – in other words, that is your marginal tax rate. Twenty-two percent of $60,000 is $13,200, but luckily, you don’t have to pay that much.  If you calculate the tax based on the 2020 IRS Tax Tables, the amount of tax is $8,990, which is less than the $13,200 based on the 22 percent marginal rate.

This scenario illustrates the difference between your marginal tax rate (tax bracket) and your actual effective tax rate. Even though you would be in the 22% bracket based on $60,000 of income, you do not pay 22 percent flat tax.  You would pay less than that since there is one bracket below your tax bracket: the 12 precent bracket. (There are really two for you math geeks: 12 percent and 0 percent.)

The rate that you actually pay in taxes is your effective tax rate. This rate is unique to you individually and is simple to calculate.  Just take your total tax liability and divide it by your taxable income. In our example, that would be $8,990 / $60,000 = just about 15 percent.  Compare that to the 22 percent marginal rate and it sounds pretty good! 

The effective rate is often more useful because it gives you an average rate you pay on all the money you make during the year. It is much more accurate in terms of gauging what you might owe based on your projected taxable income. In most cases, the effective tax rate is less than the marginal rate.

The marginal tax rate is still helpful to know for tax planning.  For example, you can get a feel for how much potential benefit you could receive from an additional deduction. For example, how much would you benefit from making a $6,000 IRA contribution?  Your taxes would be reduced by $1,320, or 22 percent of $6,000. Looking it up in the tax tables is another way to double-check the math and yields the same savings.  

Understanding the difference between your effective and marginal tax rates makes you a smarter taxpayer!

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Categories: March 2021 Newsletter