Archive for the ‘Accounting’ Category

I wanted to pass along this notice from the IRS – good to know!

Haiti Relief Donations Qualify for Immediate Tax Relief

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People who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season, according to the Internal Revenue Service. Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card. The new law only applies to cash (as opposed to property) contributions. The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.

This is the time of year when many businesses are busy closing out their books and preparing their records for tax returns. Accounting departments are buzzing with activity and executives are anxiously awaiting those final numbers.

Hopefully your business has practiced sound accounting procedures during 2009 and your year-end will go smoothly. If not, then now is the time to make sure that mistakes or poor business practices are not carried forward into 2010.  Here are a few suggestions to get you started off on the right track for 2010:

1. Keep your accounting/business software up-to-date, and use it! So many businesses rely heavily on spreadsheets or other programs to supplement their accounting procedures, even though their accounting software is capable of handling much more. Don’t get me wrong – I love spreadsheets, but they should not replace the checks and balances, automation, and consistency inherent in any small or mid-market accounting packages.
2. Review your chart of accounts and consider making changes if your business has outgrown the original chart. As businesses grow and change, they often find that they need to record their financial transactions in more (or less) complex ways. Since your chart of accounts is the backbone of your financial reporting, it plays a key role in business analysis. In short, make sure your chart of accounts fits your business.
3. Always keep bank reconciliations current. This is the ONLY way to ensure that the cash you show on your financial reports and the cash you have in the bank are the same. Every accounting transaction has a debit and a credit, and cash transactions are no different. If your cash is off – so is something else.
4. Use electronic data as much as possible. Paper documents such as invoices, statements, and correspondence can be obtained in electronic form and saved to your workstation or server. The documents will always be just a click away won’t require file folders or expensive physical storage.
5. Backup your data regularly. I cannot stress this enough! Computers are wonderful for business, but you cannot afford to depend on your computers and then skip backups. There are many backup options for businesses, including external hard drives and online services.

I am reprinting this information from the bulletin service I subscribe to at the IRS. I believe it is always a good idea to review your relationships with the people who work for you, to be sure that you have your “bases covered.” If you have questions about this information, please see the IRS links at the bottom of the post. If you want to talk to a “regular” person about this, aka me, please send me a note via the contact form on the sidebar.

Employee vs. Independent Contractor – Ten Tips for Business Owners

If you are a small business owner, whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.

Here are the top ten things every business owner should know about hiring people as independent contractors versus hiring them as employees.

1. Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.
2. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
3. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
4. The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
5. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
6. If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.
7. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
8. Workers can avoid higher tax bills and lost benefits if they know their proper status.
9. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding – with the IRS.
10. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link.  Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Links:

• Contractor vs. Employee
• Publication 1779
• Publication 15-A

This is the second post about the fees you pay to accept credit card payments from your customers. The first post introduced the topic and offered an overview of the process.

Understanding your credit card processing fees is the only way to determine whether you are paying a competitive rate, or, dare I say it, a “sucker” rate . All too often, those who stand to profit from these fees rely on the fact that the fees are complex, and that the business owner will just accept the price as an unavoidable cost of doing business.

I’m going to lay this out for you, in hopes that you will be able to look at your credit card processing statement and know whether you should be happy–or need to be shopping around for a better processor.

Your fee structure will most likely be one of two possibilities: Tiered or Interchange Plus. Either way, if your statement does not clearly list the number of transactions, the volume (sales), and the associated fees for each line, you are not getting the whole picture. If the statement lists all of these elements, but not on the same line or page, it may indicate that they are mismatching the timing of the transactions and the fees related to those transactions.

A Tiered statement will list your transactions as Qualified or Non-qualified, or in three-tiered form, Qualified, Mid-qualified, and Non-qualified. The statement may list a Qualified rate, then charge you extra for transactions that clear as Mid- or Non-qualified. Alternatively, you may have a rate for each Tier. Either way, you will have a hard time knowing how much over interchange cost you are paying with this type of rate structure. The statement is easy to read because there is little detail – which appeals to some business owners. Like it or not, this is probably not the best pricing structure if you want to nail down your fees.

I found a sample Tiered statement on the web, and made some notations to illustrate what I’ve described (rt-click, view image to see the whole thing):

An Interchange Plus statement is very different from a Tiered one. In this case, “Interchange” means the rate that Visa or Mastercard charges, passed through at cost. The “Plus” refers to the fee the processor charges for their services. You might have a dozen different rates or more, based on the cards your customers present, and how they are entered (swiped, keyed, internet, etc). With the “Plus” fee clearly listed, you pay the same processing rate regardless of how the cards qualify.

So the big question is, how much should the “Plus” be? I’ll tell you straight-up: you should be able to get 0.15% above the interchange. If you are a larger merchant, you may be able to do better. Even if you are a small business, you should be able to get this rate. Let me be clear – this rate is the primary component of your overall “Plus” fees, but not the only one. I’ll go over the other fees and costs in the next post. I have been searching the internet for a publicly available Interchange Plus statement to provide as an example – and I didn’t find one after looking for a long time! I’ll type out a quick example:

1. MC Merit 3 Base – $500.00 – 2 trx (1.58% & 0.10/trx) = $8.10
2. MC Merit 1 Key Entered – $500 – 2 trx (1.89$ & 0.10/trx) = $9.65
3. VS Retail Base – $500 – 2 trx (1.54% & 0.10/trx) = $7.90
4. VS Retail Key Entry Sig Prefrd – $500 – 2 trx (2.10% & 0.10) = $10.70

Ok – you get the idea. The rates listed in the example above are the costs charged by MC and VS – before any fees to your processor. If your processor is charging you 0.15% and $0.10 per transaction, you will pay processing fees for each transaction as follows:

1. MC Merit 3 Base – $500 – 2 trx (0.15% & 0.10/trx) = $0.95
2. MC Merit 1 Key Entered – $500 – 2 trx (0.15% & 0.10/trx) = $0.95
3. VS Retail Base – $500 – 2 trx (0.15% & 0.10/trx) = $0.95
4. VS Retail Key Entry Sig Prefrd – $500 – 2 trx (0.15% & 0.10/trx) = $0.95

So a quick comparison of the Tiered example and the Interchange Plus example reveals that the Tiered Qualified rate of 2.20% is 0.68% above the base rate. The underlying costs from Visa and Mastercard for the transactions in the Qualified category probably vary – but those amounts are not listed. That means you don’t really know exactly what you are paying for processing fees. With Interchange Plus pricing structure, you can see very clearly that no matter how the transactions qualify, you are paying 0.15%. Big difference–in money and in clarity.

Now is a good point to bring this article to a close. Look for my next post, where I will tell you about the per transaction fees, and the various “other fees” that are almost always part of the total cost of accepting credit cards.

Got Customers? Then you've got credit card processing fees.

I have learned a lot about the complexities of credit card processing, and I would like to share with small business owners how it all really works. Because there is so much to cover, I will probably break this up into two or more posts.

If you accept credit cards for your business, then you know that when you sell a widget for $10, you only get about $9.75 after credit card processing fees. If you’re lucky. There is no way to get around processing fees if you want to accept credit cards as payment. You cannot process directly with Mastercard or Visa – they will not handle your transactions. This is where the processors come in – and they are NOT all the same.

Obviously, the processor does not handle transactions for free. Mastercard and Visa are not banks, and neither are most processors. Banks are not free. So from the moment your customer swipes their card, to the moment you receive the cash, the information about that transaction is passed around amongst the banks, the credit card companies, and the processors.

Visa and Mastercard disclose their fees publicly, and adjust their fees twice per year. Visa’s fees are published in an easily digestible chart format, while Mastercard’s fees are contained in a 115 page document! Fees vary by industry, and whether a card is swiped, keyed in, or used over the internet. The kind of card your customer uses may be a consumer card or a business card, a credit or a debit card, and include a rewards program or not. All told, there are about 500 different descriptors amongst Visa, Mastercard and Discover. All of this variance is before the processors weigh in.

The only real way to determine the rates you are paying for credit card processing is the statement from your processor. This is where things can get really tricky. I have seen many statements from many processors, and in my experience, they are rarely straightforward. Even if everything looks very clear, beware the fine print! Statements often do not include all of the numbers needed to show you the real rates you are paying. Sometimes the timing of the transactions and their appearance on your statement may be spread across 2 or more months. Maybe you are paying a “low” rate of “just” 2.1%. Is that in addition to what Visa and Mastercard charge? What about statement fees, authorization fees, assessments-you get the picture.

If your head is spinning, you’re not alone. This is a good place to close, but I’ll post more information in the next few weeks.

If you’re on track with your year-end accounting tasks, then you’ve already mailed your Forms 1099 to your vendors. If you’re running late, you can find the form and this year’s instructions at the IRS’ website.

There is an impressive new website geared toward helping small business owners, and people thinking about starting their own small business. The site is sponsored by the IRS, so you know you can trust the tax topics. This site, IRS Small Business Resource Guide 2009, in addition to SBTV.com, are great ways to get your business started or organized.

If you would like some help getting started, help with your bookkeeping, or help with organizing your business data, please consider contacting me. With the technologies available today, location is often a non-issue! So, even if you are not in the Dallas-Fort Worth, Texas area, I may be able to help you get where you want to be with your business.

Even though 2008 is officially over, the work to wrap up your books, records, and taxes is hardly over.

If you make quarterly tax payments, as many self-employed, small business owners do, the deadline to make your final quarterly tax payment for 2008 is Thursday, January 15, 2009.

The best way to ensure that you are paying your taxes properly is to keep good records throughout the year. Not surprisingly, year-end is also a good time to re-evaluate your current business processes, and make plans for improvements that will aid you in the coming year.

I am a huge fan of the do-it-yourself tax software, TurboTax®. Some business owners may opt to hire a tax professional to handle their taxes. The IRS has just published a “Tax Tips” bulletin, with some great advice about finding a tax preparer. You can read the entire bulletin by clicking here. I have provided an excerpt from the IRS bulletin below.

• Find out what the service fees are before the return is prepared. Avoid preparers who base their fee on a percentage of the amount of your refund or who claim they can obtain larger refunds than other preparers.
• Only use a tax professional that signs your tax return and provides you with a copy for your records.
• Avoid tax preparers that ask you to sign a blank tax form.
• Choose a tax preparer that will be around to answer questions after the return has been filed.
• Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?
• Check to see if the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association for attorneys. Find out if the preparer belongs to a professional organization that requires its members to pursue continuing education and also holds them accountable to a code of ethics.
• Determine if the preparer’s credentials meet your needs.  Does your state have licensing or registration requirements for paid preparers?  Is he or she an Enrolled Agent, Certified Public Accountant, or Attorney?  If so, the preparer can represent taxpayers before the IRS on all matters – including audits, collections, and appeals.   Other return preparers can represent taxpayers only in audits regarding a return signed as a preparer.
• Before you sign your tax return, review it and ask questions.

If you know that you need to make some changes for 2009, but need help with knowing where to start, I may be able to help. You can reach me by email at: info@coakleysbs.com

Happy New Year!

Did you know that there is an internet-based resource for small businesses that combines video content like a television channel, plus cutting-edge web content? I’ve known about sbtv.com for awhile, but never visited. BIG mistake. If you own a small business, or are thinking about starting one, I strongly recommend that you visit sbtv.com. Sbtv.com is powered by our very own federal government.

This is the time of year when many small businesses are scrambling to to meet budget and revenue goals, as well as prepare for taxes. Business owners can do themselves a huge favor by keeping accurate and current records of all business and financial transactions. If you wear many hats, including Accountant, be sure that you utilize your accounting software to the fullest extent. This will help you get through year-end close and taxes smoothly, so that you can focus more of your time on your business!

The IRS has announced the new mileage rates for 2009. Beginning January 1, 2009, the rate is 0.55/business mile driven, down 3.5 cents from the current 0.585/business mile driven. You can also find a wealth of information about taxes for your small business or self-employment at the Internal Revenue Service’s Small Business and Self-Employed Tax Center.

If you have questions or need help with your small business accounting, data systems, or reporting, please contact me at info@coakleysbs.com.

Happy Holidays!

As this year draws to a close, many of you may be starting to think about your year-end bottom line. And taxes. The IRS has issued its Revenue Procedure 2008-66, which “provides the tax items adjusted for inflation for tax year 2009, such as itemized deductions, the tax rate tables, the earned income tax credit limits and many others.”

These changes are effective for taxable income in 2009 – so they won’t be used for your 2008 returns. Still, I thought many of you may like to know what to expect, as you begin to plan for next year.

As I write this, Congress is hearing testimony and asking questions about the proposed “700 Billion Bailout.”

Wow.

What does this mean to the small business owner? If your business relies on financing to operate, you may have some worries. If your business generates cash in amounts sufficient to operate your business without need of financing, you are decidedly better off – no matter what the financial climate.

Since many small businesses work with other businesses…it is hard to find a business NOT affected by this financial “meltdown.”

If ever there has been a time for small business owners to take a close look at their financial footing, their business processes, and their efficiency – it is now. And I can help.

I can also help if, up until now, you have been trying to run your business AND handle your accounting functions. Since I am an independant contractor, I can help you get your business finances in order and set you on your way to operating “lean and clean,” without the long-term comittment or overhead of hiring an employee. I can also help your existing staff by augmenting their ability to streamline and address those back-burner items that are now on fire.