6 Financial Tips for Business Owners

Entrepreneurs are experts at what they do. They know the ins and outs of their products and services. But, oftentimes, they aren’t experts at running a business. Whether it’s bookkeeping or growing your business, everyone needs a little help from time to time.

Basic

#1: Bookkeeping is Important

Bookkeeping is more than tracking revenue and expenses for taxes. It keeps track of your business and provides valuable insight. Who hasn’t paid you in a month? What supplies are costing you too much? How much are you really making?

#2: Don’t Procrastinate

No one wants to do their own bookkeeping. It’s tedious and time consuming. That’s people hire me to do it for them. But, if you’re going to do your own bookkeeping, don’t leave it till the end of the month. You’ll waste an entire day working on it when you could’ve spread it out.

#3: Make a Budget

Budgeting isn’t only for mega-corps and government agencies. It can help your business save money. Budgeting accounts for every dollar before you spend it and helps you make better purchases preventing wasted dollars.

Black and White Picture of Cup, Hand, Mouse, and Keyboard


Advanced

#4: Go Lean

Lean is a business buzzword for good reason. The goal of lean is to eliminate waste and inefficiencies within your business. The original seven wastes stem from: transport, inventory, motion of employees/equipment, waiting, overproduction, over processing, and product/service defects. Reducing waste in these seven categories can increase your bottom line.

#5: Plan Ahead

Plan for your weaknesses. What is the worst case scenario? How much money do you need to get through a slow busy season? Addressing these weaknesses can minimize the risks of a bad situation.

#6: Build On What You Do Well

80% of your business’s profit comes from 20% of your products or clients. Pinpoint your moneymakers and focus on them. Putting time and extra effort into proven moneymakers will build your business faster than forcing flops to sell.


As a business owner, making wise financial decisions for your company is an ongoing process. But, you don’t have to do it alone.

New Business? Keep First-Year Deduction Rules In Mind

When opening a business, you may have to spend money on equipment, vehicles, legal fees, and leasehold improvements before you can start making money. All of these expenses can be deducted, but they have receive a special tax treatment because they were incurred before your business was open.

Equipment and furnishings:

Equipment can’t be deducted until it’s put in service. So, equipment can’t be deducted or depreciated until your business is open.

On the bright side, equipment placed in service before opening your business, but during the same year you opened is still eligible for Section 179 depreciation and bonus depreciation. Section 179 can be used to immediately expense the total value of your equipment up to the lesser of your business income or $500,000. Bonus depreciation can be elected in tandem with Section 179, but the equipment has to be brand new.

If you’d prefer to draw out your depreciation over the life of your asset, you don’t have to claim Section 179 depreciation.

Vehicles:

Cars and trucks are treated like equipment and are depreciated over 5 years. But, they come with their own ‘listed property’ or ‘luxury auto’ special rules.

In 2016, cars that weighed under 6,000 pounds are limited to $3,160 of depreciation ($3,560 for trucks). If you can electing bonus depreciation, you can add an extra $8,000 to those figures.

Start-Up Costs:

New business owners can deduct up to $5,000 of start-up costs in the first year of business. Unfortunately, that amount if limited by any start-up costs in excess of $50,000. Any excess start-up costs have to be amortized and claimed over 15 years.

If you would prefer not to deduct and amortize your start-up costs, you can capitalize them and add them to the basis of your business. Unlike basis in other assets, basis in your business only comes into play when selling or ending your business which means your start-up expenses will have to stew a while before you can recover them.

Start-up costs include:

  • Surveys/analyses of potential markets, labor supply, products, transportation, facilities, etc.
  • Advertisements related to opening the business
  • Wages and salaries paid to employees, and their instructors, while they are being trained
  • Fees and salaries paid to consultants or others executives
  • Travel and related costs to secure prospective distributors, suppliers, or customers

Organizational costs:

New partnerships or corporations can deduct up to $5,000 of organizational expenses in the first year, in addition to any claimed start-up costs. The $5,000 is also limited by any organizational costs in excess of $50,000. Similarly, organizational costs must be deducted & amortized or capitalized & added to basis.

Organizational costs include: legal fees and incorporation fees.


The first year of business is often the hardest and the special business expensing rules make it even harder. But, keep accurate records of everything and we’ll sort it out during tax season. If you have any business questions, don’t hesitate to call.

6 Ways to Grow Small Business Revenue

Owning your own business is the American dream. Sometimes, when you take the leap, everything looks great in the beginning. You’re your own boss, you’re making money, and people really appreciate the work you’re doing. Then, after a few months or years, business starts to stagnate and, no matter what you try, revenue won’t go up. Try one of these 6 tips to increase your small business’s revenue.

#1: Avoid Lower Margins

Which clients, products, or services make the most money and have the most potential for growth? Which clients products, or services make the least money and have the least potential for growth? Every business owner knows exactly which category their clients, products, or services belong in. Dropping low margin and high headache clients, products, and services is a scary prospect because it’ll initially lower your revenue. But, it’ll lower your blood pressure and free up time for you to focus on growing your business.

#2: Embrace Technology

Chances are, if you have a problem, technology has a solution. Whether it’s organizing business cards or posting to social media, there’s technology for everything. Embracing technology and automating processes can free up precious time.

#3: Experiment With Pricing

Raising prices is the most obvious and simplest way to increase revenue. It’s also the hardest because there’s a very real risk of losing clients. But, if you provide high quality products or services many of the clients driven away by high prices are the bargain-oriented customers. Before raising prices, test the waters by discussing it with your clientele.

#4: Bundle Products or Services

Mega corporations like Procter & Gamble and General Electric have their hands in every industry. Small businesses tend to specialize in a single industry or niche. That makes many of their products or services complimentary to one another. When bundling complimentary products or services consider slightly discounting the prices to incentivize clients to buy the bundle.

#5: Maintenance Contracts

Speaking of bundling, we can’t forget the quintessential add-on, the maintenance contract or warranty. Maintenance contracts can generate a steady revenue stream for months or years to come. When developing maintenance contracts, clearly list what is and isn’t included.

#6: Expansion

You can only expand so much in one town or region. Sometimes, you have to consider expanding to another geographic market. On Long Island, that can be as simple as running ads in the next town over. Take advantage of Long Island’s density and widen the geographic region your business serves.

For some small business, growing revenue seems impossible. Saturated markets and slow economies can dampen the most optimistic outlook. But, if your revenue is stagnating, making one of these six changes.

2016 Tax Organizer

It’s a new year and a new tax season is approaching.

Please use these complimentary tax organizers to better manage and organize your tax information. These tax organizers are updated annually and this one was specifically assembled for the 2016 tax year.

There are three types of individual tax organizers. The basic tax organizer is suitable for most clients. The itemized tax organizer is for clients that itemize their deductions. (Hint: if you own a home, you probably itemize.) The full tax organizer includes everything from itemized deductions to rental properties and self-employed income.

After completing the organizer, please forward it to me or bring it to our meeting, so we can get started on your return.

2016 Basic Organizer – This organizer is suitable for clients that are not itemizing their deductions and DO NOT have rental property or self-employment expenses.

2016 Basic Organizer plus Itemized Deductions – This organizer is suitable for clients that are itemizing their deductions and DO NOT have rental property or self-employment expenses.

2016 Full Organizer – This organizer includes the information included in the basic organizer, plus entries for itemized deductions, rental properties and self-employment expenses.

2016 Business Organizer – Use this organizer for partnerships and incorporated business entities.

2015 Prior Year Individual Organizer – If you are filing your 2015 return late, please use this organizer.

Habits That Threaten Your Identity and Pocketbook

Identity theft is a growing problem in the United State and a serious concern in this office. While you can’t prevent big, corporate security breaches, small changes to your daily routine will help better protect your identity from hacks, scams, theft, and phishing schemes.

#1: your Social Security Number

Whether you carry a wallet or purse, almost everyone has their driver’s license with them at all times. You need it to buy cigarettes, to get into bars, and to prove you are who you say you are.  But, when a thief can combine the information on your driver’s license with your Social Security Number to compromise your identity. Try not to keep forms or cards, including your Social Security and Medicare cards, that have your SSN in your wallet or purse.

#2: Public Internet Connections

Getting work done or quickly checking your bank account has never been easier. Public internet is everywhere and connecting to it can be automatic. Cyber thieves can take advantage of the public internet trend with fake Wi-Fi connections and man-in-the-middle attacks. Only use secure internet connections to transmit sensitive information like account passwords and financial details.

#3: Malicious Emails

Emails seem harmless. But, the links or attachments may cause trouble. Cyber thieves will send emails with malicious attachments or links to malicious websites. These attachments and websites will install malware on your computer, allowing them to steal your information. Trust your gut; if you don’t know the sender or an email seems fishy, delete it.

#4: Sensitive Information

Sensitive information includes anything that can be used to steal your identity or that can get a thief closer to stealing your identity. That includes the obvious like your birth date and Social Security Number, but it also includes your financial account usernames and passwords. Be careful not to send documents with sensitive information that can be intercepted. Always assume that your emails and texts can be read by others.

#5: Passwords

Nowadays, everything needs a password. There are passwords for your  smartphone, computer, Wi-Fi, social media, email, and bank accounts. With so many passwords, it’s easier to just remember a single password. Cyber thieves rely on you getting lazy. When they hack nonsensical targets, they’re looking for your password and hoping you reuse it somewhere else. If one account gets compromised then all your accounts get compromised. Use a different password for every account.

When you finally create a good password with all the bells, whistles, and special characters, don’t share it. Whoever you share your password with may not be as security conscious as you are. Like they said in WWII, loose lips sink ships.

Check out these password tips.

What I’m Doing to Help

After reading all that, you may be rightfully concerned. You don’t want your identity stolen and I don’t want your identity stolen either. I will never share your sensitive information with anyone and I will only send you sensitive documents with password protection or through the Secure Client Portal.

If you have any security concerns or would like to pick a password for your files, let me know.

 

Back-Door Roth IRAs

The Basics

Disclaimer: This article is for information purposes only. Please do not preform a back-door Roth IRA conversion without the help of a financial professional.

When saving in a Roth IRA, your contributions are taxed and your distributions are tax-free. This makes Roth IRAs unique amongst retirement accounts and a valuable part of many retirement plans.

But, these benefits come at a cost. Many high-income taxpayers are prohibited from using Roth IRAs because of its income limitations. In 2016, an unmarried taxpayer cannot contribute to a Roth IRA if their income is over $132,000 and joint-filers cannot contribute to a Roth IRA if their income is over $194,000.

You can check the 2016 Roth IRA income limits here or check the 2017 Roth IRA income limits here.

High-income taxpayers can circumvent these limits with a ‘back-door Roth IRA, ‘ which converts a traditional IRA into a Roth IRA. These conversions do not have the same income limitations as direct contributions.

Problems with Back-Door Roth IRAs

In practice, back-door IRAs are much more complex and come with their fair share of potential tax problems. Some of these problems include whether the original traditional IRA contribution was deductible, when the original contribution was made, and how much the account holdings have appreciated.

The biggest problem with back-door Roth IRAs involves the legal structure of traditional IRAs. All traditional IRAs that a taxpayer owns, even if they are at different brokerages, are considered one IRA in the eyes of the law. Any distributions or conversions from any traditional IRA are proportionately taken from both the deductible and non-deductible portion of the traditional IRA. The deductible portion would be taxed when distributed or converted.

There is a possible, albeit complex, work around which involves transferring  a portion of the traditional IRA into an employer retirement plan. After transferring part of the account, the back-door conversion can be done with the remainder.

We’ve only scratched the surface of back-door Roth IRA conversions. They are incredibly complex and should only be done with the help of a financial or retirement professional. If you don’t have one, I can recommend a few that can help safely perform a back-door Roth IRA.

Tax Complications When Losing Your Job

No one wants to be unemployed. It’s stressful and life feels uncertain. Everything from buying groceries to paying your mortgage is nerve-racking. On top of that, there are a number of tax issues that may impact your unemployment, taxes, and finances.

Severance Pay:

Severance pay is the silver lining to unemployment. It bolsters your savings and helps you get through unemployment. But, your severance pay and payment for unused vacation days are still taxed and will be included in your Form W-2.

Unemployment Compensation:

Like severance pay, unemployment compensation can help you survive until you get another job. Unfortunately, unemployment compensation is taxed by both the federal government and New York State. When applying for unemployment compensation, consider having a portion of it withheld for the taxes you will owe.

Read this NYS Department of Labor FAQ for more info on Unemployment.

Heath Insurance:

Health insurance is one of the most common employee benefits offered by employers. When you’re unemployed, you need to review all your available health insurance options for continued coverage including COBRA or a replacement Health Plan Marketplace policy. If you don’t have health coverage, you may be subject to penalties on your tax return.

  • COBRA Coverage:
    The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires continuing coverage be offered to certain employees and their families when health insurance would otherwise be lost. COBRA insurance often costs more than a similar employer health insurance plan because it isn’t subsidized by the employer. COBRA generally applies to private-sector employers with 20 or more employees and state or local governments that offer group health coverage to their employees. In most cases COBRA coverage is limited to 18 months.
  • Health Plan Marketplace Coverage:
    After losing employer health coverage, a family may enroll in a new plan through the Health Plan Marketplace regardless of the typical enrollment window. Depending on your annual income, you may qualify for the Premium Tax Credit for the portion of the year which you were covered by Marketplace coverage.

Get NYS Health Plan Marketplace Coverage here.

Employer Pension Plan:

Every employer retirement plan is different. Some plans allow you to leave your retirement funds in your old employer’s plan. Other plans require you to roll your funds into another account (such as an IRA).

When rolling over your retirement funds, request a trustee-to-trustee transfer, when possible. Trustee to trustee transfers are direct transfers done by the trustees without your assistance. If you cannot transfer funds with a trustee-to-trustee transfer, a direct rollover is your next best option. In a direct rollover, your old employer’s retirement plan will send you a check that is made payable to your new retirement account. When you get this check, you must deposit it into your new account within 60 days.

While there is a third options, called a 60-day rollover, for transferring funds from one retirement account to another, it is not a good fit for someone that is recently unemployed. When transferring funds with a 60-day rollover, your old employer retirement plan will withhold 20% of your account value for taxes, cut you a check for the other 80%, and then it is your responsibility to deposit these funds into a retirement account. On top of depositing the 80% into a new account, you will have to make up the 20% with your own funds or the 20% will be taxed and penalized.

If you decide to take a distribution instead of transferring your retirement account, the distributions will be taxable and subject to a 10% early withdrawal penalty.

Please discuss any retirement fund transfers with your financial advisor or retirement advisor. If you don’t have one, I can recommend a few that can help you safely navigate retirement-related tax traps.

Job Search Expenses:

When you’re looking for a new job, some of the expenses may be deductible. To deduct job search expenses, you have to be looking for a job in your current occupation and you must itemize your deductions.

Some eligible expenses include:

  • Resume costs, including preparation and mailing
  • The cost of a placement agency
  • Travel and transportation expenses, if the trip is to look for a new job.

Moving Expenses:

If you move for a new job, the related moving expenses may be deductible. To qualify, the distance from your former house to your new job has to be 50 miles further than the distance from your former house to your old job and you must work in the new location for 39 weeks out of the first year.

Home Sale:

If you sell your house that you owned and occupied as a primary residence for 2 of the previous 5 years, you can exclude up to $250,000 of the capital gain ($500,000 if you’re married and both spouses qualify). If you don’t meet the 2 year requirement, you can prorate the exclusion.

There are a lot of tax issues involved in unemployment. To further discuss the tax consequences of unemployment, please reach out.

Phone: (631) 624-0515
Email: [email protected]

Year-End Tax Moves

Now that it’s December and the year is about to end, it’s time to consider making a few last-minute tax moves for 2016. Take advantage of the lull between Thanksgiving and Christmas to save some money.

These tips can save a considerable amount on your tax return. But, not every action recommended in this blog post will apply to everyone or every situation. Make the moves that make sense in your situation. If you need some help figuring which ones would help you best, let me know.

Maximize Education Tax Credits & deductions:

The American Opportunity Tax Credit, Lifetime Learning Credit, and, to a lesser extent, Tuition and Fees Deduction help take the bite out of college tuition. These credits and deductions are based on the amount of higher education expenses you paid in 2016. If you didn’t spend enough to qualify for the maximum credit or deduction in 2016, you can prepay the spring 2017 semester to help push yourself up to the limit.

Roth IRA conversions & Low income years:

When converting a traditional IRA into a Roth IRA, most (if not all) of the conversion is taxed. If you’ve been considering making a conversion and you had a low income year, this may be the time to convert. Lower income and the resulting lower tax rates provide a good opportunity for a conversion.

Required Minimum Distributions:

If you’re over 70.5, you’re required to take a distribution from your IRA or other qualified retirement plan before the end of the year. If you don’t take your distribution, there is a 50% penalty on the amount you were supposed to distribute. If you turned 70.5 in 2016, you have until April 1, 2017 to take the distribution.

Your required minimum distribution can be paid directly to a qualified charity. Charitable distributions aren’t taxable.

Paying Tax-deductible medical expenses:

The medical expense deduction can be difficult to qualify for. Taxpayers must first itemize and then have medical payments in excess of 10% of their AGI. If you’re near or already passed the 10% threshold, making as many medical payments as possible before the end of the year can save you big on your tax return.

Making Large Gifts:

Each year, you can give up to $14,000 per person to an unlimited number of people without worrying about the gift tax and, if you’re married, your spouse can give another $14,000 to the same individuals. This annual exemption can’t be carried over, so if you’re planning to make a large gift next year, take advantage of this year’s exemption along with next year’s.


These are basic strategies and explanations to save on your taxes at the end of the year and there may be additional factors involved in these credits and deductions. If you need help or have a question on any of these moves, please let me know.

Another Day, Another Scam

Fraudsters pray on people’s fear by impersonating the IRS and demanding money. In some cases, they use threats of audits or arrest. This past summer, there was a rash of fake phone calls on Long Island which has lead to an official Southold Police statement asking citizens to remain vigilant.

The scam tactics are always changing. Recently, the scammers have started mailing out realistic IRS notices. These fake notices demand immediate payment to a PO Box. While these PO Boxes are located in cities with IRS service centers, they are not IRS PO Boxes.

The first IRS notice you receive will always request more information. They will never demand immediate payment. Furthermore, the IRS will never request that you mail anything to a PO Box that isn’t theirs.

Be extremely cautious when receiving an IRS notice. If you have any questions about the validity of a notice or the best course of action, please give me a call.

Here is a sample fake IRS CP-2000 supplied by Iowa State University.

Fraudulent CP2000 Notice

Don’t be a victim, if you get a notice from the IRS, or any other tax authority, please reach out.

Phone: (631) 624-0515
Email: [email protected]