Accounting Blog

Smart Pricing Strategies

It’s a given that businesses need to be profitable to survive. A key element in making a profit is pricing. Here are some suggestions that can help you get your pricing right.

Identify Your Costs

If you don’t know what your product’s or service’s total costs are, you can’t price them accurately. What makes up the total cost? The components may include:

  • Cost of materials or merchandise
  • Labor costs, including salaries plus benefits
  • Overhead costs, such as taxes, rent, insurance, marketing, utilities, and transportation

Determining how much you need to charge just to cover your costs is an essential first step in setting prices. Be sure to reevaluate your costs regularly. If you are experiencing difficulty moving certain products at an acceptable profit, your costs could be too high.

Know Your Customers

Customers generally fall into distinct categories. Some are very price sensitive. Others focus less on price and more on convenience. The implied status or exclusivity of certain goods and services is very important to certain other customers. Once you identify the type of customer you are targeting, it becomes easier to set your prices accordingly.

Know Your Competitors

Knowing what your competitors charge for similar products or services helps you position your business in the marketplace. For example, if you determine your competitors focus on low prices, you can decide if you want to differentiate your business by focusing on superior service.

Leveraging service as a value proposition may justify charging higher prices than your competition. Or there may be other differentiators that allow you to charge higher prices, such as exclusive merchandise or highly knowledgeable employees.

Experiment and Monitor

Look for ways you can sell options, service contracts, and add-ons to a primary product or service, perhaps by offering several “packages” at different prices. Or consider applying discounts based on the quantity ordered.

Continuously monitor your prices and your profitability. Knowing which products or services are making you money allows you to make data-driven decisions about inventory and pricing.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Beware of the Tax Liability that Comes with Being on a Non-Profit Board

If you are a volunteer board member for a nonprofit organization, one specific issue to keep in mind is the IRS’s trust fund recovery penalty. If any entity — nonprofit or for-profit — fails to properly remit Social Security taxes and/or income taxes withheld from employees’ wages, the IRS will directly approach the organization’s “responsible persons” for the tax payments and a potential 100% penalty.

In general, the penalty will not be imposed on any unpaid, volunteer member of the board of a tax-exempt organization if the member: (1) is solely serving in an honorary capacity, (2) does not participate in the day-to-day operations of the organization, (3) does not participate in the financial operations of the organization, and (4) does not have actual knowledge of the failure on which the penalty is based.

However, for an active member who has governing responsibilities, it is still important to ask questions about who is handling these tax payments (a staff member, the executive director, a payroll service, an accountant?) and what checks and balances are in effect to make sure no problems arise. Annual reviews or audits may also be helpful to verify compliance.

To learn more about non-profit compliance issues, give us a call today. We look forward to helping your non-profit grow.

 

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Are You a Non-Profit? Then Politics are Out of Bounds

Nonprofit organizations exempt from tax under Section 501(c)(3) of the federal tax code — schools, religious groups, hospitals, social service providers, and other public charities — should be careful not to violate the law’s prohibition on political campaign activities.

What’s Prohibited?

Participation or intervention in a political campaign on behalf of, or in opposition to, a candidate for public office is absolutely prohibited, whether it’s done directly or indirectly. This restriction applies across the board to campaigns of candidates running for national, state, or local public office.

Examples of prohibited political campaign activities include:

> Endorsing a candidate

> Donating to a candidate’s campaign

> Allowing a candidate to make a campaign speech at an organization-sponsored event

> Allowing a candidate to use an organization’s assets or facilities if other candidates are not given an equivalent opportunity

> Distributing materials that favor or oppose a candidate (whether the statements are prepared by others or by the organization)

> Posting comments about a candidate on the organization’s website or maintaining a link to only one candidate’s profile on the site

Permissible Activities

An organization may educate voters as long as it’s done in a nonpartisan, unbiased way. For example, organizations may prepare and distribute voter education guides or hold public forums. But all candidates seeking the same office should have an equal opportunity to be represented or participate. Neutrality — in content, wording, questioning, issues for discussion, etc. — is key.

Board members and other leaders of an organization may, of course, hold their own political views. But when they express those views, they should make it abundantly clear they are speaking for themselves, not on behalf of the organization. Leaders should avoid making political statements at organization meetings. Similarly, the organization’s resources or publications should not be used to express political views.

A charity may conduct educational activities regarding public policy issues of importance to its mission, including issues that divide candidates in an election for public office. However, messages that could be construed as political campaign intervention should be avoided.

Failure To Comply

Violating the prohibition on political campaign activities can result in revocation of an organization’s tax-exempt status and the imposition of certain excise taxes.

To learn more about non-profit compliance issues, give us a call today. We look forward to helping your non-profit grow.

 

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Pursuing the right path: Which business entity is right for you?

Critical Choices: How the Business Entity You Select Impacts Your Taxes

Entrepreneurs have a long list of special opportunities to save on taxes. However, your eligibility for some tax breaks depends on the decisions you make as you are planning and launching your business. One of the most critical choices is which business entity you will operate under. The Amazon Best Selling book, The Great Tax Escape, walks you through each of your options, spelling out the benefits and drawbacks of the most common business structures.

Business Entity Basics

It’s no surprise that you must pay taxes on any income your business generates, but you might not realize that the same income can be taxed differently depending on how your business is organized. While some types of businesses are considered separate taxpayers from their owners, others require that you include your business income on your personal tax returns.

Your tax rates aren’t the only thing impacted by your choice of business entity. The structure you select affects whether you are personally responsible for business debts and whether you can be held personally liable if the business is sued. When your business exists as a separate entity, the business itself can apply for credit, and these types of businesses can continue to operate when you decide to move on or retire.

These are a few of the most common options:

Sole Proprietorships and Partnerships

When you are starting out and working alone, it is easy to operate as a sole proprietorship. Essentially, you and your businesses are one and the same for tax and legal purposes. Simply register your business name with the state, and you are ready to launch. You can still have employees as a sole proprietor, but you own the entire company.

The simplicity of this structure makes it quite popular, but it isn’t always the best choice for entrepreneurs. Business income is treated the same way as other personal income for tax purposes, and you assume full liability for all business debts and legal issues. That puts your personal assets at risk.

Though there is slightly more paperwork involved, a partnership is quite similar to a sole proprietorship. Taxes and legal liability are the responsibility of all partners, and partners can be sued individually or collectively for the actions of one business owner.

Limited Liability Companies (LLC)

It is common to see initials LLC after many small and medium-sized business names, and there is a good reason for that. LLCs offer business owners many of the protections that larger corporations enjoy, without the complexity and cost associated with incorporation. With LLCs, business owners are considered separate from the business itself for the purpose of taxation and legal liability. This can lead to significant tax savings, and it protects personal assets from business-related debts and lawsuits.

Of course, setting up an LLC is more complicated than operating as a sole proprietor, so some entrepreneurs choose to hold off on this step until the business begins to be profitable. Your choice of business entity can dramatically impact your bottom line tax bill, and it will affect your long-term level of risk as the organization grows. To learn more about your options for structuring your business, contact us today!

Finding the right route: special topics for LGBT couples

Tax-Saving Tips for LGBT Couples

The issues around marriage equality caused lots of debate, but it was federal tax laws that finally prompted the Supreme Court to take a look. Prior to the 2013 United States v. Windsor decision, same-sex couples who were legally married in states or countries that recognized their union were unable to take advantage of certain federal benefits. For example, individuals in same-sex marriages were ineligible for the insurance benefits of their spouses who worked in government, and they could not receive social security survivor’s benefits or file joint tax returns.

The 2013 United States v. Windsor decision and the 2015 Obergefell v. Hodges decisions changed these practices, and LGBT couples became eligible for federal tax savings that were previously unavailable. The Amazon Best Selling book, The Great Tax Escape, offers a comprehensive look at making the most of these programs to enjoy greater tax savings.

Choosing Your Filing Status

The first tax-related issue to consider after you are married is how you will file your returns. Depending on your income, “married filing separately” could offer larger savings than “married filing jointly”. There is a phenomenon knows as “the marriage penalty”. This references the tax increase that many couples face when filing joint returns versus single returns.

Tax specialists can assist with significantly reducing tax liability through a combination of smart financial planning, examination of the impact of each filing status, and a review of all possible deductions. Filing status is expected to be particularly relevant for the 2018 tax year, as new tax regulations with revised tax brackets may reduce or eliminate the marriage penalty.

Quick Tips to Avoid Tax Filing Pitfalls

Completing your tax returns after you are married is not necessarily more complicated than filing as single, but there are a few differences to keep in mind. Small errors can lead to major frustration if your returns are rejected or you have to file an amended form. These are the most common pitfalls – and how to avoid them:

  • You must either choose “married filing jointly” or “married filing separately”. Other filing statuses are not permitted, including “head of household”. (Note: There is an exception available for married couples who have lived apart for six months or more.)
  • Your spouse cannot be listed as your dependent.
  • If you choose “married filing separately”, only one spouse can claim each dependent child.
  • Married couples must choose the same option with regard to itemizing deductions versus claiming the standard deduction.

Your Certified Tax Coach can provide the guidance you need to complete your returns correctly.

New Options for Reducing Estate Taxes

The underlying issue that prompted United States v. Windsor was the application of federal estate tax regulations. In short, married couples pay far less when a spouse dies than they would if no marriage existed. The individual who brought the suit wanted the same benefits as married couples who are opposite-sex. Today, all married couples can enjoy the tax savings that come with careful estate planning. Your Certified Tax Coach is an excellent resource for putting a tax minimization strategy in place to protect your wealth after one partner passes away.

For more tips on how LGBT couples can increase tax savings, visit our consultation form for your copy of our new release, The Great Tax Escape.

Expertly navigate the labyrinth of the tax code 23 tax saving tips for doctors

Quick Tips for Tax Savings: Physician Edition

Doctors offer critical services to the community through prevention and treatment of health issues. However, getting the necessary education and experience can be challenging – both physically and financially. In an effort to make life a bit easier for physicians, lawmakers have put together a variety of programs to reduce tax liability for doctors. Maximizing these opportunities in combination with other tax-reduction strategies can dramatically increase the rewards of working as a healthcare provider. The Amazon Best Selling book, The Great Tax Escape, includes in-depth information on taking advantage of these tax savings techniques. Learn how to get a free copy of The Great Tax Escape here.

Small Changes Add Up to Big Savings

It may not be possible to implement all available tax savings strategies at once, but making small changes in managing your practice quickly adds up. Over time, continue to add layers of savings by implementing additional strategies. Before long, you will see your tax bill go down, even when your income is going up. These are just a few of the tips you will learn more about in The Great Tax Escape.

The Case for Specialized Financial Professionals

Free and low-cost budgeting and financial planning tools are great for those with basic financial situations. However, your position as a practicing physician is too complex for these platforms. Enlist a team of professionals with specific experience in tax issues that affect health care providers. Not only will they help you save your money more effectively – they will also assist you in planning major purchases to minimize tax expenses. Long-term, you are likely to realize a significant return on this investment.

Common Deductions You Probably Aren’t Maximizing

Though you are already aware of many deductions available to you, it is likely that you are not yet getting the maximum tax savings you are entitled to. For example, continuing education expenses, depreciation of your medical equipment, and student loan interest are frequently underreported on physicians’ tax returns. Your Certified Tax Coach can guide you through the nuances of these deductions, as well as the specific opportunities available to medical professionals.

The Benefits of Better Record-Keeping

Whether you work for yourself or you are employed by a larger healthcare organization, you are always moving at a rapid pace. For many physicians, that means letting the little things slide. While you always meticulously update your patients’ records, you are probably less careful about recording your expenses. Over the course of a year, these small charges add up, and you could be missing out on significant tax savings for want of a few receipts. Make financial record-keeping a priority, and you will notice a difference in your year-end tax bill.

Be Ready for Retirement

Paying off your student loans often takes precedence over saving for retirement – especially when you are just starting out in your career. However, contributing to your retirement accounts now has across-the-board benefits for your current and future financial state. The funds you deposit are given special tax-advantaged status, and when you contribute regularly over a long period of time, you are better able to ride out the ups and downs of the market.

For more information on tax-saving opportunities specifically impacting physicians, visit our consultation form for your copy of The Great Tax Escape.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Famed Hedge Fund Manager Makes History with Billion Dollar Bet

It was one of the greatest financial bets of all time. Hedge fund manager John Paulson bet big against subprime mortgages ahead of last decade’s financial crisis, earning billions in profits for his funds. It was a gamble that, in the long run, didn’t pay off.

Along with the $4 billion he earned for himself, he nailed a second record-breaking honor when he was slapped with one of the largest personal tax bills in history.

According to people close to the firm, Paulson used a tax provision available at the time to hedge fund managers. After deferring the bulk of taxes on the profits, Paulson’s personal tax bill came due on April 17th when he was required to pay about a billion dollars. This is on top of $500,000 he paid late the year before.

Only one problem.

The sum of his payment surpasses the maximum amount allowable by the IRS for payment by a single taxpayer with a single check. That amount is $99,999,999.

Like many investment managers, Hedge fund managers profit from fees amounting to a percentage of gains generated for their clients. In the case of Paulson & Co. that percentage is 20%.

For years—decades actually—tax authorities allowed hedge funds to defer receipt of this type of income. The reason the IRS permits this deferment of compensation by executives is that it tends to lower the company’s compensation costs, forcing them to pay higher taxes on profits. This offsets income taxes not paid right away by the employees.

Sounds like a win-win situation, right?

Well, maybe not this time.

In the case of offshore hedge funds that don’t pay offsetting U.S. taxes, such as some of those operated by Paulson, the treasury was not on the winning team.

A tax change mandated by Congress in 2008 gave hedge fund managers like Paulson until April 17, 2018 to pay taxes on money accumulated before the law changed. People close to the firm say Paulson turned to his Credit Opportunities fund, which is one of several he operates.

Word has it this fund held about $3.5 billion in assets late last year. The bulk was represented by Paulson’s own interests. He made an initial tax payment late last year by pulling funds from this account. He pulled another $1 billion from the fund and used it for the money due on April 17th.

Guess who was said to be the largest investor in the fund?

Right.

The government wants its money, but paying Paulson’s bill might not be easy. He could wire it if he wanted but might prefer paying by check if he’ll earn interest on the money until authorities cash the check. If so, he might have to submit multiple payments because the IRS will only accept a payment of less than $100 million.

He could do that if he can get past the most common problem: fitting such huge numbers onto the appropriate line on a check.

We should all have such problems….

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Seriously? Sweat Equity is Not Deductible?

The labors of love you pour into your business may have a fair market value on the street, but how do you accurately translate your net worth?

Is it $100 an hour or does it range in the thousands? For the CEOs of some publically traded companies that number is often tens of thousands an hour.

But you won’t be able to calculate the value of your efforts until you have been paid.

What About Charity Donation?

Okay, we know, you’re worth every penny, but when you donate time to charity or you’re looking to deduct the cost of your time spent, it can cause confusion at tax time. For entrepreneurs who assume their sweat equity is deductible, this can result in shock and disappointment.

The Startup Phase

Starting a new business is an exciting time for an entrepreneur. Ideas are taking shape and heart-held dreams are becoming tangible realities. But unless they’re backed by a substantial nest egg or loan, most businesses need time to produce enough cash flow to compensate the owner for development time.

Many business owners spend hours establishing their businesses before they even open the front door (virtual or otherwise). Ensuring their company’s viability doesn’t often happen overnight. Market testing and calculating pricing take time.

What’s the legal answer to this question?

Well, perhaps it can be found in a recently decided court case. The issue? Whether or not a taxpayer can deduct the value of sweat equity, i.e. services for which he/she is unpaid.

In short, a sole proprietorship reported a loss in his business providing services at no charge. The amount was substantial: $29,500. The taxpayer used this loss as a deduction against his income of $234,000 earned that year (2014). While he had not spent any actual money out of pocket, he argued that research was needed to succeed in his business; yes, sweat equity.

The court ruled against the taxpayer in this case because, in order to take a deduction, one must pay or otherwise incur an expense to be eligible to deduct it. The labor itself is not within the meaning of Code Section 162.

Donating Time to Charity

What about taxpayers or business owners who donate their time to a charitable cause? We’ve already determined their time has value. Certainly, the court must allow for this type of deduction, right?

Well, no, not this one. Donations of services are not deductible charitable contributions. However, if business owners or taxpayers donate the value of their work in cash so the organization can hire someone else to do the work, it then becomes a tax-deductible donation.

Donated labor is not deductible even to nonprofits because, in the normal earning cycle of a business, the net value of the services donated is zero.

For example, consider service on a nonprofit board. If you charge for the work, you would earn according to your pay scale. However, in donating your services you are not paid.

Now, there’s a way around it.

If the organization pays you for your service and you then donate it, you would be reporting it as income. You would owe and pay taxes on the money earned and then be able to deduct your cash donation. By not receiving the income, you avoid reporting the fees in additional revenue for the year, and you’ll also forego the charitable deduction. Either way, the result is the same.

While your personal valuation of sweat equity you put into your business may result in Fortune 500 positioning, it won’t help you reduce your tax bill.

More questions, feel free to give us a call. As a Certified Tax Coach, we can assist you.

 

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

Deducting Business Expenses: Your Motor-home or Recreational Vehicle

Here’s an idea: Why not purchase a motorhome or recreational vehicle and deduct it as a business expense?

As long as you use it for business this could be a really sweet deal. And if you just happen to use it for pleasure once or twice, that’s no big deal, right?

You won’t be the first person to think of this and if you don’t follow the IRS rules, you won’t be the last to experience the consequences. The courts and the IRS have battled this discussion out several times. Both have been challenged trying to confirm when the motor home is a business vehicle and when it is a business lodging facility.

Does it matter?

It does. The business aspects of owning a motorhome will qualify for tax deductions, but this comes with a set of rules.

Bear this in mind: if you travel for business and plan to deduct your motorhome as a lodging facility, be sure to count the number of nights you use it for business purposes and use that to measure the number of permissible deductions.

On the other hand, if you use your motor home or RV as a second home, you would deduct the business percentage of its use for business travel without having to consider Section 280A impediments.

It can be complicated, so be sure you understand the guidelines.

Before you can deduct the business expenses associated with your motorhome you need to determine what it actually costs to operate the business-related usage. Along with depreciation and interest or lease payments, be sure to add insurance to the equation.

Take into consideration all of the expenses associated with maintaining your RV. Here are a few other expenses to include in your calculation:

  • Motor oil
  • Gas
  • Car Washes
  • Tires
  • Licensing Fees
  • Property Tax
  • Parking
  • Tolls

Of course, you’ll only be limited to deducting your business-related expenses. Will painting or wrapping your recreational vehicle with advertisements qualify when deducting personal miles?

You know the answer….

It will not.

Maintain Good Records

The best way to ensure you maximize your allowable deductions on your motorhome or RV is to keep impeccable records. Keep a mileage log and record every single trip—business and pleasure. Make sure you have accrued more than 50 percent business nights.

Even if you think you have a great memory, don’t store this information in your head. Record every single night you use your motorhome for business or personal lodging.

Last but certainly not least, keep IRS Section 280(f)(4) top of mind. This section says the use of your motorhome for overnight business lodging produces deductions for business travel and that business travel is not subject to the vacation home rules.

For a clear explanation of tax deductions for motorhomes or RVs, contact one of our tax professionals. Better to plan ahead than to clean up a mess after the fact.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

California Courts Put the Squeeze on Statewide Hiring Practices

In an effort to even the playing field, a unanimous decision by the California Supreme Court recently put business owners across the state in somewhat of a chokehold. With a ruling that could change the workplace status of people across the state, they’ve made it harder to classify workers as independent contractors.

Class-Action Lawsuit

The ruling came as a result of a class-action lawsuit against Dynamex Operations West, Inc. The suit charged that Dynamex, a package, and document delivery company, misclassified its delivery drivers, calling them independent contractors when they were actually employees.

If they did misclassify, they are not the only company doing the same thing. The ruling has implications for the expanding gig economy, an environment in which organizations contract with independent workers for short-term engagements.

Companies such as Uber and Lyft are also being targeted but it could extend to other business models. Hiring independent contractors versus employees is a swiftly growing trend.

The trend is popular in part because it makes good financial sense for businesses. With employment overhead rising over the last couple of decades, employers are backing away from the would-be money-suck and instead of hiring independent contractors for the jobs once held by full-time and part-time employees.

In recent years, the trend toward hiring independent contractors instead of employees has gone through the roof. A 2016 study by economists at Harvard and Princeton universities estimated 8.4% of the U.S. workforce is classified as independent contractors.

That’s 12.5 million people.

It’s a no-brainer really. Companies that hire independent contractors are not bound by the rules governing employment.

The Advantages?

No workers comp.

No deductions.

No piles of paperwork.

No minimum wage or overtime pay.

A 1099 at the end of the year does it, and they’re good to go. Contractors are in charge of managing their own responsibilities to the IRS and state governments.

End of story.

But the story doesn’t always have a happy ending.

If workers are misclassified, the business doing the hiring faces stiff fines. Employment lawyers say many are questioning whether it would be best to reclassify before someone waves a red flag in their direction.

What is an Independent Contractor?

According to the court ruling, independent contractors:

  • Perform work outside of the hirer’s core business
  • Engage in an independently established trade, occupation or business.
  • Would not reasonably be viewed as working for the hiring business.

The court says businesses that hire workers must show that the workers are working in their own established businesses, free from the control and direction of the employer. That means no established hours or expectations as would be expected of an employee.

The aforementioned ruling did not resolve the Dynamex case, but it did help define independent contractors for lower courts grappling with the dispute. The court said wage and hour laws were adopted to enable people to earn a subsistence standard of living and to protect workers’ health and safety. The laws also shield the public from having to assume financial responsibility for workers earning substandard wages or working in unhealthy or unsafe conditions, the court noted.

“This is an effort to level the unequal playing field — misclassified workers have been taken advantage of for decades,” said Gutman Dickinson, a partner at Bush Gottlieb.

The risk of misclassifying workers—intentionally or otherwise—is substantial. A worker may be denied the status of employee “only if the worker is the type of traditional independent contractor — such as an independent plumber or electrician — who would not reasonably be viewed as working in the hiring business,” the court said.

Examples of Independent Contractors:

    • Plumber
    • Electrician
    • Hairdresser
    • Copywriter
    • Computer Tech

As long as the worker is temporarily hired he or she would be classified as an independent contractor. But a cake decorator who works on a regular basis custom-designing cake—even from home—would be an employee.

This discussion is significant on many levels, not the least of which concerns the California Labor Commission. According to their website, the misclassification of workers as independent contractors costs the state roughly $7 billion in lost payroll taxes each year.

To follow these changes and others, connect with one of our tax experts.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v

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