What's the difference?
The most beneficial tax break is a credit, which reduces the taxes owed dollar for dollar REGARDLESS of your tax bracket.
A tax deduction reduces your taxable income and its benefit is fully dependent upon your tax bracket.
Long And Short Of The New Tax Law
The the tax law that went into effect in 2018 is now applicable on your 2019 filing.
What's new?
The tax rate in most brackets has been reduced:
The standard deduction was increased:
2018: single: $6350/ married filing jointly: $12,700
2019: single:12,000 / married filing jointly: $24,000
Child Tax Credit:
2018: $1000/child $110,000 income cap threshold for married filing jointly
2019: $2,000/child $400,000 income cap threshold for married filing jointly (and $200,000 income cap for all other returns)
Other significant changes:
The tax penalty for not having health insurance has been repealed.
You can deduct out-of-pocket medical expenses above 7.5% of your adjusted gross income. (Previous years the deduction was anything above 10% of adjusted gross income.)
State and Local tax deductions are capped at $10,000 (this includes property tax)
Old Scams, New Tricks
Tax scams are on the rise, especially during tax filing season. The IRS reports a 60% increase over last year.
Be vigilant.
Know what the IRS will and will not do:
1. The IRS will never dictate what method a taxpayer must use for payment and will NEVER demand cash.
2. The IRS cannot arrest a taxpayer for non-payment nor can they revoke business or drivers licenses.
3. The IRS cannot change a taxpayers citizenship or immigration status.
4. The IRS mostly contacts taxpayers via United States Postal Service. Very rarely does the IRS contact a taxpayer via email or phone.
Protect yourself.
Here are a few simple rules to follow that will help:
1. Never click on a link in an email.
2. Utilize your computer's firewall.
3. Use malware and virus protection software.
4. Use strong passwords - at least 10 digits and include a mix of upper and lowercase letters, numbers and special characters. Do not use personal information such as a beloved pet's name or old address as these can be discovered by scammers.
5. Use two-factor authentication when possible.
6. Back up your computer files to an external hard drive or a trusted cloud based storage.
7. Never give a caller or emailer who claims to be with the IRS any banking, credit card or other financial information as well as never giving them personal information such as your social security number or address.
If you should find that you have a virus, see a computer specialist to clean your computer before attempting to access your external hard drive or cloud based storage as accessing these files from a hacked computer can infect those files.
Bookkeeping nightmares?
Many small businesses are "do it yourselfers" due to a misguided sense of saving money. It's especially difficult with bookkeeping. But finding the time and having the skill to keep their records and wondering if they are doing things correctly is often a struggle.
Hiring a experienced and GAAP knowledgeable bookkeeper not only saves the business owner money in time, but usually saves in taxes as well. A skilled bookkeeper can do the job in half the time it took the business owner and they will be able to clean up the records that may have been incorrectly recorded, review employee records, and save in late fees. The bookkeeper will be able to see trends and help the owner think strategically about where the money is going and where you can save.
The rates for hiring a bookkeeper on a part-time basis can range from $20-$60 an hour, depending on location, workload and whether the work is done at the company's location or from the bookkeepers office.
Don't under estimate the value of a skilled, diligent bookkeeper. Remember that what your bookkeeper does determines the information used to prepare your tax return. Bookkeeping may seem easy, but wait until you have one mistake make a mess of your books; it can cause trouble for years.
Happy Holidays and Merry Year End!
The end of the year is full of holiday joy and time spent with family and friends; if you have the time to spare! For many businesses it is also that memorable time of year in which the accounting department is striving to get organized, gather last minute W-9's, and get expenses paid.
In order to give your CPA the cleanest books, and save your company money in CPA fees to boot, I've compiled a "to do" list. Follow this list and your CPA and check book will thank you.
Step 1: Reconcile
I find the easiest way to find any glaring errors is to reconcile your bank accounts, petty cash and credit card statements; if you haven't been doing this throughout the year (which I strongly encourage). In this process you may find debits made that were missed due to a lost receipt or you'll find checks that had not cleared the bank.
Step 2: Adjustments
I tend to work on Assets first. Go through each asset account and ensure that it is categorized correctly. Often times an item that should be expensed is incorrectly logged as an asset. This can go the other direction as well, an asset is incorrectly logged as an expense. The general rule as to whether an item is an asset or expense: GAAP defines a company's assets as items it owns or controls that have measurable future economic value. hmm. What does that mean? Ask yourself this question: will that item have sellable value in 5 years? If you answered yes, then categorize this as an asset. See this article on Capitalization vs. Expense for a more in-depth description: GAAP & Capitalization of Assets Rules. Don't forget to record your Depreciation on these assets!
Pre-paid expenses can be tricky, but I find keeping a spreadsheet of every single transaction can help keep things straight.
Next work your way down your liability accounts. Accrue any interest on loans through the end of your fiscal year. This is especially true on loans such as mortgages, if you are simply recording the monthly payment you may have missed separating out the principal from interest.
December is a good time to scrap or donate those assets that you are no longer using. Keep your donation receipt for tax purposes and remember to update your depreciation schedule.
Now is the time to conduct a physical inventory count and record adustments.
Check your Receivables to see if you need to write off any as bad debt.
Take a look at your sales and see if you've missed an invoicing opportunity prior to closing the books. Lastly, check your bills. Many bills show up in January but they are for the billing period of December, you can accrue for these in December.
Step 3: Payroll
Check your documentation for any new hires you had this year. Must haves are: W-9 & I-9. Recommended to have is an employee handbook and form signed by new hire that they have received, have read and will comply with the handbook.
Prepare and remit year end reports:
- W-2
- W-3
- 940
- 941
- 1099
- 1096
Step 4: Review
You can do this many different ways, but I find it easiest to run a Profit & Loss and Balance Sheet for the year and look through each account for consistency and accuracy. If you use job classing, make sure it is complete and accurate at this time.
Step 5: Reports
It is a good idea to run final reports after you have completed these steps so you have a record of what you handed off to your CPA. I keep a hard copy and a soft copy.
- Profit & Loss, by month
- Profit & Loss, by class or job
- Sales Reports
- Balance Sheets as of each month end
- Aged Accounts Receivable
- Budget vs. Actual, if applicable
- General Ledger
- Payroll reports
- Trial Balance
Step 6: Back up
Do this now and again after you get your closing entries from your CPA.
U.S. House of Representatives approves to delay new overtime pay rule
The U.S. House approved to delay the new overtime rule by 6 months to June 1, 2017.
What comes next? The change was scheduled to take effect Dec. 1 2016 and now many employers are scrambling to understand how to untangle the changes they've already made to adhere to the new ruling, while others were biding their time in making any changes at all.
So what should you do? If you have not made any changes to comply with the Dec. 1 deadline you don't need to do anything for now. Should the higher court rule in favor of the new overtime threshold (as described in "NEW Overtime Rules Finalized!" published on May 26, 2016) business owners will then have to take action to comply.
Who Can You Trust?
Image credit: NYTimes, Mark Makela
With many youth sports leagues relying on parental volunteers, more and more are finding funds missing according to the NYTimes article. With monthly dues and donations for uniforms and new equipment reaching amounts in the hundreds of thousands or even smaller organizations with smaller coffers; who you trust with that money can be the difference between getting those uniforms or finding your organization a victim of fraud and embezzlement.
Treating your league like a business with checks and balances is one way many organizations are handling this epidemic. For a small monthly retainer, Zenbooks can keep your leagues finances on track, balanced and run monthly reports for the Board.
youth-sports-embezzlement-by-adults.html
NEW Overtime Rules Finalized!
Overtime Rules Effective 12/1/2016 Finalized
The Department of Labor (“DOL”) has announced an increase to the minimum salary requirement for administrative, professional, executive and highly compensated employee exemptions. The new minimum salary for exemption will increase from $455/wk to $913/wk, effective December 1, 2016.
The federal wage and hour law, the Fair Labor Standards Act of 1938, 29 U.S.C. 201, et seq., requires covered employers to pay their employees a minimum wage, currently $7.25 per hour, and overtime at time and a half for hours worked over 40 in a workweek. As with most, there are exceptions to every rule. In regards to this rule the exceptions are called exemptions. The most prominent of exemptions is the overtime exemption for executive, administrative, and professional employees, and outside sales employees.
To be considered exempt, employees must pass specific salary and duties tests.
· Meet the minimum salary requirement
· The employer must pay the employee their full salary in any week they work (there are limited exceptions to this test)
· The employee’s work duties must meet certain criteria
There is also an upper level test for “highly compensated” employees (“HCE”). At this salary level, the duties tests standards for exemption are more relaxed. As of December 1 this figure will increase to $134,004 per year or $2,577 per week.
How To Prepare For The Increases?
· Consider increasing the salary of already exempt employees to the minimum of$913/wk.
· Re-class currently exempt employees to non-exempt and begin paying overtime.
· Continue paying on a salary basis, but keep records of their hours worked; paying overtime when worked.
“With integrity, you have nothing to fear, since you have nothing to hide. With integrity, you will do the right thing, so you will have no guilt.”
― Zig Ziglar
Tips for Year End Close
It's that most wonderful time of the year...closing the books. So let's get started!
Many year end close procedures you'll leave to your accountant or CPA, but there are many "scrubbing" chores you can do to clean up the accounts to ensure you're giving your CPA tidy books.
Step 1: Reconcile
I find the easiest way to find any glaring errors is to reconcile your bank accounts, petty cash and credit card statements; if you haven't been doing this throughout the year (which I strongly encourage). In this process you may find debits made that were missed due to a lost receipt or you'll find checks that had not cleared the bank.
Step 2: Adjustments
I tend to work on Assets first. Go through each asset account and ensure that it is categorized correctly. Often times an item that should be expensed is incorrectly logged as an asset. This can go the other direction as well, an asset is incorrectly logged as an expense. The general rule as to whether an item is an asset or expense: GAAP defines a company's assets as items it owns or controls that have measurable future economic value. hmm. What does that mean? Ask yourself this question: will that item have sellable value in 5 years? If you answered yes, then categorize this as an asset. See this article on Capitalization vs. Expense for a more in-depth description: GAAP & Capitalization of Assets Rules. Don't forget to record your Depreciation on these assets!
Pre-paid expenses can be tricky, but I find keeping a spreadsheet of every single transaction can help keep things straight.
Next work your way down your liability accounts. Accrue any interest on loans through the end of your fiscal year. This is especially true on loans such as mortgages, if you are simply recording the monthly payment you may have missed separating out the principal from interest.
December is a good time to scrap or donate those assets that you are no longer using. Keep your donation receipt for tax purposes and remember to update your depreciation schedule.
Now is the time to conduct a physical inventory count and record adustments.
Check your Receivables to see if you need to write off any as bad debt.
Take a look at your sales and see if you've missed an invoicing opportunity prior to closing the books. Lastly, check your bills. Many bills show up in January but they are for the billing period of December, you can accrue for these in December.
Step 3: Payroll
Check your documentation for any new hires you had this year. Must haves are: W-9 & I-9. Recommended to have is an employee handbook and form signed by new hire that they have received, have read and will comply with the handbook.
Prepare and remit year end reports:
- W-2
- W-3
- 940
- 941
- 1099
- 1096
Step 4: Review
You can do this many different ways, but I find it easiest to run a Profit & Loss and Balance Sheet for the year and look through each account for consistency and accuracy. If you use job classing, make sure it is complete and accurate at this time.
Step 5: Reports
It is a good idea to run final reports after you have completed these steps so you have a record of what you handed off to your CPA. I keep a hard copy and a soft copy.
- Profit & Loss, by month
- Profit & Loss, by class or job
- Sales Reports
- Balance Sheets as of each month end
- Aged Accounts Receivable
- Budget vs. Actual, if applicable
- General Ledger
- Payroll reports
- Trial Balance
Step 6: Back up
Do this now and again after you get your closing entries from your CPA.