Protecting Yourself from Scams, ID Theft and Cyber Criminals

Article Highlights:

  • ID Theft
  • What’s in Your Wallet or Purse
  • Phony E-mail
  • Pop-up Ads
  • Only Access Secure Websites
  • Avoid Phishing Scams
  • Security Software
  • Educate Children
  • Passwords
  • Phony Charities
  • Impersonating the IRS
  • Back Up Files
  • If It Is Too Good to Be True

As much as the Internet has changed our lives for the good, it has also opened us up to threats from crooks from all over the world. They are smart and always coming up with a new trick to separate you from your hard-earned dollars or with an illegal way to use your stolen ID. They apply for loans and credit cards with stolen IDs, file fraudulent tax returns, make purchases with stolen credit card info, and tap into your bank account with stolen account information, and the list goes on. As a result, everyone needs to be very careful and mindful of the tricks used by these scammers to not end up becoming a victim.

This office is committed to using safeguards that protect your information from data theft. To further protect your identity, you can also take steps to stop thieves. This article looks at a variety of tricks and schemes crooks use to dupe individuals, along with actions you can take to avoid being scammed, keep your computer secure, avoid phishing and malware, and protect your personal information.

ID Theft – The primary information ID thieves are looking for is your name, Social Security number, and birth date. So, constantly be aware of where you use that information, and always question anyone’s need for it when they ask. The fewer institutions that have your ID information, the lower the chances your data will be hacked. Treat personal information like cash – don’t hand it out to just anyone. Social Security numbers, credit card numbers, and bank and even utility account numbers can be used to help steal a person’s money or open new accounts. Every time you receive a request for personal information, you should think about whether the request is truly necessary. Scammers will do everything they can to appear trustworthy and legitimate.

Stolen IDs are also frequently used by cyber thieves to file fraudulent tax returns in your name, to take advantage of refundable tax credits such as the earned income tax credit, the child tax credit and the American Opportunity Education Credit, leaving you to deal with the IRS’s identity theft protocol.

What’s in Your Wallet or Purse – What is in your wallet or purse can make a big difference if it is stolen. Besides the credit cards and whatever cash or valuables you might be carrying, you also need to be concerned about your identity being stolen, which is a far more serious problem. Think about it: your driver’s license has 2 of the 3 keys to your identity. And if you also carry your Social Security card, bingo! An identity thief then has all the information needed.

Phony E-mail – Be aware that an unsolicited e-mail with a request to download an attachment or click on a URL could appear to be from someone you know, such as a friend, work colleague or tax professional. It could be that their e-mail has been hacked and someone else is sending the e-mail, hoping to trick you into some scam. Be alert for suspicious wording or content, and don’t click on any embedded links or attachments if there is any doubt.

Pop-up Ads – Don’t assume Internet advertisements, pop-up ads, or e-mails are from reputable companies. If an ad or offer looks too good to be true, it most likely is not true. Take a moment to check out the company behind it. Type the company or product’s name into a search engine with terms like “review,” “complaint” or “scam.”

Only Access Secure Websites – Only provide personal information over reputable, encrypted websites. Shopping or banking online should be done only on sites that use encryption. People should look for “https” at the beginning of a Web address (the “s” stands for “secure”) and be sure “https” is on every page of the site.

Avoid Phishing Scams – The easiest way for criminals to steal sensitive data is simply to ask for it. Learn to recognize phishing e-mails, calls or texts from crooks that pose as familiar organizations such as banks, credit card companies or even the IRS. These ruses generally urge taxpayers to give up sensitive data such as passwords, Social Security numbers and bank account or credit card numbers. They are called phishing scams because they attempt to lure the receiver into taking the bait.

For example, you might get an e-mail disguised as being from your credit card company asking you to verify your password. Companies will never do that because only you have that information, which is why you have to change it if you forget it.

Security Software – It is good practice to use security software. An anti-malware program should provide protection from viruses, Trojans, spyware and adware.

Set security software to update automatically so it can be upgraded as threats emerge. Also, make sure the security software is on at all times. Invest in encryption software to ensure data at rest is protected from unauthorized access by hackers or identity thieves.

You should never download “security” software from a pop-up ad. A pervasive ploy is a pop-up ad that indicates it has detected a virus on your computer. Don’t fall for it. The download most likely will install some type of malware. Reputable security software companies do not advertise in this manner.

Educate Children – Today’s children are probably more adept at using the Internet than their parents but are not mindful of the hazards. Educate your children about not giving out or posting online their Social Security numbers or birth dates. It may also be appropriate not to allow them to use a device that contains sensitive information such as tax returns, financial links, etc. It is not uncommon for crooks to use children’s IDs to file fraudulent tax returns. Also, block your children from freely downloading apps to their mobile devices without parental supervision.

Taxpayers have reported an increase in e-file problems because their children’s SSNs have already been used in a previously e-filed return, which results in the e-filed return being rejected.

Passwords – Use strong passwords. The longer the password, the tougher it will be to crack. Most sites require a minimum of eight characters, with at least one number and one character. Many sources suggest using at least 10 characters; 12 is ideal for most home users. Mix letters, numbers and special characters. Try to be unpredictable – don’t use names, birthdates or common words. Don’t use the same password for many accounts, and don’t share them on the phone, in texts or by e-mail. Consider using a passphrase versus a password. And remember, legitimate companies will not send messages asking for passwords.

Phony Charities – The fraudsters pop up whenever there are natural disasters, such as earthquakes or floods, trying to coax you into making donations that will go into the scammer’s pockets and not to helping the victims of the disaster. They use the phone, mail, e-mail, websites and social networking sites to perpetrate their crimes. The following are some tips to avoid fraudulent fundraisers:

  • Donate to known and trusted charities. Be on the alert for charities that seem to have sprung up overnight in connection with current events.
  • Ask if a caller is a paid fundraiser, who he/she works for and what percentages of the donation go to the charity and to the fundraiser. If any clear answers are not provided, consider donating to a different organization.
  • Don’t give out personal or financial information—including a credit card or bank account number—unless the charity is known and reputable. You might end up donating more than you had planned on.
  • Never send cash. The organization may never receive the donation, and there won’t be a record for tax purposes.
  • Never wire money to a charity. It’s like sending cash.
  • If a donation request comes from a group claiming to help a local community agency (such as local police or firefighters), ask the people at the local agency if they have heard of the group and are getting financial support.
  • Verify the charity – Check out the charity with the Better Business Bureau (BBB), Wise Giving Alliance, Charity Navigator, CharityWatch or IRS.gov.

Impersonating the IRS – Thieves will try to impersonate the IRS in an attempt to frighten you into making a quick payment, without checking on the validity of you owing any taxes.

The very first thing you should be aware of is that the IRS never initiates contact in any other way than by U.S. mail. So, if you receive an e-mail or a phone call out of the blue with no prior contact, then it is a scam. DO NOT RESPOND to the e-mail or open any links included in the e-mail. If it is a phone call, simply HANG UP.

Additionally, it is important for taxpayers to know that the IRS:

  • Never asks for credit card, debit card or prepaid card information over the telephone.
  • Never insists that taxpayers use a specific payment method to pay tax obligations.
  • Never requests immediate payment over the telephone.
  • Will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior written notification of IRS enforcement action involving IRS tax liens or levies. Some scammers even threaten immediate arrest if the payment is not made immediately – don’t be bullied by these criminals.

When in question, never make tax payments or provide any information without calling this office first.

Back Up Files – No system is completely secure. Back up important files, including federal and state tax returns, business books and records, financials and other sensitive data onto remote storage, a removable disc or a back-up drive.

If It Is Too Good to Be True, It Probably Isn’t – Many e-mail scams are based around supposed foreign lotto winnings, foreign inheritances and foreign quick-buck investment schemes. Don’t let the lure of the dollar signs cloud your better judgement. The only one that makes out in these instances is the cyber crook.

Please call this office if you have any questions.

Top 10 Startup Business Questions Every Entrepreneur Should Answer

Starting a small business can be one of the most exciting and rewarding events in someone’s life. But it can also be extremely stressful. If you’re thinking about becoming an entrepreneur, you might have more questions swirling around in your mind right now than you can count. Don’t despair. This is completely normal. After all, it shows you’re serious about your business venture and care enough to want to do things the right way. Before moving forward with a new business idea, ensuring you know the answers to the following vital questions is crucial.

1. Does your startup idea meet a need?
Before starting a small business, you need to know if your product or service will meet a need those in your target market have. It doesn’t matter how special your potential product or service offerings are to you. If you can’t convince others to care about them, your small business won’t be a success.

2. Is your plan feasible?
Learning things on the fly isn’t smart in the business world. Rather than taking a blind leap of faith, determine if your plan is actually feasible before moving forward. For instance, will you be able to afford to put your plan into action? Will your loved ones commit to the ways this venture might affect them? Starting a small business isn’t for the faint of heart. Do you have the ambition and determination to see your vision through?

3. How much financing do you need?
Not adequately estimating financing needs is a common mistake of entrepreneurs. To avoid this pitfall, strive to perform an accurate cost analysis. Approximate both foreseen and unexpected expenses for the first year. Also, determine how long it will take you to become profitable. When creating a cost analysis, be realistic. Don’t count on things going perfectly. Despite your best efforts, they most certainly won’t.

4. Where will your company be located?
The type of small business you want to start will largely determine where it should be located. For example, you wouldn’t attempt to open a ski lodge in sunny, balmy Florida. Generally, you’ll want to find a location with lots of foot traffic. If you’re a new entrepreneur looking to break into an already crowded market, locating your business near your competitors might be a good idea. According to Biz Brain, you’ll already have a built-in market in the location. But if you’re competing in a saturated market with major brand-name competition, locating your business a short distance away from your competitors may be your best bet.

5. Who will comprise your customer base?
If you’re thinking about starting a small business, you likely already have a vague idea about who will comprise your customer base. However, delving into the profiles of potential clients of your company is a smart idea. During this research, you can study characteristics such as age, gender, buying triggers and general preferences. This should help you fine-tune your marketing efforts and target your products or services to the people who would most benefit from them.

6. When can you expect to be profitable?
The old adage is that you should expect to wait at least a year until your startup becomes profitable. But times are changing. Innovations in technology and communication mean entrepreneurs can start companies with little to no overhead nowadays. This rings especially true for service-oriented companies. Therefore, having an astute business plan is essential. A good business plan will help you predict when you may start turning a profit.

7. What setbacks can you anticipate?
The road to small business success can be a bumpy one, so anticipating setbacks is important. One of the most common ones is failing to meet revenue expectations. This can sometimes be blamed on overestimating the amount of business your company will generate in the early days of its existence. A second setback startups can face is losing vital employees. If you plan to start a sole proprietorship, this isn’t an issue. But if you’re launching a business venture with one or more partners, someone might decide to jump ship. To prevent your company from disintegrating into shambles, develop an exit plan that can be utilized if a partner wants to get out.

8. Do you need solid advisors?
Starting a small business can be overwhelming. This is especially the case if you try to do everything yourself. Surprisingly, the CountingWorks What Small Business Owners Value Most in 2019 survey reveals that 60% of small business owners handle their budgeting themselves. Unfortunately, the U.S. Small Business Administration Office of Advocacy’s 2018 Frequently Asked Questions says only about half of small businesses survive past five years. To boost your chances of long-term success, surround yourself with solid advisors. For instance, experienced financial advisors can help you with accurate budgeting. Legal advisors can assist you with contracts and permits.

9. How will you lure the best talent to your company?
Obviously, offering prospective employees a competitive salary can help you lure the best talent to your company. But when you’re just starting a business, this might not be an option. To compensate for this, providing employees with growth bonuses is a good alternative. Offering employees flexible scheduling options and wellness perks such as an onsite gym, a break room stocked with healthy snacks, and standing desks may also attract promising talent to your company.

10. Should you start more than one company at once?
Do you have multiple ideas for new small businesses? Perhaps you’re eager to get more than one startup running at the same time. While this might be tempting, starting out with one company is best. You can put all your energy into getting it profitable and stable. This will prevent you from spreading yourself and your resources too thin. You can always branch out later if your first business takes off.

Starting a business can be quite an undertaking. Therefore, planning correctly and thoroughly is critical. Before you can enjoy small business success, you’ll need to learn the answers to the above questions.

Is Your Small Business as Profitable as It Can Be? It’s Time to Find Out

There is an excellent chance that even if you’re an expert in your particular industry, you’re probably not an expert in small business finances. This may not seem like that big of an issue on the surface. However, in order to make the best decisions possible for your company, you need to have complete and accurate information to work from. It’s easy to see how failing to grasp the financial side of the equation can quickly cause problems everywhere else.

For example, just because your company looks profitable on the surface doesn’t necessarily mean that this is the case. In fact, there are a number of clear ways in which your SMB might not be as profitable as it could be that are certainly worth exploring.

Not Everything Is About Sales

Maybe the most important thing for you to understand is that just because sales are high does NOT mean that your company is experiencing profitable growth in the way you think it is. This is actually just one small part of a much larger (and more complicated) story.

Sales could be going up AND profits could be going down in a number of ways. Maybe you’re selling a higher volume of low-margin items while also not selling as many high-margin goods. Perhaps the cost to actually make your product has increased higher (and faster) than your revenue. It’s possible that your operating expenses are so high that even though you’re increasing sales, your business is still not as profitable as it could be.

The lesson here is that you need to look beyond sales growth to find out what is really happening with your company. If you do discover a problem like those outlined above, come up with a specific solution designed to address those particular issues in the most effective way possible.

Dive Deep Into Your Line-Item Profits

Likewise, you need to recognize the difference between bottom-line profits and line-item profits — particularly in terms of the health of your business year-over-year. Instead of just looking at the bottom line, look at the tangible contribution that each product or service makes to that bottom line.

Break down all of your sales by product lines, individual products and services. Is Product A losing so much money that it is eating into the profits generated by the hugely successful Product B? If that’s the case, Product B probably isn’t as “successful” as you thought it was.

Don’t Forget About Margins

Finally, paying attention to your profit margin percentages can tell you a number of critical things about the financial health of your company, essentially all at the same time. You’ll be able to determine whether:

  • You’re correctly pricing and promoting your products in a way that drives profitable growth.
  • All of the products and services you’re offering are profitable to begin with.
  • The true value of the relationships you’re forging with your customers, and how long they last on average.
  • If you’re allocating resources in the most efficient way possible, thus maximizing profitability whenever possible.

Again — figuring out whether or not your small business is as profitable as it can be involves a lot more than just looking at any one particular line item on a balance sheet. Often, it is a combination of many things — each representing their own individual piece of the puzzle that is your company. Only by understanding the bigger picture will you have the information you need to see where you truly stand… and what you need to do about it moving forward.

In the end, the most important thing for you to understand is that while you may be an expert in running your small business, you’re probably not (nor are you expected to be) an expert in small business finances. Those are two entirely separate concepts and should always be treated as such.

Partnering with the right financial professional isn’t something that you do after your organization is already up and running. It should be a natural part of the process of launching a business in the first place. There are so many decisions that will ultimately affect your cashflow and taxes moving forward — from the financial structure that you set up to the entity you choose during formation. One wrong move at any of these points can artificially limit your ability to make money, and that is a difficult position for any entrepreneur to be in.

Instead, partner with a seasoned financial professional immediately and look to this person for insight and guidance as often as possible. If nothing else, they will make sure that the foundation upon which your company is built is as strong as possible — thus eliminating many and even all of the potential issues that could hold you back in the future.

The Major Reasons a Virtual CFO Can Help Your Business Thrive

On a basic level, a virtual CFO (or vCFO for short) is exactly what it sounds like. This is someone who performs all of the services normally associated with a chief financial officer, only in a third-party capacity. Instead of going to the trouble (and expense) of hiring, training and bringing someone with these qualifications into your organization, you’re getting access to someone who can handle all of this remotely on a schedule that works best for all involved.

This is a job that didn’t even exist as recently as a decade ago, but technology has advanced to the point where not only is it possible, but more businesses than ever are using on demand or part time CFOs to help their organizations soar in increasingly competitive marketplaces. This is true for a huge variety of different reasons, all of which are certainly worth exploring.

The Power of a Virtual CFO

The major reason why smaller organizations in particular are finding vCFOs so helpful is that they’re a viable way to control costs almost immediately. Rather than paying the salary to hire your own CFO in a full-time capacity (which can easily balloon into the hundreds of thousands of dollars per year once experience and benefits are accounted for), you get the services you need, in an on-demand way, for a fraction of the cost. To that end, a vCFO is really no different than managed services or similar options you may already be using.

This bleeds directly into the next major reason why vCFOs can be so beneficial: They can customize their own skills and services to better meet the needs of your unique organization. Rather than paying someone for a lifetime’s worth of education, you’re only paying for the skills needed to perform the tasks at hand. But even better, the services being offered can also be adjusted on a regular basis as your business continues to grow and evolve. All of this provides you with almost unprecedented access to a wealth of knowledge that used to be out of your budget.

Leveraging Someone Else’s Experience to Your Advantage

That expertise also creates a ripple effect across your enterprise in the best possible way. You’re bringing in someone who naturally has involvement in many different companies similar to your own. This means that you’re in a unique position to avoid making the same mistakes that they’ve previously made.

But maybe the biggest advantage that a virtual or gig-based CFO brings to a company has to do with the quality of the advice being offered. This is more than just an accounting setup. The focus goes beyond simply setting up a financial structure and putting a framework in place for you to effectively manage your books.

Consider the types of challenges that you’re likely to experience over the course of just five years. Your business will naturally get more complex as you add not only more employees but also suppliers, vendors and all the contracts that come with them. If you go through a period of rapid growth, it can quickly cause your financials to grow out of control … unless you’re prepared for it.

A straightforward accounting setup isn’t necessarily enough to offer that much-needed level of preparation, but a vCFO is. This is a professional who has arrived with the express purpose of putting the systems in place to not only better support the current phase of your business, but the next one as well.

Being Better Prepared for What Comes Next

In the end, a vCFO won’t just explain the finer details of your business’ financial situation. They’ll work with you to make sure you’re better informed about not only your current status, but the pros and cons of the options that are available to you in the future. That level of strategic advice — and the advanced decision-making made possible because of it — would be difficult to replicate through nearly any other means.

Armed with more actionable knowledge than ever, you’ll quickly find yourself in a better position to always make the right choice at exactly the right time moving forward. This, in turn, ensures that your business can maximize profitability as much as possible over the next few years, thus allowing you to run the type of organization you always dreamed you’d one day be a part of.

If you’re a large, national organization that can afford to bring on a full-time CFO, there really isn’t any reason NOT to do so. But for most other companies, using a vCFO isn’t just an effective way to fill the types of gaps that naturally exist in your skill set — it’s a way to help your business thrive for the next five, 10 or even 20 years in the most efficient and cost-effective way possible.

Your Small Business Survival Guide for If (and When) the Economy Slows Down

According to one recent study conducted by the Small Business Administration, there are approximately 28.8 million small businesses in the United States that are collectively responsible for about 99.7 percent of all economic activity in this country. In many ways, they represent the “canary in the coal mine” for a nation. When small businesses are doing well, this is a sign that the economy is strong and that the future is a bright one.

Unfortunately, the reverse is also true as NSBA revealed that the greatest challenge to both small business growth and survival is economic uncertainty. That idea in and of itself may be nothing new, but a number of recent studies and surveys have revealed that a slowdown in the economy is an issue that may be significantly more timely than many realize.

A Recession and Your Business: A Primer

According to the latest CNBC/SurveyMonkey survey, 53 percent of respondents say that they expect an economic recession sooner rather than later. In fact, many of them think that it could arrive as soon as 2020. This comes despite the fact that 52 percent of respondents described business conditions as “good” for the first quarter of 2019; 57 percent expect increased revenue; and 28 percent actually plan to increase their own full-time staff in the short term.

One of the major factors that contributed to the devastation wreaked by the last recession was that it was so sudden. Things got very bad very quickly, and a lot of small business owners suffered as a result.

But, if most people are in an agreement that another recession is on the way (and indeed, a lot of people seem to think we’re overdue), that knowledge itself becomes your most powerful asset. If you truly want to make sure that your small business is capable of surviving when the economy slows down, there are a few key things you’ll want to keep in mind.

Always Be Prepared

Experts agree that one of the best ways to make sure that your small business comes out of the next economic slowdown in one piece has to do with being as proactive and as prepared as possible.

Your business might not need a working capital injection today, for example, but it may once the next recession begins. At that point, it might be difficult to gain access to that capital thanks to poor or uncertain economic conditions.

To combat this, consider taking out a new line of credit to help make sure those funds are available if and when the time comes. Getting a credit line for $20,000 doesn’t mean that you have to borrow that money today or even in full. But the peace of mind that comes with knowing you do have access to these funds will go a long way toward making sure that you can stay afloat during those slow periods.

It All Comes Back to Cash Flow

Likewise, if you know with some certainty that an economic slowdown is inevitable, there are steps that you can take in the short term to avoid traps and other pitfalls that would cause additional damage during a recession.

When the economy does slow down, you’ll need to make sure that your cash flow is in order. If that is currently a problem for you, it’s only going to get worse as time goes on. Make an effort today to collect on accounts receivable at a faster pace. Improve and optimize your own processes and workflows to make sure that you’re getting the money for services rendered as quickly as possible. If you take meaningful steps to improve your cash flow situation now, it will be one less thing you have to worry about if the economy does slow down dramatically next year.

The Art of Inventory Management

Finally, one of the best steps you can take to protect your business during slow economic periods has to do with performing an overhaul of your inventory management practices.

Inventory costs are always a major pain point for most small businesses, but this is especially true during a recession. Again, take a look at some of the problems you may have today that could cause major damage down the road.

Do you currently order far too many of one specific item? Is there an item that you have that can be sourced somewhere else for a better price? Are you capitalizing on every opportunity to reduce shipping and warehousing costs?

These are the types of questions you need to ask yourself prior to the next economic slow period. If you wait until things start to get tough before taking a look at your inventory management practices, you’ll have waited far too long. You may be able to make progress at that time, but the lion’s share of the serious damage will have already been done.

However, by following tips like these to strengthen the foundation of your business right now, it will still be as solid as you need it to be moving forward – regardless of what happens with the economy during that time. If nothing else, these steps will all help to make sure that your business comes out of the next recession stronger than ever, which is definitely the position you want to be in.

February 2019 Business Due Dates

February 11 – Non-Payroll Taxes

File Form 945 to report income tax withheld for 2018 on all non-payroll items. This due date applies only if you deposited the tax for the year in full and on time.

February 11 – Social Security, Medicare and Withheld Income Tax

File Form 941 for the fourth quarter of 2018. This due date applies only if you deposited the tax for the quarter in full and on time.

February 11 – Certain Small Employers

File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2018. This due date applies only if you deposited the tax for the year in full and on time.

February 11 – Farm employers

File Form 943 to report Social Security and Medicare taxes and withheld income tax for 2018. This due date applies only if you deposited the tax for the year timely, properly, and in full.

February 11 – Federal Unemployment Tax

File Form 940 for 2018. This due date applies only if you deposited the tax for the year in full and on time.

February 15 – Social Security, Medicare and Withheld Income Tax

If the monthly deposit rule applies, deposit the tax for payments in January.

February 15 – Non-Payroll Withholding

If the monthly deposit rule applies, deposit the tax for payments in January.

February 16 –  Payroll Withholding 

Begin withholding for employees who claimed exemption for withholding in 2018 but have not provided a W-4 (or W-4(SP)) to continue the exemption for 2019.

February 28 – Payers of Gambling Winnings

File Form 1096, Annual Summary and Transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2018. If you file Forms W-2G electronically, your due date for filing them with the IRS will be extended to April 1. The due date for giving the recipient these forms was January 31.

February 28 – Informational Returns Filing Due

File government copies of information returns (Form 1099) and transmittal Forms 1096 for certain payments you made during 2018, other than the 1099-MISCs that were due January 31. There are different 1099 forms for different types of payments.

February 28 – Large Food and Beverage Establishment Employers
File Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer’s Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically, your due date for filing them with the IRS will be extended to April 1.

February 28 –  Applicable Large Employers (ALE) – Form 1095-C

File Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, with the IRS, if filing on paper. Otherwise, if filing electronically, the copy to the IRS is due April 1, 2019.

Getting the W-4 Right Is Important

Article Highlights:

  • W-4 Complications
  • Working Spouse
  • Adjusting Refund
  • Other Income and Tax Issues

As they do at the beginning of every year, employers will be requesting employees to complete the IRS Form W-4. Its purpose is to provide employers with the information they need to determine the amount of federal income taxes to withhold from an employee’s paycheck. So, it is very important that the form be completed correctly.

The problem is that as simple as the form looks, getting those entries on the form to produce the desired withholding amount can be tricky. The passage of the tax reform added additional complications, and the IRS has delayed a major revision of the W-4 until the 2020 tax year. In the meantime, taxpayers must get along as best they can using the old version of the W-4.

Even though the W-4 form itself appears to be simple, the instructions come with an extensive worksheet, which may or may not produce the desired results. In addition, there are other issues to consider, such as:

  • Perhaps you desire to have a substantial refund when your taxes are completed next year. This generally requires custom W-4 adjustments, to produce excessive withholding. Keep in mind: when you have a large refund, you have provided Uncle Sam with an interest-free loan.
  • Your spouse may also work, and your combined incomes may put you in a higher tax bracket. Although the IRS provides a special worksheet for married taxpayers if both spouses work, it may not always provide the desired results.
  • In addition to payroll income, you may also have self-employment income, which is subject to both income tax and self-employment, and so you may require a combination of payroll withholding and estimated tax payments, adding additional complications to the W-4.
  • These are just the tip of the iceberg, as there may be investment income or losses, business losses, tax credits, special deductions and loss carryovers, just to name a few more situations that could impact your tax prepayments and withholding for the year.

If you are concerned about getting your withholding correct, please contact this office. We can project your 2019 tax liability and complete your W-4 after taking into account multiple employments, a working spouse, self-employment income and other tax issues unique to your specific tax situation.

Reasons Why Your Small Business Needs an Employee Identification Number

Entrepreneurs often shrug off the idea of obtaining an employee identification number, or EIN, believing that their small business really doesn’t need one. Though there are some cases where a solo business can get away with merely utilizing the business owner’s Social Security Number, doing so is not necessarily the best idea, even if you don’t have plans to hire employees in the future. In almost all instances, having an EIN is a good idea. It provides many benefits that go beyond facilitating the payment of employees.

Using an EIN Instead of Your Social Security Number Protects Your Personal Information

One of the top benefits offered by an Employee Identification Number is that it can help protect your personal identity. Though you still need to protect your EIN and shouldn’t share it without being certain of how it will be applied, using it for your business means that your personal information will have less exposure. Government forms and documents require an identifier, and the EIN (which is issued by the IRS) can be used on all of these instead of the Social Security Number. Though you can still suffer significant damage if your EIN is stolen, the information that is limited to your business is less sensitive than the information that is connected with your Social Security Number. Both require vigilant protection.

If You’re Going to Incorporate, You Need an EIN

Immediately incorporating your business makes it into a separate entity, and as such, it needs its own form of identification, especially if you’re going to have employees. Even if you’re considering yourself an employee, you will need to pay yourself a salary, and that means that you will need to collect payroll tax and take other steps that keep you in step with the IRS requirements. This is true whether your entity is established as a corporation, an LLC, and especially as a partnership, as you can’t use two Social Security numbers for filing financial papers.

The EIN Has Multiple Applications

Having an Employer Identification Number has long-term benefits that go far beyond its initial issuance. In addition to facilitating payroll, it can also be used to apply for all types of credit accounts and bank accounts needed by entities including general partnerships, LLCs, S corporations and sole proprietorships. You’ll need to have that number available for filing to change your business’ entity, for filing your tax returns every year, for setting up financial instruments such as profit-sharing plans, pensions, and retirement plans, and more.

Every business is different, and though we encourage all business owners to give serious consideration to obtaining an Employer Identification Number, we know that it may not apply to your situation. Please call this office if have questions related to an Employer Identification Number and your particular circumstances.

Are You an S Corporation Stockholder? Are You Taking Reasonable Compensation in the Form of Wages?

Article Highlights:

  • S Corporation Compensation
  • Reasonable Compensation
  • Factors Determining Reasonableness
  • In the Spotlight
  • Sec. 199A Deduction

S corporation compensation requirements are often misunderstood and abused by owner-shareholders. An S corporation is a type of business structure in which the business does not pay income tax at the corporate level and instead distributes (passes through) the income, gains, losses, and deductions to the shareholders for inclusion on their income tax returns. If there are gains, these distributions are considered return on investment and therefore are not subject to self-employment taxes.

However, if stockholders also work in the business, they are supposed to take reasonable compensation for their services in the form of wages, and of course, wages are subject to FICA (Social Security and Medicare) and other payroll taxes. This is where some owner-shareholders err by not paying themselves a reasonable compensation for the services they provide, some out of unfamiliarity with the requirements and some purposely to avoid the payroll taxes.

The Internal Revenue Code establishes that any officer of a corporation, including S corporations, is an employee of the corporation for federal employment tax purposes. S corporations should not attempt to avoid paying employment taxes by having their officers treat their compensation as cash distributions, payments of personal expenses, and/or loans rather than as wages.

If the S corporation does not pay its working stockholders a reasonable compensation for their services, then the IRS generally will treat a portion of the S corporation’s distributions as wages and impose Social Security taxes on the deemed wages.

There is no specific method for determining what constitutes reasonable compensation, and it is based upon facts and circumstances. Generally, it is an amount that unrelated employers would pay for comparable services under like circumstances and based upon the cost of living in the area where the business is located. The following are just some of the many factors that would be taken into account in making this determination:

  • Training and experience
  • Duties and responsibilities
  • Time and effort devoted to the business
  • Dividend history
  • Payments to non-shareholder employees
  • Timing and manner of paying bonuses to key people
  • What comparable businesses pay for similar servicesCompensation agreements
  • The use of a formula to determine compensation

The problem here, of course, is that it is easy for the IRS to list contributing factors used by the courts in determining reasonable compensation and leave it to the corporation to quantify these factors into a reasonable salary but still have the ability to challenge the selected amount later if an auditor, off the top of their head, decides the compensation is unreasonable.

The IRS has a long history of examining S corporation tax returns to ensure that reasonable compensation is being paid, particularly if no compensation is shown being paid to employee-stockholders.

Reasonable Compensation in the Spotlight – With the passage of tax reform, reasonable compensation will be in the spotlight because of the new deduction for 20% of pass-through income. This new Sec. 199A deduction is equal to 20% of qualified business income (QBI) and will figure intro the shareholder’s income tax return. The QBI for the stockholder of an S-corporation is the amount of net income passed through to the stockholder and designated as QBI on the K-1, but the stockholder may not include the reasonable compensation (wages) he or she was paid as QBI. Thus, wages paid to stockholders actually reduce the QBI because the S corporation deducts the wages as a business expense, therefore reducing the corporation’s net income and QBI. But that does not mean wages can be arbitrarily adjusted to maximize the Sec. 199A deduction.

IRC Sec. 199A Deduction – Here are some details about how the 199A deduction works and the impact of the reasonable compensation wages on the Sec. 199A deduction.

  • The S corporation’s employee-stockholder’s wages are NOT included in qualified business income (QBI) when computing the 199A deduction. Thus, the larger the wages, the smaller the K-1 flow-through income (QBI) and thus the smaller the 199A deduction, which is 20% of QBI. In this case, an S corporation would tend to pay the stockholder a smaller salary to maximize the flow-through income and, as a result, the 199A deduction.
  • If married taxpayers filing a joint return have taxable income that exceeds $315,000 ($157,500 for other filing statuses), the 199A deduction begins to be subject to a wage limitation, and once the taxable income for married taxpayers filing a joint return exceeds $415,000 ($207,500 for other filing statuses), the 199A deduction becomes the lesser of 20% of the QBI or the wage limitation. For these high-income taxpayers, an S corporation will tend to pay stockholders less wage income for them to benefit from the Sec. 199A deduction.
  • If an S corporation is a specified service trade or business, the Sec. 199A deduction phases out for married taxpayers filing a joint return with taxable income between $315,000 and $415,000 (between $157,500 and $207,500 for other filing statuses). And although the wage limitation is used in computing the phase out, once the taxpayer’s taxable income exceeds $415,000 ($207,500 for other filing statuses), the taxpayer will receive no benefit from the wage limitation and therefore would again want to minimize their reasonable compensation to minimize FICA taxes. Specified service trades or businesses (SSTBs) include those in the fields of health, law, accounting, actuarial science, performing arts, athletics, consulting, and financial services (for more information on what constitutes an SSTB, please call).

Of course, taxpayers cannot pick and choose a reasonable level of compensation to minimize taxes or maximize deductions. Therein lies a trap for taxpayers who do not consider the factors related to reasonable compensation. There are commercial firms that have the data necessary to determine reasonable compensation and specialize in doing so. These firms can be found by searching the Internet for “reasonable compensation.” Even the IRS has employed these firms to provide reasonable compensation data in tax court cases.

If you want additional information related to reasonable compensation, please give this office a call.

6 Common Small Business Accounting Problems That Are Killing Your Growth

If you’re a small business owner, you want your organization to do far more than survive: you want it to thrive! Unfortunately, to make sure that customers are happy and the lights stay on there are a lot of details that need attention, and some end up being overlooked. The intricacies of accounting are neither sexy nor fun, and most business owners don’t have the training or background that’s needed for this vital area of operations. To help make sure that you’re doing everything you can to maximize your profitability and fiscal responsibility, here’s a list of the six most common accounting problems small businesses encounter. By addressing each, you’ll go a long way toward assuring your business’ success and growth.

1. Not Using Accounting Software
There are a lot of benefits to using accounting software, and the most obvious of these is that if you try to do all of the necessary calculations by hand, you’re at risk for making a small mistake that can lead to a giant headache. There is a fantastic selection of software available — it may even feel overwhelming when you first begin doing the research – but if you take your time, read reviews and look for something that is designed to meet the needs of your particular type of business, you’re sure to end up satisfied. If you’re not sure what to look for, use this checklist of minimum requirements:

  • Sales tracking
  • Financial statements, cash flow statements and balance sheet
  • Generating Invoices
  • Contacts management and contact history tracking
  • Budget planning
  • Account to accept credit card payments
  • Inventory management
  • Payrolls
  • Taxation

2. Not Knowing How to Use the Software That You Have
It may seem funny, but the second most common mistake that small business owners make in terms of accounting is also about accounting software – it’s having the software in-house but not using it, not using it the right way, or not really knowing how to use it. Like the treadmill that sits in the corner of your bedroom and slowly becomes something to throw your clothes over, having invested in accounting software and then not actually using it (or using it the right way) is a reason for regret, and so much more beyond that. When you’re not using your software the right way, you leave yourself vulnerable to making accounting mistakes. More importantly, you end up taking far too much time on bookkeeping tasks that it could do for you quickly and efficiently. Most of the packages available come with tutorials, but if you need help, contact an accounting professional and ask them to run through bookkeeping basics with you so that you can use it to its best benefit.

3. Failing to Produce Monthly Financial Reports
A lot of small businesses tend to minimize the importance of financial reports, feeling that if they produce some snapshot every few months or even twice a year, it’s good enough. The truth is that if you have financial backers or are interested in getting additional investment in your business, having a monthly report is an essential tool for them, as well as a sign that you’re taking their investment seriously. More importantly, the more closely you monitor your company’s financial activities, the faster you can pick up on issues as they develop, including slow-paying clients, oversites in your accounts payable, and more.

4. Having the Numbers, But They’re Wrong
There are a lot of things that can lead to your financials being incorrect: it can be not using accounting software (or not using it correctly); failing to update data; inputting incorrect data; and more. Whatever the cause, the result is never good and can cause problems significant enough to close your business or scare investors away. Worse, it can leave you vulnerable to bad actors who can use the inaccuracy to perpetrate fraud.

5. Mixing Your Personal Accounts with Your Business Accounts
Even if you are operating a pass-through business, it is essential that you keep separate books, separate credit cards, and separate banking for your personal needs and your business needs. Failing to do this will make it nearly impossible to determine what expenses are deductible, what capital investments generate profit and more. Small oversights are more likely to occur in accounting for out-of-pocket expenses, and this generally leads to paying more in taxes than you need to. Worse, if you face an audit, it will lead to a nightmare of having to separate and justify accounting measures that have been taken.

6. Failure to Properly Manage Your Payroll
Payroll is one of the most complex areas of running a business. Not only do you want to make sure that you’re paying your employees appropriately, but you need to be sure that essential areas like payroll taxes and withholding are being done accurately. When in doubt, it makes sense to bring in outside professionals for assistance.