Tag Archives: accountant new hampshire

Using a Payroll Service? Read this..

Many employers outsource their payroll and related tax duties to third-party payers such as payroll service providers (such as Appletree).

 

Reputable third-party payers can help employers streamline their business operations by collecting and timely depositing payroll taxes on the employer’s behalf and filing required payroll tax returns with state and federal authorities.

 

Here are some things you should know:

 

1) Are payroll taxes impounded by your payroll service, meaning are the tax monies pulled from your bank account and put into the payroll service’s bank account until due?

 

2) If you get a letter from the IRS about payroll taxes you believe you paid, you should contact the IRS YOURSELF; since this could indicate a much bigger problem.

 

3) Become familiar with the tax due dates that apply to employers of your size, try to keep track of these dates.

 

The key issue here is that you, the employer, are ultimately responsible for the payments even if the third party agent misappropriates the funds.

 

Are you certain about how your payroll taxes are being handled?

 

If you found this article useful, please do not keep this a secret. Share it with a friend.

 

Copyright 2014 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire, with more than twenty- five years experience on Federal and New Hampshire issues affecting small business, and specializes in keeping his clients OnTrack with bookkeeping, tax, and payroll services for a fixed monthly fee. Learn more about Steve’s exclusive SIX Step system developed for small businesses at www.appletreebusiness.com/map.

Is your corporation really a hobby?

Wouldn’t it be great if you could deduct all the expenses for your hobby?

 

Well, unfortunately, you can only deduct losses on a hobby to the extent of your hobby income. But what happens if you decide to create a corporation for your hobby?

 

I have bad news. Operating the hobby activity within a corporation does NOT change the tax result.

 

Recently, a federal appellate court said that the net losses are not deductible. But, what’s even worse is that the owner of the corporation had dividend income based on the costs that the corporation incurred for the activity.

 

Make sure you understand the rules before you decide to deduct the expenses of your hobby.

 

If you found this article useful, please do not keep this a secret. Share it with a friend.

 

Copyright 2014 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire, with more than twenty- five years experience on Federal and New Hampshire issues affecting small business, and specializes in keeping his clients OnTrack with bookkeeping, tax, and payroll services for a fixed monthly fee. Learn more about Steve’s exclusive SIX Step system developed for small businesses at www.appletreebusiness.com/map.

A KPI? What’s that?

Everybody’s got ‘books’, but how is your business performing?

 

I don’t care what the size is. Every small business owner needs to have a measurement tool and be consistently measured against that tool.

 

 

And that is where Key Performance Indicators or KPI’s come into play.

 

It’s one thing to know what your sales are. That’s the easiest measure, but don’t you want to at least go one step up from your competition? How about knowing what your gross profit margin is ( Take your sales minus your direct costs of doing sales and that gives you gross profit. Gross Profit divided by Sales is your gross profit margin)

 

Every business owner, at a minimum, should know their gross profit margin. Without knowing this, how can you predict, with certainty, how much money you could make if your sales increased by X dollars?

 

Now let’s get a little more complicated…Do you know what your breakeven sales are? That’s great if you can figure that out for today, but what was it last year at this time? Do you know that?  Great, your breakeven sales went down from last year. Why did that happen? What’s changed in your business? Is this something we can capitalize on going on forward.

 

If you’re a service business, how many employees do you have? Do you know what your average sales are per employee. or perhaps per  foreman.

 

Can you see where I’m going with this? Everyone else is  just talking about keeping track of your dollars, not about being able to manipulate those dollars so that a small business owner can be that much more confident about where they are today, and have the certainty about where their business is going tomorrow.

 

Start measuring your performance today! Do you know what a KPI is for your business? I’d love the opportunity to talk with you further about helping you figure out your own business financial confidence. If you want to learn more, look at Appletree Business Services’ Business Financial Confidence Map.

Help, the IRS Padlocked my Doors!

Oftentimes, I’ll meet a new business owner who simply doesn’t respect the power of the IRS.

 

Typically, the small business owners is just starting out. He or she figures that they don’t really have the money or even the wherewithal to deal with paying their payroll taxes, and so they ‘start’ to get behind.

 

This can be a routine that starts innocently enough, but then just gets bigger and bigger and bigger. Amazingly, you might not even hear from the IRS for many months. You have quarterly obligations, but you may have ignored that as well, so the IRS won’t even know you exist.

 

Eventually, an employee is going to want a W-2, or somebody files for unemployment, or maybe you got visited by the labor department.

 

But that’s OK. The IRS is patient. They barely even know who you are, and you figure that’s a problem for another day.

 

You can do this with about 10 employees and find out that in a year’s time, you owe $50,000.

 

So now the IRS knows who you are, and they are not very lenient about people who don’t pay payroll taxes. That’s because payroll taxes are  mostly a ‘Trust Tax’, whereby your employees entrusted you to turn their witholdings over to the government.

 

While you’re in business, the IRS can easily seize money from your bank account, they can even padlock your doors.

 

Make sure you’re staying on top of your obligations or get out of business.

 

My clients are confident knowing that as long they do what we tell them, they’ll be fine with the government. We’ll even pay any penalty if the client did what we told them to do.

 

Are you confident the IRS can’t come after you?

 

If you want business and financial confidence, take a look at Appletree Business Services’ Business Financial Confidence Map.

What the IRS does when your small business gets audited

Have you ever wondered how the IRS audits a business for unreported income, particularly when we’re talking about a small business with little internal controls, and a business model where customers can pay with cash?

 

Well, the IRS has published an audit guide explaining what they look for.

 

In the guide, they explain the 3 principal ways income goes unreported:

 

  • It can be skimmed from receipts, for example, pocketed before it is recorded. If this happens it will not be discovered by auditing the books.
  • It can be stolen after it has been recorded, for example, cash removed from the cash register or goods stolen from the shelf for future resale.
  • A fraudulent disbursement can be created, for example, a payment to a vendor that is actually cashed by the owner’s son.

 

What may be more useful is understanding the audit techniques the IRS might use when your small business gets audited:

 

The most significant indicator that income has been under reported is a consistent pattern of losses or low profit percentages that seem insufficient to sustain the business or its owners. As an accountant/tax preparer, I like to call this the ‘smell test’, a technique I often use on all the tax returns I prepare.  For instance, if someone is consistently showing income of only $5-10,000 per year, but at the same time consistently shows substantial (if any) home mortgage interest, real estate taxes, and charity, then this return would fail the smell test. Typically, I would ask the taxpayer a lot more questions, at least so I can be reasonably comfortable that the return is correct, since if I think the return is suspect, so will the IRS.

 

Other indicators of unreported income can include:

 

  • A life style or cost of living that can’t be supported by the income reported. Can the business support the houses and vehicles that are recorded in the owner’s name?
  • A business that continues to operate despite losses year after year, with no apparent solution to correct the situation. Oftentimes, people will worry about the ‘hobby’ rules, but the real threat is if the government can’t understand where the losses are even coming from.
  • Bank balances and liquid investments increase annually despite reporting of low net profits or losses.
  • Accumulated assets increase even though the reported net profits are low or a loss.
  • A significant difference between the taxpayer’s gross profit margin and that of their industry.
  • Unusually low annual sales for the type of business.

 

Having good books and records, including cash register receipts, is crucial in an audit. Having daily balancing of the cash register, and monthly balancing of the bank account to the books can be extremely useful in helping an auditor be comfortable that income has been reported.

 

One technique that you can expect on virtually any audit of a small business is a gross receipts test of all the bank accounts, both business and personal, where the government will try to agree your reported income or gross sales to the amounts actually deposited into your bank account(s).

 

If you’re not sure if your business would survive an audit (and we continue to see a noticeable increase in clients being audited),  I would be happy to sit down with you and discuss in more detail how your books and records could be improved upon.