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Home Office Tax Tips

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M. Jeffery Martin, CPA, LLC - Individual Tax ArticlesWorking from home can potentially deliver some attractive tax advantages. If you qualify for the home office deduction, you can deduct all direct expenses and part of your indirect expenses involved in working from home. Note, however, that qualifying for such deductions became harder under the Tax Cuts and Jobs Act of 2017 (TCJA). If you previously claimed a home office as a miscellaneous deduction on your individual income tax return, the TCJA eliminated that deduction for tax years 2018-2025. You must now file a Schedule C on Form 1040 to be eligible for the home office deduction.

What Space Can Qualify?

Direct expenses are costs that apply only to your home office. The cost of painting your home office is an example of a direct expense. Indirect expenses are costs that benefit your entire home, such as rent, deductible mortgage interest, real estate taxes, and homeowner’s insurance. You can deduct only the business portion of your indirect expenses.

Your home office could be a room in your home, a portion of a room in your home, or a separate building next to your home that you use to conduct business activities. To qualify for the deduction, that part of your home must be one of the following:

Your principal place of business. This requires you to show that you use part of your home exclusively and regularly as the principal place of business for your trade or business.

A place where you meet clients, customers, or patients. Your home office may qualify if you use it exclusively and regularly to meet with clients, customers, or patients in the normal course of your trade or business.

A separate, unattached structure used in connection with your trade or business. A shed or unattached garage might qualify for the home office deduction if it is a place that you use regularly and exclusively in connection with your trade or business.

A place where you store inventory or product samples. You must use the space on a regular basis (but not necessarily exclusively) for the storage of inventory or product samples used in your trade or business of selling products at retail or wholesale.

Note: If you set aside a room in your home as your home office and you also use the room as a guest bedroom or den, then you won’t meet the “exclusive use” test.

Simplified Option

If you prefer not to keep track of your expenses, there’s a simplified method that allows qualifying taxpayers to deduct $5 for each square foot of office space, up to a maximum of 300 square feet

Want to discuss our individual tax services in more detail? Contact M. Jeffrey Martin, CPA, LLC at 912-634-7722 to schedule your free initial consultation today.

How QuickBooks Online Can Improve Your Company’s Financial Health

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M. Jeffery Martin, CPA, LLC - QuickBooksQuickBooks Online is more than just an online bookkeeper. It can help improve your cash flow, your customer relationships, your inventory readiness, and your future.

 

If you’re already using QuickBooks Online, you know how much impact its bookkeeping abilities have had on your company’s accounting operations. You’re saving time, which in-turn saves money, and you’re reducing errors. When a customer or vendor calls with a question, or you yourself need to track down a critical detail to solve a problem, you’re able to find solutions quickly.

 

You may already have learned, though, that QuickBooks Online’s benefits include much more than simply getting the numbers right. When you take advantage of all it can offer, you’re likely to notice more far-reaching effects.

 

The Specifics

 

Let’s look at how QuickBooks Online accomplishes all of this. You can do much of it on your own, but we’re trained to help small businesses get the most out of QuickBooks Online. We can help you maximize the effectiveness of your accounting time so your company can:

 

Better balance between income and expenses.

QuickBooks Online provides quick, real-time overviews of your sales status.

 

You can’t begin to improve your company’s cash flow until you understand where the financial bottlenecks are. QuickBooks Online provides that information for both income and expenses in a variety of ways. In the image above, you can see that there are seven past-due invoices. Click on the orange bar to see a list of them, and you can automatically send reminders. QuickBooks Online also automates the process of sending statements.

 

You can also run accounts receivable and accounts payable reports that will show where you stand with customers and vendors, like Open Invoices, Uninvoiced Time, Unpaid Bills, and Accounts Payable Aging Detail. If you determine that one of your consistent problems with cash flow is late customer payments, you can set up a merchant account through QuickBooks Online to support credit card payments and bank transfers.

 

More repeat business because of improved customer interaction.

 

Your customers are like gold. To build the best relationships possible with them, you need a clear, updated picture of their transactions, their payment details and history, and your interaction with them. QuickBooks Online provides templates for Customer Information records that provide all of that, along with their contact information and a real-time update of the status of their invoices and payments, estimates, time activities, etc. The latter is provided in the form of an interactive list with links to immediate actions you can take.

 

A more stable, profitable inventory of products.

 

If your business sells products, you know that you have to be smart about inventory levels. Stock too much and you have too much money tied up unnecessarily. Too little, and you’ll be turning customers away and possibly losing their future business. QuickBooks Online’s inventory-tracking tools help you achieve and maintain that balance, so you know both when and how much to reorder.

It’s easy to evaluate your inventory status very quickly in QuickBooks Online.

 

QuickBooks Online also offers multiple inventory reports, like Inventory Valuation Detail, Physical Inventory Worksheet, and Sales by Product/Service Detail.

 

Readiness for growth.

 

You may never want to acquire another company, or move into more spacious offices, or employ dozens of individuals. However, it’s not often that a company doesn’t want to be in a position to grow. And you never know when an opportunity will present itself that would require additional capital. Would you be ready?

 

If you’ve never applied for a business loan or tried to attract investors, you don’t know how much financial information you’ll need to provide, or in what format. There are very specific reports your potential lenders or investors will want to see, standard financial statements. QuickBooks Online includes templates for these, which include a Balance Sheet, Profit and Loss, and Statement of Cash Flows.

 

Like the reports we mentioned earlier, they’re easy to generate on the site, thanks to intelligent, customizable templates. Analyzing them, though, and making sure they’re ready to be seen by third-parties takes professional expertise. We can provide that for you. We can also help you better understand and use other elements of QuickBooks Online so that you’re taking advantage of all of its benefits. Contact us soon to set up an initial consultation.

 

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Cash flow problems? Before you can solve them, you need to learn where the bottlenecks are. QuickBooks Online can help. Contact us to find out how.

 

Is your company ready to grow? You’ll need reports to show lenders and investors. QuickBooks Online can create them, and we can analyze them for you.

 

How well do you know your customers? Could you assemble a quick, thorough overview of their history with you? QuickBooks Online can, and we can show you how. Are you dealing with product inventory problems due to overstocks or insufficient orders from vendors? QuickBooks Online can help.

Ready to get started with a Certified QuickBooks accountant? Call us at 912-634-7722 to schedule your free initial consultation.

Are You Giving Your Taxes Year-round Attention?

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accountant working with a calculator taxesGiving your taxes your full attention just once a year isn’t the best business strategy. Experts suggest that a year-round approach is better for your finances. Click through to learn the best ways to evaluate the impact of taxes throughout the year.

Numerous tax experts agree that addressing your tax liability effectively requires planning throughout the year. Those business owners who reap the most benefits consider their taxes year-round, rather than waiting to focus on tax payments just a few weeks before the filing date.

A typical small business qualifies for roughly a dozen tax deductions. For example, you may be able to claim deductions on the following:

  • Cars operated for business purposes
  • Business-related travel and entertainment expenses
  • Purchases of office supplies, furniture, equipment, and software programs
  • Telephone expenses
  • Contributions toward insurance policies, retirement plans, and pension funds

It’s surprising how many small businesses never take advantage of these deductions, mainly because they suffer from the “tax-planning-happens-but-once-a-year” syndrome. To fully benefit from these deductions, it’s important to maintain your expense records throughout the year.

Your goal should be to reduce your tax liabilities by retaining records of your purchases and determining the proportion of business costs in combined expenses. By monitoring your expenses closely all year, you can analyze each expense for its tax impact as it’s made. Additionally, smart business owners should contemplate three key steps to tax planning:

1. Invest in the most effective tax record tools for your business. Whether it’s spending roughly $30 on journals and tax books with a set of refill sheets costing less than $10 to do manual bookkeeping or investing up to $2,000 on the latest online software tax-filing applications, you will benefit from more rigorous and accurate recordkeeping. Sure, the initial investment could be significant, but regular monitoring should facilitate tracking expenses and making advance payments, which will save you money in the long run.

2. Determine when you need professional tax tips and planning advice. At times you will be able to justify paying for professional tax services, particularly if you need advice on unclear requirements in tax laws that could be in your favor. To prevent unnecessary complications and aggravations, you must avoid violating tax laws that may be applicable to your small business. If you are unsure of these laws, using the tools at your disposal, such as current software and online recordkeeping, and complementing those capabilities with professional advice when needed, can help you keep your taxes under control.

3. Establish year-round tax planning goals. A good tax-planning strategy will help you accomplish some of these goals:

  • Reduce the amount of taxable income
  • Claim any available tax credits
  • Lower your tax rate
  • Control the time when taxes must be paid
  • Avoid the most common tax-planning mistakes

Plus, a year-end review at the end of your fiscal year or “busy season” can be most effective if you’ve maintained clear records and an understanding of your financial position throughout the year.

Of course, this is just a general list. Not all deductions are available in all situations, and rules change frequently. Give us a call to discuss which deductions apply to your company.

Our experienced Saint Simons Island, GA CPA can save you real money on your taxes through sophisticated tax planning. To learn more about personal or business tax planning, call 912-634-7722 now or request your free consultation online.

Beyond Money: The Softer Side of M&A

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business people shaking handsWhen two companies join together, whether it’s a merger between equals or the purchase of a smaller entity, it’s not just about the money. Click through for some insights into the softer side of M&A.

All mergers are different, and at times the end goal of setting up a new company that results from the merger is front and center in one’s mind. Joy and pure excitement come at closing the deal, but if this is a family business, a mixed bag of emotions follows fast.

You may have grown up in the family business, and it was probably understood that the next generation would eventually take over. But there are many factors that can get in the way of this happening: Internal family dynamics or external economic factors that result in a family business entering into a merger.

That’s when a host of emotions rises to the surface. The thought of someone else running your business, the company you worked so hard to build, seems wrong. “No one can run it like me,” “They will ruin my name,” “What will I do once I don’t have this business?” “Do I define my business or does my business define me?”

These are among the thoughts that begin to run through an owner’s mind, and if it’s a multigenerational company, the older folks may feel nostalgic while the younger generation is apprehensive. When the company is sold to an outsider, feelings of failure can creep up. The nagging questions from one’s subconscious: “What could I have done differently?” “Am I failing my children (my parents)?” “What will my role be in the new company?” “Will the new owners need me at all?”

This is when harsh reality hits like a cold shower. Two companies are joined together, cost savings are sought. People are going to be laid off. This hurts because some of them will have worked with you for years, making such decisions tough and painful.

One story of a father/son firm was recounted: The company was sold more than two years ago. The son remembers that when he had to tell the employees, it was the hardest and saddest day of his life. “Some of them had been with my dad for almost 40 years and I had known them since I was a young child. They were hardworking men and women who had become more like family. We knew that what we were doing was the right thing for the company and for us, but that didn’t make it any easier. Facing those people and letting them know that the home they had for the past few decades was closing was heartbreaking. It was a day that many tears were shed.”

From denial to anger to sadness and finally acceptance — the range of emotions that one experiences is sometimes like a period of mourning. Here is some advice:

  • Accept the emotions. Give yourself permission to feel them and accept the fact that they are normal. This is one of the hardest things to do.
  • Find your new path, whether that’s going to college or getting a job for a couple of years outside your business. It’s scary, but exciting at the same time.
  • Get married and have kids, take a breather, and then face the future.

Sadness is inevitable. You’ve lost something that has been dear to you. Embrace this opportunity to discover new dreams, new paths, new adventures.

So you’re past the period of low morale and decreased productivity among the rank and file, which, of course, is a byproduct of many mergers that attempt to slam together two diverse corporate cultures. The employees who lose their jobs and those left behind — so-called survivors — now have to deal with the loss of institutional knowledge, increased workloads and a sense of uncertainty about their futures.

For some this can be devastating psychologically and can lead to stress-based illnesses. Yes, mergers can be messy. That is why paying attention to the human factor is a wise move.

Call us now at 912-634-7722 to learn more or request your free consultation online to get started.

Business Start-Up Costs — What’s Deductible?

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Launching a new business takes hard work — and money. Costs for market surveys, travel to line up potential distributors and suppliers, advertising, hiring employees, training, and other expenses incurred before a business is officially launched can add up to a substantial amount.

The tax law places certain limitations on tax deductions for start-up expenses.

  • No deduction is available until the business becomes active.
  • Up to $5,000 of accumulated start-up expenses may be deducted in the tax year in which the active business begins. This $5,000 limit is reduced (but not below zero) by the excess of total start-up costs over $50,000.
  • Any remaining start-up expenses may be deducted ratably over the 180-month period beginning with the month in which the active business begins.

Example: Gina spent $20,000 on start-up costs before her new business began on July 1, 2019. In 2019, she may deduct $5,000 and the portion of the remaining $15,000 allocable to July through December of 2019 ($15,000/180 × 6 = $500), a total of $5,500. The remaining $14,500 may be deducted ratably over the remaining 174 months.

Instead of deducting start-up costs, a business may elect to capitalize them (treat them as an asset on the balance sheet). Deductions for “organization expenses” — such as legal and accounting fees for services related to forming a corporation or partnership — are subject to similar rules.

Our experienced Saint Simons Island, GA CPA can save you real money on your taxes through sophisticated tax planning. To learn more about personal or business tax planning, call 912-634-7722 now or request your free consultation online.

Growing Pains: Structural Considerations for Growing Your Business

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M. Jeffrey Martin, CPA, LLC - Accounting and TaxAsk any small-business owner what he sees as the major challenges to growing his business, and chances are he’ll say: winning more sales. Ask any medium- or large-business owner what her major challenges have been, however, and she’ll probably say: structural growing pains — putting into place the necessary processes and structure to accommodate a higher volume of business. In fact, one of the most common reasons businesses plateau at a certain level is their inability — or unwillingness — to develop the structure needed for growth.

But aligning structural changes with sales growth is not simple. It is often more of an art than a science. The systems, processes, staff, and organization changes needed to grow are ongoing and dictated by myriad factors such as the nature of the business, its capital requirements and, ultimately, customer demands. Nonetheless, certain structural growth concerns — excluding financing and office/production space issues — are shared among all growing companies and fall into three overall areas: organizational structure, policies and procedures, and systems/technology.

Staffing/Organizational Structure

Among the most common growing pains small companies experience are those related to organizational structure. Organizational structure and reporting hierarchy for a 25-person company is quite different than it is for a five-person organization. Typically, an entrepreneur can manage fine until there are about a dozen people in the organization. At this point, the initial structure — where everyone usually reports to the owner — breaks down. In effect, nothing can be done without involving the owner, creating a communications log jam and a barrier to growth. A telltale sign of such a situation is the line of staff outside the boss’s office — waiting patiently for a decision before work can recommence. The best way to overcome or prevent this from happening is simple: Trust your key employees and learn to delegate. A good place to start is to look at where you are spending your time. You can still have final say on any important decisions, but you need not be involved with the time-consuming, day-to-day issues that can prevent you from focusing on larger, more strategic matters. It’s also important to formalize delegated authority with an organizational chart and job descriptions. These will help you better define functional expertise for a given job and for various departments across the organization, and provide the foundation for the growth of future personnel and key management staff.

Lack of functional expertise is another common growing pain of small companies. Too often, businesses fail to recognize that specific expertise is needed as they grow. Typically, small businesses are organized around the manager’s area of expertise, such as marketing, accounting, or production. This specialized expertise often prevents the business owner from recognizing problems that may arise in other parts of the business. It’s a good idea to periodically get an outsider’s opinion of where expertise may be lacking. These need not be paid consultants, but are often trusted business acquaintances. Tapping into this same group, you can also form an advisory board to give you periodic feedback on strategic direction.

Policies and Procedures

For most smaller businesses, written policies and procedures are often nonexistent and sometimes cursed. Typically, they are associated with the bureaucracy and inefficiency of big companies and the enemy of customer responsiveness and quick time to market. Not surprisingly, most smaller businesses have few documented operational policies or procedural guidelines. But it is precisely this lack of documentation — and the thought that goes into it — that can put a stranglehold on rapid growth. If your business is growing fast enough to require frequent additions to staff, formalized policies are a must for training purposes. Even if you are expanding at a moderate pace, documented policies will likely be necessary once you reach 20 or more employees.

What warrants a formal policy and what should be documented? This will depend on the nature of your business and average skill level of your employees. In general, however, it’s a good idea to document all HR policies in detail, expense approval authorization levels, inventory control policies, billing and collection procedures, and any operational policies that could materially affect your business if they went amiss. An annual budget and sales projection, updated monthly, are also a necessity if you are ever to obtain outside funding or sell your company. Later on, consider putting together a comprehensive policy manual where employees can get answers to questions when decision makers are unavailable.

As you grow bigger, you will also need to put into place more formalized communications channels for employees and customers. An informed and involved staff is usually a more productive and enthusiastic one; whereas a staff that is left in the dark often feels alienated and unappreciated. Regularly scheduled employee meetings, periodic e-mail updates, and a cascade communications policy are several ways to make sure your internal communications channels facilitate, not constrict, growth.

Is your business suffering from growing pains?

Here are some sure signs that structural changes may be in order.

  • Sales continue to grow but profits do not.
  • Everyone is working increasingly long hours.
  • People spend too much time putting out fires.
  • There are constant lines outside the boss’s door.
  • There are no regularly scheduled meetings or employee communications.
  • The “system” is constantly down.
  • Aging equipment is not replaced.

Systems/Equipment

Perhaps more obvious than organizational or procedural growing pains are those associated with systems and equipment. Smaller businesses are often the last to upgrade to new technology, usually due to cost. Yet the costs of not upgrading are usually much higher. Low productivity, frequent down time, and incompatibility with newer client systems can cripple a business that’s poised for growth. There’s also the matter of keeping up with your competitors both operationally and across product and service offerings.

The average computer is virtually obsolete in just three years, and most of the widely used software applications come out with new versions every two years, so keeping on top of technological advances must be an ongoing endeavor. Start out by working regular capital upgrade costs into your budget. Consider dedicating a full-time person to information technology (IT), if you don’t already have one, and make sure he or she is current on the latest technological developments in your field. Even though you may not be able to afford all the latest equipment, at least you’ll be on top of technology trends in the industry and know what your competitors are up to — or are capable of.

Want to learn more about our small business accounting services? Give Jeff Martin a call at 912-634-7722 today to schedule your free initial consultation.