Tag Archives: small business

Business New Year’s Resolutions

Every year, as we turn the calendar from one from one year to the next, many of us contemplate self-imposed resolutions as a means of improvement. We interpret the dawn of a new year as if it were a clean slate; as we compartmentalize years into chapters, January first provides us with a blank page.

Interestingly enough, most of us start our new chapter in a very similar manner; we resolve to exercise more, to eat less, or perhaps we are going to rid of a bad habit. As business owners, I think we can take our resolutions a step further. Of course, everyone wants to make more money than they did in the previous year, but how?

Similar to your health and wellness resolutions, you need a plan. You need to identify aspects of your business that could improve and then determine how to do so. Proclaiming that your new year’s resolution is to lose weight is merely noise unless you identify specifically what changes need to be made. Think of your business in the same regard; if you want to improve your bottom line in 2018, spend some time studying your income statement, balance sheet and statement of cash flows. Calculate your receivables turnover ratio to see how efficiently you are collecting cash, calculate your inventory turnover to learn how long items are sitting on your shelves, take a good look at your expenditures – is your money being spent wisely?

It is the details such as these that together in a conglomerate make up the composition of a company’s prosperity. Businesses can often times find themselves consumed by their top line. The rationalization that increased revenues correlate to increased profits might be true, but then again, it might not. While increases in revenue are obviously important, the money is in the margins.

Consider this: would you rather have $1 million in sales with $900k of correlated expenses? or $500k in sales with $200k of related expenses? The latter might sound less exciting, but you will have another $200k to show for it.

Closing the books at year end provides us with a unique opportunity to reflect on our company’s health. It can be difficult to step back and make an in-depth analysis during the hustle and bustle that occurs throughout the year. As you open a new ledger, I encourage you to invest some time in really looking at the numbers. After you join a gym and reluctantly commit to a new diet, consider how you might clean up your company’s balance sheet or realize better margins on your income statement. As with our personal lives, there is likely something that our businesses can improve on. It might take reflection and even analysis, but positive changes are going to pay off – literally.

Wishing you and your business a prosperous and healthy 2018.

John Massey is a Senior Accountant at Perry, Fitts, Boulette & Fitton CPAs. He helps individuals and businesses with tax planning preparation and works on compiled and reviewed financial statements for businesses. He can be reached at jmassey@pfbf.com or 873-1603.

Tax Cuts & Jobs Act Is Good For Business

As I write this article, Congress is about to vote on major corporate tax reform, namely the “Tax Cuts and Jobs Act”. Supporters of the bill believe that corporate tax reform will more readily allow US corporations to keep taxable earnings in the US and that those earnings will spur new economic growth. Others protest that reform puts more money in the hands of the rich. Likely, both sides are correct. What the Act will not do, is simplify taxation for small business owners.

Clearly these tax changes will mean an increased bottom line for Corporate America. Wall Street has reacted to the anticipated change with double digit gains in many stock market indexes. And though I do not represent any of the Fortune 500 companies who will benefit most from the reform, my retirement assets are invested in those companies.

The tax cuts will undoubtedly have a significant impact on many of our local businesses as well. The final draft of the legislation gives a 20% deduction to many of those who receive business income. The Act defines trade or business income as it relates to any “qualified” trade or business of the taxpayer. For local C-Corporations, of which there are very few, the tax rate will be a flat 21%. C-Corporations with income in excess $75,000 will likely see a benefit. The more common business enterprises, such as S-Corporations, Sole Proprietors and Partnerships, will pass tax benefits along to the owners in the form of a 20% deduction on qualified business income. There are many conditions and hoops to jump through, but my reading of the bill suggests that the majority of local companies will benefit.

As an example, take the local retailer with $80,000 of income from her S-Corporation. Provided conditions are met, the $80,000 will generate a 20% deduction, or $16,000, from her taxable income. Her anticipated new tax rate will also be reduced to 22%. My estimate is that she will see an additional $3,500 in her pocket next year as a result of the business change alone. What she will do with the anticipated tax savings is anyone’s guess. Hopefully, she will spend it locally on other goods and services. Undoubtedly, she will pay a tax preparer more money to complete her tax return.

After reviewing the proposed changes, I have concluded that the majority of small businesses are likely to see tax savings. From a jobs perspective, the changes will at the very least be a major jobs act for the accounting profession. Unfortunately, Congress must have thought the same and has exempted accountants and lawyers, working in their profession, from benefiting from this deduction. Call it karma I guess.

Jamie Boulette, CPA has 30 years of tax experience and is managing director of Perry, Fitts, Boulette & Fitton CPAs with offices in Bath and Oakland. He can be reached at jboulette@pfbf.com or 371-8002.

How Can Life or Career Changes Affect Your Tax Return?

Have you recently changed jobs? Started your own business? Maybe welcomed a child to your family? Well, all of these situations could have tax consequences or benefits, requiring some financial planning.

When changing jobs, there are several things to consider. Did you have a 401(k), 403(b) or another form of retirement plan at your old job? If so, rolling over your retirement plan to your new employer or to an individual retirement account, may provide you with more control over your retirement savings. Also, if you recently relocated for a new job, you may be eligible to deduct moving expenses. In order to qualify, the following three requirements have to be met: your move is closely related to the start date of your new employment, your new job is at least 50 miles from your prior home, and you must have worked full-time, for at least 39 weeks during the first 12 months, in the new area where your job is located. If your job relocation satisfies these requirements, you are entitled to deduct reasonable and qualifying moving expenses. Along with considering these additional items and benefits when changing jobs, make sure you receive your W-2 from your previous employer.

Have you recently started a new business or hobby and are trying to figure out how to report the income on your tax return? The first step is to consider whether the activity is in fact a business or a hobby. The key way to differentiate between a hobby and a small business hinges on your profit motive, or lack thereof. If you have a profit motive, and spend a considerable amount of time participating in your new venture, you are likely operating a small business. Unincorporated small businesses generally report income and expense on a Schedule C of form 1040. If your new adventure is really a hobby, income is reported on line 21 “Other income”. Expenses are deductible only if you itemize deductions, and are subject the 2% limitation. In either case, it is important to keep detailed records of your income and expenses.

Finally, and most exciting to me is how a new child can affect your tax situation. If you added a child to your family at any time during the year you qualify for an additional dependency exemption, which phase out for higher income families, for 2017 are $4,050. The addition to the family may also allow you to become eligible for the child tax credit, and credit for child and dependent care expenses. These credits have income limitations, but are helpful when trying to combat the expenses of a new child.

There is a lot to consider during life and career changes, but our experienced accountants at Perry, Fitts, Boulette & Fitton CPAs are happy to assist you through these tax and financial changes. We want you to be well prepared for the 2017 tax filing season. If we can further assist, please don’t be afraid to stop in at either our Oakland or Bath offices.

Nick Deblois is a Staff Accountant at Perry, Fitts, Boulette & Fitton CPAs. He works closely with other senior staff members of the firm, honing his talents regarding tax and accounting matters. He can be reached at nick@pfbf.com or 207-873-1603.