Author Archives: c29455507

Starting Your 2019 Year-End Closing – Part 1

Its January 2020, and it’s time to start getting things ready for your tax preparation.  The biggest challenge is focusing on key elements on what you need to do so you don’t overstate or under report your business profit.

  1. Company Bank and Credit Cards – Correctly reconcile all bank and credit card accounts. If they don’t match up or if there’s a reconciliation discrepancy account created because they didn’t match up during the year, try to make sure it’s an insignificant amount.  There is no hard and fast rule about what is acceptable, if any amount, however it’s important to see if you need to go back and re-reconcile the account(s).

 

  1. Fixed Assets – You should already have a list of your fixed assets on your Balance Sheet, showing accumulated depreciation, based on what’s on your prior years’ tax return. Verify if any of these items are still in the possession of the company, if you sold any of those items, rendered them obsolete and disposed of them, donated them, tell your tax preparer to make sure it’s properly reported.  Everything you put on the tax return is expected to be in your possession at the time of reporting.  If you purchased any new equipment, also inform your tax preparer of the total cost including freight, sales tax, set-up charges, and other fees associated with the purchase and installation.

 

  1. Accounts Receivable – Review your delinquent accounts receivables. If they are over 90 days old, it will be difficult to collect on them outside of potentially going to small claims court, through mediation such as the Better Business Bureau, or seeking out a lien.  If you are on a cash basis for your tax filing (verify this with your tax preparer), then you cannot write them off as bad debt expense.  If you are on an accrual basis you can write them off as bad debt.  Part of the process for being able to write off bad debt is that you performed due diligence in contacting them, sending certified letters, etc. to try to collect the payment.

 

  1. Payroll – Review your payroll expenses from what was filed on your 941 forms and what was recorded in your financial software. If they don’t match you need to research what the discrepancy is.

 

  1. Inventory – If your company has inventory, try to make a physical inventory count and match it up against what’s in your system. Because of shrinkage throughout the year, if you don’t monitor it on a regular basis, it’s important that you don’t pay taxes on what you don’t have.  Make sure you perform an adjustment into your inventory account so you have a correct balance.

Dwayne J. Briscoe

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Business Financials and the IRS Challenge

Business owners are feeling the pressure to start getting 2019 financials ready for tax filing because the deadlines are coming up before you know it and the amount of penalties and interest are not only being attached more but also becoming more costly.  The IRS is now on a hiring spree, according to Commissioner Charles Rettig, with an estimated 10,000 in the current fiscal year as of November 2019, according to an article published in Forbes magazine, with an additional 5,000 in the works.

When people start getting notices from audits to questions about specific tax return line items, these can take anywhere from 3 months to a year, although it can be carried out longer if the business being reviewed takes longer to respond or fails to adequately submit the proper documentation.  One key point though you must always remember though is that the challenge is that once you submit it, trying to go back and change it doesn’t always make sense because it can cause a stigma that you haven’t been honest in the first place.

Another challenge is that not only are the annual tax returns at risk for being reviewed, payroll reports could also be pulled out separately or part of the entire process being considered.  Because you have many more working parts versus an individual return, there’s a lot more opportunities that you could end up in trouble, so you need to be making regular checks to minimize your risk as much as possible.

Unbelievably people who feel the IRS is “out to get them” only feel that way when they’re usually trying to hide unreported income or failure to properly report proper expenses.  The average salary of IRS revenue agents as reported by the Bureau of Labor Statistics is in the $50,000 range, so there are easier ways these employees could be making a salary versus being resented as much as they are.  It’s a job like most any other and their position is to move through a case as quickly and effectively as possible.  Just like closing on a sale or completing a work project, they are also measured on closing their audits in a timely manner.

What do you need to be considering?

  • How many times over the years have you lost money and not paid taxes at all?
  • How often do you file late, i.e. within the normal extension period versus over years?
  • How does your profit compare to prior years where you can’t justify your final profit?
  • Does the 1099-K (credit card reporting statement) confirm with what you’re reporting in your income section, in addition to checks and cash?
  • Can you match your total income against your bank account deposits for the year?
  • Pigs are greedy – hogs get slaughtered. Are you taking too many deductions?
  • Verify everything before you get your taxes prepared and then put your financials side-by-side against the return to see if anything is out-of-line, and ask questions before you sign because once it’s signed then amending is another set of challenges..

Dwayne J. Briscoe

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Tax Season Never Ends

So many people who are not tax preparers, accountants, financial planners, bookkeepers, etc. assume that tax season ends when April 15th comes around and once they file their personal returns then it’s over and done with.  Unfortunately that’s not the case for those with a business because not only are there nonstop deadlines to make sure all of the forms are done, there’s always a number of tax inquiries that may be sent which need to be addressed accordingly in a timely manner or re-addressed because the reviewer is never satisfied with the answer or there’s missing information.  Therefore, it seems things never end – there are only dips in activity.

In January 2020, these are the current tax deadlines for the following reports:

January 10th – employees are to have reported all cash tips of more than $20 during December to their employer for Form 4070

January 15th – individuals need to make their 4th quarter estimated tax payment

January 31st – individuals are to have received their W2 forms for 2019

January 31st – individuals are to have received their 1099 forms for 2019

January 31st – Form 941 Employer’s Quarterly Federal Tax Return 4th Quarter

January 31st – Form 940 Employer’s Annual Federal Unemployment Tax Act

January 31st – the Texas Workforce Commission Form C-3 Employer’s Quarterly Report

Now yes this is one of the busiest months of the year because the penalties for late processing can be, and these are 7 deadlines that will not necessarily be met by all business owners.  Therefore, it’s vital to not only confirm your information but also understand that as the authorized signatory, you are the one responsible for its proper transmission.

As reported on the IRS web site, “Employers who do not comply with the employment tax laws may be subject to criminal and civil sanctions for willfully failing to pay unemployment taxes.”  If payroll tax deposits do not match up to what forms have been filed, then a request for an explanation has been triggered.  From there, this request stays open until correspondence has been received and if satisfied, the request therefore is closed by the reporting agency.  However, it’s not always that simple.

There was a situation for which I worked with a client for nearly 7 years over a $12,000 discrepancy caused by a previous bookkeeper, for which was eventually closed in favor of the client.  What caused the issue to drag on for so long were numerous IRS notices submitting for an additional 60 days for additional time to provide a complete response.  This is not always the case it may take so long to resolve, but again it’s something you just can’t ignore.

Dwayne J. Briscoe

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A $68 Million Tax Refund?

Interestingly that was the Kanye West Boasts Massive Refund as reported by MarketWatch on their web site on 10/29/19.  Now some people may think that it’s a ploy or that there’s no way that could happen and he’s got it wrong based upon the source, Kanye West.  However the statement was made by him with James Corden of The Late Late Show on CBS, during a segment of Airplane Karaoke.  This segment was different than his usual carpool karaoke where he and various celebrities do car rides with sing-a-longs, along with various small talk banter to get the celebrity more relaxed and open-up.

Well getting back to that tax refund, West made statements that he had to thank God for his blessings, because he states he made $115 million in 2018, $35 million in debt, but he got a $68 million refund.  Now again without doing a full-scale review of the myriad of tax shelters, corporations, as well as potential losses from prior years carried forward, the question is how can this happen?  Well let’s look at some scenarios:

  1. Have your deductions and exemptions been considered and utilized to benefit your business? A standard deduction for 2018 for a single person is $12,000, head of household is $18,000, and married filing jointly is $24,000.  Unfortunately, if you don’t have enough itemized deductions to surpass these baselines, then it stops there.  However, if you have enough legitimate deductions to surpass those benchmarks, then you have a leg up on getting a better return.
  2. Tax credits versus tax deductions. The Earned Income Credit, Child and Dependent Care Credit, American Opportunity Credit, and energy-saving home improvements are not always reviewed, considered, nor planned for during the year until it may be too late.  You know you’re going to have to plan for a vacation, a job transfer, a child’s college.  There’s no valid reason to not plan for your taxes too.
  3. Retirement, student loans, and healthcare expenses. Maximum the investment, pay it off ASAP, and keep them to a minimum.  So many people put off retirement contributions, and you don’t get dollar for dollar when it comes to filing your taxes, however at least you do get something.  The student loan interest only allows you a $2,500 deduction, so unless you’re itemizing, that’s money that you don’t put towards your potential refund.  Healthcare expenses don’t start counting until you’ve spent at least 10% of your Adjusted Gross Income (AGI), so if your AGI is $50,000, that means you need to spend at least $10,000 first and then anything above that gets applied towards your numbers ONLY if you itemize.

Now no one likely remotely come close to making $115 million as Kanye West states he made in a year however you should understand that you need to think about how much did he pay into the IRS?  No, you can’t get a refund if you didn’t work or pay any federal withholding in the first place, and that’s a key element of what’s missing from that statement.  Yes, if he paid a significant amount of taxes in 2018, which it’s unlikely he didn’t, but it’s unlikely he received 100% of what he paid in.  But residing in California has its own set of tax headaches.  In the end, only those who choose to not file legitimate tax returns actually don’t pay taxes.

Dwayne J. Briscoe

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The 5-Part Construction Contractor Challenge

In today’s housing market being as tight as it is, people are not only having the challenge of finding a house they can afford to purchase, there are those who are trying to sell their homes by finding a contractor that they can count on, trust, as well as afford.  Recently going through the challenge, myself with a small rental property, I do understand not only the opportunities that are presented but also the amount of patience that is involved.

  1. Responding back after an initial inquiry. Yes, there are several sites, Home Advisor being one of the more popular ones, for which there are people will submit their information and get a variety of quotes.  There’s also the option of just simply Googling for someone if they have a web site or have their information posted somewhere.  There were over 15 businesses I contacted and if I got a voicemail I never heard from them at all, and a few times I spoke with someone but they never responded back.  Yes, there are no rules in the State of Texas on calling yourself a contractor, so in the end what helped was a referral from a client who led me to Kenneth.

 

  1. Time has a value of for everyone. When I meet a client at their place of business, I confirm with an email to them not only the date/time but also their address so I have something to follow up on if they miss the appointment or the information they gave me was incorrect.  This way if they state that they didn’t know about it I have something to reference back to.  Yes, everyone can’t always keep a scheduled appointment, but time is something none of us can ever get back and when people who you are hoping to give work to don’t bother showing up or even following up afterwards, it can hurt your reputation to potential other customers.

 

  1. Never do I quote a new client verbally. What it’s going to cost to fix their books, prepare their taxes, etc. because until I look at the entire picture, I can’t begin estimating the amount of cost.  One contractor told me from eyeballing the m rental property after 15 minutes, for one amount they could make it look “nice” and for an additional 50% of that original amount they quoted they could make it look “really nice.”  Mind you there was never any paperwork on what they were going to do – just the word “nice” was supposed to explain everything to me.

 

  1. Paperwork is key to everything. If I’m making a payment on something, I need a receipt of some kind and it’s not difficult to give one because working with the IRS for so many years, it’s all about the documentation.  If I’m invoicing a client, they make a payment, then I’m copying the information on how they’re paying me.  If you’re receiving several payments, make a note of it and update their estimate or invoice which you give them until the job is completed.  Whatever software you use, including QuickBooks®, no-one feels short-changed and everyone is aware of the situation for what’s left and what’s been already completed.

 

  1. Learn to use the internet and your cell phone for texting. It’s 2019, and I texted a potential contractor with an answer he left a voice mail for me, so I had some documentation so there was no question on what my response was.  When I didn’t hear back from them, I called them back a few days later and asked why they didn’t respond back and they said, “I don’t know how to respond to texts” and then hung up.

Every industry has its share of good and not so good businesses, and a simple “this doesn’t fit my business” goes a lot farther than looking like you’re better than that potential client for not wanting to work with them.  GHBA (Greater Houston Builders Association) carries a lot of clout, like other large contractor groups, because education and recognition make a world of difference when not only marketing your business clients but also teaching people how to work with those clients when you reach an agreement.

It seems like it’s so simple to just say to every business owner that comes my way is a good fit, and I’m up front with them explaining that I’m not the cheapest, nor the most expensive, nor do I serve every industry.  I also tell people what they need to hear, not what they want to hear.

Dwayne J. Briscoe

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How Much Should Safety Cost?

It almost comes on a regular basis that there’s always something to worry about these days with a business, and surprisingly I don’t ever see a specific line item called “safety” but rather there are various elements of it attributed to various accounts.  The usual expenses I see include insurance, alarm, repairs and maintenance for fixing broken doors or windows, but what about the items that are not so identifiable that we often take for granted?

  1. I still come across business owners who have used “specially designed software” that a single person developed just for them, but then they need to consistently go back to that same person asking them to fix it instead of going to a software that’s recognized universally. How much can you trust that this one person will be able to help your business if something happens with your data or what do you do if they’re no longer available?  You’re putting all of your eggs in one basket, in one person, and can you honestly feel safe with that knowledge?

 

  1. Do you have a plan of action (POA) in the event of workplace violence, natural disasters, man-made disasters? Yes, it happens more-often-than-not, and so many people fail to get any traction until it affects them.  Where do you keep your insurance information, your business data, your employee information off-site so you can access it if there’s a problem at your business that it’s not readily available?

 

  1. Is the equipment that you’re using in your business reliable, stuck together with duct tape and binder twine (yes, I’ve seen that once), and how often does it get inspected by a qualified professional? Anything can happen and may be considered “an act of God,” but with how quick people are to call up a lawyer can you afford that chance?

 

  1. Workers compensation – you’re on the hook regardless if you have it or not. Yes, Texas is still the ONLY state that doesn’t require the insurance however it doesn’t matter if someone gets hurt because you could ultimately lose everything because you were trying to save a few dollars and hoping that you wouldn’t have any problems.  That also includes you, as the business owner, for which if you do get hurt then who’s going to pay your bills when you can’t work?

 

  1. Ransomware – what happens to small business’ data when it’s held hostage without any choice but too often pay a substantial amount of money, usually through cryptocurrency which is virtually untraceable (just ask the IRS). If it’s not been backed up offsite to another server that is not directly connected to your business, then chances are it’s gone for good unless you pay the ransom and then you hope that you get it back.  It’s estimated that it was traced back to starting in 1989, so for the past 30 years it’s not only grown in popularity for criminals but a factor in every-day life.  It’s currently estimated that in 2019, the cost of damage for businesses will be an estimated $11.5 billion.

If it was so easy to keep a business alive, everyone would be doing it.  In order to continue thriving, we all need to maintain vigilance and remember that safety has a price tag and not something we can overlook.

Dwayne J. Briscoe

A Field of Fees and Subscriptions as Far as the Eye Can See

Recently there’s been a spate of state attorney generals who are suing various hotel chains for incorporating “resort fees” hidden in a variety of forms, usually at the bottom of the bill lumped in with the numerous taxes that are tacked on at the bottom of a person’s statement when they check out, bumping up the actual cost of your overnight stay significantly.  Unfortunately, it’s an uphill battle and one that may be challenging to change the climate that’s embedded into our minds because we just feel that it’s what we need to do and can’t negotiate off.

However, there’s another challenge that we often fail to review and correct, which is the “subscriptions” that we sign up for because we just need to use it just once.  It’s become quite a goldmine for software companies, instead of just selling the product once they keep you on the hook for months and even years, without you even giving it a second thought.  Scrolling through just a few of these subscriptions, ask yourself if #1 you have one of them, and #2 if you use them at least monthly.

Amazon Prime                        Adobe                         Microsoft Office 365

QuickBooks Online                Photoshop                   Illustrator

LogMeIn                                 Sales Force                  Bill.com

GoToMeeting                          Amazon Prime            Itunes

FreshBooks                             Stripe                           Planet Fitness

1Password                               Constant Contact        Google

Crash Plan Pro                        Smart Vault                 Shoeboxed

EventSmart                             Builder Trend              YouTube

Here’s a sample of 24 random software companies that use a subscription-based model, and I subscribe to 9 of those.  Fortunately, that’s down from 15 that I had been paying for last year, which I went through and determined I didn’t need 6 of them, which saved me nearly $3,000 over a year’s time which I used for other more worthwhile expenses.

These often keep accumulating and we don’t pay attention because we either don’t reconcile our expenses on our bank or credit card statements (I’m definitely not in this category), but the main culprit is that we don’t feel that we’re missing something that costs less than $20 a month.  However, when you add everything up again it gets significant.  As well, the ones that are a “once a year” automatic renewal are harder to find too, because we don’t see them all of the time for us to wonder if we use them.

Yes, it’s a pain to be looking through every line item all of the time and keep following up on making sure that they do get cancelled and don’t come back.  However, I always ask myself the question, whose pocket is it better in, theirs or mine?

Can you imagine using gift cards for your subscriptions, and then you get a notice that it’s not automatically renewed unless YOU choose to subscribe again or not.  An easy fix, even though you may end up regretting it if you forget to renew it if it’s something you use.  Again, a double-edged sword no matter what path you choose.

Dwayne J. Briscoe

Am I Asking the Right Questions for a Franchise Purchase?

There seems to be almost as many franchises to be sold as there are people buying them, but often there are challenges that get lost in translation and then there’s a challenge in dealing with not only the financial repercussions on both sides but also brand perception.  The key point to remember is that there is no cookie cutter process for everyone but there are some basic items to ask and remember to write down your pros and cons before writing that check.

Do Your Research

  • Google pretty much will tell you everything, regardless if it’s good, bad, or nonexistent so go through at least 2-3 pages to find out as much as possible
  • Everyone can give a great sales pitch, but get it in writing so you have something to reference back to
  • What do other franchisee’s having to say – remember try not to speak to the ones they recommend but find a few on your own

What’s Are the Financial Costs

  • See the actual numbers in what your financial investment is, and figure out if you can afford to lose it if it doesn’t work out in the end
  • What do you get for your royalty payment and how long of a contract are you locked into, as well as do you have a competitor’s clause preventing you to work for a similar competitor in the industry and what’s your experience with it?
  • If you don’t have any type of financial background in ever running a business on your own, how are they going to help support you in your success?

The Worst-Case Scenario

  • How far are you willing to go in order to make the business a success, i.e. 9AM-5PM Monday-Friday doesn’t make owning a business successful
  • If you choose to pursue the opportunity, find an attorney who specializes in this type of work so they can warn you of any potential pitfalls before signing the agreement
  • If you’re already working a job or your own business already, can you handle adding to another one, because there’s only 24 hours in a day
  • If you’re required to purchase products from the business you’re franchising from, for how long is this requirement and what if you can find them cheaper for how long are you locked in?

There’s no such thing as mailbox money unless you were born into wealth and even in those situations there’s work along the way.  I’ve seen situations where everything is laid out, what you should and shouldn’t do, working with you every step at the way to help ensure your success, but they don’t provide babysitting services.  On the other side of the spectrum, there’ll be people who simply take your money and wish you the best of luck.  Always expect that side of the spectrum when you’re exploring the opportunity of a franchise purchase, so you become your own babysitter and learn to succeed with your new business venture.

Dwayne J. Briscoe

Robbing Peter to Pay Paul

The phrase which has its disputed origin between two separate ideas, without question does date back to 1661, in the end is all about determining how best to pay for something that you don’t have the monies for.  In 2019, the greatest example of this is our credit card debt that businesses use to survive, not to mention interest only loans and lines of credit which are becoming much more appealing as a way of quick cash to cover the cash flow issues that we all face in today’s climate.

What can cause cash flow issues?

  • The amount of sales that you were expecting just doesn’t materialize because let’s face it, our customers can be quick fickle and we can’t always predict what they’re going to do nor can we count on them to perform 100% of the time.
  • The cushion that we are all supposed to have is flat or doesn’t exist at all. One of the biggest challenges that I regret when travelling is when the pillow is the cheapest provided possible, which doesn’t give me any ideal sleep.  Even putting 5-6 of these together to make a decent one, still doesn’t replace a good pillow that had cost a likely a few dollars more.  No having available credit shouldn’t count as your cushion either, because it’s a challenge getting it paid back down again.
  • Bright and shiny objects get dull with age, so are you sure you should really invest money into something that doesn’t have a lot of real value but is it necessary. Getting the bigger house, the nicer car, luxurious vacations because you believe you deserve it though it’s all being paid on credit based upon how well the business is doing at that moment.  If the bottom dropped out from your business tomorrow, how could you survive, including the employees and contractors who rely on you?
  • How often do you keep up with your receivables, since they are the ones that keep the lights on, or do you hope that a simple nudge so you don’t offend anyone will work and they’ll respond immediately. Most everyone does it, everyone gets some lead way, but you need to cut off the credit too.  Everyone keeps thinking that American Express used to promote a no spending limit idea, but there’s a limit on anything.  When someone reaches that limit, they usually will end up finding a way to pay for it by using another credit card or monies that come in so they can hold onto their reward points.
  • Believing in not using the full potential of your software you use for their business financial needs, because you don’t feel it’s not necessary nor worth the time to learn. There’s never been a client that hasn’t admitted that to me when we’ve done training, asked about follow up, and then they feel like it’s not worthwhile because they’re happy with what they learned.  Not knowing what the profit margins are, how to use cash flow projection templates, the inability to see if someone is doing the work correctly, this is what people don’t feel as being important because it doesn’t show up in their bank account.

Someone once asked me who controls a business, and they were surprised when I said the accounting department.  When they asked me to clarify my answer, I said that it doesn’t matter who is the face of the business or selling the services/products.  If the money isn’t counted right, proper documentation showing an accurate financial picture in determining how best to proceed on purchases, advertisement, and shareholder distribution, then it’s “the blind leading the blind.”

Dwayne J. Briscoe

Switching from a LLC/Sole Proprietor to a SubChapter S Corporation

Recently someone inquired about starting a Subchapter S Corp from their sole proprietorship, so I developed a list of key questions to ask them, as they were just told this is what they should do from someone they knew.  Instead of just doing it automatically, I wanted to make sure they understood some of the basic options to consider.

*Unlike a sole proprietor (whether or not you are a LLC), you do not have self-employment tax for which you will show 15.3% on your business profit but then get a 7.65% credit that helps reduce what you owe in taxes off of that profit.

*If you are a sole proprietor, you are your business so when you are no longer working with the business, the business no longer exists.  A SubChapter S continues to exist with or without you.

*A sole proprietor doesn’t have a Balance Sheet on its Form 1040 individual tax return, so it will not show anyone, including a lender, what you owe and who you owe, but a corporation tax return will.

*If you have a SubChapter S, and you sell the business, you may have to pay taxes on its sale profit unless you have losses from prior years you can apply.

*For liability protection, incorporation is key to helping protect you, but you are still responsible for your actions and those of your employees/contractors.  Shareholders are only liable to the amount of their investment in the company; personal assets of shareholders are protected.

*Shareholders (up to 100) must be U.S. Residents or Resident Aliens in a corporation are based upon how much percentage they are given and do not need to be related, but a sole proprietor can only be one person or the legal spouse.

*A separate federal and state franchise tax return will need to be filed for the corporation and will cost more than a normal personal tax return with a Schedule C.  All business transactions will need to be treated as a separate entity and should not be put together with the personal ones.

*Profits are passed along to each shareholder, based upon the percentage they have and must be reported onto their personal 1040 income tax return.  The business is not responsible for any taxes.

*Active shareholders who own at least 2% of the business must take a reasonable paycheck.

*An Employer Identification Number must be applied for by a person who has a valid social security number.

* An Operations Agreement should be kept on file for banking and loan purposes for future use.

Dwayne J. Briscoe