Analyzing Income Statements

As a small business owner, it's important to track your growth to remain sustainable. It's much more of a month-to-month task than it is for larger corporations.  But being able to interpret your finances once you track them is equally vital to sustainability. Here are two ways to analyze your income statement as an investor in yourself and your business and to potentially attract outside investors!

2 Ways to Analyze an Income Statement

By John Szramiak 

March 19, 2017

As an investor, you should be digging in to a company’s financial statements.

However, you can’t look at these financials in isolation – it’s important to compare a company’s results to other companies in the selected industry, companies outside of the industry, and against other years to determine whether or not that company might actually be an attractive investment.

This causes difficulties, since it’s hard to compare companies of different sizes. For example, if Company A has $3,000,000 of debt outstanding and Company B has $30,000,000 of debt outstanding, is Company A less risky than Company B? We have no way of knowing, because we don’t know the cash positions of Companies A and B, how profitable Companies A and B are, etc.

Fortunately, there are two forms of analysis that we can perform that will help us look at income statements and balance sheets of different sizes, so that we can compare apples-to-apples – they are: horizontal analysis and vertical analysis.

Both are very easy to understand. Let’s start with horizontal analysis.

WHAT IS HORIZONTAL ANALYSIS?

Horizontal analysis, also called time series analysis, focuses on trends and changes in numbers over time. Horizontal allows you to detect growth patterns, cyclicality, etc. and to compare these factors among different companies.

As an example, let’s take a look at some income statement items for Apple and Google.

It’s almost impossible to tell which is growing faster by just looking at the numbers. So we have to do some calculations. We can perform horizontal analysis on the income statement by simply taking the percentage change for each line item year-over-year.

By using horizontal analysis, we can now clearly see that Google’s revenue, gross profit, and EBITDA grew faster than Apple’s in every year except for 2015. We can even take this one step further by calculating the compound annual growth rate for each line item from 2012 to 2016 (you can do this in Excel by using the function: =rate(nper, pmt, pv, fv)) – this tells us the average rate the companies grew in each year.

Our horizontal analysis (time series analysis) is now officially complete.

WHAT IS VERTICAL ANALYSIS?

Vertical analysis, also called common-size analysis, focuses on the relative size of different line items so that you can easily compare the income statements and balance sheets of different sized companies.

Let’s go back to our income statement items for Apple and Google. Through our horizontal analysis, we know that Google has been growing at a faster and more sustained rate than Apple… but is it a relatively more profitable company? Do both companies profits seem to be sustainable?

To perform vertical analysis (common-size analysis), we take each line item and calculate it as a percentage of revenue so that we can come up with “common size” results for both companies.

Here are just the numbers once again. I’ve added a line for research & development costs as well.

Now, let’s divide each line item by revenue.

So what does this tell us?

For starters, in 2016, Apple generated $0.39 for every $1 dollar in sales it made. Google did much better, generated $0.61 for every $1 in sales it made. However, Google’s other costs (such as sales, marketing, general & administrative, and R&D) are much higher, since Google’s EBITDA margin was 33.7%, compared to Apple’s 34.0%.

We can also look at trends within this vertical analysis. For example, Apple’s gross profit has declined from 43.9% in 2012 to 39.1%, while its R&D expenses as a percentage of revenue have increased from 2.2% to 4.7% over the same time period. This could suggest that Apple is facing tough competitive pressures. Why?

• Trends in gross margin generally reveal how much pricing power a company has. Because Apple’s gross margin is declining, this probably means that (a) Apple is dropping the price of its products to match lower cost competitors, (b) Apple’s costs to produce its products are increasing and Apple is unable to increase prices to offset this, or (c) a combination of both.
• This increase in R&D suggests that Apple is doubling down its efforts to create new, innovative products to offset its competition.

HORIZONTAL AND VERTICAL ANALYSIS OF THE BALANCE SHEET

Just like we performed horizontal and vertical analysis on the income statement, we can also run these calculations on the balance sheet (when performing vertical analysis of the balance sheet, line items are usually taken as a percentage of total assets). The process to calculate these ratios is similar to the examples we went through above and are fairly straight forward.

However, I’ve found that horizontal and vertical analysis of the balance sheet is much less helpful than on the income statement (ratios and YoY growth rates are basically requirements when analyzing any income statement) and can often be distorted by accounting policies (for example, is a debt-to-equity ratio really useful if the equity number used is simply a result of various accounting choices made over the years?).

Rather than calculate a “pure ratio” of the balance sheet, we can instead calculate “mixed ratios” – such as an interest coverage ratio (operating income / interest expense), leverage ratio (debt / EBITDA), or even efficiency ratios like days sales outstanding (DSO) and days payable outstanding (DPO).

Reblogged from BusinessInsider.com. To view original article, click here.

2017 New Tax Laws for Small Business Owners

It's my job as an accountant to help small businesses thrive and plan for their financial future.  Taxes are a big part of the picture, especially if there's a big liability at the end of the year.   There are strategies that can be put into place to avoid this, deductions you may not know about and proactive steps you may take to decrease the impact of the annual tax bill on your small business finances.  Doing it online, especially if you have questions or are unsure of what liberties you can and cannot take when filing, may end up costing you more.  Call a professional to save you time, money and stress!

New Tax Laws That Impacts Small Business Owners in 2017

Published February 3, 2017 Entrepreneur.com

Since it’s always best to be well-prepared when it comes to taxes, here are some of the new changes that you should be aware-of. As with anything to do with the government or taxes -- if you really want to stay-top of this information, meet with your tax advisor and frequently check for updates on IRS.gov.

Keep in mind, this isn’t legal advice as I’m not in that space … but more a few new tax laws for 2017 that I’ve noticed that business owners should pay attention too.

Section 179 expensing/bonus depreciation
Under Section 179 of the tax code, explains Brian McCuller, JD, CPA, “the expensing provision allows capital investments of up to $500,000 for certain property to be taken as an expense deduction -- rather than being depreciated break -- which was made permanent under the PATH Act passed at the end of 2015 -- phases out for asset purchases above $2 million.”

Additionally, HVAC units are now eligible as an expense deduction instead of depreciation in tax years beginning after Dec. 31, 2015.

“The bonus depreciation provision allows businesses to claim additional depreciation for certain property in the first year of the recovery period if placed in service from 2015 to 2019 (with an additional year for certain property with a longer production period),” adds McCuller. “For property placed in service in 2015, 2016 and 2017, the bonus depreciation is 50 percent. For 2018, it drops to 40 percent; for 2019 it goes to 30 percent.”

In other words, if you purchased or leased new hardware or software for your business, for example, you can depreciate half the cost as part of “bonus depreciation.” For 2017, it may be in your best interest to invest in the most up-to-date equipment possible.

Tighter filing deadlines
Filing deadlines have been changed so that flow-through entity return deadlines are due prior investor return deadlines. This means that partnerships and S-corporations operating on a calendar year will have a new deadline of March 15. The deadline for calendar year based C-Corporations will be pushed from March 15 to April 15.

Below is a the complete list of changes to deadlines for each state.

Furthermore, if your business provides health benefits then please note that the deadline for Form 1095, which is the proof of insurance coverage, will be on January 31. Also take note that hard filing deadlines have been imposed for Forms 1094-B and 1095-A, B and C. These are due by February 28 by mail or by e-file on March 31.

New partnership audit rules
Effective in 2018, partnerships could be liable at the entity, as opposed to partner level for audit related tax collections. This change will have a significant impact on how partnership interests are valued and transferred. Because they’re also so complex, it’s best to speak to your tax advisor for additional information.

Expanded eligibility for R&D tax credit
Until the PATH Act, the development of internal use software was not eligible for the research and development tax credit.

Organizations, particularly in construction, software, manufacturing, wine, aerospace subcontracting, boat building and biotech, can qualify for this credit if they have engineers, scientists or product development personnel on staff.

Other qualifications include software that is innovative and can be commercially sold.

Tom Sanger, a partner with accounting and advisory firm Moss Adams, says that, “small businesses, now defined as having an average of less than $50 million in gross revenue over the prior three years, will be able to offset (the alternative minimum tax ) AMT with R&D credits generated after Jan. 1, 2016.”

“This provision opens up the credit to small corporations subject to the AMT, as well as pass-through entities (where the credits flow through to shareholders),” Sanger adds. “In the past, these credits were suspended and carried forward for up to 20 years until they were no longer subject to the AMT.”

Pending estate planning changes
“The IRS has proposed changes in the rules for how minority stakes in family-owned businesses are valued when owners transfer interests to the next generation during their lifetimes,” explains McCuller. “The changes have not been finalized, and business owners who have been considering passing along part of their ownership interests may want to consult with their tax advisors about accelerating those plans to take advantage of current rules.”

Possible tax laws under President Trump
In addition to the changes listed above, business owners should also pay attention to the tax laws that may take effect under President-elect Donald Trump.

For starters, “The Trump plan would reduce the corporate tax rate from a maximum rate of 35 percent to a rate of 15 percent (the GOP Blueprint calls for a U.S. corporate rate of 20 percent),” says accounting, tax and consulting firm Elliott Davis Decosimo. Also, “U.S. manufacturers would be able to fully expense new plant and equipment investments, though by doing so would forego any deduction for net interest expense.

“Most tax credits, other than the research credit would be eliminated. For U.S. taxpayers with foreign subsidiaries, there would be a one-time deemed repatriation tax of 10 percent on foreign earnings of those subsidiaries.”

This could have major tax consequences for small businesses. In fact, Trump’s tax reform will most likely benefit the wealthy and large corporations as opposed to SMBs.

(By John Rampton)

Move Update for Our Clients

We’ve moved!

If you haven’t heard by now, we made a big move last week! It has been an exhausting process but we believe this new location will better serve our customers!

However, this move has not been without some minor issues. We’re still waiting for our internet to be fully operational in the office so in the meantime we have maintained our servers offsite. As a byproduct of this particular issue, we experienced some email interruption last week, this has been corrected and we don’t expect this issue to arise again. If you have emailed us within the last week or so and have not gotten a response from us - don’t be alarmed! We weren’t ignoring you, we just may not have gotten it. We encourage you to email us again so we can promptly get back to you.

At this time, we have limited availability for appointments and expect to be fully functional on Tuesday, June 26th. If you are one of our payroll customers, don’t worry, payroll services have not been affected by our move.

To all our other customers, we appreciate your patience in this matter and please, if you have a time sensitive issue that needs to be resolved right away, don’t hesitate in calling us!

We will keep you updated throughout our transition to our new location so keep an eye out for any email updates that may come your way!

Thank you, we appreciate your continued business.

- Stephen Fishel

You can now find us at
122 Granite Ave
Richmond, VA 23226

Spruce Up Your Small Business Finances

With the sunny weather finally kicking in, it's a great time to review your small business finances so you can rest easy when comes to vacation time! This article has 10 great tips on how to clean up some of those financial cobwebs and increase efficiency.

10 Ways to Spruce Up Your Small Business Finances This Summer
By: Nate Matherson

After a particularly brutal winter, the summer months are a welcome shift. For small business owners, the change in seasons should be a reminder to do some cleanup and organization. After long months of building your business model, generating sales and managing your company, it is important to take some time to evaluate where you are and where you want to be. With summer around the corner, vacation plans are in full swing, and the pace at work usually slows down. It is the perfect time to organize your business and your finances.

Reevaluating your business operations can help you stay on the right track. Here are ten tips for getting your business finances in shape:

Analyze Your Income and Expenses:

Cash flow issues—especially old bills piling up—can keep your company from keeping up with payables. Pay any past due invoices and check your own past due receivables to see who owes you money. As an entrepreneur, with so much going on, it is easy to miss an invoice. A simple phone call or email reminder is usually all it takes to get paid the money you are owed. Be persistent, and if clients keep stalling, eliminate customers who are regularly late. And maybe for once, put together an updated balance sheet.

Look Over Contracts

From your technology systems to paper suppliers, your business probably has several contracts with different services. Each one is an opportunity to renegotiate for significant savings. Even if your contract is not up yet, you can still negotiate based on a potential early-renewal or an increase in services. If there have been any problems with the services, such as appointment no-shows, use that as leverage for a discount.

Get Your Records Together

As a small business owner, you probably have mountains of paperwork waiting to be filed. From invoices to purchase receipts, these documents are essential records for your business. File everything away or scan the documents and file them electronically so you’ll have everything at your fingertips when it is time to complete your taxes.

If you rely on accounting software, such as QuickBooks or FreshBooks, to manage your business’ finances, you may have missed important program updates. Most companies update their software every year, and if you are using the old version, you may not have new essential features. Consider using Bench or inDinero as newer, fresher, alternatives to traditional accounting software. Through personal experience, I can attest that managed accounting software can save you quite a bit of time and headache.

File Quarterly Reports

Many small business owners are shocked by quarterly and self-employment taxes. The next quarterly payment is due June 15, so now’s the time to review your income statements and expenses. If you’ve missed a deadline, talk to your CPA about how much to pay for the next tax period to minimize any penalties.

Hire Fresh Talent:

Summer is the perfect time to refresh your workforce. It is college graduation season and thousands of newly minted graduates are looking for entry level employment. Hiring recent graduates can be a great way to refresh ideas, processes, and culture at your small business. And, hiring to graduates is significantly cheaper than experienced employees. Hiring graduates is competitive. Hiring millennials is much different than hiring from previous generations. You should consider thinking outside the box with unique benefits and job responsibilities. Millennials are looking to make an impact and they might be able to give your small business a fresh boost.

Review Pricing Structure

Pricing is one of the most challenging areas for a new business. If you price too low, you give the impression of substandard quality. Too high, and you’ll lose out on customers. As your company has grown, you likely negotiated special deals or discounts with clients and, as a result, your pricing structure is irregular. Compare your services and costs those of your competitors to see what you should be charging.

Check Subscriptions and services

Over time, you may have signed up for programs or services that made your life simpler for an individual project, then have gone unused and forgotten. These recurring subscriptions add up, so take some time to review your statements and cancel any subscriptions you and your staff do not use regularly. Use tools like Trim or Truebill to find and remove unwanted subscriptions.

Set New Goals

Since the summer is usually slower, it is a perfect opportunity to do some planning and a mid-year checkpoint. Evaluate how much progress you have made, where you flourished and where you struggled and establish new goals for the rest of the year. Looking at your income receivables will help give you concrete targets for the next six months.

Establish Credit

If your business has been performing well, you should start planning how to scale up your business operations. Expanding and growing your capacity requires money, and many small businesses rely on credit to meet their needs. If you’ve been relying on your personal credit card and bank accounts, it is time to break away and open up a business checking and credit account. The credit card can give you much needed liquidity in times of emergency or opportunity so you can be nimble and respond to new challenges.

Increase Efficiencies

Entrepreneurs often find creative ways to get things done, often on the cheap with no budget at all. While the do-it-yourself route can be useful when building your business, it is not always the most efficient. Use the summer months to research and learn new processes or programs to streamline your operations, whether it is new software that manages inventory or a more secure online store. With Cloud technology, many of your programs and accounts can be synced together and automated, reducing the amount of time you spend on administrative work.

If you find yourself with a smaller to-do list than usual, take advantage of the slow period and spruce up your finances and business operations. Eliminate distractions by turning off your phone, closing your email and shutting your office door, so you have the time and space to get organized and create a more efficient and cost-effective work environment. It takes a conscious effort and dedication to go through your accounts, processes and forms, but the commitment can produce high returns and set you up for a successful second half of the year.

To read the full article, click here.

Premium Tax Credits Being Reviewed by IRS

An article on AccountingToday.com, by Michael Cohn, recently highlighted how the IRS has been advised to review the Premium Tax Credits due to the fact that "the IRS is unable to ensure that individuals claiming the PTC met the most important eligibility requirement: that insurance was purchased through an exchange."  The IRS has updated procedures to spot fraudulent claims, but not without stretching its resources.

IRS Miscalculating Tax Credits for Obamacare
By  Michael Cohn

The Internal Revenue Service’s computer systems miscalculated the allowable Premium Tax Credits for more than 27,000 taxpayers who received subsidies for health insurance under the Affordable Care Act, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, evaluated the effectiveness of the IRS’s verification of health care tax credit claims during the 2015 filing season. According to the IRS, almost $11 billion in Advance Premium Tax Credits were paid to insurers in fiscal year 2014.  As of June 11, 2015, the IRS processed more than 2.9 million tax returns involving the Premium Tax Credit, and taxpayers received approximately $9.8 billion in PTCs that were either received in advance or claimed at filing.

The ACA requires health insurance exchanges to provide the IRS with information regarding individuals who are enrolled by the exchange on a monthly basis. The data is referred to as Exchange Periodic Data, or EPD. TIGTA’s analysis of more than 2.6 million tax returns with a PTC claim that were filed between January 20, 2015, and May 28, 2015, for which the IRS had EPD, found that the IRS accurately determined the allowable PTC on more than 2.4 million (93 percent) returns.

TIGTA said, however, that it is continuing to work with the IRS to determine the cause for calculation differences in 150,385 of the remaining 182,884 (7 percent) tax returns. Computer programming errors resulted in an incorrect computation of the allowable PTC for 27,827 tax returns. For 4,672 tax returns, the IRS did not have the authority to correct the PTC claim during processing.

The Affordable Care Act created the health insurance marketplace, also known as an exchange. The exchange is where taxpayers find information about health insurance options, purchase qualified health plans, and, if eligible, obtain help paying premiums and out-of-pocket costs. The ACA also created a new refundable tax credit, the Premium Tax Credit, to help offset the cost of health care insurance for those with low or moderate income. Individuals can receive the PTC in advance or can claim the PTC on their tax return. Individuals who received the PTC in advance are required to reconcile the amount paid on their behalf to the allowable amount of the PTC on their tax return.

The House Committee on Appropriations requested that TIGTA evaluate the IRS processes to ensure that unauthorized payments or overpayments of the PTC are fully recouped.

The exchanges did not provide the EPD to the IRS prior to the start of the 2015 filing season as required. In addition, IRS system issues prevented the IRS from being able to use most of the EPD received between Jan. 20, 2015, and March 29, 2015, according to TIGTA.

Without the required EPD, TIGTA noted, the IRS is unable to ensure that individuals claiming the PTC met the most important eligibility requirement: that insurance was purchased through an exchange. TIGTA’s analysis of tax returns filed between Jan. 20, 2015, and May 28, 2015, identified 438,603 tax returns for which the IRS did not have EPD at the time the tax returns were processed or the EPD were incorrect.

“The IRS did develop manual processes in an effort to verify Premium Tax Credit claims associated with Exchanges that did not provide the required Exchange Periodic Data,” said TIGTA Inspector General J. Russell George in a statement. “However, these processes resulted in the IRS having to suspend tax returns during processing, which uses additional resources and increases the burden on taxpayers entitled to these claims.”

TIGTA verified that the IRS processes to identify potentially fraudulent PTC claims are operating as intended. In addition, the IRS corrected programming errors identified by TIGTA that resulted in tax returns not being identified for further review during processing.

TIGTA recommended the IRS review the 27,827 tax returns that TIGTA identified to ensure that these individuals receive the correct PTC, and that the IRS modify the income and family size verification processes to use the most current information available when determining if a taxpayer has reconciled APTCs received in the prior calendar year.

The IRS agreed with both of TIGTA’s recommendations and said it will review the 27,827 tax returns to prioritize them against existing workload demands and resource constraints so that they may be addressed accordingly. The IRS also said that implementation of agreed changes to the income and family size verification process is subject to budgetary constraints, limited resources and competing priorities.

“For those 27,827 returns where the PTC claim may have been incorrectly verified, due to the reliance on projected partial-year data and programming errors, it is important to note that the IRS does not have statutory authority to correct discrepancies without following deficiency procedures,” wrote Debra Holland, commissioner of the IRS’s Wage and Investment Division, in response to the report. “Deficiency procedures, also known as audit procedures, are costly and compete with other enforcement priorities for scarce resources. We will review those returns to identify those that merit appropriate follow-up activity.”

For the full article, click here.

A Break After Busy Season!

It was so amazing to take a break after the busy tax season!  Thank you to all of my clients.  I was so happy that after offering my services for personal tax returns I was able to help out some great people who just needed some help getting the most out of their return!  Had so much fun at Northside Grille with the Richmond Business Alliance and looking forward to a wonderful summer!

Last Minute Money Saving Tax Moves

Now that we’re really down to the wire, it’s time to start crunching those numbers!  You’ve have a little bit longer this year, Individual Tax Returns are due on April 18th, but you may want to take the weekend to make sure you’re taking advantage of all the deductions available to you.  Lower your tax liability and avoid IRS scrutiny with some of these last minute tips.

1. Did you know you could deduct the cost of your 2015 Startup?

As long as your costs fall below the $50,000 mark, you could deduct up to $10,000 of your taxable income.  Up to $5,000 for research, development and creation of your business and $5,000 for the implementation costs such as incorporating, patenting, and legal fees.  Research costs spent improving your product or service are considered eligible expenses as well.

What doesn’t count:

-Advertising

-Promotions

-Quality control testing

-Consumer Surveys

2. Did you know that the threshold for big company purchases has been raised?

If you’ve purchased expensive equipment last year for your business, this year you can deduct up to $500,000 as long as your total eligible property costs are less than $2 million.  This can include big items like a new walk-in refrigerator for restaurants, or furniture for your office space, even computer programs.

What doesn’t count:

- Improvements on rental properties

- Air conditioning or heating units

- Any property used outside of the U.S. 

Did you know that in addition to mileage you can deduct auto loan interest?

Everyone’s favorite year end deduction— mileage, now includes any interest you’ve paid on auto loans!

What doesn’t count:

- Your daily commuting miles don't count as business miles

3. Did you know that the Home-Office deduction equation has simplified?

It has! Up to 300 square feet at $5 per square foot for a whopping total of $1,500. There is still the old method available for filing, it may be worth looking into which one saves you more.

What doesn’t count:

- Multi-Use Space; a playroom/office doesn’t count. Neither does your living room where you occasionally check emails.

It’s not too late!

Contribute to a Health Savings Plan (HSA), a Retirement Savings Plan like a traditional or Roth IRA and a percentage will be deductible.  However, each one has a cap A Roth IRA cannot except $5,500, or $6,500 if you’re over 50.  HSAs max out at $3,350 for individual and $6,650 for families.

Take these extra few days to scrutinize your account statements.  An extra couple hundred in tax liability is nothing to scoff at! 

4 Things You Need to Track When You're Self Employed

Being self-employed means there's a lot of weight on one person's shoulders - yours!  So come tax time, all of those small accounting and bookkeeping tasks that you've put off are mounting up.  When it comes to staying organized when there are so many other things to do, they key is to keep it simple. This article outlines the important things that you need to be tracking weekly, monthly and quarterly as a person who is self-employed. There may even be an app out there that can help you!

4 Things You Need to be Tracking if Your Self Employed
By Matt Rissell

There are more than 14 million entrepreneurs in the United States today. Together, they represent more than 10 percent of the nation’s 146 million workers. But it doesn’t stop there; the employees those entrepreneurs hire constitute yet another 20 percent of the U.S. workforce—putting a whooping 43 million people (three for every 10) under the self-employed/small business umbrella.

However, it’s a well-known statistic that eight out of 10 small businesses fail within the first 18 months. Which means that 80 percent of those 14 million entrepreneurs will never get their small business off the ground.

Why? Well, there’s a number of reasons a business can fail, but almost all of those failures can be attributed (at least, in part) to inconsistent or nonexistent tracking. One of the most critical things you need to track is also the easiest to do ... but oftentimes the most overlooked—and it can save your business thousands of dollars in gross payroll costs each year. Sound good? Keep reading. These are the four things you need to be tracking if you want to see success.

1. Your business AND personal expenses.
This might seem like a given, but you’d be surprised how many business owners don’t realize the importance nor have an accurate view of their business vs. personal expenses. Use a do-it-all expense tracking system like Expensify to keep your bank account, and your business, on track.


2. Your quarterly and yearly taxes.
Tax time for entrepreneurs can be a huge hassle—and a major financial blow—especially if you haven’t been relentlessly tracking your business and personal expenses. Tracking and understanding where you stand come tax season will help you avoid any nasty surprises and ensure you’re getting every dollar you deserve! Use tax software designed specifically for small businesses like yours. I recommend Avalara for automatic monthly and quarterly tax filing or TurboTax Home & Business for to track, organize, and maximize your annual refund.

3. Your billing and invoicing.
Are you still billing and invoicing using paper invoices and snail mail? Pay or get paid faster and easier with a business payment system like bill.com. Knowing exactly what your profits and losses are, right now, enables you to make smarter decisions for your business and ultimately make more money.

4. YOUR TIME.
Time is your most precious commodity—do you know where you’re spending it? Accurate and easy time tracking results in real-time business insight, more accurate job and labor costing, and faster payroll. Customers who use TSheets save an average of 2-8 percent on gross payroll costs each year. Time is the easiest and most important thing you should be tracking—but often the most overlooked. How much would you save, simply by making the switch to automated time tracking?

To see the original article, click here.

Don't Forget Your 1095-A

There are three forms you should have received in the mail this year and those are forms 1095-A, B, and C.  These forms come from the Marketplace (A), other insurers (B), or your employer (C), and their official purpose is to be your proof of qualifying health coverage.

1095-A
You should have received this document already, but if you haven't there are still ways to get it or file without the form.  This is important to save and file with your return because it exempts you from having to make a "shared responsibility payment," or penalty under the Affordable Care Act.  However, if you have made more in 2015 than you had anticipated, you may end up owing back any Advanced Premium Tax Credits you've received throughout the year.

1095-B & 1095-C
This means you've obtained insurance through your employer or private means.  The important thing is to save these documents along with your annual tax files.  If you've switched coverage, you will receive these forms for each of the plans that you've held.  If you haven't gotten your 1095-C yet, it may still be on its way.  In December, an extension was granted for these forms and may arrive past the March 31 deadline.

Those with a 1095-A don't be caught off guard this year with a bigger tax liability than expected!  But also, congratulations on making more than you anticipated.

Change in Small Business Expense Threshold for Deductions

Straight from the IRS, news that allows small businesses to immediately deduct expenses that would previously have to be spread out annually through depreciation deductions!

For Small Businesses: IRS Raises Tangible Property Expensing Threshold to $2,500; Simplifies Filing and Recordkeeping

WASHINGTON —The Internal Revenue Service today simplified the paperwork and recordkeeping requirements for small businesses by raising from $500 to $2,500 the safe harbor threshold for deducting certain capital items.

The change affects businesses that do not maintain an applicable financial statement (audited financial statement). It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.

The new $2,500 threshold applies to any such item substantiated by an invoice. As a result, small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions.

“We received many thoughtful comments from taxpayers, their representatives and the professional tax community, said IRS Commissioner John Koskinen. “This important step simplifies taxes for small businesses, easing the recordkeeping and paperwork burden on small business owners and their tax preparers.“

Responding to a February comment request, the IRS received more than 150 letters from businesses and their representatives suggesting an increase in the threshold. Commenters noted that the existing $500 threshold was too low to effectively reduce administrative burden on small business. Moreover, the cost of many commonly expensed items such as tablet-style personal computers, smart phones, and machinery and equipment parts typically surpass the $500 threshold.

As before, businesses can still claim otherwise deductible repair and maintenance costs, even if they exceed the $2,500 threshold. The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

For taxpayers with an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.

To access the original article, click here.

Tax Extensions!

April 15 is fast approaching and some might not be ready to file yet.  Fear not, anyone can apply for an extension. Yes, even you.  There are a three things to know first before filing for an extension. 

1.  Form 4868 is what you need to file in lieu of your Federal Income Tax Return.  You can file it by mail or electronically, as long as it’s in by April 15 you will have an automatic 6-month extension to file.

2.  Remember that this form is just an extension to file, not pay taxes due.  You must have an estimate of the amount you owe and send it when filing for an extension to avoid any late fees or penalties.  Any underpayment of taxes not paid by April 15 is subject to late fees and interest.

3.  The purpose of this form isn’t just to procrastinate until October.  The time is meant to allow for complete and accurate filing without assessing a late filing penalty.  The extra time granted is usually used to seek professional advice about your financial situation.

There are many benefits to requesting an extension to file your income taxes.  It’s a great way to avoid the busy rush of tax season and your tax professional will more likely have time after mid-April.  The most important thing to remember is that it’s an extension of time to file your return, not to pay taxes due.