A Real Life Asset Protection FAILURE

13. April 2019 12:37 by Junita Jackson in

 

Successful business owners and doctors face many different kinds of risks. The following real story* illustrates significant exposures in one physician’s planning.

 

Failure to Adequately Insure and Implement Legal Planning

I was personally involved in this case earlier this year as an anti-fraud consultant.  A doctor’s husband was at fault in a car-pedestrian accident and struck and seriously injured someone walking their dog in the neighborhood and the medical bills and other economic losses incurred by the victim quickly exceeded $500,000, the limits of the doctor’s automobile liability insurance policy. Sadly, the defendant couple had been insured for a greater amount the year before and had canceled their $1 million umbrella policy, presumably to save $400 a year.

Their insurance carrier quickly agreed to pay the limits of their policy and when they realized they’d be personally liable for medical bills, pain, and suffering and other claims, the physician and her spouse went on a “fraudulent transfer” fire drill. They set up an LLC for the office building held in their own names, quit claimed the condo they had purchased for their son to use while in college to him, tried to equity strip their home and incorrectly claimed that the $900,000 vacation home they held as “tenants in common” in another state was unavailable to their creditors. All these moves (except keeping a full equity vacation home in your own name) would have been reasonable, prudent and fully legal if they had been properly done in advance of any problem. In this case, not only were their 11th hour moves ineffective against the existing exposure, they created additional jeopardy in the form of civil and even criminal penalties up to the level of a felony for engaging in conduct designed to delay, hinder or defraud a known creditor. Once the facts were explained to them and the legal counsel advising them on this issue at pre-trial mediation, they quickly wrote a check for $550,000 from their retirement savings to add to the policy limits of their insurance policy and wisely settled the case to avoid very significant additional liability in both the form of an award and in the required costs of defense, which would have easily been six figures.

Important Planning Lessons:

Act Today.

We’ve previously discussed that asset protection and risk management are always proactive and the single biggest mistake that doctors make in their own asset protection planning is doing nothing. You cannot plan against a pre-existing exposure or manage risk after a problem, you can only manage crisis, which is always more dangerous and expensive. Doing so is not only legally ineffective, it is illegal, can create additional civil and criminal penalty risk and even deprive you of your rights to other remedies, like bankruptcy.

Insure Until It Hurts

I’ve previously provided an article on why umbrella policies are vital basic asset protection for everyone, as well as a separate discussion on why umbrella policies on their own are insufficient protection. Insurance, perhaps after compliance and following best practices in all areas, is the first and most predictable and effective line of defense. As mentioned above a specific incident can create multiple exposures including both the award itself and the legal fees required to obtain adequate legal representation. A $1 million personal liability umbrella policy is the bare minimum every doctor should have, ideally more.

Pay Attention to How Assets are Titled

Relying on some form of tenancy is not a substitute for real legal planning that gets assets into appropriate legal wrappers like trusts and LLCs, as two common examples. In this case, as our defendant doctor and her husband are in a community property state, both of them were named with the following result:

1. All their jointly held community assets were put at risk. Like many couples, they married young and the majority of their wealth was earned during the marriage and was exposed regardless of whether titled to her, him, or both of them.

2. The nearly $1 million vacation home, although outside the state, was fully available to the injured plaintiff who had a claim against both of them.

3. The vehicle was fortunately not owned by the medical practice, as it would have been sued as well.

*Actual example, only identifying details have been intentionally changed to preserve the privacy and attorney-client privilege of those involved.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

Real Time Fund Accounting

19. February 2019 12:53 by Junita Jackson in

 

Profit-oriented businesses and non-profit organizations use two different accounting methods to track, record, and report their financial performances depending on their purposes and goals: the traditional business accounting system and the Fund Accounting method.

Traditional business accounting – used by business entities, such as a partnership, a corporation or a limited liability company (LLC) – focuses on the ability of the entity to generate profit, providing information on how much money was earned, how much was spent and how much was left over in a given time. Traditional business accounting also measures the finances of an entity as a whole. Businesses using this method prepare balance sheets that list the company’s owner’s equity (comprised of assets and liabilities), as well as income statements that list the company’s revenues, gains, expenses and losses every quarter.

On the other hand, fund accounting – used mainly by non-business entities, such as government agencies, non-profit organizations, churches, hospitals, and colleges and universities – breaks down an organization into a series of independent and self-balancing funds, making sure that the money earned, received and spent are all properly allotted for their specific purposes. Non-profits, having no owners, do not use balance sheets and income statements. Instead, they compile “statements of financial position” that focus only on assets and liabilities, as well as statements of activities each quarter.

Benefits of Fund Accounting

Generally Accepted Accounting Principles (GAAP), a set of accounting guidelines, rules, principles and standards used in the US, require non-business entities and government institutions to use fund accounting. Fund accounting offers many advantages and listed below are some its benefits for non-profit entities:

  1. Clear allocation and management of funds – Fund accounting allows organizations to appropriately allocate and manage the revenue they receive from different resources, such as tax payments, donations, grants, loans, and other public and private sources, into specific projects or goals. For example, the finances of a municipal government must be segregated into different funds like public works, recreation, and other services.
  2. Better tracking of restrictions – Because the revenue received by organizations and government institutions must be separated into their specific purposes in accordance with laws, regulations and restrictions, fund accounting helps these entities better monitor the restrictions attached with the revenue. In the same example above, tax payments from the citizens that the municipal government receives may only be used to fund certain public services.
  3. Transparency in evaluating performance goals – Fund accounting identifies the sources of the revenue and records the organization’s debts and assets. This makes it easier for people like fund administrators, managers, donors or taxpayers to evaluate the performance of an organization by emphasizing its strengths, weaknesses, and efficiency in turning revenue into expenses in relation to its goals and objectives.

Shifting to Real Time Fund Accounting

Like all the other sectors, the accounting industry has evolved over the decades to keep up with the changes that come with the advancements in information technology. Modern accounting firms and tech-savvy accounting professionals now heavily rely on advanced technologies and cloud-based solutions that provide quick and efficient results, allowing them to monitor and manage finances without the long wait times and turnarounds.

Speed and reliability are essentials in the world of accounting not just for profit-oriented entities but also for non-profit institutions. Taxpayers, funders, and donors are expecting more transparency and efficiency in financial reporting, demand for the capability to transfer information in real-time instead of relying on conventional financial reporting methods.

With real-time reporting in financial systems or real-time accounting, non-profits are able to see their financial data live, which allows them to make decisions and adjustments faster than before and enable a more streamlined monthly close process. It also provides crucial financial information that is always up-to-date, increasing accuracy and reducing the room for errors.

To help non-profit entities keep up with these demands and changes while still maintaining its focus on more important non-profit activities, Maxfinancials Accounting offers fund accounting outsourcing services that are tailored to the specific needs of the organization.

Armed with a cost-efficient and secure technology infrastructure, Maxfinancials Accounting’s team of highly qualified experts and Certified Public Accountants (CPAs) will serve as your fund accounting department without the burden of additional training and operational costs of an in-house team.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

Asset Protection Planning

10. February 2019 11:30 by Junita Jackson in

Now that you are familiar with the most important asset protection and estate planning concepts how do you create the best plan? Protecting what you have from liability and preserving your estate for your family involves many new concepts for you and it’s not always easy deciding where to begin.

In this section, we will present a summary of the issues and options available-techniques to think about to frame the building of your overall plan. This is the approach we use with our clients to analyze their particular needs and to build an efficient program for asset protection, estate planning, and tax savings.

“Asset Protection and Estate Planning with the Family Savings Trust“

An increasingly popular tool used for asset protection and estate planning is known as The Family Savings Trust.  The term is broadly descriptive of a trust designed specifically to hold and protect a variety of assets against lawsuits and business risks.  It can be very flexible in form and allows for the accomplishment of most important asset protection and estate planning goals. 

“What is the Best Asset Protection Plan for Physicians?“

In our initial discussions with a client, these questions always come up “What’s the best asset protection plan?”  “Are there any plans which are completely bulletproof?”

Like any well-trained professional, I usually duck those kinds of direct and unconditional questions. After all, this is the legal system we’re talking about and when we compound the mixture of judges, jurors, and lawyers,  the results can be unexpected, to say the least.  The  Law is probably a lot like medicine in that respect.  So while we can’t honestly guarantee that the particular plan we design will produce the exact outcome we want, we do know what has happened before in similar situations.  If existing case law and legislation are clear and well developed then an asset protection plan that falls within the pre-set boundaries will have favorable and predictable results.

“Answers to Key Asset Protection Questions“

When I sit with clients to prepare or review their estate planning and asset protection goals in a wide variety of questions and issues arise: What plan is most efficient? How are tax savings created?  How do we protect against the lawsuit and business risk?  Although I have addressed many these topics in detail in previous columns, here are a few starter questions which often arise and which may open the door for further thought and discussion. 

“Asset Protection: Needs Change Over Time“

The type of asset protection planning you need depends on where you are in your career. Because the amount and form of your investments and the particular risks you face will vary over time, your initial planning should be appropriately flexible and capable of adjusting to meet these changing needs. 

“When Is It Too Late For Asset Protection?”

One of the life’s ironies is that the worst time for asset protection planning is when you really feel like you need it the most. Although the law favors and encourages asset protection in most circumstances, there comes a point in financial transactions and legal proceedings when it is no longer permitted. In some cases, this boundary is clearly defined, but often the question of when the remedy of asset protection is still permissible is fuzzy. Experienced planners can follow several guidelines and make some educated guesses about where the line should be drawn in situations that physicians may encounter in their practice. 

 

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

What Business Advisory Tools Do I Choose?

25. December 2018 16:17 by Junita Jackson in

With a growing number of business advisory software tools on and entering the accounting market, it is often difficult to know what to choose.

At Smithink we recommend following our EnablerTM Seven Step to Success process using the best software at the critical steps. It is not as easy as having one tool for each step. There are several great applications that can be used. In this article, we will look at some of the tools that are available for each step.

The first step in the EnablerTM process is preparing your firm to succeed with business advisory services. This is critical to the ongoing delivery of services and should include the appointment of a champion and analysis of the right clients to start with. Many firms are using Excel sheets and Word documents to plan out their service packages and strategies for implementation. Key to this step is the development of a Client Relationship Management (CRM) solution such as MYP's Arm and Arm Pro.

From there you need to unlock your client's business advisory needs with an interactive client needs analysis. This, in my opinion, is the most important step, as it will indicate where the client's strengths and weaknesses are, and allows a proposal to develop to address specific needs. Great cloud tools here include Cash Flow Story's simple four-chapter approach to business performance and My Yardstick What's Important to you (WITY) tool and E-Scope automated pricing system can assist here to understand client needs and develop innovative proposals.

The third step is to create a "disturbance" in your client's mind using business value assessments. Paramount to this step is establishing how much the client thinks their business is worth against the commercial value and linking this to the concept of a Business Value Gap (BVG). Some of the best applications here are Cash Flow Story's Business Value Indicator and Bastar's materials, tools and programs that will calculate a capitalization rate for the client's business off financial data and a risk and value assessment. Another new tool in this space to increase the sellability of your client's business is Sellability Score.

From there we introduce financial diagnostic software to fill the gaps by analyzing and managing the client's key macro drivers and results that will improve their financial performance. We will look at where the business is today, its strengths (green flags) and weaknesses (red flags) and where it can be in the future. There are many solutions here including Cash Flow Story's Power of One, PANALITX, Fathom and Profit Guardian.

It is then time to look at the strategies required to implement micro services using smart tools and resources such as ESS BIZTOOLS and ESS BIZGrants. Attaché Software also has great tools here that can assist to implement key strategies with your clients.

Then track the performance of the client's business by preparing budgets and cash flows (or action plans) with Castaway, Calxa or Plan Guru. This step can link back to the development of business and action plans. MAUS Software's Master Plan is an innovative solution to address this need. Another great tool here is MYP's Estate Planning application to unlock your client's estate planning needs and develop key strategies for the future.

Finally, generate new business by growing your business advisory specialization through profitable scenario planning and offering your "how would you like to see the financial impact of every business decision before you make it" service. This look into the future requires software that can simply show the client their pre and post position. Any of the financial diagnostic tools will adequately handle this task.

With this myriad of choices, a firm needs to be confident that they select the right application for their clients and staff.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

5 Simple Ways To Create A Balance Sheet

16. December 2018 19:21 by Junita Jackson in

First things first: what is a balance sheet? A balance sheet is an essential way to evaluate a business’ financial health and can be calculated every month, quarter or half-year to create a snapshot of a company’s net worth.

In this article, we will be discussing how to calculate an annual balance sheet for a business. Creating an annual balance sheet will help you evaluate the equilibrium between your company’s assets against its liabilities, to determine the overall financial strength and value of your business. For an example of a full balance sheet, scroll down to see the example at the end.

1. Understand the Basic Equation

The following equation is a simplified representation of what a Balance Sheet calculates: the total sum of your company’s assets equals the value of the company’s liabilities and owner’s equity.

Assets = Liabilities + Owner’s Equity

As with any math equation, you can play around with the equation to isolate one category. Most business owners and investors use the following equation to calculate the value of the company’s equity.

Owner’s Equity = Assets – Liabilities

2. Calculate Assets

Assets, money, investments, and products the business owns that can be converted into cash: These are what put companies in the financial positive. A thriving company should have assets that are greater than the sum of its liabilities; this creates value in the company’s equity or stock and opens up opportunities for financing.

It’s important to list your assets by their liquidity—the facility by which they can be turned into cash—starting with cash itself and moving into long-term investments at the end of the list. For the purpose of an annual balance sheet, you can separate your list between “Current Assets,” anything that can be converted into cash within a year or less, and “Fixed Assets,” long-term possessions that can be sold or that retain value down the line, minus depreciation.

“Current Assets” may include:

  • Cash: All money in checking or savings accounts
  • Securities: Investments, stocks, bonds, etc.
  • Accounts Receivable: Money owed to the business by a client or customer
  • Inventory: Any products or materials that have already been created or acquired for the purpose of sale
  • Prepaid Insurance: Any payments made in advance for business insurance coverage or services (this tends to be paid in advance for the year).

“Fixed Assets” may include:

  • Supplies: Important objects used for business operations (manufacturing equipment, computers, office furniture, company cars, etc.)
  • Property: Any office building or land owned by the business
  • Intangible Assets: Intellectual property such as patents, copyrights, trademarks and other company rights that retain intrinsic value

3. Determine Liabilities

Liabilities are the negative part of the equation; these include operational costs, debt and material expenses. Generally speaking, the lower your liabilities, the greater the value of your company (and equity) can be. “Current Liabilities” include cash spent, as well as any debts that must be paid out within one year, while “Fixed Liabilities” refer to bills due anytime after one year.

“Current Liabilities” may include:

  • Accounts Payable: Money owed by a business to its suppliers or partners
  • Business Credit Cards: Company credit card bills due
  • Operating Line of Credit: Any money owed to a bank that has extended the business an operating line of credit
  • Taxes Owed: Any federal and state taxes owed for one year
  • Wages and Payroll: Employee compensation, including wages, medical insurance, etc.
  • Unearned Revenue: Any revenue garnered from a service or product that has yet to be delivered to the customer or client

“Fixed Liabilities” may include:

  • Long-Term Mortgages: Property or building mortgage expenses
  • Bonds payable: Long-term bonds owed to the government, as well as any interest paid on the bond (this interest is often semi-annual and can be added to “Current Liabilities”)
  • Pension Benefit Obligations: The total amount of money the company owes to employee pension plans up to the current date
  • Shareholder’s Loan: A form of financing provided by shareholders
  • Car Loan: Any long-term car loans on company vehicles (plus insurances costs)

4. Equity Valuation

Owner’s Equity = Assets – Liabilities

The value of your assets minus your liabilities will result in an estimation of the value of your company’s capital. If this equation results in a negative net worth, this can be dangerous for a small business; it will make it difficult for to secure financing, which can be troubling for a company whose expenses are already eclipsing its profits.

If, however, a company has positive equity, this means that business owners have the option of acquiring capital by selling part of their business through equity, stocks and/or dividends.

In a sole proprietorship, this is called the “Owner’s Equity”; in a corporation, this is called “Stockholder’s Equity,” and it can include common stock, preferred stock, paid-in capital, retained earnings, etc.

“Equity” may include:

  • Opening Balance Equity: The initial investment into the company
  • Capital Stock: The common and preferred stock a company issues
  • Dividends Paid: Profits paid out to shareholders by a company (applies to corporations)
  • Owner’s Draw: Portion of the revenue used by company’s owner (applies to sole proprietorships)
  • Retained Earnings: The sum of a company’s consecutive earnings since it began

Having an Income Statement will assist you in filling out this section since it helps you determine the opening balance equity and the retained earnings.

5. Consider All Applications

When you put it all together, a balance sheet will probably look something like this:

balance sheet example
 

A solid balance sheet is an essential financial statement and part of a complete financial report. It can be used to secure financing or take a snapshot of a company’s current financial state, but it can also be used to evaluate the worth of your company over time. While accounting software like QuickBooks can easily generate balance sheets and other financial statements, it’s good to know the process to ensure your calculations are accurate.

Comparing your “Current Assets” minus “Current Liabilities” on a yearly basis will paint a picture of your company’s annual growth and expenses, which may have room for improvement. Calculating “Fixed Assets” minus “Fixed Liabilities” can provide a more long-term view of the company’s value over time and its ability to pay back long-term debts or expenses built up over many years.

Remember, the expenses of different companies may vary greatly, so don’t forget the assets and liabilities that are specific to your industry or area. For more help with balance sheets and other financial statements, see our infographic on financial reporting.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

Financial Analysis Implications Of New Revenue Recipe

9. December 2018 13:12 by Junita Jackson in

The revised revenue recognition requirements (Accounting Standard Update- Topic 606) become effective from the beginning of 2018 and they represent an important change for investors, particularly as revenue is integral for financial analysis across all businesses.

An odd feature of current reporting is that although revenue is arguably the most important financial statement line item, related disclosures (including within the segment reporting sections) are usually bare-bone, boilerplate and inconsistent across companies. In turn, the lack of robust revenue disclosures as well as the complex, ever-evolving nature of customer contracts across business models makes it difficult for investors to forecast the revenue changes that will likely result from the revised requirements. Not to mention that many companies are yet to disclose the anticipated effects of the new standard.

Hence, there is an urgency for investors to engage with company management and to probe on the implications of the revised requirements towards the amount and timing of revenue; as well as to ascertain the corresponding impact on gross margin profiles. Below is an elaboration on different financial analysis aspects.

Track Changes in Revenue Patterns

The software industry provides a perfect example of how various aspects of Topic 606 requirements can influence revenue patterns. An insightful elucidation of the practical implications of these revised requirements is accessible through a recently investor-targeted FASB webcast focused on the software industry, which highlights insights of two financial reporting experts from IBM and Microsoft.

The webcast outlines key differences in revenue patterns for Software as a Product versus Software as a Service (SaaS). The pricing structure of Software as a Product contracts includes upfront, point in time revenue due to software license installation fees and subsequent-period ratable (spread over time) revenue due to license maintenance and upgrade fees.

In contrast, the SaaS business model (e.g. Salesforce, Workday) has mainly ratable revenue patterns. Topic 606 has multiple requirements that can impact on the amount and timing of revenue including the application of significant judgment by management to determine and allocate a value to distinct performance obligations.

For example, it allows the use of estimated selling prices when actual transaction prices of unfulfilled promises to customer or performance obligations (e.g. software upgrades) are still undetermined. This is a departure from the more conservative requirements to apply vendor-specific objective evidence (VSOE) prior to allocating revenue amounts to future deliverables.

The FASB webcast highlighted that in the software industry changes in revenue patterns could mainly arise for hybrid business models (i.e. a combination of traditional software as a product and SaaS). 

Do Not Overlook Gross Margins Effects

It is important for investors to be alert to cost recognition impacts arising from Topic 606’s additional cost recognition guidance and to correspondingly monitor how the economics of businesses are getting reflected by the combination of revenue and cost recognition. Under Topic 606, costs of obtaining and fulfilling customer contracts will be capitalized and subsequently amortized or impaired over the expected life of the contract.

The incremental capitalization of costs (e.g. sales commissions in the software industry as highlighted by the FASB webcast speakers) and their subsequent amortization or impairment could result in greater matching in the recognition of contract costs and contract revenues. In turn, this could lead to smoother period-to-period margins.  For example, high-growth SaaS providers that have tended to portray a loss-making pattern in the first few years could portray smoother margins over the contract term.

Keep Sight on the Economics of Businesses

Beyond the issues flagged above in discussing the software industry revenue patterns, there are many other customer contract features (e.g. contract definition, uncertain future amounts to be received from customer, unexercised customer rights, financing arrangements, evidence of transfer of control to customer) that could affect the amount, timing and uncertainty of revenue for different businesses. Changes could occur in aerospace, engineering, construction, contract manufacturers, real estate, telecommunication, healthcare, a variety of manufacturers, retailers, e-commerce firms, asset management firms, and other intellectual property intensive firms.

Nevertheless, investors should remember that the intrinsic value of companies is primarily driven by the real economics of businesses rather than by accounting changes. They should always distinguish between changes in reported revenue patterns arising due to:

a.) Purely the effects of changes in companies’ accounting judgments on existing customer contracts and concomitant impacts on periodic revenue patterns;

b.) Changes in customer contracts including pricing changes and/or an alteration of the customer value proposition such as when software companies shift from a product to subscription business model; and

c.) Changes in customer demand influenced by seasonality, economic cycle, shifts in customer tastes, and product obsolescence.

Only B and C types of changes really affect the economic value of companies. In addition, investors should keep track of real economic value creation of companies by continuing to monitor the cash conversion of revenue as well as the correlation between revenue, gross margins and the cash flow from operations.

Monitor Transition Reporting and Disclosures

Transition reporting can help investors to discern the effects of revised standard and potentially allow a like for like comparison for a few years of revenue numbers based on the new model.  Preparers can choose between providing full retrospective transition (i.e., 2018, 2017 and 2016), modified retrospective transition with practical expedients, and cumulative catch-up transition (2018 onwards, a cumulative catch-up in opening equity and disclosure of what current year revenue would have been under the old guidance). The ideal approach for investors would be the full retrospective method but indications are that most companies are going to apply the modified retrospective.

This could also present a challenge towards comparing multi-year revenue trend data across companies as different entities may select different practical expedients.

Discern Revenue Risk, Key Judgments and Future Revenue Through Disclosures

The revised requirements have updated disclosures including significant judgments; revenue disaggregation; changes in contract assets and contract liabilities; and performance obligations (>1 year). These disclosures should help investors to discern revenue-related company specific judgments alongside any underlying associated uncertainty. Investors should also be aware that disclosed performance obligations will likely be a subset of future revenue. As such, investors will still have to rely on order backlog information reported within the MD&A as well as the profile of contract liabilities (equivalent to current deferred revenue).

In summary, the revised accounting changes will require ongoing due diligence by investors so as to appropriately interpret reported revenues.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

What Exactly Do You Need To Consider When Looking For The Perfect Premises?

3. December 2018 11:29 by Junita Jackson in

A universal answer to the question of what makes the perfect office space doesn’t exist. The kind of space you need, and will be comfortable in, depends entirely on the type of business you’re running. The same goes for the amount of space needed per worker. If all you require is a small desk and a phone connection, you don’t need masses of square footage. However, if your office also acts as your shop floor – a place to meet with clients – you’ll want a bit more space and possibly a more attractive and accessible location.

When it comes to size, Ann Clarke, design director at Claremont Group Interiors, is reluctant to dwell on average measurements because of the varying nature of what you need the space for. “Organisations like the British Council of Offices have certain recommendations but they’re reducing all the time because space is becoming increasingly expensive,” she explains.

 

However, there are some rough industry standards. For example, a densely packed call centre can get away with about 6-7 square metres per head, but a professional services firm will need more like 10-12 to allow for consultation space for clients.

It’s also important to bear in mind how much of the space is actually usable, and this can be dramatically affected by the shape of the building. “There are lots of things that impact the efficiency of a space,” says Clarke. “The shape of a building, where the lifts and stairs are and the amount of circulation space all make a difference. It all depends on how the floor plate is laid out.”

Clarke says the ideal office has a usable space/circulation space ratio of 85:15. “Once it falls below 85% it can get difficult and you won’t be able to use the space efficiently.”

If you want to minimise the amount of square footage you need, Clarke advises implementing some clever desk policies. Just because you employ 50 people, it doesn’t mean you need 50 desks. Working practices such as desk booking and hotdesking can work wonders if many of your staff are only in the office at certain times during the day or week.

“Think long and hard about storage too,” urges Clarke. “Do you really need to store all that paper on site, or can it be stored digitally or moved to cheaper storage facilities? You should have a clear idea about how you’re going to manage your storage before you commit to a particular space.”

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

10 Frequently Asked Questions About Payroll Processing

29. November 2018 20:28 by Junita Jackson in

Processing payroll is one of the most complex and time-consuming tasks a business must complete. If you’re new to the process, payroll can be confusing. Here are answers to some of the most frequently asked questions about payroll.

What Is an EIN?

The IRS issues employee identification number (EIN) numbers. This 9-digit number is used on federal and state tax filings for businesses, including payroll tax reporting documents. You can apply for an EIN through IRS.gov.

The EIN number can be used for a variety of business entities, including sole proprietorships, S corporations, and C corporations. Assume, for example, that you operate a C corporation, Ganz Manufacturing. Your corporation can operate under more than one fictitious name, and you can use the same EIN number. Ganz Furniture and Ganz Tool and Die, for example, could be fictitious names used by the same corporation.

This policy simplifies the tax filing process. You’ll need to register your fictitious names in the state where your business is headquartered.

What Is an I-9 Form?

Employers use Form I-9 to verify the identity and employment authorization of individuals. Every U.S. employer must have a completed Form I-9 for each worker hired, whether or not the individual is a U.S. citizen. To complete the form, an employee provides documents as evidence of their identities, such as a driver’s license, birth certificate, or passport.

An employer must retain each Form I-9 for a specific period of time, and a state or federal government official may ask to inspect the forms. Government agencies review I-9 forms to verify that each employee is authorized to work in the U.S.

What Is a W-4 Form?

Each worker completes IRS Form W-4 to indicate the amount of tax withheld from gross pay for federal income taxes. Employees complete similar forms for state income tax withholding.

How Do I Determine Payroll Taxes?

Once a W-4 is completed, the employer uses IRS guidelines to calculate the dollar amount of federal income taxes withheld. Each state has similar guidelines to calculate state tax withholdings.

The payment schedules are published in IRS Publication 15.

What Does Withholding Actually Mean?

Withholding refers to the dollar amount of federal and state income taxes that an employer collects from a worker’s gross pay. The dollar amount is determined based on the IRS W-4 form and the state’s withholding form. The company sends the taxes withheld to the IRS and the state’s department of revenue.

The dollar amounts withheld are reported to the worker on Form W-2 after year-end. It’s the employee’s responsibility to file their personal tax return and calculate their tax liability. The worker subtracts the W-2 taxes withholdings from the tax liability, and any remaining amount of taxes owed should be paid when the tax return is filed. This process applied to both federal and state taxes.

What Are Third-Party Liabilities?

In addition to withholding taxes, employers may also withhold the worker’s share of payments for insurance premiums, retirement plan investments, and other benefits. The worker decides on the amounts withheld for the payments. Once these payments are withheld from gross pay, the employer forwards the payments to each third party (insurance company, an investment firm, etc.).

When Do I Need to File W-2s and 1099s?

W-2 and 1099 forms are issued for different reasons. A W-2 is issued to an employee to report gross wages earned, tax withholdings, and other withholdings from gross pay. If you have wages withheld to pay for insurance premiums or to fund a retirement plan, those amounts are reported on a W-2.

The IRS requires employers to mail W-2 forms to workers no later than January 31st of the year following the end of the tax year. So, 2017 W-2s must be mailed by January 31st of 2018.

If your firm has paid at least $600 to a vendor for a product or service, you must issue a 1099-MISC form to that vendor. Freelance workers are considered vendors and are issued a 1099-MISC form. The IRS also requires employers to mail 1099-MISC forms to vendors no later than January 31st of the year following the end of the tax year. The employer combines all of 1099 issued and reports them to the IRS on Form 1096.

What Is Workers’ Comp Insurance?

Businesses purchase workers’ comp (compensation) insurance policies to pay for medical care and other costs if a worker is injured or killed while working on the job. The insurance policy pays for medical expenses and makes payments to the injured party based on a state’s workers’ compensation laws.

The insurance premiums are based on the total dollar amount of payroll a company pays, and the type of work performed the employees. If workers perform manual labor or work in jobs that expose them to physical injury (such as construction), the insurance premiums will be higher.

Construction, engineering and other firms that have a higher risk for worker injury need to have safety plans in place to reduce the risk of workplace injuries. If you can limit worker injuries, you can keep your insurance premiums at a reasonable level.

Am I Required to Have Labor Law Posters?

There are state and federal labor law poster requirements for businesses. The posters address worker rights related to the federal minimum wage, equal employment rights, and worker safety, among others. Companies can purchase “all-in-one” posters for both federal and state labor law requirements. The posters should be displayed so that employees can see them each day. The posters are typically posted in a break room.

What Does a Payroll Company Do?

A payroll company can perform many of the complex tasks required to process payroll accurately. To get started with a payroll company, a business provides the gross pay and withholding amounts for each employee. The payroll company uses current tax laws to calculate the correct tax withholdings and also withholds any benefit payments.

You can give a payroll company access to your corporate bank account so that the company can send each net pay amount to employees. This outside firm submits the payments withheld to the IRS, state revenue departments, and any other third parties. The company will complete all payroll reports and create W-2s and 1099s at year-end.

Every business should consider using a payroll company. This decision will help you save time and ensure that your payroll processing is accurate.

QuickBooks offers a number of payroll solutions ranging from simply cutting checks to full-service payroll. All payroll products integrate directly with your accounting software to keep your books in order with less work.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

How an Experienced Tax Professional Can Help Reduce Your Debt

3. September 2018 17:27 by Junita Jackson in

Oftentimes, we think we know what’s best for us when it comes to handling our own finances. The truth of the matter is everyone could use a little help, especially when tax season rolls around.

Many people who are in debt might not see how a tax professional can help them. After all, a tax professional deals in all things that are related to taxes, right? Well, that actually depends on what kind of tax professional you hire.

The Service You Might Be Used To

There are many storefront tax services that specialize in the “quick and dirty” annual tax filing. Nothing more. Nothing less. If what they’ve filed for you renders an outcome that’s other than a refund, then you are essentially on your own to work out some type of payment arrangement.

The Type of Service You Should Get Used To

The professionals at Success Tax Relief are invested in our clients. We do what we can to help our clients take care of their annual filing and see to it that they receive their refund as quick as possible. If for some reason, they end up owing the Internal Revenue Service (IRS), then we will also assist them with the means to making the payment. Oftentimes, the amount owed can be way more than taxpayers can afford. In cases like this, we communicate with the IRS on our client’s behalf to arrange an affordable monthly installment plan.

It can be said that other tax professionals do the exact same thing, but what sets Success Tax Relief apart from others is that we provide debt relief counseling services. We understand that when it comes to annual filings, sometimes you get a refund and sometimes you owe. It’s typically the owing part that can often get out of hand.

Managing Your IRS Payments

If you’re late with your filing or payments to the IRS, interests and penalty fees accrue, and if you’re already having issues keeping up with the payments, tacking on more money onto the existing debt can weigh you down. Because the consequences of a neglected tax payment are dire, this will certainly be the first debt that you want to pay. The problem is, other debts often get neglected because there’s only so much money to go around.

This is Where MaxFinancialss Tax Relief Can Help

The professionals at MaxFinancials Tax Relief have over three decades of experience helping taxpayers like you stretch the dollar so that you’re taking care of all of your debt. We understand that many people who find themselves in debt are having problems managing it. This is usually the underlying problem and we have a service to specifically address just this.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

Why Should You Have a Financial Planner For Your Personal Finances?

4. January 2018 11:55 by Junita Jackson in

As a financial planner, we would like to share with you a little secret: Everyone has the ability to manage their finances on their own. The knowledge and the information you need to make the right financial decisions is at your fingertips. You just need to take care of three main things: Learn, Apply and Manage. Let’s learn about these in detail.

Learn the Fundamentals

You need to focus your attention on these fundamentals:

  • The general principles of financial planning
  • Insurance
  • Investing
  • Taxes
  • Retirement
  • Estate planning

If looking at these areas makes you feel overwhelmed, it’s a lot.

Then again, if you look at that list and feel that you know it all, we suggest rethinking on that. No one knows it all; there is always something else to learn.

Over again, the Internet makes finding this information really easier, but there’s a catch. You need to carefully validate the sources of the information you collect, before accepting it as true and accurate. While some financial blogs and podcasts can be exceptionally valuable, others are based on personal experiences of years of education, training, and professional work. Personal stories can help you tune in to your own situation, but they may or may not reflect a comprehensive understanding of finance or relevant rules and regulations.

Apply Your Knowledge

Being aware of your budget and cash flow is one thing, but doing that is another.

How Checking Account Affects Your Mood

Let’s start with the basics here. You need to track your total income and fixed expenses. Once aware of what your money is doing, you can set up a budget to keep a track from month to month. From this onwards, you can determine what you will contribute to the investments and the savings.

After setting up the basics, your financial planning needs may get a bit complicated. You can begin by calculating how much money you need in your emergency reserve account, but then also make sure that you figure out how much you need to save for retirement. Furthermore, expose anyone earning income for various risks, including for any unfortunate disablement, so that you can protect yourself comfortably later.

It is all about realizing your unique circumstances, applying appropriate strategies and introducing systems to help you stay on the right track.

Manage Your Behavior

This is undoubtedly the most challenging part, because feelings often cloud our thinking. When things get demanding, you all get distracted. Other things take up your time, energy, and courtesy, escaping you from handling your finances.

To efficaciously manage your own money, you need to manage your own behavior, which means taking small & consistent actions over time. Create your plan of action and stick with it through the ups and downs, from personal scuffles to professional victories.

Why Work With a Financial Planner Anyway

That being said, it is worth restating that managing your own behavior is the most challenging part of managing your personal finances. Many just cannot do it successfully. Maximum mistakes happen when people proceed from their rational decisions regarding their finances. Hopes, fears, dreams, and other emotions start to sneak in.

It is easier to manage our behavior when we have a freestanding perspective. While we cannot necessarily see the bigger picture when we are deep into it, someone looking in from the outside could be able to help navigate us in the right direction. This is where a professional financial planner can add value.

It is possible to manage your own money, but it is not apparent that everyone can do it effectively. Everything is at ease when you have someone who can help hold your money. A proficient financial planner can help you find achieve more than you could by your own, even if you know the best moves to make.

Get in touch with us today if you are looking for the best financial planners in Melbourne, to get started on educating yourself, applying knowledge and practicing smart and rational behavior around money management.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis