9/24/17: Three Methods of Determining Reasonable Compensation – Income
Adapted from articles by Paul S. Hamann & Jack Salewski, CPA, CGMA
The Income approach, aka the independent investors test: Generally works best for outliers (a person or thing situated away or detached from the main body or system). The Income approach seeks to determine whether a hypothetical investor would be satisfied with their return on investment when looking at the financial performance of the business in conjunction with the compensation level of the owner.
The Income approach is somewhat similar to the Market approach for determining reasonable compensation for a business owner by using a comparison to the approaches used to value real estate. The Income approach for appraising real estate is how a commercial real estate investor might value a property based on the properties return on investment (ROI) or Capitalization (CAP) rate. The investor is interested in knowing how much money they will make as a ROI.
In order to determine the Reasonable Compensation using the Income approach you need three pieces of information.
Fair Market Value (FMV) of the business at the beginning of the year.
Increase in FMV by the end of the year before owner compensation
Target return of the Independent Investor
Plug these three values into an Income approach calculator to determine Reasonable Compensation using the Independent Investors test.
Keep More of Your Money: Adjust Your Tax Withholdings
Every year millions of Americans jump for joy when they receive their tax refund from Uncle Sam. And, rightfully so. There’s nothing better than feeling a bit more financially secure when you see that “extra” cash hit your bank account.
But, what you may not realize is that “extra” money was already yours to begin with. That’s right – the money you receive in a refund is money you overpaid to the government all year long in the form of taxes. Its money that originally came from your paycheck.
Fortunately, you don’t have to wait until tax season to get that money back. You have the power to control how much you pay in taxes by adjusting your tax withholdings.
Curious how that works? Follow these three steps.
1. Get familiar with Form W-4.
To control your tax withholding and paycheck, you need to adjust the amount of allowances (withholding exemptions) you claim on Form W-4. If you’re unfamiliar with Form W-4, it’s the tax document you complete each time you start a new job to let your employer know how much money to withhold from your paycheck for federal taxes. To better understand how allowances work, think about it this way:
to increase your paycheck – claim more allowances to withhold fewer taxes
to increase your refund – claim less allowances to withhold more taxes
With one simple form you can make the necessary adjustments to keep more money in your paycheck instead of waiting to receive it in the form of a tax refund. Take a moment to review your withholdings along with your current financial situation. Is it better for you to receive a larger refund or would additional money in each paycheck be more useful?
5 Things You Can Learn from Your Tax Return
by sally herigstad
If you already stashed away your tax return, you may want to dig it back out. There are a variety of things you can discover by reviewing each form and understanding the significant impact your taxes can have on your financial health.
Now is a great time to take a second look at your return and discover ways you can make a difference in your tax outcome next year.
1. The reality of your refund
Every year, nearly eight out of ten American tax filers receive a federal tax refund, according to the IRS, the average amount paid is close to $3,000. Many of those Americans are elated to see that money hit their bank accounts as they already have big plans to spend it.
However, for most of those same Americans, receiving that refund means they had about $3,000 too much withheld from their paychecks throughout the year.
Think about it. A tax refund is a refund of your own hard-earned money. It’s not a gift or an extra paycheck from the government. In fact, it’s quite the opposite.
Receiving a tax refund means you made an interest-free loan to the government. That means you had less money during the year to pay off debts, afford those pesky car repairs, make home improvements or to stash away in your retirement fund or your kid’s college savings account.
So, how do you make sure the right amount is being withheld? File a new Form W-4 with your employer. Your employer deducts taxes based on the number of allowances you claim on your W-4.
Therefore, adjusting your withholdings to better match your tax situation as soon as you can will help you avoid temporarily giving it up to the IRS.
2. Tax bills happen
If you had to pay a significant tax bill after you filed your tax return, you have the opposite problem as someone who received a refund.
Owing money is always stressful, but when other people are talking about their big refunds, you start to question what went wrong.
Luckily, there’s a solution to help avoid this unhappy fate next year. Simply file a new Form W-4 with your employer and increase the amount of federal income tax withheld by decreasing the number of allowances.
3. How to pay less tax
After you file your tax return, it’s easy to only focus on the amount of money you owe or the amount you’re getting back in a refund. However, that’s not the whole picture.
Take a look at your return and add together your total taxes. Don’t forget to include Social Security, state income taxes and property taxes.
Knowing how much you pay can be a surprise and serve as a great motivator to learn ways to reduce your tax bill.
Set aside a few minutes to dive into the numbers. Find out if there any other deductions you could take advantage of to help reduce your taxable income.
Should you consider itemizing your deductions next year, or does taking the standard deduction benefit you the most?
4. Tax benefit leftovers
If you entered deductions when you prepared your tax return, check your return to make sure you were able to take the full deduction this tax year.
In some cases, you may have received little or no benefit from the deduction due to income restrictions.
For example, if you have a rental house, you may have intended to take a deduction for your loss including depreciation.
However, if your modified adjusted gross income (MAGI) was over $150,000 ($75,000 if married filing separately) you wouldn’t have been able to take the loss deduction this year.
The same goes for some education credits. If your income is above certain limits, the tax benefit is lost.
Check your return to see if you have any deductions left-over for these reasons. Next year you may be able to put them to good use if your taxable income is lower.
5. Tax brackets matter
To make smart tax decisions, you must know your tax bracket. Understanding which tax bracket you fall into can help determine if a particular tax deduction will benefit your tax situation.
Generally, when you’re in moderate income tax brackets, you’re better off getting the highest return you can on your money, even if you pay tax on it.
Once you reach a higher income tax bracket, however, tax-free or tax-deferred income sources start to make sense.
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9/14/17: The Equifax Data Breach
Have you been affected? If so, how can you try to protect yourself?
Provided by Pamela Prine
On September 7, credit reporting agency Equifax dropped a consumer bombshell . It revealed that cybercriminals had gained access to the personal information of as many as 143 million Americans between May and July - about 44% of the U.S. population. The culprits were able to retrieve roughly 209,000 credit card numbers, in addition to many Social Security and driver's license numbers. 1
How can you find out if you were affected? Visit equifaxsecurity2017.com, the website Equifax just created for consumers. There, you can enter your last name and the last six digits of your Social Security number to find out. (Having to enter the last six digits of your SSN hints at how significant this breach is.)
1 - wired.com/story/how-to-protect-yourself-from-that-massive-equifax-breach/ [9/7/17]
2 - washingtonpost.com/news/the-switch/wp/2017/09/08/after-data-breach-equifax-asks-consumers-for-social-security-numbers-to-see-if-theyve-been-affected [9/8/17]
9/1/17: Every aspect of your accounting must be DCAA compliant
Supplying services to the United States Department of Defense (DOD) can prove to be very lucrative to private enterprises. However, as with most services provided to the government, the DOD requires businesses to maintain records in compliance with the guidelines from the Defense Contract Audit Agency (DCAA). This requirement is applicable even if you work on only one small part on a defense contract, and the other parts of your work have nothing to do with that contract. Here is some very basic information about the DCAA.
First, who is the DCAA? DCAA stands for Defense Contract Audit Agency. DCAA reviews the accounting practices and accounting of government contractors, including prime contractors and subcontractors.
Employee time tracking on a DOD contract is the hardest because you must prove that NO non-authorized personnel have done any work at all on the project. This means you need to know the difference between your payroll service and labor distribution. Your payroll service merely computes your gross pay, tax return filings, and deducts net pay, employee and employer payroll taxes and other fees from your bank account. Your payroll is related to labor distribution for "gross payroll" only. Your labor distribution system takes the gross payroll and distributes the gross pay to each labor category by direct (by contract), indirect (by indirect cost pool) and unallowable categories for purposes of reimbursement. Labor distribution does not have anything to do with payroll taxes, tax return filings, or deductions from your bank account.
At Extraordinary Bookkeeping Services we know how to manage all aspects of DCAA reviews and accounting for DOD contract. I know the many options available to facilitate your record keeping seamlessly. If your Payroll is not at a high level of accuracy and Insight, I can help you with all the DCAA requirements, and KEEP YOU DCAA COMPLIANT!
4/13/17: Heads Up! File your extension for FREE
You still have not filed your taxes and this Nice CPA offers to file your Extension for FREE. Be aware He who files the extension is required to file the return. So it is not just because CPA is nice, they are insuring they have billable work for the summer months.
BE AN AWARE CONSUMER. HAVE A BLESSED DAY.
3/30/17: Two potential delays on Tax Guidance that the IRS, if mandated, to make available.
One is the Administration's order that each new regulation be accompanied by the withdrawal of two existing regulations, with few exceptions. The other is that the administration and Congress wan to enact tax reform as a top priority, so some guidance may be on hold while staffers work on tax reform. Also, the IRS may believe that developing guidance for tax provisions that might be eliminated would be a waste of time.
Working with clients to make sense of their numbers. Giving them the financial intelligence to conduct their business with insight and perspective.
3/28/17: New Employer deadlines
As reported in March, the 21st century cures Act of 2016 lets small-employer health reimbursement accounts (HRA's) pay for health insurance premiums and other medical expenses without violating the ACA. Previously reimbursement of health care premiums had been barred.
Now the IRS has extended the key deadline in the new law that you many be wrestling with. The Act requires employers to finish a written notice to employees with certain details about the new HRA rules at least 90 days before the begining of a year.
2/26/17: 7 Main Tips for Social Media network marketing
No more negativity
Before & After photos
Add leaders and inspirational people
The 8 to 1 Ratio is very important for every 8 posts, then something about your company, you will have better results it your social media is not all about your business and nothing else.
Find Sources of inspiration
If you have not claimed your business on yelp, best to do it before someone else does.
Watch out for the for the add campaigns you want to go with clicked not viewed.