Accounting and Tax Tips and Information

written by Lauren Bakken, owner of Bakken CPA PC and co-author of the book, One-Income Household

Bakken CPA PC is dedicated to providing timely, professional, personalized service to businesses and individuals.

Tag Archives: increase deductions

Is Your Small Business Ready To Take On Its First Employee?

Whether you just recently started a small business or you have been up and running for a while and working as the entire staff on your own, there may come a time when you decide you need to hire your first employee.  Before you jump into adding new staff to your workforce, be sure you are ready for it, as there are things you need to have set up in order to start off correctly.

If you think you are ready to take that step, here are a few reporting and regulatory issues you should think about:

  1. Determine the General Position: Think about why you are looking to hire a new person. Is this person going to be someone that will manage the store some of the time that you will not be there?  Is he or she going to do administrative tasks to free up some of your time to do billable work? Will the new employee work full or part time? And what are you willing to pay the person for their services? These are few very important questions that you will need to think about before you even begin looking to add a new person to your business.
  2. Obtain an EIN: Before you hire your first employee you must request an Employer Identification Number from the IRS. If your company is a partnership or corporation, you will already have one, but a sole proprietor will most likely need to request one.
  3. Employer Requirements: Check to be sure your soon to be employee can legally work in the United States. Once you’ve hired someone, you must report this to your state employment department. Before you start paying the new hire, get everything ready to easily pay in income tax withholdings to the IRS and state, FICA taxes at the appropriate rates, and unemployment taxes.
  4. Decide on Benefits: Depending on your state and if your new employee is full time or part time, there may be certain requirements on benefits you must offer. Look into rules on benefits, such as sick time and health insurance.
  5. Ask a Professional: Although you can find out a lot about rules on hiring employees online, it does not always cover every detail you may need to know. You should still contact a professional, whether it is an accountant or a payroll service provider, they can guide you to making sure you have all of your bases covered. In the end, it will save you time and help you avoid penalties for non-compliance.

Contact your accountant today to set up an appointment to go over your strategy for your new hire. They know the requirements for the type of business you own as well as for the state your business is in.

Seven Ways to Keep Your Business Healthy and Profitable

The benefits of doing an annual review of your business are holding your company accountable and evaluating current performance to better plan and execute future operations. These are seven things you should look at every year for the health of your company.

  1. Review Your Business Tax Strategy – As your business grows it is always good to make sure you are using the most appropriate form of business structure, whether it’s sole proprietor, S corporation, LLC or partnership. Also, consider adjusting your taxable earnings for the year, it may be beneficial for you to accelerate expenses or delay income at year-end. This can help reduce the current year tax bill.
  2. Get a Pulse on Your Customers – An annual customer satisfaction survey is a great way to assess performance, obtain insight on potential new products or services, and to let your customers know how much you value their business.
  3. Check the Effectiveness of Your Marketing – Are your current methods and channels working well, or are you simply doing what you’ve always done? Use a system to find out how your clients are hearing about you to see if you need to focus your efforts into certain marketing strategies.
  4. Update Succession Planning for Your Business – Review your succession planning annually. You should have a specific plan for your key leadership positions, including yourself. Be prepared for short term absences or permanent vacancies. An up to date plan can be invaluable in you have an unexpected vacancy.
  5. Review Your Business Banking Relationships – Annually, you should go over your cash balances with your accountant. You should also meet with your banker and ask about new products or services that could help your company. Address any service concerns or problems you might have had throughout the year and look for ways to reduce idle cash, boost interest earned and improve cash flow.
  6. Review Your Business Insurance Coverage – Don’t just automatically write a check to renew your insurance policies when they come due. Instead, you should sit down with your insurance agent every year. Review your business operations, focusing on any changes. Discuss types of risk that could arise and ask about new developments in business insurance. Use your agent’s expertise to identify risk areas and suggest suitable coverage.
  7. Review and Update Your Personal Estate Planning – If you’re a business owner, your company is likely to be a significant part of your estate. A good estate plan is essential if you hope to pass the business on to your heirs. Your company, your personal circumstances and the tax laws are continually changing. You should take time each year to make sure your plans are current.

If you are serious about improving your business, you should consider a yearly assessment of your operations. Contact your accountant today to set up an appointment.

Getting Rid of an Old Vehicle? Consider Donating it for a Tax Deduction!

Donating a car is a good way to get a tax deduction, but increased scrutiny by the IRS means taxpayers need to have a good understanding of the rules related to the items claimed on their return. If you are looking to donate a car to a local charity, be sure to take the proper steps to ensure you get the benefit on your tax return.

There are special limitations and substantiation requirements for a charitable contribution to become an itemized deduction. Charities usually sell the vehicle through a third party and in such cases; the deduction is based on proceeds of the sale, which may be less than what you consider fair market value.

Some of the specific requirements to take a deduction for a donation of a vehicle are:

  • Donations of motor vehicles (including automobiles, boats, airplanes, and motorcycles) with a claimed value of more than $500 needs a written acknowledgement from the organization receiving the vehicle.
  • The acknowledgement must contain certain information about the vehicle and certify that they will be using the vehicle.
  • This acknowledgement must be done within thirty days of the sale or contribution.
  • It then must be attached to the tax return of the taxpayer claiming the deduction.

The deduction you will be allowed to take is the lesser of the fair market value at the time of donation or the gross proceeds that the organization receives from the sale. However, if the charity gives the vehicle to a needy individual or sells it for significantly less than its value, the gross proceeds limit does not apply.

A way to figure the fair market value of the vehicle to be donated is by using an established used-vehicle pricing guide, such as Kelley Blue Book. The vehicle’s value can then be adjusted, but not above the guide’s estimate, for issues such as body damage or engine trouble. This estimate must be reasonable, as the IRS looks closely at these transactions and misstating the value can trigger an audit.

By donating that older vehicle that you plan on getting rid of, you could help out a local cause and save yourself some tax dollars. If you think you might be interested in donating a car to a charity, contact your accountant today, to be sure you have everything in line to get the deduction for it.

Bakken CPA PC is Now an All in One Service Provider

We, at Bakken CPA PC, consider saving our clients time, effort and money a main priority. If there is something we can do that will make our client’s day a little easier, we try to offer it. In order to fulfill this goal, we have added a new service to our package of options we are able to offer our clients.

We can now not only assist with your accounting and tax needs, but also your payroll needs! We feel that by offering our clients the option of having us complete their payroll processing, we can give you a more complete package of services that will make running your business a little easier.

Consider this; now that we can complete your bookkeeping, while servicing your payroll, we are able to keep your business’s books more accurate year round. Once it comes time for us to complete your yearly tax return, your books will already be accurately complete for the year, which saves us time and saves you money. Not only that, but we will also already have all of the information for your payroll for the entire year, which will save you more time and money! This would be a great position for you to be in during the tax season, which can be stressful for a business owner. Our goal is to help you manage your business more efficiently and effectively by taking over tasks where we have expertise which then allows you to focus on yours.

Our payroll processing service we offer includes a range of options that will not only help you focus on your business, but attract and retain employees.

Some of our benefits include:

  • Full Service Direct Deposit
  • Electronic Employer Access to Payroll Records All Year
  • Electronic Employee Access to Payroll Records All Year
  • Automatic Payments of Taxes and Fees
  • And more!

We strive to give you old fashioned personal service while still being able to offer you the latest in technology. If our new payroll service seems like something that you’d be interested in, give our office a call today. We will be happy to provide more information to you.

How Long Do You Really Need to Keep Your Tax Records?

It is not necessary to save every bill, receipt and statement forever. However, some items do need to be kept longer than others. Consider making your life a little simpler and saving yourself some space, by shredding things as you can instead of doing all of your year’s shredding at one time.

Set up your shredding schedule like this:

  • Get rid of your ATM receipts and bank deposit slips as soon as you match them up with the monthly statement.
  • Toss utility, credit card, phone and cable bills as soon as you receive the next month statement showing acknowledgement of your last payment. But, if you are claiming these expenses on your tax return, you should keep them three years, or six if self-employed.
  • Monthly statements from your bank, or broker and also paystubs can be thrown away once you have received the year end forms and you have confirmed their accuracy.
  • Receipts and documentation for home improvements should be kept for at least three years after you sell your house. You can use these to show buyers what repairs you have done and some may also be eligible deductions on your tax return.
  • Supporting documents to a tax return, such as canceled checks and receipts, can be discarded after three years, or six years if you are self-employed.
  • Records of stock basis and re-invested dividends and capital gain distributions should be kept for as long as you hold the stock. This information offsets the amount you pay in tax on any gain.
  • You should keep copies of your Form 8606 until you withdraw all money from your IRA to be sure you don’t end up overpaying on taxes when you begin to withdraw it.
  • Tax returns should be kept for a minimum of six years, but it can be wise to keep a copy in your files (electronically or paper) forever.

Be sure to shred these documents though, you run the risk of becoming a victim of identity theft if you just put them in your trash. If you are unsure about whether you can throw away a certain document, be on the safe side and call your accountant.