Ensuring Financial Success for Your Business

Can you point your company in the direction of financial success, step on the gas, and then sit back and wait to arrive at your destination?

Not quite. You can’t let your business run on autopilot and expect good results. Any business owner knows you need to make numerous adjustments along the way – decisions about pricing, hiring, investments, and so on.

So, how do you handle the array of questions facing you?

One way is through cost accounting. Read more

New Accounting Standards for Revenue Recognition

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have approved new accounting rules on recognizing revenue in customer contracts.  The new rules are principles-based, eliminating most of the industry specific revenue recognition guidance by generally accepted accounting principles in the United States of America. This change will remove inconsistencies in existing revenue recognition standards and improve comparability of revenue recognition practices over a range of industries and geographic boundaries to provide more useful information to users of financial statements.

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Recent Changes in California Apportionment

During 2012 some very significant developments emerged in California that will impact California corporations that operate in other states and out-of-state corporations that operate in California. These recent decisions impact how taxable income (or losses) are apportioned for California corporate income tax purposes.

Income apportionment determines the ratio of income that is subject to tax in a particular state. There are several different methods used to determine state apportionment and acceptable methods for determining apportionment vary by the applicable state law. The acceptable methods have changed numerous times over the past couple of years in California due to a law change beginning with the 2011 tax year, the recent court decision in the Gillette Case and the passage of Proposition 39 in November 2012.  Click here for a reference chart showing the different apportionment formulas referred to in this article. Read more

Make 2012 Charitable Distributions from your IRA Now

If you are age 70½ or older and have an IRA there are two tax savings clauses in the 2012 Taxpayer Relief Act that you may want to take advantage of. First, eligible taxpayers can make a tax-free transfer from their IRA to an eligible charity by January 31, 2013 and treat the transfer as made on December 31, 2012. This strategy can help lower your Adjusted Gross Income (AGI) in future years by lowering the value of your IRA, which in turn lowers the amount of your required minimum distribution. Note the charitable distribution is limited to $100,000 per taxpayer per year. Essentially you have the ability to reduce your IRA value by $200,000 by making a $100,000 transfer by January 31, 2013 and allocating it to 2012 and then making another $100,000 transfer in February 2013 for the 2013 year. With all the tax increases and surtaxes taking effect in 2013, this can be a valuable tool to reduce your future tax liability.

A second option is for taxpayers to treat an IRA distribution received in December 2012 as a qualified charitable distribution as long as the taxpayer transfers the money to an eligible charity by January 31, 2013. This gives taxpayers a way to retroactively reduce their 2012 taxable income.

Remember, charitable IRA transfers are not included in taxable income. Additionally, a qualified charitable IRA transfer is beneficial because the charitable deduction is directly offset “above-the-line” against the IRA withdrawal. Without the charitable transfer the IRA distribution will increase your AGI, which impacts numerous other tax calculations and deduction phaseouts including how much of your Social Security is taxable, allowable deductions for charitable and medical expenses, as well as a myriad of tax credits. You must act quickly to take advantage of either, or both, of the provisions discussed above as transfers must be made by January 31, 2013 in order to qualify.

Independent Contractor vs. Employee Status

Hiring an independent contractor is often the simplest way for a business to get help in the door. However, the IRS, state labor and employment boards, unemployment insurance and worker’s compensation authorities all investigate whether or not employers are properly classifying workers. If any of these authorities determine that a worker that is being treated as an independent contractor should actually be an employee the remedies to correct the misclassification can be costly.

There are many benefits of classifying a worker as an independent contractor such as not providing the contractor with employee benefits, avoiding employer payroll tax liability, the ability to budget a specific amount for a project without paying overtime or holiday pay, savings in clerical costs and recordkeeping, less liability, and savings on workers compensation and unemployment insurance. While a hired independent contractor and employer may be in agreement in regards to their status, the IRS or other authority could disagree if they deem the relationship falls under the definition of employer-employee.

If the IRS or other authority determines that a worker classified as an independent contractor is actually an employee it can prove costly—the employer will be liable for past employer payroll taxes as well as penalties and interest and the burden of filing or amending all necessary payroll tax returns. If the issue is serious enough court time and costs or even criminal sanctions could result. Also, any retirement plans or other benefit plans that require certain compliance could be invalidated. Read more