2 valuable year-end tax-saving tools for your business

At this time of year, many business owners ask if there’s anything they can do to save tax for the year. Under current tax law, there are two valuable depreciation-related tax breaks that may help your business reduce its 2019 tax liability. To benefit from these deductions, you must buy eligible machinery, equipment, furniture or other assets and place them into service by the end of the tax year. In other words, you can claim a full deduction for 2019 even if you acquire assets and place them in service during the last days of the year.

The Section 179 deduction

Under Section 179, you can deduct (or expense) up to 100% of the cost of qualifying assets in Year 1 instead of depreciating the cost over a number of years. For tax years beginning in 2019, the expensing limit is $1,020,000. The deduction begins to phase out on a dollar-for-dollar basis for 2019 when total asset acquisitions for the year exceed $2,550,000.

Sec. 179 expensing is generally available for most depreciable property (other than buildings) and off-the-shelf computer software. It’s also available for:

• Qualified improvement property (generally, any interior improvement to a building’s interior, but not for the internal structural framework, for enlarging a building, or for elevators or escalators),

• Roofs, and

• HVAC, fire protection, alarm, and security systems.

The Sec. 179 deduction amount and the ceiling limit are significantly higher than they were a few years ago. In 2017, for example, the deduction limit was $510,000, and it began to phase out when total asset acquisitions for the tax year exceeded $2.03 million.

The generous dollar ceiling that applies this year means that many small and medium sized businesses that make purchases will be able to currently deduct most, if not all, of their outlays for machinery, equipment and other assets. What’s more, the fact that the deduction isn’t prorated for the time that the asset is in service during the year makes it a valuable tool for year-end tax planning.

Bonus depreciation

Businesses can claim a 100% bonus first year depreciation deduction for machinery and equipment bought new or used (with some exceptions) if purchased and placed in service this year. The 100% deduction is also permitted without any proration based on the length of time that an asset is in service during the tax year.

Business vehicles

It’s important to note that Sec. 179 expensing and bonus depreciation may also be used for business vehicles. So buying one or more vehicles before December 31 may reduce your 2019 tax liability. But, depending on the type of vehicle, additional limits may apply.

Businesses should consider buying assets now that qualify for the liberalized depreciation deductions. Please contact us if you have questions about depreciation or other tax breaks.

© 2019

Bridging the gap between budgeting and risk management

At many companies, a wide gap exists between the budgeting process and risk management. Failing to consider major threats could leave you vulnerable to high-impact hits to your budget if one or more of these dangers materialize. Here are some common types of risks to research, assess and incorporate into adjustments to next year’s budget:

Competitive. No business is an island (or a monopoly for that matter). The relative strength and strategies of your competitors affect how your company should shape its budget. For this reason, gathering competitive intelligence and acting accordingly is a must.

For example, if a larger competitor has moved into your market, you may need to allocate more funds for marketing and advertising. Then again, if a long-time rival has closed up shop, you might be able to keep those costs the same (or even lower them) and channel more money into production as business picks up.

Compliance. Although federal regulatory oversight has moderated under the current presidential administration, many industries remain subject to myriad rules and regulations. State governments have also been aggressive in their efforts to gather additional revenue through oversight.

Look into how compliance rules might change for your business next year. Could a planned strategic move subject you to additional or stricter regulations? Factor compliance risks into your budget, whether in the form of increased administrative requirements or costly penalties if you slip up.

Internal. The U.S. economy is considered relatively strong. But that doesn’t mean you should worry any less about what’s arguably the biggest internal risk to your budget: fraud. Employees may still have plenty of rationales for stealing from you and, perhaps disturbingly, a 2019 benchmarking report from the Association of Certified Fraud Examiners found that 58% of in-house fraud investigation teams had inadequate levels of antifraud staffing and resources.

If this year’s budget suffered from fraud losses, you’ll absolutely need to allocate more dollars to tightened internal controls. But doing so could be a good idea anyway to minimize the possibility that a fraudster will strike. And, of course, fraud isn’t the only internal risk to consider. Will your hiring costs rise in 2020 because of anticipated turnover or a need to increase staff size? Will training expenses go up because of a strategic initiative or new technology?

As the year winds down, business owners should be giving serious thought to their 2020 budgets based on financial reporting for the year. Our firm can help you undertake a sound budgeting process that includes the identification and assessment of specific threats.

© 2019

3 key traits of every successful salesperson

Take a mental snapshot of your sales staff. Do only a few of its members consistently bring in high volumes of good margin sales? An old rule of thumb says that about 20% of salespeople will make 80% of sales; in other words, everyone’s not going to be a superstar.

However, you can create performance management standards that raise the productivity of your sales department and, in turn, the profitability of your company. To do so, focus on the three key traits of every successful salesperson:

1. Authentic aptitude. Some people are “born to sell” while others, with hard work, can become proficient at it. But if a person struggles to form relationships, has no tolerance for rejection or failure, and desires a routine workday, he or she probably doesn’t belong in sales.

You may want to use a sales aptitude test during the hiring process to weed out those most likely doomed to failure. But it’s always possible to hire someone with “potential” who just never grows into the position. If an employee lacks the aptitude for sales, no amount of training and coaching will likely turn him or her into a stellar performer. In such cases, you’ll need to choose between either moving the person into another area of the business or letting him or her go.

2. Effective tactics. Entire books could be written (and have been) about sales tactics. There’s the hard sell, the soft sell, upselling, storytelling, problem solving — the list goes on. At the end of the day, customers buy from people whom they like and trust — and who can deliver what they promise.

Doing the little things separates those at the top of the sales profession from everyone else and helps them build lasting and fruitful relationships with customers. Identify the most valuable tactics of your top sellers and pass them along to the rest of the staff through ongoing training and upskilling.

3. Strong numbers. There’s no way around it: A good salesperson puts up the numbers. Sales is a results-oriented profession. The question and challenge for business owners (and their sales managers) is how to accurately and fairly measure results and ultimately define success.

There are many sales metrics to consider. Which ones you should track and use to evaluate the performance of your salespeople depends on your strategic priorities. For example, if you’re looking to speed up the sales cycle, you could look at average days to close. Or, if you’re concerned that your sales department just isn’t bringing in enough revenue, you could calculate average deal size.

Hopefully, everyone on your sales staff demonstrates these three key traits to some degree. If not, regular performance reviews (to catch problems) and effective coaching (to solve them) are a must. We can help you identify the ideal metrics for your company, run the numbers, and set reasonable and profitable revenue goals.

© 2019

Small businesses: Get ready for your 1099-MISC reporting requirements

A month after the new year begins, your business may be required to comply with rules to report amounts paid to independent contractors, vendors and others. You may have to send 1099-MISC forms to those whom you pay nonemployee compensation, as well as file copies with the IRS. This task can be time consuming and there are penalties for not complying, so it’s a good idea to begin gathering information early to help ensure smooth filing.

Deadline

There are many types of 1099 forms. For example, 1099-INT is sent out to report interest income and 1099-B is used to report broker transactions and barter exchanges. Employers must provide a Form 1099-MISC for nonemployee compensation by January 31, 2020, to each noncorporate service provider who was paid at least $600 for services during 2019. (1099-MISC forms generally don’t have to be provided to corporate service providers, although there are exceptions.)

A copy of each Form 1099-MISC with payments listed in box 7 must also be filed with the IRS by January 31. “Copy A” is filed with the IRS and “Copy B” is sent to each recipient.

There are no longer any extensions for filing Form 1099-MISC late and there are penalties for late filers. The returns will be considered timely filed if postmarked on or before the due date.

A few years ago, the deadlines for some of these forms were later. But the earlier January 31 deadline for 1099-MISC was put in place to give the IRS more time to spot errors on tax returns. In addition, it makes it easier for the IRS to verify the legitimacy of returns and properly issue refunds to taxpayers who are eligible to receive them.

Gathering information

Hopefully, you’ve collected W-9 forms from independent contractors to whom you paid $600 or more this year. The information on W-9s can be used to help compile the information you need to send 1099-MISC forms to recipients and file them with the IRS. Here’s a link to the Form W-9 if you need to request contractors and vendors to fill it out: https://bit.ly/2NQvJ5O.

Form changes coming next year

In addition to payments to independent contractors and vendors, 1099-MISC forms are used to report other types of payments. As described above, Form 1099-MISC is filed to report nonemployment compensation (NEC) in box 7. There may be separate deadlines that report compensation in other boxes on the form. In other words, you may have to file some 1099-MISC forms earlier than others. But in 2020, the IRS will be requiring “Form 1099-NEC” to end confusion and complications for taxpayers. This new form will be used to report 2020 nonemployee compensation by February 1, 2021.

Help with compliance

But for nonemployee compensation for 2019, your business will still use Form 1099-MISC. If you have questions about your reporting requirements, contact us.

© 2019

Is multicloud computing right for your business?

Cloud computing — storing data and accessing apps via the Internet — has been widely adopted by businesses across industry and size. Like many technological advances, though, new derivatives continue to emerge — including so-called multicloud computing.

Under this approach, companies don’t rely on a single cloud service; rather, they distribute their data and computing needs among several providers. Popular options include Amazon Web Services (AWS), Google Cloud Platform and Microsoft Azure.

Various advantages

The strategy offers various advantages. For example, like any cloud computing arrangement, it provides scalability. As your needs expand or drop, you can readily adjust your storage capabilities to keep a lid on costs.

Multicloud computing also is a way to hedge your bets. Every cloud provider has downtime at some point but, if you use multiple clouds, you can switch critical workloads and applications to a cloud that’s up and running. And it helps you avoid “vendor lock-in,” or getting restricted to a single provider’s infrastructure, add-on services and pricing models.

Improved performance is another factor. Using several providers based relatively close to you geographically means fewer “network hops” between servers. This reduces latency (the delay between a user’s request and the provider’s response), jitter, packet loss and other disruptions.

Many businesses prefer the “a la carte” nature of multicloud computing. Different providers may have different features that you need to meet your technical or business requirements. For instance, you might choose a pricier but more secure cloud for applications with sensitive data and a cheaper alternative for less sensitive data. Similarly, a business that relies heavily on Windows might use Azure for internal operations but tap AWS for its website and Google Cloud for machine learning.

Potential pitfalls

Some companies find themselves engaging in multicloud computing without ever deciding to do so. Unintentional multiclouds can result from “shadow IT,” whereby different departments or business units start using public clouds on their own accord and then one day turn to IT for help.

Whether multicloud computing develops from shadow IT or a conscious strategic decision, it comes with potential pitfalls. Managing multiple clouds can prove complex. You can use integrated suites of software known as “cloud management platforms” to administer multiple clouds. But these platforms tend to take a “least common denominator” approach, treating multiple clouds as a single cloud by focusing on storage, network and computing functions. As a result, you may find it difficult to leverage each cloud provider’s distinctively useful features.

Total costs

Last but certainly not least, you must consider the total cost of ownership of any multicloud strategy. Although the availability of alternative providers may increase your bargaining power, the cost of paying several vendors can go beyond the upfront prices and monthly fees. You may also incur additional fees for items such as licensing and integration. We can help you perform a cost-benefit analysis of any multicloud solution you’re considering.

© 2019

Small businesses: Stay clear of a severe payroll tax penalty

One of the most laborious tasks for small businesses is managing payroll. But it’s critical that you not only withhold the right amount of taxes from employees’ paychecks but also that you pay them over to the federal government on time.

If you willfully fail to do so, you could personally be hit with the Trust Fund Recovery Penalty, also known as the 100% penalty. The penalty applies to the Social Security and income taxes required to be withheld by a business from its employees’ wages. Since the taxes are considered property of the government, the employer holds them in “trust” on the government’s behalf until they’re paid over.

The reason the penalty is sometimes called the “100% penalty” is because the person liable for the taxes (called the “responsible person”) can be personally penalized 100% of the taxes due. Accordingly, the amounts the IRS seeks when the penalty is applied are usually substantial, and the IRS is aggressive in enforcing it.

Responsible persons

The penalty can be imposed on any person “responsible” for the collection and payment of the taxes. This has been broadly defined to include a corporation’s officers, directors, and shareholders under a duty to collect and pay the tax, as well as a partnership’s partners or any employee of the business under such a duty. Even voluntary board members of tax-exempt organizations, who are generally exempt from responsibility, can be subject to this penalty under certain circumstances. Responsibility has even been extended in some cases to professional advisors.

According to the IRS, being a responsible person is a matter of status, duty and authority. Anyone with the power to see that the taxes are paid may be responsible. There is often more than one responsible person in a business, but each is at risk for the entire penalty. Although taxpayers held liable may sue other responsible persons for their contributions, this is an action they must take entirely on their own after they pay the penalty. It isn’t part of the IRS collection process.

The net can be broadly cast. You may not be directly involved with the withholding process in your business. But let’s say you learn of a failure to pay over withheld taxes and you have the power to have them paid. Instead, you make payments to creditors and others. You have now become a responsible person.

How the IRS defines “willfulness”

For actions to be willful, they don’t have to include an overt intent to evade taxes. Simply bowing to business pressures and paying bills or obtaining supplies instead of paying over withheld taxes due to the government is willful behavior for these purposes. And just because you delegate responsibilities to someone else doesn’t necessarily mean you’re off the hook.

In addition, the corporate veil won’t shield corporate owners from the 100% penalty. The liability protections that owners of corporations — and limited liability companies — typically have don’t apply to payroll tax debts.

If the IRS assesses the penalty, it can file a lien or take levy or seizure action against the personal assets of a responsible person.

Avoiding the penalty

You should never allow any failure to withhold taxes from employees, and no “borrowing” from withheld amounts should ever be allowed in your business — regardless of the circumstances. All funds withheld must be paid over on time.

If you aren’t already using a payroll service, consider hiring one. This can relieve you of the burden of withholding and paying the proper amounts, as well as handling the recordkeeping. Contact us for more information.

© 2019