Business Guide to Charitable Giving

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With the holidays approaching, many businesses choose to bring in the season with a donation to charity.

This kindness can lead to great things for their community as well as goodwill for their brand. This is a great way for your business to support your customers and give you easy publicity. There are a few things to watch out for when giving a charitable contribution that could save you quite the headache.

Why give back to the community?

Though this may seem like a rhetorical question, there is some truth to asking yourself why your business should give back. First of all, by giving back to the community where your company is based you gain some great PR with your customers. This is one place where small business win out over their large corporate opponents because they can have a more personal relationship with their neighbors. This donation also gives you a small tax deduction at the end of the year but never forget that some good philanthropy goes a long way.

Also, by choosing who your business will make this donation towards will grant you an opportunity to make a new alliance with organizations in your community and potential partners. This decision can lead to long-lasting relationships which can give you more business and more publicity.

What you need to know about this donation

For a local business, it is wise to choose a local organization to donate to but there is more to it then their location. You’ll need to make sure that the organization is a bona fide 501(c) (3) organization to get the benefit of a tax deduction. The IRS has a tool on their website that can help you find an organization in your area that is registered. It's important to note that the Tax Cuts and Job Act of 2017 made it harder to claim tax deductions for charitable giving.

There are ways, however, to get around this change, including the use of a donor-advised fund. A donor-advised fund allows you to donate enough money upfront in one year to become eligible for tax deductions while the donor-advised fund holds onto the money. You can then distribute the money from the fund over several years if you want to make more regular donations.

Another concern that many business owners have is whether or not their money is winding up in the right place and if it is being used properly. This is something that you must do your homework researching the organization to ensure that their brand matches with yours. One thing you can do is call the organization and ask to speak with the executive director. Nonprofit leaders should be happy to talk with potential donors about their organization and their impact and should be especially interested in building relationships with local businesses.

This may sound a bit confusing but you can contact me to find out how I can assist you and your business.

How much is the right amount?

According to the U.S. Small Business Association, companies donate an average of 6 percent of their profits to charity. The tax benefit that you will be given is entirely based on how much you decide to donate and your business’ revenue. This decision is ultimately up to you but one thing I urge you to consider is to donate only what you are able to donate. Do not put your business into a bad position by donating too much because you wanted to assist your community.

Donating to local organizations is a worthwhile cause and it’s also important to not sink your business. In this same light, it's best to keep detailed records of charitable donations for your tax return. Most nonprofits will give you a standard form for tax-filing purposes.

Final Note for Security

Be aware that scammers send out email scams for charitable donations during the holiday seasons. They are trying to take advantage of people’s giving hearts during this time of year when everyone is feeling more giving. If you get an email that you are not sure about then do some research before moving forward. If you are wanting to make a donation, make sure you know who it is going to, what the organization's beliefs are, what your donation will be assisting with, who the main players are in the organization you choose, etc. Do your research!

Keeping track of your Business Expenses

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We are a little over halfway through the year and now is a great time to make sure that you have your business expenses taken care of for the first half. Getting these in order before the year-end best prepares you for tax season.

 

Tracking business expenses tips:

 

1.     Make this a weekly or monthly practice. Keeping track of these expenses on a weekly or monthly basis gives you the ability to know just how much you are spending on your supplies. Don’t let this pile up on you until the end of the year because tracking down expenses from months prior is fairly time consuming.

 

2.     Be sure to keep those receipts. Every time you have an expense, be sure to track your receipts and keep a good record of them. If you are ever audited, these receipts are very important to have handy. You can keep a physical copy of the receipt, a virtual copy by taking pictures of them, or you can do both which is the best practice.

 

3.     Never mix business with personal. Be sure to distinguish which expenses are for your business and which are for personal matters. Do not mix these two together as that can get you in a lot of trouble. If you are at the store and your cart has a mixture of business and personal expenses, simply separate the items and have the cashier run two transactions and keep those receipts!

 

4.     Watch your cash. Paying for business expenses with cash can be difficult to keep track of. Make sure that you are tracking these expenditures in your books and logging them under your cash accounts.

 

5.     Utilize technology for assistance. There are a number of different apps to assist you with tracking your expenses:

1.     Foreceipt

2.     Certify

3.     Receiptmate

4.     Shoeboxed

5.     Expensify

 

6.     Cut out the excess. If you find that you are spending more than you are earning, review your business expenses and see where you can remove some extra costs. Look over each line and search for where you can cut back, starting with the areas that don’t directly affect the bottom line.

 

If you are struggling to keep up with these business expenses, contact me to find out how I can assist you and your business.

Small Businesses Giving Scholarships

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The new school year is at hand and some of your employees or their kids are heading back to college. This is a good time to think about offering scholarships to some of these individuals or to your community.

 

1.     A scholarship/grant is awarded from a foundation started by the business

2.     A scholarship may be a tax write-off if approved by the IRS in advance

3.     A scholarship must be used to advance the education of an individual

a.     This does not require that a degree be earned

b.     The scholarship funds may be used for travel, books, study, room, board, etc. as long as it is towards educational purposes

4.     A scholarship is NOT allowed to be used for extra pay, employee incentive, or fringe benefits

a.     If used in this manner, it will no longer be a tax write-off

b.     In addition, the foundation administering the scholarship will not qualify for tax exemption because it is operated for a private benefit and may be liable for self-dealing

5.     Preferential Treatment may be given to employees and their children

a.     The preferential treatment must not go beyond an initial qualifier

b.     Selection to be limited to factors unrelated to employment

c.     The selection committee comprised of individuals who are independent of the foundation and company

d.     Probability of receiving the scholarship is limited

 

Be sure that the grant has clear and precise terms. The IRS requires the procedure to award the scholarship to be on an objective and nondiscriminatory basis that is reasonably calculated to finance the grantee’s performance of the intended activity. Once the grantee has been chosen, they must be tracked to be sure that they are fulfilling the grant terms. Procedures must be in place to ensure the grantee is fulfilling the grant terms and that they are using the grant towards educational purposes and not straying from the proper use. The foundation must keep records of the amount and purpose of each grant.  Finally, information must be obtained to evaluate potential grantees, their identification and their relationship to the corporation.

Topping the Charts

When searching for accountants in the Raleigh area, you will find that AMJ ranks highly amongst the competition.

Recently, Angie’s List searched the Raleigh area for the best accountants and listed AMJ Bookkeeping in their Top 10 Best Raleigh NC Accountants. Our customers have graciously given us a surplus of 5-star reviews giving us an A rating on Angie’s List. We also ranked in the Top 19 Bookkeepers serving the Raleigh area out of over 100 companies reviewed by Expertise. We strive to be the best bookkeeper in the area and will continue to serve our customers with the utmost professionalism and efficiency. Contact us today for a free tax review.

What Parents Need to Know about 2019 Tax Reform

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There are two things that stick out in the 2019 Tax Reform that parents of dependent children need to know about.

 

1.     Difference In Child Tax Credit. Your kids are finally paying off! In 2017, if parents made less than $110,000 jointly and $75,000 individually, they received a $1,000 child tax credit for qualified children under the age of 17. The 2019 tax reform bill increases that credit to $2,000 per qualified child and raises the income limits for the credit to $400,000 jointly and $200,000 individually.

 

2.     529 Savings Plans Aren’t Just For College. You can now have a 529 savings plan that goes towards more than just college. For example, if you have children in private school or tutoring, you can now use money from your 529 plan tax-free!

The Top 10 Basic Accounting Tips Explained

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  1. Assets- Assets are the wealth that has been accumulated by the business and is owned outright without lien or loan. It may be items that depreciate over time or goods that are sold to customers.

  2. Balance Sheet- The balance sheet is an important aspect of a business. It records the basic accounting formula of assets = liabilities + stockholder equity/capital at a certain point in time, either monthly, quarterly or yearly. From the balance sheet, the financial health of the business can be ascertained.

  3. General Ledger- The general ledger is the side of the bookkeeping ledger that contains the balance sheet and the income statement accounts. Here all business transactions are recorded, including sales, credit purchases, office expenses, and income losses.

  4. Gross Margin- Gross margin or profit is the total number of sales that have been made, subtracted by the associated costs, such as manufacturing costs, wholesales costs, material, and supplies.

  5. Loss- When a service or product sells for less than what it cost to supply or manufacture it, or when expenses have exceeded revenues of a particular asset, it's called a loss.

  6. On Credit/ On Account- On credit or on account means that products or services have been sold with the use of credit. Payment has not immediately been provided for these items, and there may be terms on account that may result in interest charges.

  7. Receipts- Receipts is the total amount of cash collected in business transactions over the course of one day. It does not include other revenue collected.

  8. Revenue- Income and revenue are interchangeable, compromising the total amount of all income collected at one point in time. It may include cash sales, credit purchases, subscription fees, and interest income. It differs from receipts, as it can include monies that are not collected at the delivery time

  9. Trade Discount- A trade discount is a percentage discounted from the purchase price, and is based on the volume of goods ordered at one point in time. Higher discounts may be applicable to larger orders, with smaller discounts for lesser orders.

  10. Trial Balance- The trial balance is recorded in the general ledger, and includes both debits and credits for one particular account. The sheet must balance, with debits equaling credits.

4 Accounting Tasks You Should Do Each Week

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  1. Bank Account Reconciliation- Many small businesses make the common mistake of waiting for a bank statement to reconcile their accounts, but bank statements are only mailed monthly. That means you have roughly 30 days between reconciliations, and a lot can happen in 30 days. You should at least reconcile all of your cash accounts weekly. If you have the time, daily is an even better option

  2. Vendor Payments- You need a system for vendor payments. This is vital for keeping track of your debts, and it's also important for establishing a good reputation and credit history with your vendors. Your payment terms will vary from one vendor to the next, so you can't get by with paying bills only once a month.

  3. Customer Receipts- The only thing worse than an unhappy vendor is an unhappy customer. No one likes to pay a bill, then receive a "past due" notice a week later. To avoid this situation, make sure your customer receipts are recorded in a timely fashion. Daily would be ideal, but weekly should be sufficient, too.

  4. Other Transaction Entries- Vendor payments and customer receipts will make up the bulk of your transactions, but you probably have others, too. Auto-debits, interest payments, and bank fees are some common transactions that you'll need to record weekly. Most bookkeepers choose to record these before a bank reconciliation to make the process as smooth as possible.



Must Have Accounting Tips: Part 2

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Tip 4.) Do accurate invoicing

Are invoices just prompts for your clients to make payments? No, they are much more! They’re records of the terms of a transaction, and because of this, it’s critical that you enter information that is accurate and complete. It’s also important to understand invoice vs. receipt differences.

Tip 5.) Get Donation and Contribution Receipts

This seems like a simple request, but it could mean the difference between a contribution being accepted as a tax write-off or it being denied altogether. Don’t make it harder on yourself (or the charity) than it needs to be; each added step or delay makes it less likely that you’ll make that same generous contribution next year.

Tip 6.) Schedule Profit and Loss Statements

They provide a key overview of several areas of your business that can help summarize the activity for a given period, which can be monthly, quarterly, or yearly, depending on your discretion and the activity of your business. It’s important to find the right time period in which to update your P&L, as your accountant may notice discrepancies from one report to the next that need to be corrected.



Must Have Accountings Tips: Part 1

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Accounting is and always will be a critical function of the savvy business owner, but accounting doesn’t have to be a nightmare or something to dread. It just takes a little perseverance and planning to ensure that your records are as accurate and as complete as possible.

Tip 1.) Keep Accurate Records.

Much of your  day-to-day accounting can be handled and tracked by online banking services, but what’s most important about your financial records is keeping everything in one place so you don’t have to scramble to meet a request, and for the sake of simplicity.

Tip 2.) Sort and File Receipts.

Keeping an accurate count and file of all receipts can seem tedious, but it will save a lot of headaches in the future. Try and make it your goal to make sure you keep all receipts related to your business-real receipt accounting goes well beyond just retaining them.

Tip 3.) Collect Applicable Taxes.

You need to collect (or apply) taxes as soon as a sale is made or immediately upon payroll generation. That will ensure that, a) you’re not liable for one lump tax sum at the end of the year, and b) you won’t incur penalties for delayed tax payments. This will help your accountant keep as much profit as possible.





How The New 2019 Income Tax Brackets Will Affect You

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The new law retains seven income tax brackets but alters the ranges. Personal exemptions have been eliminated, but the standard deduction has increased. These changes to Americans' tax brackets will kick in when you file your 2018 taxes before Tax Day on April 15 in 2019. How the new tax bracket shift affects you comes down to several factors, like how much you earn and whether you're married.



2019 Tax Changes

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As we approach the 2018 tax season, there will be many changes for you and your clients.

1.) Electronic Filing- The IRS actually process electronic returns faster and works the best if you’re expecting a tax refund.

2.) There are other advantages to e-filing besides a faster refund. The IRS checks your return to make sure that it is complete, which increases your chances of filing an accurate return. Less than one percent of electronic returns have errors, compared with 20 percent of paper returns. The IRS also acknowledges that it received your return, a courtesy you don’t get even if you send your paper return by certified mail. That helps you protect yourself from the interest and penalties that accrue if your paper return gets lost.

3.) One of the common hassles is getting all of the documentation and paperwork together. So, how do you get started in organizing and gathering all needed documentation? Print out a tax checklist to help you gather all the tax documents you’ll need to complete your tax return.

  • Keep all the information that comes in the mail in January, such as W-2s, 1099s, and mortgage interest statements. Be careful not to throw out any tax-related documents, even if they don’t look very important.

  • Collect receipts and information that you have piled up during the year.

  • Group similar documents together, putting them in different file folders if there are enough papers.

  • Make sure you know the price you paid for any stocks or funds you have sold. If you don’t, call your broker before you start to prepare your tax return. Know the details on income from rental properties. Don’t assume that your tax-free municipal bonds are completely free of taxes. Having this type of information at your fingertips will save you another trip through your files.

Closing out the year

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 End of year purchases

Any inventory (items for resale) you purchase is not deductible until you sell those items. Some businesses will try to arrange a large purchase of merchandise for resale, mistakenly thinking that will help them reduce taxes, but this does not work. This is true whether you are on the cash or accrual basis. 

If you purchase equipment, computers, furniture, or other tangible depreciable property, you need to remember the “placed in service” rule. Congress has allowed accelerated depreciation and Section 179 deductions, meaning that you can take a deduction for the full amount of such purchases. You can’t deduct depreciable property that you purchase at the last minute and leave sealed in the box.

 Cash or Accrual accounting

If your business is on Accrual Basis accounting, you’ll record income when it’s billed and recording expenses when they are incurred. This means the dates on invoices you send to customers and the dates of invoices your vendors send you are important. There’s not much related to receipts and disbursements that accrual basis taxpayers can do as far as end of year planning; just pay close attention to those dates.

For cash basis businesses, anything you receive from customers prior to December 31st is income for the current year. Payments you make for business expenses before December 31 are deductions in the current year. You are not responsible for the business schedule of those to whom you owe money. In order to take a deduction for a payment you make by check this year, there should be a reasonable chance that the vendor can receive it and deposit it by the end of the year. For credit card payments, the bill from the credit card company will give the date, and you will get credit for any charge posted by December 31.

Which accounts get closed at the end of a fiscal year?

The temporary accounts get closed at the end of an accounting year. Temporary accounts include all of the income statement accounts (revenues, expenses, gains, losses), the sole proprietor's drawing account, the income summary account, and any other account that is used for keeping a tally of the current year amounts. Since the temporary accounts are closed at the end of each fiscal year, they will begin the new fiscal year with zero balances.

The accounts that do not get closed (their balances are carried forward to the next accounting year) are referred to as permanent accounts.

Holiday Season Reminders

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Gifts to employees

Bonuses are entirely voluntary, but if you choose to give them to your employees, here are some guidelines. 

Non-cash gifts:

Food items fall under special, and very favorable, rules. They are not counted as income to the employee, but the cost is deductible to your business.

Non-cash, non-food gifts to employees with a value of more than $25.00 are considered income to the employee and will have to go on his or her Form W-2 at the end of the year. While they are still deductible for the business, they will require withholding for the employee, and you will have to pay the employer match.

Cash gifts:

Any gift in cash, by check, or any cash equivalent has to go through your payroll system. There are no exceptions. 

If you’d like to give an employee a check for an even dollar amount, call your payroll service and ask them to do a “net check.” Their software will figure out the payroll taxes and give you a paycheck where the final amount is the even number you specify.

Fixed assets and depreciation schedules

A useful life of more than a year is the test for whether an asset should be put on your balance sheet and depreciated, rather than being deducted as a regular expense in the current year. Simple office equipment like tape dispensers and staplers have a useful life of many years. Since it would be silly to depreciate office supplies, most businesses use a standard cost level (the most common is $500, though there are new rules that allow up to $2,500) to decide what to depreciate versus what to count as an expense.

 

 

Mistakes to avoid before the Holiday Season

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Managing all of your accounting in-house

Do you handle all of your bookkeeping and accounting in-house? When you run an extremely small business with limited revenue, it can be tempting to lower costs by handling your accounting on your own. While taking care of your accounting yourself might seem like a great way to save money, it could actually be costing your business money. An accountant will have greater costs than managing your accounts by yourself, but will also save you money.

 Forgetting to record small transactions

How does your business manage its small transactions? It’s very easy to think of petty cash transactions as unimportant, but it’s essential that your business has a record of all of its spending, no matter how insignificant.

This is especially important in retail environments, where many transactions are cash based. It’s also important to record small transactions like paying for a postal delivery, even if the cost is insignificant.

Stay on top of the small transactions and it becomes far easier to manage the bigger ones. By keeping a record of small transactions, you’ll be able to easily manage your books as your company grows in size and its number of transactions increases.

Working Without a Budget

Create a budget so that you have a baseline to judge your business’s operating results. Budgets are not only useful in curbing overspending but can be used to establish realistic, written financial objectives. Budgets should always be grounded in reality, but you can certainly use your budget to set reasonable financial goals, whether it be increasing revenues or reducing operating expenses.

Accounting Tips for the Fall

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Accounting for Petty Cash

Petty cash accounts are convenient when a business makes regular small purchases or needs cash available to reimburse the business expenses of staff. But petty cash still needs fully accounting for in business records.

You’ll need to have a policy which states what items can be charged to petty cash, then set up a separate section in your accounting system which records the movement of cash. Keep all receipts for petty cash within that system. 

  • Have a petty cash book and balance it regularly to make sure all transactions are accounted for.
  • Whoever authorises petty cash should not be the person in receipt of the money.
  • Decide how much petty cash you’ll hold, and then top up from the main bank account when necessary to maintain this amount.

Review Your Accounts Regularly

When someone else handles your finances, you as the business owner come to trust that individual implicitly. That said, this does not mean that you should stay in the dark about any aspect of your business. To understand the operational status of your business, it’s important to review your books regularly. This will give you a clearer picture on how your business functions, where it can improve and where resources need to be allocated. While it is a good practice to review accounts at regular intervals, you should also review your accounts at unscheduled times to ensure that your books are properly maintained at all times.

Track your expenses

The foundation of solid business record keeping is learning to track your expenses effectively. It’s a crucial step that allows you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and support what you report on your tax return. Right from the beginning, you should establish a system for organizing receipts and other important records.

Establish sales tax procedures

The world of ecommerce has shaken up sales tax regulations and they are admittedly a bit confusing due to location issues. When a customer walks into a brick and mortar retail shop, they pay the sales tax of whatever state or province they make the purchase in, no matter if they live in that city, or they’re visiting from across the world. However, when you sell online, you’re often selling to customers who live in different states/provinces, and even countries.

Accounting Tips to Wrap up the Summer

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1. Keep Accurate Records

Consider investing in an easy accounting software, such as a simple solution, where you can track money in and out daily. Everything you track will only help your accountant later on down the road — which is good news for you and your bottom line!

2. Never Combine Personal and Business Finances

This is one of the most important bookkeeping tips you need to keep in mind. Even if you’re the sole employee in your small business, mixing personal and business-specific transactions can make it much harder to organize and track your records. You must treat your business as a viable entity. This means maintaining separate checking accounts, open a business credit card, and consider establishing an LLC for your small business. In the event of an audit, this tip will keep you out of hot water with the IRS.

3. Don't Allow Clients to get Away with not Paying Balances

Seeing a large amount in the receivables column is a good thing, but the money doesn’t really count until it is in your bank account. Don’t let clients avoid regular payments. Stand firm and insist you receive payment for past orders before letting them have more materials or services. The receivables department is crucial in keeping your company afloat.

4. Keep a Cash Reserve

In business and in life you should always have a contingency plan. It’s common for small business owners to dump excess cash back into their business to scale. This is a good practice only if you’re putting a small portion into cash reserves. Most financial analysts suggest having at least three months of runway (basic operating expenses) on hand at all times. However, I suggest having at least six months of runway since things never go exactly as planned. You should check your reserves quarterly and make sure your reserves can keep you afloat for six more months. If not, it’s time to start putting a bit more away.

 

4 Ways to Use Your Tax Refund Wisely - Part 2

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3. Donate to Charitable Causes. If you're on a tight budget, making charitable donations can be on the lower end of your list of priorities. Your refund gives you a chance to give a little back.

4. Make Home Improvements. Take a look around the house. Do you need a new roof? Is your kitchen outdated? Could new energy-efficient appliances lower your utility bills? Home improvement projects can immediately increase the value of your property.

4 Ways to Use Your Tax Refund Wisely - Part 1

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1. Start or Increase Your Emergency Fund. Just one surprise major expense can send you on a debt spiral toward financial trouble. Your fund should contain about three to six months worth of savings. Using your refund can make a significant deposit to your emergency fund.

2. Pay Off High-Interest Debt. The next best thing after establishing an emergency fund that you can do with your tax refund is to reduce or eliminate any high-interest debt. Start paying down your debt whether it be payday loans, title loans, debt consolidation loans, high-interest private student loans, car loans, or credit card debt.

 

Tax Season is Here!

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Tax season is here! Here are some tips to prepare your tax information for this tax season.

1. Evaluate Your 2017 Returns. Reviews of your previous tax return. Remember important details and changes they may have occurred during the past year, especially marital status, child adoption cases and work location. Any changes on this information can change your tax return.

2. Organize Your Files. It’s important to organize the necessary documents that you have, especially the ones you’ll be receiving such as:

  •          Form 1099-MISC
  •          W-2 earning statements
  •          Form 1095-A
  •          W-2Gs Form
  •          1098 Forms
  •          Schedule K-1 Form

Also check your inventory products to be sold before the year ends, you want to monitor costs in factors such as labor, raw materials, etc. You should also organize your receipts, which are important especially when it comes to standardized deductions.

Review your books for any unreconciled transactions, so that they can be easily explained to your tax preparer.

3. Hire A Tax Preparer. If you think that there’s a problem with your books, or you’re having difficulties in preparing the documents that you need, then it is highly recommended that you hire someone who can help you fix any kinds of tax dilemmas.

4. Justify Your Expenses. If ever you’re running a startup business, it’s best recommended that if you want to claim items as business expenses, then you need to justify this with the IRS.

5. Stay Updated with Tax Laws and Deadlines. Stay updated with the latest tax news, especially changes in tax laws that may or may soon affect your tax return. These involve factors such as state tax regulations, eligibility as well as limits in contribution.