Accounting for Small Businesses

Protect Your Finances – Plan Today for an Emergency Tomorrow by Organizing Your Records Now

head-in-hands No one expects to be the victim of a disaster, but every year, people find themselves in the midst of fires, floods, earthquakes, and other catastrophic events, with little, if any, time to prepare.

With the fires and heavy rainfall that has hit California recently, it’s best to be prepared. And, every year, personal and financial records are lost because they can’t be located quickly in an emergency.

That’s why it’s important to take the time to organize your business and personal records and essential information so that they’re easily accessible if you are forced to leave your home suddenly.

What To Include

You’ll want to safeguard both personal and financial records.

Personal Records:

Birth certificates for you and your family
Adoption papers
Social Security cards
Health insurance identification cards
Marriage certificate, divorce decree, or separation agreement
Passports

Financial Records:

Deeds to your home and other property
Vehicle titles and registrations
Auto, life, and homeowners insurance policies
Bank account information
Investment records
Wills, trust agreements, and other estate planning documents
Mortgage and loan agreements
Credit card information
Copies of tax returns
You may also want to make a list of the names, addresses, and phone numbers of your financial institution, insurance agent, attorney, doctor, and financial advisor, and keep them with your records.

You’ve Gathered Them — Now What?

Now that you have all your important documents together, you’ll want to keep them that way. A fireproof box that you can take with you during an evacuation is one option. But you also should keep copies of all important documents in a safe place outside your home.

You could rent a safe deposit box and keep copies there. Just be sure that someone who doesn’t live in your home has a key. You may even want to stash some extra cash or a credit card in both places to cover expenses such as food or a hotel room.

Your Life in Words and Pictures

Having a list of what you own can help you with insurance claims or tax deductions in the event of a loss. Take an inventory of your furniture, audio and video equipment, appliances, computer equipment, jewelry, collectibles, and other expensive items. Write down what you paid for the items, and keep the list, along with sales receipts, with your important documents.

Photographing or videotaping your possessions can help you prove what you owned. Include the photos or tape in your fireproof container or safe deposit box.

You can buy computer software programs to help you organize your records. Make sure you print out a hard copy of the information or copy it to a disk and store it with your other important documents.

For more tips on how to keep business best practices front and center for your company, give us a call today at 949-759-5626. We offer a full range of business accounting services. We can’t wait to hear from you.

Why Dental Work isn’t Covered by Medical Insurance

dentist-home3NBC’s Nicola Spector takes a look at why dental work is not covered under medical insurance. She notes modern dentistry’s roots are in the barbershop rather than more traditional medical practice. Until the nineteenth century, dentistry was practiced in the same chair in which men got their hair cut and their beards trimmed. Dr. Gary Glassman, an endodontist based in Toronto, Canada who also practices in the U.S., says such divergence between dental and medical is not helpful because “oral health is directly related to general health . . . The oral cavity is a gateway to your body. A lot of stuff in the mouth can indicate kidney disease, heart disease, diabetes, HPV, cancer, etc. Your dentist can be your first line of defense.”

Meanwhile, Dr. Adam C. Powell, president of healthcare-focused management advisory and operational consulting firm Payer+Provider Syndicate, notes that “Dental insurance, unlike medical, is not regulated and it tends to be very constrained . . . The annual maximum benefit is not that high, and there’s usually some sort of deductible.”

Read more at NBC News

What are the Tax Advantages of Being a Landlord?

Woman inspecting house interior
Owning rental property can bring in extra income, but it’s not without its downsides. If the furnace breaks or a pipe bursts, you can be sure you’ll get the call — sometimes in the middle of the night. But for all the hassles being a landlord can bring, there are some bright spots. One of them is the ability to deduct certain expenses from your total rental income on your tax return.

Owning a rental home, apartment, or other residential property may entitle you to take some or all of the following deductions.

House Calls

Real estate taxes and mortgage interest on rental property are potentially deductible, as are fire, flood, theft, and liability insurance premiums. Services, such as lawn care, performed on the rental property and any wages you pay employees in connection with the rental activity may be deductible as well.

Wanted: Tenants

You can deduct expenses associated with renting the property, including management fees, commissions, and cleaning and maintenance.

This Old House

The costs of repairs that keep the property in good condition, such as painting, are deductible in the year you incur them.

Cost Recovery

You generally can begin claiming deductions for depreciation on rental property in the year the property is ready and available for rent. In addition, you can recover the cost of improvements that add value to your property, such as replacing the roof or adding a deck, by claiming depreciation over time.

Over the River, Through the Woods

You may be able to deduct the expenses of traveling to your property when the main purpose of your visit is to collect rental income or to manage and maintain the property.

It’s important to keep complete and accurate records of all expenses related to your rental property. Keep in mind that there are tax law limits on deducting losses from rental activities.

Don’t deal with tax issues on your own. Call us right now at 949-759-5626 to find out how we can provide you with the answers you need. Or, learn more about our real estate CPA accounting services on our website.

As an S Corporation Shareholder do You Need to Worry about Taxes?

S corporation shareholders have extra reason to worry about their company’s annual performance: It has a direct impact on their own income taxes.

How It Works

Unlike a regular C corporation, an S corporation usually doesn’t pay federal income taxes itself. Instead, each shareholder is allocated a portion of the corporate income, loss, deductions, and credits on a special “K-1″ tax form. The shareholder then must report the items listed on the K-1 on his or her personal tax return.

The K-1 allocations are based on stock ownership percentages. So, for example, if an S corporation has $100,000 of taxable business income for the year, a person who owns 75% of the stock in the corporation would be allocated 75% of that income, or $75,000.

This scheme can get complicated. Case in point: The K-1 may show more income than the shareholder actually received from the company during the year. That’s because the K-1 figure is based on the corporation’s actual taxable income — not on the distributions made to the shareholder.

Example. Tom starts a new corporation, electing S status. In the first year, Tom draws a $30,000 salary and receives no other distributions from the company. The company’s ordinary business income (after deducting his salary) is $10,000. Since Tom is the only shareholder, all the company’s $10,000 of income is allocated to him on his K-1. Tom must include both the $30,000 of salary and the $10,000 on his personal income-tax return, even though all he actually received from the corporation was his salary.

This result seems harsh, but it’s not the end of the story. Special rules in the tax law prevent the same income from being taxed again. Essentially, Tom will be credited with already having paid taxes on the $10,000 so that any future distribution of the funds will not be taxable.

Tracking Basis

To determine whether non-dividend distributions* are tax free, S corporation shareholders must keep track of their stock basis. The computation generally starts with a shareholder’s initial capital contribution (or the stock’s cost if it was purchased) and changes from year to year as the shareholder is allocated corporate income, loss, etc. Non-dividend distributions that don’t exceed a shareholder’s stock basis are tax free.

Don’t deal with tax issues on your own. Call us right now to find out how we can provide you with the answers you need.

* Most distributions made from an S corporation are non-dividend distributions. Dividend distributions can occur if the company was previously a regular C corporation (or in other limited situations).

ACH Payment Processing vs Wire Transfers

Payment ProcessingBusinesses today, including accounting firms, benefit greatly from both wire transfers and ACH payment processing. Each offers unique benefits for specific situations worth considering. In order to decide which electronic payment method to choose and when, it’s necessary to look at the definitions and distinctions of each.

ACH Payment Processing

Processing payments through an automated clearing house (ACH) means that you’re using an electronic network that works with several financial institutions in order to process transactions in groups or batches. The result is similar to a wire-transfer in that the money is shifted from one financial institution to another.

However, it’s not a real-time transaction the way a wire transfer is. The good news is that batch transactions usually show up within three of four business days. In some cases, they show up the next day.

This is far better than the traditional method of invoicing and waiting 30 to 60 days for the money to arrive (and then waiting the additional time required for the check to clear after depositing it into your bank account). In this way, the ACH payment processing provides accounting firms with a secure way to capture payments faster than the old fashioned way.

There’s also the versatility factor with ACH payments. ACH payments work well for online bill payments, payroll direct deposits, person to person (P2P) payments, and more. Some individuals even receive social security benefits and federal income tax refunds through ACH.

While some banks or financial institutions may charge a small fee for ACH payment processing, most banks offer this service free of charge. There’s a tradeoff though: While ACH payment processing may be inexpensive, it is not immediate.

Wire Transfers

Wire transfers still play an important role in today’s electronic banking world. Wire transfers are instantaneous transfers — within seconds in some cases — of money from one bank account to the next.

Accounting firms, in particular, benefit greatly from wire transfers on occasion as they are ideally suited to facilitate the instant transfer of funds from the business bank account, for instance, to a payroll processing center, if needed.

Further, wire transfers that occur between bank accounts are authenticated. This means the identity of the person on the receiving end is verified so that you’re certain the money is going to the person you intend to receive it. This reduces the chance of fraud in the transfer process and makes the transfer more secure.

On the downside, there is typically a fee involved in wire transfers. In some cases, the fees are substantial. This is often the deal breaker for those sitting on the fence in the debate between wire transfers and ACH payment processing.

That said, keep this in mind as you make your payment processing decisions. Sometimes, it’s worth paying the fee for the convenience and speed of the transfer.

The Bottom Line

When it comes to transferring money from one account to another, there is no clear winner. Different accounting business needs at different points in the business cycle make one or the other more appealing. The key is to make sure you’re matching the right needs at the right time to maximize ACH payment processing and wire transfers to their fullest benefit.

SBA Halts Loan Guarantees for Small Businesses

SBAThe U.S. Small Business Administration said it reached the $18.75 billion cap for its main loan guarantee program on Thursday, forcing it to halt the funding of new loans with more than two months left in the fiscal year.

SBA spokesman Miguel Ayala said the capacity for fiscal 2015 was exceeded by stronger-than-anticipated demand for the government-guaranteed 7(a) program loans made by banks to small businesses.

As the agency neared the cap, lenders submitted a crush of $3 billion in loan applications already in July, including $1.7 billion this week alone. The July figure is more than five times the agency’s recent monthly volume, Ayala said.

The strong demand, which has been building all year, is a sign of an improved economy in which small firms want to expand and need capital, particularly in poorer communities, Ayala said.

The agency’s loan guarantee capacity would normally be reset under a new cap at the Oct. 1 start to the next fiscal year but a two-month halt in lending could slow job growth in the sector of the economy that creates the most net new jobs.

Protecting My Business from Data Breach

There are many challenges small companies face in today’s highly competitive world of business. As such, many businesses have taken actions to streamline operations, and have made the move to paperless offices and cloud computing in order to get an edge over competitors. Unfortunately, this has left them vulnerable to a risk of a different nature – a data breach.

Hackers are evolving at a more advanced pace than the software to stop them in their tracks is. They want information of any kind about your business, your employees, and the clients and customers who have trusted you with their personal and financial information.

Why Do You Need Data Breach Insurance?

For most of today’s small businesses it’s not a matter of IF a data breach will occur, but WHEN will it happen. That’s why you need to invest in adequate data breach insurance coverage for your small business.

In addition to the public relations nightmare data breaches bring to businesses, there are costs that can be quite significant. These include costs of legal defense, credit monitoring services, court fees, and even the expenses of notifying your customers that their information may have been compromised in the attack.

These costs can be particularly detrimental to your business if you’re paying for these costs completely out of pocket, without the help of insurance.

What Does Data Breach Insurance Cover?

The nature of data breaches is brutal for small businesses that are ill-equipped to defend against brute force attacks despite their best efforts. Data breach insurance helps small businesses in these events by covering the costs of:

  • Litigation defense
  • Forensic investigations
  • Crisis management and public relations
  • Notification expenses
  • Liability expenses

It’s important for you to be proactive in your efforts to avoid the scandal associated with data breach by establishing strict policies about passwords, device usage, social media, etc. and to purchase adequate data breach insurance as a backup plan for the time when data breaches do occur.

Credit Monitoring – Does It Protect Me?

You may have heard about credit monitoring, but may not be exactly sure what it entails or if it can protect you in there is a data breach or hack that allows your information to fall into the wrong hands.

How Can Credit Monitoring Help You?

Identity theft is one of the great big fears to come out of a data breach or hacking situation. This is where someone else halfway across the country, outside the country, or even in your same state assumes your credit persona and takes out credit in your name.

Unfortunately, these people rarely have the intention of paying for the things they purchase with the good credit you’ve worked so hard to build. This means you’re left holding the bag (or in this case, interest bearing bill) for their high dollar purchases.

Credit monitoring is a valuable tool that can help you become aware of fraudulent accounts that have been opened in your name, as well as loans that may have been taken out using your Social Security number.

Credit monitoring looks for these suspicious activities as they are happening. It notifies you immediately so that you can take action at the first sign of trouble, rather than only finding out after serious damage has been done to your reputation, credit rating, and, possibly, to your financial security.

What Does Credit Monitoring Involve?

Depending on the service you subscribe to, credit monitoring can include a wide range of features. These are some you might want to make sure are included in the credit monitoring services you choose to protect your identity from harm.

  • Daily monitoring of credit reports.
  • Daily scanning for unauthorized use of your Social Security Number.
  • Protection for lost or stolen wallets.
  • Nationwide alerts for change of address notifications in the event that someone changes your address.

Credit monitoring is a proactive step you can take to protect your financial interests from identity thieves. You should review your credit reports often in order to look for suspicious activities that might indicate identity theft. Report anything suspicious right away in order to reduce your risks and, in a worst case scenario, limit the scale of the damage.

Protecting Your Assets

A comprehensive estate plan should accomplish far more than just deciding who will receive your estate property after your death. Because of the unique nature of estate planning, the additional goals you include in your plan will depend on your needs and concerns. Asset protection, however, is a popular component included in many estate plans. A better understanding of what is meant by “asset protection” may help you decide whether or not it should be included in your estate plan.

If you have worked hard, saved frugally, and invested wisely over the course of your lifetime you undoubtedly want to protect the assets you have amassed as a result. Whether you realize it or not, your assets could be at risk in a number of ways, including:

  • Creditors – creditors of yours as well as of beneficiaries can attach assets to an unpaid debt.
  • Spendthrift beneficiaries – a “spendthrift” beneficiary can quickly deplete assets that are gifted outright to the beneficiary.
  • Divorce – you may have considered the impact of your own divorce on your assets but have you considered what the divorce of a beneficiary can do to gifted assets?
  • Bankruptcy – likewise, a beneficiary’s bankruptcy can mean a loss of gifted assets if the asset is not protected from bankruptcy proceedings.
  • Medicaid eligibility – statistically speaking you stand about a 50 percent chance of needing to qualify for Medicaid during your “golden years” to cover the high cost of long-term care. To qualify you may first be required to “spend down” your own assets, resulting in the loss of your life savings in a matter of months.

Proper estate planning can dramatically reduce, if not completely prevent, the loss of estate assets. A well drafted trust agreement, for example, can protect assets from creditors, beneficiaries, divorce, and bankruptcy. Likewise, the incorporation of Medicaid planning techniques into your estate plan early on will ensure Medicaid eligibility without the loss of valuable assets should the need arise during your retirement years.

At Morey and Associate CPAs, we help our clients protect their life long accomplishments.  If you’d like to discuss your situation, simply call 949-759-5626 or 949-485-2011 and ask for Jerry.

Morey and Associates has convenient locations in Newport Beach and San Clemente CA.  As part of our practice, we work with successful entrepreneurs, small business owners and high net worth individuals.

Why Taxes for Professional Athletes and Entertainers Are Complicated

Taxes for Pro AthletesThe only two things in life that are certain, as they saying goes, are death and taxes. The problem is, taxes have become quite complex, especially for pro athletes and entertainment professionals who travel to certain cities, states, and even foreign countries for the purpose of business.

In the case of professional athletes, the business is the sport in question. Football teams travel for at least eight games in a typical season. NBA teams play more often and travel to other states more frequently during their seasons, as do NHL players who have the added burden of traveling to Canada for several games during their season too.

What this all means for taxes, is that it’s really complicated! Here’s why.

State and City Taxes

Many cities, especially those hosting facilities that bring in professional sports games, have adopted special city taxes to impose on professional athletes in order to help offset the costs of their sports facilities. It’s an ingenious method, on behalf of the cities, to bring in tax revenue, without involving their constituents.

State income taxes are a given in most states, and is something players are expected to pay in every state in which they play in a given year and for every game they play in each state.

Complicated Formulas

Face it, few athletes are mathematical geniuses. They may have more than a little skill when it comes to reciting states, but complicated accounting formulas are often a little outside their wheelhouses. They have better things to do with their brain power, after all, like devoting themselves to improving their games.

Unfortunately, the formulas are so complex that only an accountant could possibly love them, oh and city and state bean counters who can’t wait from the dollars to roll on in from the 53 players on the rosters of at least eight different NFL teams each year.

Don’t forget the tax revenue for trainers, coaches, equipment managers, officials, and more that travel with these teams as they take their games on the road. Other sports have even more games in other cities throughout the season raising the stakes even higher for host cities and states.

Mitigating the Costs of Doing Business Across State Lines

There are things players can do to help relieve some of their excessive tax burdens, otherwise known as the “jock tax.” They aren’t big bold moves, but they can save a great deal of money in taxes each year for players that take advantage of them.

Establish Permanent Residence in States that do not Tax Income

This will not eliminate all your tax burden, but it will go a long way towards relieving some of the burden to give athletes extra breathing room. Popular states for consideration are Florida, Texas, Nevada, and Wyoming.

Take Advantage of Available Deductions

They exist to help relieve tax burdens. Use them for that purpose. This is especially true of expenses related to training camp, like the following:

  • Hotels
  • Apartments
  • Meals
  • Rental Cars

Tax Planning for Professional AthletesFinally, and perhaps most importantly, seek tax help from qualified professionals. Rules and exceptions get trickier by the year. Tax professionals are trained to deal with tricky situations. Let them do the heavy lifting for you so you can focus your attention on pursuits that are far more profitable for you.

If your taxes are complicated, call Morey and Associates CPA at 949-759-5626 and ask for Jerry Morey.  We provide high net worth accounting and tax services for Orange County residents.  Our offices are conveniently located in Newport Beach and San Clemente.