Accountable plans are a win-win business idea

Are you looking for a way to give your employees a tax-free benefit that is also tax-deductible for your business? Consider an accountable plan. These arrangements let you reimburse your employees for expenses incurred on behalf of your company, such as driving to the post office or office supply store. With a properly administered plan, you can deduct the reimbursements on your business tax return, yet the payments are not considered income to your employees.

How can you make sure your plan qualifies? Here are three requirements.

  • The reimbursements must be for allowable business expenses. For instance, you can repay employees for hotel and other travel expenses when traveling to a trade convention. 
  • Your employees need to keep records of the expenses, and provide those records to you. 
  • If you pay or advance your employees more than the actual amounts spent on business items, the excess must be returned to you. Amounts not returned are income to your employee, and are subject to payroll taxes.  

Contact us at 201-947-8081 to discuss your policies for repaying employees’ business expenses. We’ll help you make your plan accountable.

For business profitability, understand the law of the vital few

How well do you know your customers? Which ones are the most profitable? Which ones take most of your time? Finding the answers to these questions can be worthwhile, because you may discover that the 80-20 rule, also known as the law of the vital few, applies to your business. The rule is a shorthand way of saying 80% of your profits come from 20% of your customers.

If you can identify that top 20%, you can focus your efforts to make sure this group remains satisfied customers. Sometimes all it takes is an appreciative phone call or a little special attention. Also, by understanding what makes this group profitable, you can work to bring other customers into that category.

Keep in mind that it’s not always profits alone that make a good customer. Other factors, such as frequency of orders, reliability of the business, speed of payment, and joy to deal with are important too. Ask your accounting staff and your sales staff. You’ll soon come up with a list of top customers.

There’s another way in which the 80-20 rule applies to your business. Very likely, 80% of your problems and complaints come from 20% or fewer of your customers. If you identify those problem customers, you can change the way you do business with them to reduce the problems. Consider changing your pricing for those customers so you’re being paid for the extra time and effort they require. Sometimes the only solution is to tell these customers that you no longer wish to do business with them.

The bottom line is that understanding your customers better will improve your business. Contact us at 201-947-8081  if you need help analyzing customer profitability.

Get automated help to understand Affordable Care Act penalties

The Taxpayer Advocate Service website has an automated tool to help you understand how the employer penalties put in place by the Affordable Care Act (ACA) apply to your business. The “estimator” will help you determine how many full-time employees you have, whether you’re an applicable large employer, and what responsibilities your business has under ACA rules. Contact us at 201-947-8081 for answers specific to your business.

Form 5500 due date is approaching

August 1, 2016, is the deadline for filing Form 5500 for retirement or employee benefit plans on a calendar year. (The usual due date of July 31, 2016, is a Sunday.) There are two updates to be aware of. First, Form 5500 includes new compliance questions that plan sponsors can skip when completing the form. Second, if you’re required to file at least 250 returns of any type with the IRS, including information returns (for example, Form W-2 and Form 1099), you may need to electronically file Form 5500-EZ for calendar year 2015.  Please contact us at 201-947-8081 for more info.

Is your child ready for a summer job?

If your child is planning to work this summer, make sure you know the tax basics.

Tax returns. Assuming no other sources of income, your child will be able to earn up to $6,300 in 2016 before a federal income tax return has to be filed. However, if income tax is withheld from paychecks, your child will have to file a return to claim a refund.

Federal income tax withholding. When hired, your child will have to fill out Form W-4, Employee’s Withholding Allowance Certificate. This form tells the employer how much federal income tax to withhold. If the job involves tips, remember that tips are taxable income. Have your child maintain records of amounts received.

Financial aid. Summer earnings can affect eligibility for college financial aid. If you’re counting on financial aid, check out the earnings limit ahead of time.

Retirement saving. Consider encouraging your child to open a Roth IRA. Amounts invested in a Roth can grow tremendously due to tax-free compounding over many years. As an incentive, you might match any amounts your child is willing to save.

For assistance with the tax issues relating to summer employment, contact us at 201-947-8081.

Make time for midyear tax planning

One benefit of midyear tax planning is that you have a solid foundation for making decisions and enough time to implement them. In addition, because the rules haven’t changed much this year, you can use last year’s tax return as a starting point for 2016 planning ideas. We encourage you to review your current tax situation. Contact us at 201-947-8081 for effective tax-saving strategies you can put in place during the remainder of this year.

Income changes? Check your advance payments of the premium tax credit

Did you choose to reduce your monthly health insurance premium by having advance payments of your federal income tax credit sent to your insurance company?  If you’re getting married this summer, having a baby, or changing jobs, you need to estimate the impact of those events on the advance payments.  Otherwise you may end up with a surprise in the form of a smaller refund or a required repayment next year when you file your federal income tax return.  Contact us at 201-947-8081 for details.

Will hiring seasonal workers make you subject to Affordable Care Act penalties?

Generally, having 50 or more employees means you need to provide health insurance or pay a penalty. But what happens when you hire workers who perform labor or services on a seasonal basis – for instance, just for the summer? In this case, the law provides an exception, based on the number of employees you have, and how many are seasonal workers. Contact us at 201-947-8081 for more information.

Student debt: It pays to consider the alternatives first

Will someone in your family be heading off to college soon? Before you take out student loans to pay tuition and other expenses, consider the results of a recent survey conducted for the American Institute of Certified Public Accountants. The survey found that more than 80% of those surveyed said they made financial or personal sacrifices to pay back student loans. If you need suggestions for alternative ways to finance a college education, give us a call at 201-947-8081.

Follow these suggestions for better pricing decisions

The prices you set for your products and services affect every aspect of your business, including long-term viability, short-term profits, market share, and customer loyalty. While the guidebook or financial guru who can provide the perfect answer to this important decision doesn’t exist, tried-and-true principles can help. Here are three suggestions to arrive at reasonable pricing for your market and industry.

Cover costs. The price you charge for a particular product must at least equal the cost of producing that product. Depending on your industry, production costs might include raw materials, storage, salaries, advertising, delivery, rent, equipment, taxes, and insurance. Some of these will be categorized on your income statement as “cost of goods sold.” Others will be overhead. Some, such as rent and utilities, are relatively fixed. Others are variable, such as shipping and stocking fees. Adding the amount of profit you want to earn as a percentage (called the cost-plus pricing method) is one way to arrive at an appropriate price.

Know your market. Some businesses hire research firms to develop detailed reports on competitors, markets, and forecasts for a particular region or industry. But you may be able to get a handle on your market by using surveys and other methods of ferreting out customer perceptions about your product and service quality, the effectiveness of your advertising, and the reasonableness of your prices as compared to your competition.

Monitor regularly. Product pricing is not a one-time event. Instead, you’ll want to monitor the impact of price fluctuations on sales revenue over time. Overpricing – charging more than a reasonable buyer can be expected to pay – may limit sales. Underpricing may create the perception of poor quality or lead to unsustainably low profit margins.

Contact us at 201-947-8081 for more tips and techniques that can help you manage your company profitably.

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