Posted May 21st, 2011
by admin
A-G Accounting and Business Services, Inc. is the culmination of 25 years of working with and watching small and medium size businesses rise and fall, come and go, and never really get off the ground. My goal is - to use that experience, and the business models born from it, to help entrepreneurs focus their business efforts on their product and services, instead of all the administration, regulation, and documentation required to become successful… and remain free from jail.
I have witnessed the fallacy of many different business philosophies (some of my own), and have tried to develop a fool-proof template for developing an idea to a medium size business. Of course the greatest factor in business failure is under-capitalization, as it has been for many years, however economic circumstance, and uncertainty have given rise to new issues surfacing in businesses that start in ”garages” and try to get to medium size. This presents challenges to any single template, or causes one to create a form that can be approached at different points. Under-capitalization becomes an issue with any growing business, no matter where they start, but just try to explain that to someone who started in their garage with nothing and now is making $300 per week. They are not there yet. Eventually they will need to capitalize, if only to get a bigger garage.
This blog, however, is not the place for me to expound on my experience, and shower others with my wisdom. Instead, I would like it to be a study of business philosophies, issues, and problems, for my benefit as well as anyone who gives up the time to read it.
One thing I hear all the time is “you think you know everything.” While the comment is easily dismissed, as are any arguments where I just have to name one thing I don’t know (for example why does proximity to nuclear fusion cause cancer), I think what they meant to say is that I have an opinon about everything. While I won’t quote those famous axioms (i.e. ”Opinions are like #$$ holes; everybody has one,”), I will say that I have met few people involved in an activity, that have no opinion on it, and even fewer that say, “I have an opion, but it is wrong.”
I do have opinions, I think they are right, and I learn they are wrong when people present well-argued feedback, or I just plain fail. I would rather do the former. So here, I will present my opinion or idea, and pray for well-argued feedback, so that I can learn and be absolutely right next time . Please help teach me.
Posted in General Accounting, Management, QuickBooks
Posted May 21st, 2011
by admin
I believe that America’s small business is the basis of our country’s economic success. The reason is, that there are a massive number of people sharing about the same number of ideas and innovations, without the heavy foot of an immovable, static corporate management, as is the case in many large declining companies. The strength of our economy rests on the premise that there is a product and solution for every need and want in our consumers, as well as foreign consumers. As long as we can continue to fill new needs, and expanding desires, we will continue to grow and thrive.
This however, is an idea based model. It is management of the creation, marketing, and eventual sale of an idea that creates growth. If it were the same products and services to the same people, economic growth would essentially be limited to population growth plus inflation. This simple fact, I believe, is what makes the crucial difference between management and supervision a key to small business. On one hand, someone who does a trade for many years, may become a great supervisor of fellow tradespeople, but may lack the creativity to create, market, and expand the basic product of the tradesman as is the function of management. Likewise, however, the innovator/manager may lack the supervision skills to motivate a workforce to produce the product in a profitable way.
In other words, both management and supervision are required to successfully create or grow a perpetually prosperous company, and must be considered in structuring a new organization. An innovators time is best spent on creation, innovation, and marketing of the products or services of the company, while the supervisor must be able to translate those new ideas to a workforce who may be new, or – maybe even worse ”experienced” in an old way of moving the innovations to a salable product.
The phrase “Grow or Die,” is true, and defines the challenge of a new business desiring a long and successful life, but it is also important for a new business to understand that opening an enterprise to accomplish little more than a current market leader, is a failure waiting to happen. The entrepreneur, and ultimately the capital investors, need to ensure that both management and supervisory skills are present in the plan of a new endeavor.
What do you think? Do you identify with a manager or a supervisor? Which skill is worth more?
Posted in Management
Posted January 30th, 2012
by admin
Many people believe that employee contributions to company health plans are always deducted from their taxable income on the W-2. The trouble is, many employers make the mistake of buying into the myth and set themselves up for a very expensive visit from Mr. O’s “tax facilitators” from the IRS. The problem is that these deductions, if they are deductions from the pay calculated from the agreed pay rate of the employee, are fully taxable for Federal, FICA, and Medicare, and many states. They are only deductible if the employer pays the entire cost of the health care. Before you get upset, however, you need to know about the wonderful benefits of Section 125 of the IRC.
Section 125 frames the Healthcare issue in another way. Under a correctly implemented Section 125 plan, the employee technically agrees to a pay rate cut (equal to the amount of the employee portion of the insurance) and the employer pays the entire amount of the healthcare, thereby making it a non-taxable benefit to the employee. That means the amount of the employee portion of the plan effectively becomes a pre-tax benefit for Federal, FICA, and Medicare, as well as many states’ income tax withholding.
So what is the problem? Well, if you don’t have a properly implemented Section 125 on file during an audit, the difference can be big tax $$$ for the employers and employees, and in this time of deficit, you know uncle O has his eyes on it. It is really a shame that many employers and employees will pay these taxes, fines, and penalties because they didn’t take a little time to get the plan documented properly. The cost can be as low as $99 and the effort as simple as filling out a form online. The time is worth the savings to those who are withholding and paying the taxes on their employee healthcare contributions, and well worth avoiding the taxes, penalties, labor and time spent when dealing with the tax man on the issue.
For more information on how to save your company money, while providing your employees with valuable benefits through Section 125 and other benefit plans, just visit “Do My Own 125 Plan” or contact A-G Accounting & Business Services, Inc 855-817-3405 or www.a-gaccounting.com; mark.sinex@a-gaccounting.com.
Posted in Uncategorized
Posted November 24th, 2011
by admin
The United States Department of Labor recently imposed a judgment of more than $1 million in back wages and fines on 295 New Jersey gas stations http://www.dol.gov/opa/media/press/whd/WHD20111485.htm. The DOL claims the stations violated the Fair Labor Standards Act (FLSA) by failing to pay minimum wage, failing to pay overtime wage, and paying “off the books” wages. Additionally they were fined for non-compliance of the FLSA requirement to properly document employee hours and wages. Their successful action should serve as a warning to all businesses to properly record the hours and wages of all workers.
According to the FLSA, every employer must keep records for each nonexempt worker. There is no particular form of the record, however there is specific information which must be kept. For details see Department of Labor Fact Sheet # 21 http://www.dol.gov/whd/regs/compliance/whdfs21.pdf.
Another violation which cost the service station owners, was for paying employees ” off the books.” This practice consists of making cash payments to workers without retaining the records required by FLSA, making the withholdings required by federal state and local governments, and failing to pay the employer taxes on those wages. Although this widely used strategy seems to increase profits in the short term, paying workers ” off the books” creates a future liability that cannot be remedied by the protection of a corporate or LLC organization. In other words, if you get caught the fines and penalties will not only affect your business , but also your personal assets as well.
Business is about risk. Yet it is also about managing that risk to achieve maximum profit for the owners. Business owners must consider carefully attempts to outsmart the government when it comes to creating a little advantage. In recent years the government has become more aggressive at investigating businesses in all industries , and with devastating results. Once loyal employees are being enticed with promises of windfall gains by reporting their employers.
In this environment, it is becoming more a matter of when a business will get caught rather than if a failure to follow the law will be caught and the enterprise and owners penalized. It is now more important than ever, to weigh risk-reward carefully on any deviation from tax , labor, or health and safety regulations.
Posted in Uncategorized
Posted November 11th, 2011
by admin
Did you hire an eligible Hire Act applicant last year? Well Uncle Sam wants to give you more money. The New Hire Retention Credit can give you up to $1000 (calculated as 6.2% of wages) for a qualified Hire Act Employee who has been retained for 52 weeks or more.
To be eligible, the employee must have qualified as a HIRE Act employee — Hired between Feb 3, 2010 and Jan 1,2011, after 60-day unemployment with less than 40 hours worked prior to current hire — for 2010 tax year. They must have been retained for 52 consecutive weeks, and their wages for the last 26 weeks of employment must be at least 80% of the wages for the first 26 weeks. The employee must have completed a W-11 Employee Affidavit and the credit is claimed on Form 5884-B which is used to calculate the credit.
Stay tuned as the jobs bills proliferate in the congress. We may be able to pull the arm of the bandit a little more this year. Don’t you just love election years?
Posted in Tax
Posted November 6th, 2011
by admin
While many companies today suffer a shortage of cash available to meet current obligations, there are times in the life of some companies, where too much cash can present just as large a problem when trying to maintain a return on investment (ROI) for owners and make the endeavor worth their while.
What happens in a small company where hundreds of thousands of dollars are paid for large contracts and the matching expenses have already been paid, or are spread out in the future of a long term contact? Believe it or not, this may create an even bigger problem for the company without an experienced CFO or cash management professional.
It is true that many small companies do not look beyond the annual income of the principals for their value, and ROI is just a byproduct. These are trade businesses. But, in a professional company, a duty exists in management to create the maximum ROI for shareholders, members, or partners.
Deciding what to do with large cash reserves, in a situation where there had previously been no attempt at management accounting, sounds like a no-brianer, but when you consider that the goal of a business is ROI (Return on Investment), your business can be failing if the cash is loosing opportunity or real value rather than creating profit for a company.
There are two costs which must be considered when considering excess cash: inflation, and opportunity costs. Basically money becomes less valuable when it sits. Since material and the cost of doing business rise over time, a cash reserve will diminish in value at the same rate when considered as part of the ROI. For example, if $100k is left in the bank for a year, and costs of doing business rise 5%, then the 100K is returning $5000 less as a portion of return on investment.
Opportunity costs can cause an even greater loss of ROI. Consider that a salesman creates a given amount per year in sales, and that production fixed costs would not significantly rise with an increase in sales. In this case, the failure to bring on an additional sales person, investing available cash to pay the additional salary, would mean that the ROI for investors would diminish with time if an additional salesperson were not hired. For Example, if 100K invested in a single salesperson results in 20K, or 20% ROI for investors, and that is left in the company, it would mean that 120K is then invested, which, with the same 20K ROI on the salesperson, now only yields 16% ROI.
The concept is that if cash is invested in a business with an annual ROI from operations, the cash cannot sit without loosing value when calculated as ROI. It must remain active to continue the same rate of return unless it is paid out in dividends to the investors at which point the ROI is realized. Part of cash management is insuring that cash is kept at a constant value or even creates an even higher value within the company assets used to calculate ROI.
Posted in Uncategorized
Posted August 6th, 2011
by admin
In order to save a few dollars, many small businesses are using employee/sub-contractor classification to save on taxes and overtime. Although there may be some savings in the short term, an owner must question the liability it creates in the event of an audit by the Department of Labor or IRS, both agencies now focusing aggressively on these issues.
Last week’s DOL newsletter, highlighted the following article:
“More Than $83K in Back Wages for Texas, Credit Union Employees Following an investigation by the Wage and Hour Division, which found violations of the Fair Labor Standards Act, American Airlines Federal Credit Union in Fort Worth, Texas, has agreed to pay $83,608 in overtime back wages to 295 tellers, loan officers and customer service representatives. The credit union improperly classified its salaried employees as exempt from the FLSA’s overtime provisions and paid them “straight-time” wages rather than time and one-half as required by the FLSA. The company will also properly classify and compensate employees for all hours worked in the future.”
This kind of attack on a smaller business could have put them out of business. With this kind of agressive enforcement, a business owner is basically rolling the dice with the future in participating in these practices.
Posted in Management, Trends
Posted August 5th, 2011
by admin
When facing divorce there are three major tax considerations; alimony, child support, and property settlement. Of these three, alimony has the most serious tax implications. The reason is that child-support payments are not deductible to the payer and are not taxed as income to the receiving spouse and property transferred between former spouses is treated as transfer by gift, which is specifically excluded from gross income. This difference in the treatment of property, child support and alimony payments to be made in the future, causes some confusion and creates many schemes which usually serve only to get the schemers into trouble. A good motto when considering some of these schemes is that if you can think of it, the IRS has already thought of it and figured out a recapture to correct it.
Alimony is any payment paid pursuant to a divorce or separation agreement, not designated as other than alimony. Some characteristics of alimony are that it cannot be paid to a member of the same household. It cannot be paid to a spouse with whom a payer is filing a joint return, and alimony is terminated at the death of the recipient and not due to their estate Although alimony can be a payment to a third party, it must entail an actual transfer of cash. For example alimony can be paid directly to a landlord for rent on the receiving spouse’s dwelling.
Since child-support is not a deduction for the paying spouse, nor income to the receiving spouse, it must be clearly differentiated from alimony. The divorce or separation instrument will specify alimony and child support payments to be made. If the paying spouse makes only partial payments , these are applied to child-support first and can only be considered alimony when they exceed the child-support payments required. When alimony is awarded and is contingent on an event related to the child any reduction caused by that event would be considered child-support for the entire period the payments are made. For example, if a spouse is awarded alimony in the settlement, and the alimony decreases to half when the child reaches age 18, then only half of all the payments can be considered alimony by the paying spouse, and only that half is income to the receiving spouse.
There are also attempts by some to turn property settlements into alimony for the tax benefits. Property transferred from one spouse to another incident to divorce is treated as a nontaxable gift as long as it is transferred within one year after the divorce or is otherwise documented as related to the divorce. In some cases a settlement agreement could specify the assets are to be transferred in cash over a period oftime, with large, up-front payments and then a substancial decrease what would actually be an alimony payment. This treatment could entice the payer, assumed to be the higher wage earner and thus have the higher tax rate to claim the payments as alimony. To compensate the IRS has created recapture rules if payments significantly decrease in the second or third year after a divorce.
For example, lets assume a settlement agreement has a 100,000 payment the first year, 50,000 the second year, and 10,000 the third year. The IRS assumption is that assets are being transferred rather than alimony paid for at least part of the amounts. To compensate, the IRS requires a recapture calculation which results in amounts to be deducted from the first and second year payments to arrive at the amount of the payers deduction for alimony, and likewise the receivers income from it. To calculate this, the first step is to figure the second year recapture, which is calculated by taking the 50,000 second-year payments and deducting a factor (15000 ) added to the third year payment of 10000 which makes the second year recapture 25000 (50000-(15000 + 10000). Once the second year recapture is calculated, then the first year recapture is calculated by adding the factor (15000) to the net alimony allowed in the second and total third year alimony and dividing by two and then deducting that from the first year alimony, or in our example 100000-(50,000-25000 +10000)/2+15000, or 65,000. That would mean that the first year alimony would be reduced by the recapture of 65,000, and the second year would be reduced by 25000. The third year has no recapture.
Although it sounds complicated, the recapture is designed to insure that joint property (which includes bank accounts) is not transferred under the umbrella of alimony with an unfair tax deduction for the payer. Divorce is painful, and alimony is a financially draining obligation. There is no need to add the pain and drain of an audit assessment from improperly deducting alimony payments.
Posted in Tax
Posted August 2nd, 2011
by admin
There is a new trend developing in the executive branch departments which is disturbing and supports claims of an overreaching government infringement in the lives of its citizens. Recently in, otherwise unimportant remarks by Chairman Mary L. Schapiro of the Securities and Exchange Commission, she began to highlight her version of the success of Dodd-Frank by saying, “Although there is much to do to fully implement the law, we at the SEC have already established a program to incentivize insiders to bring us information about financial fraud. We have already established the process to require hedge fund and other fund advisers to register with the SEC and be subject to our rules. We have already taken advantage of an array of new enforcement tools to pursue fraud. And we have proposed virtually all of the rules necessary to build the regulatory structure for the security-based swaps market. http://www.sec.gov/news/speech/2011/spch071811mls.htm.”
In other words her view is that the most important part of implementation of new regulation (touted to be a help to investors) was a program to foster mistrust and control by rewarding informants within the organization of US citizens to report possible infractions. While taken by itself, it is not particularly bothersome, we must look at the progression of many government efforts of the new administration to foster and reward whistle-blowers.
The Department of Labor has just announced measures to improve their whistle-blower protection program (http://www.dol.gov/opa/media/press/osha/OSHA20111136.htm). “OSHA enforces the whistle-blower provisions of 21 statutes protecting employees who report violations of various workplace safety, airline, commercial motor carrier, consumer product, environmental, financial reform, food safety, health care reform, nuclear, pipeline, public transportation agency, railroad, maritime and securities laws”
Our IRS is attempting to assert control of citizens and businesses by refunding the IRS Whistleblower-informant award program. A recent article highlighted a huge award to an informant for turning in one of his firm’s clients. http://www.irs.gov/compliance/article/0,,id=180171,00.html. Under the guise of attempting to protect taxpayers, the IRS has begun implementation of new rules for tax preparers that will basically make it a punishable offense not to report on any aggressive tax strategies used by clients. They are demanding that returns be filed electronically, and that the only ones to prepare those returns are controlled preparers who will act as IRS auditor as well.
Many will say it is only an attempt to catch cheaters, but that is disingenuous. For example, a business were the employees spend a good deal of time driving relies on the expenses for their vehicles to properly offset revenues. Gone are the days when you can estimate things like mileage for trips after the fact, as the new rules require the tax return preparer, under threat of sanction, report that they have not seen complete records documenting mileage claims, to flag the return for the IRS.
A GAO report in August 2010 says in the first paragraph, “Workers who “blow the whistle” on prohibited or unlawful practices that they discover during their employment can play an important role in the enforcement of federal laws.”http://www.gao.gov/new.items/d10722.pdf, and there was a new whistle-blower statute enacted in October 2010 http://www.whistleblowers.gov/. But is enforcement of law really the purpose?
Even though enforcement of obscure and petty federal laws is increasing exponentially, the government gains nothing by jailing otherwise law abiding people. The point of these new and revamped programs and regulations is to give the government a new stream of revenues from individuals and companies they can cite for even petty violations. Just consider the reach with new laws on the books which make every-day activities a violation of Federal law. Then think about a new law to make sending an unwanted email a crime. http://news.cnet.com/Create-an-e-annoyance,-go-to-jail/2010-1028_3-6022491.html What will happen if the current trends continue?
Many of us remember the movies with small-town speed traps where the speed limit drops from 60 to 15 with an unkempt, hillbilly cop sitting at the sign waiting to nail out-of-town drivers for big fines. Is this where our executive branch is headed? Is this the new deficit reduction program of our current administration or is it more insidious? Is this a way to deal with political enemies and waivers the new currency for supporters? These questions should give every business owner and citizen pause.
Posted in Trends
Posted July 25th, 2011
by admin
Click Here To See a PDF of the “Notice of Impending Federal Mandate” Durbin Amendment
This “Notice of Impending Federal Mandate” is actually a pretty good scam. The amendment it speaks of is real and is covered in another of my blogs, http://www.a-gaccounting.com/wordpress/?p=101. Problem is, this processor (the notice is not from a government agency, but a credit card processor or marketing company) has no more ability to change the affect of the amendment than any other, and the tactics show a company who has no problem misleading potential customers. Best practice is for you to decide to change your processor and call them. Don’t listen to pitches from companies who call you. Research the companies you call, and remember, “if it sounds too good to be true…..”
Posted in SCAMS
Posted July 25th, 2011
by admin
Pennsylvania employers who are already seeing a surcharge to cover interest on loans made by the state to cover unemployment claims, will now see that surcharge increase from .44 percent in 2011 to a rate not to exceed 1.0 percent (127% increase). Although this does not include the rate for new employers, it is another expense for employers already faced with the uncertainty in employee healthcare and potential FUTA increases caused by changes to the taxable wage maximums. This type of uncertainty is cited as a major factor in diminished hiring prospects for small companies. Employers must consider these increases in budgeting for the next fiscal year.
Posted in Management, Tax
Posted July 22nd, 2011
by admin
Pennsylvania business owners already spend a lot of time and effort to properly maintain their unemployment accounts, with charges and inquirys costing time and money to research and complete. Imagine our surprise that the Department of Labor has figured out how to ensnare more unsuspecting employers, in the hopes they will ignore the appeals process and accept charges and unknowingly promote an increase their future rates. The changes are a grab to increase DOL revenues on the backs of small businesses who don’t understand the system and are already paying more.
According to a recent update, from the NACPB http://www.nacpb.org/newsletter/payroll.cfm on PA unemployment changes, The ”New legislation revises the circumstances under which employers may be relieved from benefit charges. In addition, maximum weekly unemployment benefits are now calculated using a 36-month period (currently, a 12-month period) ending on the June 30th of the preceding year.” This longer look-back, must also include more companies being charged for a percentage of an active unemployment claim, unless they file the proper appeals. These appeal opportunities are already daunting in small businesses who don’t have HR departments. They many times lapse and the employer accepts charges for employees who quit, or were fired, and then were laid off from a subsequent job. An appeal would relieve them from charges that would keep their experience rates from increasing, but the shear number and lack of understanding by small businesses wind up costing them in later unemployment rate increases.
Although the update says, the legislation ”allows employers to establish a voluntary work-sharing program as an alternative to employee layoffs,” the very rare practice allowed by Labor will not offset the deleterious effects of the new look-back period.
One small morsel for businesses in the change is that “Beginning in 2013, unemployment benefits will be reduced in any week in which a claimant receives severance pay [L. 2011, S1030].” This may decrease the charges assigned for the minor amounts paid in severance packages.
All in all, small businesses must continue to be pro-active in appealing unemployment claims that do not meet the criteria for employer chargebacks, and carefully examine periodic statements reflecting activity on their unemployment accounts.
Posted in Management, Tax