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Jun 19

debt

The Complete Guide to Small Business Debt

. . .  it takes money to make money

Debt financing provides business owners with the opportunity to invest in new equipment, additional employees, and pretty much any other operational necessity that arises.

It’s crucial to have a firm grasp on how your initial investment will improve your bottom line.

36 percent of U.S. small business owners who’ve borrowed funds are “very or somewhat” uncomfortable with their debt load, according to a Gallup Poll.  The poll also found that 49 percent of those small business owners say it’s “extremely difficult” to pay down their current debt. Next-

  • the different types of business debt,
  • how to conduct an ROI analysis,
  • the concept of good debt,
  • prepayment penalties,
  • how to pay off business debt.

 

Common types of small business debt

  • SBA loans and grants from the U.S Small Business Administration (https://www.sba.gov/funding-programs/loans) provide various government-based loan types that include general loans, disaster loans, microloans, and real estate and equipment loans. The Annual Percentage Rate (APR) is often among the lowest available. For example, a general small business loan has an APR between 6.5 percent and 8.5 percent as of June 2017,  but SBA loans can be difficult to obtain.
  • Small business term loans are repaid, with interest, over a specified time period. Approvals can be fast and may not require collateral. But you could face a relatively short repayment term (say, 36 months or less). As is often the case, your APR can vary, depending on the lender, the amount borrowed, and so on.
  • Small business lines of credit differ from loans. With a line of credit, you’re approved for a specific dollar amount, which you draw from as needed. A loan, by comparison, is for a lump sum up front. Another advantage to a line of credit is that you only pay interest on what you’ve borrowed. The APR can fluctuate, however, while a loan’s APR is usually set, and rates may be higher than a term loan’s rate. Also, you may pay a small fee, such as 1 percent to 3 percent, whenever you borrow from the line.
  • Small business credit cards are a popular way to buy now, pay later. As with consumer credit cards, small business credit cards are available from a variety of financial institutions. Some cards offer cash-back rewards, others give you travel perks, and so on. It helps to shop around and compare cards.

 

     Stay tuned for the next installement-

Conducting an ROI analysis of the growth opportunity can help you decide if    more debt makes sense now

Feb 09

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Form 709 is required IF:

  • If the total value of all gifts you make to a single person within the same calendar year exceeds $14,000. Gifts that don’t exceed $14,000 per year to the same person qualify for the annual exclusion from gift taxes.  So if you give your son $10,000 to buy a car and another $10,000 to pay off his credit card debt  you’re actually made a taxable gift to him in the amount of $6,000—$20,000 less the $14,000 exclusion.

Spouses Can “Split” Gifts 

If you or your spouse gives one or more gifts to the same person that exceed $14,000 in value in the same calendar year, you can agree to “split” the gifts between the two of you.

If your spouse gives his son $10,000 to buy a car and another $10,000 to pay off his credit card debt, he has two options even if the entire $20,000 came from an account in his sole name. He can file Form 709 and report $6,000 in taxable gifts to his son, or he can file Form 709 and report that the two of you have elected to divide the gifts between you. In this case, each of you is deemed to have made a $10,000 gift to the son, each coming in under the $14,000 annual exclusion limit so no tax would be due.

What Gifts Are Not Subject to the Gift Tax?

Currently, there are three types of such transfers that are not actually considered gifts at all for federal gift tax purposes: (1) annual exclusion gifts,  (2) certain payments for educational expenses, and (3) certain payments for medical expenses.

The following rules must be strictly adhered to in order for payments for educational expenses to be nontaxable gifts:

  1. The payment must be made directly to the institution providing the education, not to the individual receiving the education.
  2. The payment must be made for tuition only.

Payments that qualify for the medical exclusion are payments made directly to an institution that provides medical care to an individual or to a company that provides medical insurance to an individual, and expenses for medical care are the same as those deductible for income tax purposes.

But note that the payment must be made , not to the individual receiving the medical care or insurance benefit, otherwise the payment will be considered a taxable gift if it exceeds $14,000.

Jan 22

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The shutdown is here and the IRS released its contingency plan for the filing season because, yes, tax season will go on even during a shutdown.
Without a deal, the government officially ran out of money for the fiscal year and shut down at midnight. Of course, shutdown is a loaded word since not every facet of government shuts down. For example, the IRS will maintain some functions, and those are outlined in their contingency plan. Specifically, the agency notes that “If the IRS is confronted by a lapse in appropriations during the 2018 Tax Filing Season (January 1 – April 30, 2018) the IRS will need to continue return processing activities to the extent necessary to protect Government property, which includes tax revenue, and maintain the integrity of the federal tax collection process, along with certain other activities authorized under the Anti-Deficiency Act.”
During a shutdown, agencies are allowed to perform activities that are supported by funding that doesn’t expire at the end of the fiscal year, as well as other activities that are either expressly permitted under the law or are deemed necessary. Sometimes those activities cross over. For example, Social Security payments are funded outside of an annual appropriation, so those employees will continue to work, as well as those IRS employees who support them (even though IRS funding is not outside of annual appropriation).
The law also allows for “activities necessary to safeguard human life or protect government property.” You might not think of your tax return as a matter of life or death but the government begs to differ: The IRS may process tax returns to ensure the protection of those returns that contain remittances (in other words, they can make sure that the government gets its money).
Here’s a partial list of functions that directly impact taxpayers and would typically be put on hold if the government shuts down:
• No tax refunds issued
• No processing of non-disaster relief transcripts
• No processing of forms 1040X, amended returns
• No non-automated collections
• No audit or examinations (some exceptions apply)
• No whistleblower office activity
Here’s a partial list of functions that directly impact taxpayers which will typically continue if the government shuts down:
• Processing of returns with payments
• E-filing
• Mailing tax forms
• Appeals (statutory deadlines will not be changed)
• Call centers (only during filing season)
• Civil and criminal tax cases
• Certain communications to taxpayers
• Active criminal investigations
• IRS.gov
To facilitate those activities, the IRS anticipates that 35,076 employees, or 43.5% of the total employee population, would be retained during a shutdown. So who stays on the job?
Top of the list is Acting IRS Commissioner David J. Kautter. The Commissioner is a presidential appointee who is not subject to furlough. The Commissioner’s salary is paid no matter how many hours he works, so he cannot be placed in a non-duty, non-pay status. A handful of Deputy Commissioners and Chiefs of Staff would also remain on staff or on call as needed.
A significant number of Criminal Investigation (CI) employees – more than 2,800 – are slated to report to work. This makes sense: If the bad guys don’t take a break, neither should those in pursuit of them. Currently, CI is working nearly 3,800 active criminal investigations with an additional 4,800 investigations in the adjudication phase (pre-indictment, indictment, trial and post-trial) in 93 judicial districts. That means that right now, nearly 9,000 investigations are in process on some level: special agents are actively gathering evidence, conducting interviews, testifying in court proceedings, executing search warrants and conducting arrests. CI will operate at close to “normal” levels since federal courts, federal prosecutors and federal law enforcement partners are operating with business as usual.
Just under a dozen employees will be needed to keep the IRS.gov website up and running. During the shutdown, taxpayers should still be able to access a number of online services, including filing tax returns and paying tax online. In fiscal year 2017, IRS.gov served over 1.8 million page views, helping drive more than 121 million form downloads and over 77.5 million payments.
More than 3,000 IT-related workers will stay in place to ensure that taxpayer data is protected and that computer systems function appropriately.
Finally, more than 10,000 Customer Service Representatives will remain in place to handle phones and paper service issues. It’s important to note that this is slated to happen only if a shutdown happens during filing season (during the 2013 government shutdown, customer service operations, including the call centers, stopped).
It’s worth noting that while this is the contingency plan, it’s not set in stone. In 2013, changes were made at the last minute, including shuttering the TAS offices.
The 2018 filing season is slated to open on January 29, shutdown or not. The IRS expects to process more than 155 million individual tax returns in 2018.

 

Jul 31

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Additional information on returns relating to mortgage interest.

Sec. 6050H is amended to require new information on the mortgage information statements that are required
to be sent to individuals who pay more than $600 in mortgage interest in a year. These statements will now be
required to report the outstanding principal on the mortgage at the beginning of the calendar year, the address
of the property securing the mortgage, and the mortgage origination date. This change applies to returns and
statements due after Dec. 31, 2016.

Sep 15

Ninety-four percent of small businesses use QuickBooks software for their accounting records, but the IRS does not have the budget to update its QuickBooks software yearly. Thus, it is unable to accept electronic records from many of the small businesses it is auditing. Without access to electronic records, the audit will be less efficient. Is that good or bad news for the taxpayer and/or the tax practitioner? More later.

Jun 25

Softness in Manufacturing and Transportation;

Construction in Good Shape

 

Raleigh, N.C., June 19, 2014 - According to the latest quarterly analysis of private-company financial statements by Sageworks, U.S. businesses are growing sales and expanding profit margins at a healthy and consistent pace over the last year. Strength in construction has contributed to overall private-company results, but a few key sectors, like the manufacturing and transportation industries, are seeing slower growth than previous periods. Sales for private companies on average are increasing at an annual rate of 8 percent as of June. The average privately held company is also making more than 7 cents of profit for each dollar in sales (a 7.2 percent net profit margin).

Despite warning signs from the Census Bureau that the post-2009 housing boom and recovery may be slowing, privately held construction companies continue to grow sales at a double digit pace, even increasing their rate of growth in the most recent period.  Net margins for these companies continue to climb, currently sitting at a five year high of 5.1 percent.

The manufacturing sector, badly bruised by the recession, has recovered significantly over the past five years. According to figures from the White House, output for manufacturing companies has climbed 30 percent since the end of the recession.  Privately held manufacturing companies in particular have recovered with a great deal of strength since the recession: At this point two years ago, these companies were outpacing a very robust private-company average sales growth rate of nearly 10 percent by growing sales at a rate of 14 percent.  Two years later, they’re growing sales at a rate half the size.

As the President indicated earlier this month with his promise to allocate several billion dollars in manufacturing equipment for U.S. businesses, manufacturing remains a key indicator and crucial part of the economy’s continued expansion. “Hopefully,” says Sageworks Chairman Brian Hamilton, “the slowdown in sales we’re seeing for manufacturing is a minor blip and not an indication of broader softness in the economy.”

More than 93 percent of companies within the trucking industry have 20 or less trucks, according to the American Trucking Associations. “This is an industry composed, for the most part, of privately held players,” explains Abbas. “These are not huge organizations individually, but together they play a large role in the industry.” In an analysis of the financial statements of these private trucking companies, Sageworks found that the average growth rate for trucking companies is 7.7 percent. While that’s a solid growth rate, it’s significantly lower than the 14 percent growth these companies were seeing two years ago. “It makes sense that the trucking industry is seeing its growth rate slide, when you look at what’s going on in manufacturing,” said Abbas. “If fewer orders are being placed from manufacturers, trucking companies will not be increasing the amount of business at the same rate as they were in 2012.”

Mar 28

Keep your actual tax returns forever.  They can help when you, apply for a mortgage or disability insurance or need clues to the value of other assets. (You don’t need to keep the originals; you can scan the tax returns and keep a digital copy.

 

The IRS generally has up to three years after the tax-filing deadline to initiate an audit, so you should hold on to supporting documents for at least that long. Those documents include credit-card statements, canceled checks, debit-card transactions and receipts showing deductions; letters from charities reporting gifts; and paperwork reporting mortgage interest, capital-gains distributions and income

 

Most people can safely shred those supporting documents three years after the tax-filing deadline. But people who are self-employed or who have a small business or  income from a variety of sources or complex tax situations should keep their records longer. The IRS has up to six years to audit people who neglect to report more than 25% of their income. Shred the old documents rather than just throwing them away, so you don’t create a treasure trove of personal information for ID thieves.

 

Other tax files you should keep include records establishing the basis of your assets for as long as you own the asset (you should file those records with your tax files for the year you sell the asset).

 

Keep records showing the purchase date and price of stocks and mutual funds in taxable accounts. When you sell the investment, you’ll have to report the purchase date and price so you can establish the basis. Brokers are required to report the cost basis of stocks purchased in 2011 or later and mutual funds and ETFs purchased in 2012 and later, but Ziegler says it’s a good idea to keep your own records even for purchases after those dates in case you switch brokers. Also keep records of reinvested dividends that you’ve already paid taxes on, so you can add them to your basis when you sell and you won’t have to pay taxes on them twice. If you inherit any stocks or funds, keep records of the value on the day the original owner died, which will generally be the basis when you sell it.

 

Keep Form 8606 reporting nondeductible contributions to traditional IRAs until you withdraw all of the money from the IRAs. That way, you’ll be able to prove that you already paid taxes on the contributions and you won’t have to pay taxes on that portion of the money again when you start taking withdrawals.

 

Keep records of your home purchase cost and home improvements. You generally aren’t taxed on home-sale profits if you’ve lived in the home for at least two of the past five years and your profit is less than $250,000 if single or $500,000 if married filing jointly. But if you live in the home for a shorter time or have a bigger profit, you may have to pay taxes on part of your profits, and you can add the cost of major home improvements (not basic repairs) to the basis to reduce your taxable gain.  

 

You can toss pay stubs as soon as the information matches up with your W-2 for the year (but keep your December pay stub if it shows charitable contributions made via payroll deduction). You can toss monthly brokerage statements when the information matches up with your year-end report and your 1099s. You can toss most credit-card receipts that you don’t need for tax purposes after you check them against your monthly bill. And you can usually toss utility, phone and cable bills as soon as the next month’s bill arrives, unless you need them for tax purposes. For example, you should hang on to them if they show self-employed business expenses or they’re used for a home-office deduction, or if you want to show prospective home buyers the average monthly cost of your utilities.

 

Dec 19

The Internal Revenue Service has been doing business with nearly 1,200 vendors that owe back taxes, including one unnamed contractor that owes a whopping $525 million, the new inspector general’s report says.

 

The IRS’s 1,168 vendors owed back taxes totaling $589 million as of July 2012, according to the report released Tuesday.  Only 50 were in a payment plan to pay off their debt.

 

Apparently the IRS checks whether vendors owe back taxes when the agency awards contracts but it doesn’t continually monitor their tax bills after the contracts have been awarded.

 

The inspector general’s office is prohibited by law from revealing the name of any delinquent vendor, including the one that owed $525 million. The report says most of the back taxes, including the biggest, were delinquent for less than a year.

 

The report also excluded back taxes that were being contested, counting only those that either agreed to by the taxpayer or ordered by the court.

 

The IRS stated, “The vast majority of vendors that conduct business with the IRS meet their federal tax obligations.  We appreciate (the inspector general’s) acknowledgement that IRS has effective controls in place to prevent suspended and debarred vendors’ from receiving IRS contracts.”

 

Huh? What planet are they on?

 

Dec 07

Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56 cents per mile for business miles driven
  • 23.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The business, medical, and moving expense rates decrease one-half cent from the 2013 rates.  The charitable rate is based on statute.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2013-80 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Sep 05

Tax collectors throughout history haven’t been as popular as athletes or entertainers–or even garbage collectors. But even against the decidedly lukewarm standard applied to most tax collectors, the IRS isn’t looking too good. It isn’t on most people’s favorites, and these days is at a low ebb.

 

The targeting scandal is three months old and is still going strong. Smack in the middle of it is Lois Lerner, famously invoking the Fifth Amendment. Then there were all the expense issues, the pricey conferences and the team building.

 

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One report said some IRS Brass Spent $100K Each On Travel. And who can forget the kitschy Star Trek, Gilligan’s Island and line dancing videos. Then there were the abused credit cards. Who wouldn’t like a charge card with bills direct to Uncle Sam? And this-  Audit Finds $119 of Unused Nerf Footballs in IRS Cabinet.

A watchdog report found little oversight. Another report from the Treasury Inspector General for Tax Administration said 30% of IRS Seizures of don’t comply with the law. In short, this isn’t your parents’ IRS.

 

Sure, the President now has a so-called turnaround expert in line to run the , er IRS. But you have to wonder, what’s the behemoth agency’s turning radius?  In the meantime, Congress–or at least Congressional Republicans–are sharpening up their axes to do a little IRS Profiling of their own.

 

If you aren’t too happy with the IRS right now, you’re not alone. House Republicans aren’t either, so passed an Internal Revenue Code-sized passel of bills by voice vote before their August recess. If nothing else, you have to love the names:

 

STOP IRS Act, H.R.2565. Actually, this bill has an alternate handle too, the Stop Targeting Our Politics Act. If passed, this law that would expand the existing grounds for firing an IRS employee. New firing offenses would include performing, delaying, or failing to perform (or threatening) any official action–including an audit–for purposes of personal gain or for a political purpose.

 

The Stop Playing on Citizen’s Cash Act, H.R.2769. This proposed law would impose a moratorium on any IRS conference until the Treasury Inspector General for Tax Administration submits a report to Congress certifying that IRS has implemented all the recommendations set out in its report covering the now notoriously expensive 2010 IRS conference . See “Review of the August 2010 Small Business/Self-Employed Division’s Conference in Anaheim, California.”

 

Government Spending Accountability Act of 2013, H.R.313. This proposed law would limit any government agency from spending more than $500,000 to support a single conference.

 

Government Customer Service Improvement Act of 2013, H.R.1660. You have to love this name. This bill would require the Director of the Office of Management and Budget (OMB) to develop government-wide standards for customer service delivery.

 

The Taxpayer Bill of Rights Act of 2013, H.R.2768. This bill would amend the tax code to say the duty of the IRS Commissioner is to ensure that IRS employees are familiar with and act in compliance with certain taxpayer rights.

 

Will all these bills actually pass and be signed into law by President Obama? Unlikely. Will any of them pass and be signed by the President? Maybe, but even that is far from clear. Stay tuned.

 

Thanks Forbes