Forms W2 & 1099: What You Need to Know

w2-bookAs 2017 begins, one of the things at the top of a business owners list is forms. Tax forms, to be more specific.

These forms are complex and take some time to go through. However, they’re necessary for your business for a multitude of reasons, one of which is not getting in trouble with the IRS.

Two of the most common tax forms you’ll get to deal with are the W-2 and 1099. These particular forms deal with reporting worker wages and income … and employees like to get paid.

Need a refresh on what they are? Check it out here and here.

To learn more about these important forms, and how to complete them correctly, check out our annual W2/1099 Book. In it, you’ll find:

  • Answers to who is an independent contractor and who is an employee
  • Information specific to the 1099
  • New Hire Reporting requirements and info
  • Information specific to Forms W-2 and W-3

Check out all the goodness here.

Understanding Your Target Market

One of the keys in business is to have a product or service that consumers actually want. Maybe you have a top of line hair salon, or you just opened shop to sell an all-new high tech cell phone accessory.

No matter what your core product or service is, it’s not a great business plan to try to appeal to everyone. Welcome to the world of target markets.

So what’s a target market?

We’re glad you asked. According to the Small Business Encyclopedia, a target market can be defined as “a specific group of consumers at which a company aims its products and services.” Sounds simple, right? Well, not exactly. Often times, business owners are very general in determining their target market, hoping to get a bigger slice of the pie.

Do any of these sound familiar?

If you own a salon, you might say your target market is anyone who has hair; if you’re selling phone cases, maybe you’d say your target is anyone with a cell phone. Here is where the hard truth comes in: even though you may want it to be, your target market is not everyone.

Of course, we wish it could be – wouldn’t it be great to have all those people buying your products or services, talking about you and helping you gain more business? In theory, having everyone be your target sounds great. In reality, no business no matter the size, can be everything to everyone.

Why do I need to know my target market?

Knowing your target market is the first step in determining who you market your products towards. Having a clearly defined target market provides guidance along the road of growth for your business and can help you improve your product or service based on feedback from actual customers. Without having a clear picture of who your target market is, you may be wasting time, money and energy on the wrong people, people who won’t even think about buying your product. If you are focusing all your efforts on the wrong market, you may be missing opportunities to increase sales or even losing sales to your competitors.

Why isn’t my target market everyone?

Simply put, not everyone is interested in what you have to offer, and no one product or service can be everything to everyone. Think of it this way: when determining who you want to market your product to, you may look at demographics (more on that later) as part of you research. However, “everyone” is not a demographic, nor a specific group of people. A target market is all about specific characteristics that your desired customers possess.

Another consideration is the fact that it just isn’t possible. Let’s consider this scenario. Imagine you wanted everyone in Fargo to be your target market. In 2015, the population of Fargo alone was estimated to be 188,523 according to the US Census Bureau. If all of these people were to order your product, it would be extremely difficult, if not impossible, to meet all their needs. In short, narrowing your target market can help your business be more efficient.

So, how do I determine my target market?

There are many criteria that can be considered in determining your target market. Market segmentation usually tends to fall into four separate categories.

  1. Geographic – This criteria of segmentation focuses on, you guessed it, people living in a certain geographic area. Looking at a geographic area allows you to see what the characteristics are of the people in the region your business operates in.
  2. Demographic – We told you we would come back to this! Demographic segmentation is an extremely important part in determining your target market. The demographic characteristics of consumers get down to the nitty gritty of who the person really is. Demographics commonly examined in target market determination include age, gender, income and level of education, to name just a few.
  3. Psychographic – Psychographic segmentation looks at the potential customers’ interests and personalities. Segmenting by psychographic qualities can give your business a good look into the daily life of the target customer by examining their attitude, lifestyle and personal values.
  4. Behavioral – If you guessed that this form of segmentation focuses on customers’ behaviors, you are correct! This can also refer to what potential customers desire from your offerings. This can include brand loyalty, user status, desired benefits, community involvement (numbers don’t lie) and the readiness of the buyer.

These four categories can be extremely helpful in determining your target market as they allow you to narrow down each category to the customers you feel best fit with your business.

Putting it all together

By this point in the blog, it should be no surprise that determining your target market is extremely important for your business. Having a clearly defined, reasonably sized target market can allow your business to put time and effort in to those who are interested in the business, and weed out the ones that just won’t bite.

Tips for Firing … A lesson in HR

As a business owner, your job involves managing your employees. This can be fun, such as when you get to hire these awesome employees and bring them into your business. It can also be tough. Sometimes these employees just don’t work out as well as you had hoped. Sadly, this can lead to a tough decision– to fire or not to fire.

Here are some factors to keep in mind when preparing to fire an employee.

When

It might not have crossed your mind that when you fire someone can impact how smoothly (or bumpy) the process goes. Often, it works best to fire an employee at the end of the day. With the possibility of less employees being present, the employee won’t have to deal with awkward confrontation.

There is also a debate about what day of the week is best. Friday is usually regarded as the day NOT to fire someone. Why? Many offices, such as unemployment, are closed for the weekend, so the newly fired employees have to wait a few days to start getting things sorted out. Another reason to stay away from Friday is that it can make it look like you worked this employee hard all week, just to fire them at the end.

Where & How

Where and how you will fire this employee can make a huge difference, especially when it comes to safety. When picking the physical location, it’s best to pick somewhere where you can be close to the exit, such as a conference room. Making sure you’re near the exit allows for a quick exit if the employee were to retaliate (trust us… this stuff really does happen). It’s also important to keep in mind how the employee got to work. You don’t want to fire someone who gets rides to work and leave them stuck with walking.

Other Rules to Take Into Account

The government also sets some rules regarding firing that can get you in big trouble if you don’t comply.

Employment at Will

Unless you operate in Montana, your business has the option to implement employment at will policies and procedures. What does this mean? Well, employment at will, in its most basic sense, allows for a business or the employee to terminate the employment at any time, for any reason, or even for no reason at all.

In order to make sure you’re in compliance, make sure all contracts, whether implied or not, and other employee documents and agreements, such as a company handbook, don’t contradict the employment at will doctrines in your state. (Shameless Plug: If you need someone to make sure you’re in compliance, our HR team can help. Just ask!)

Legal vs. Illegal

Do you know what could be considered illegal when it comes to firing a bad apple? A lot of illegal firing methods conflict with discrimination issues. Policies such as Affirmative Action and the Americans with Disabilities Act make it illegal to fire certain employees without having a legitimate reason, or based on protected classes such as race, age, disability, etc.

If you are going to fire an employee, you must make sure you are in compliance with the rules of these acts. Otherwise, you might find yourself in more trouble than the employee was giving you.

Proof of Problem

When something goes wrong and insurance needs to step in, it is important to photograph and document everything. A bad employee is no exception. If you start to notice an employee acting out, it might be a good idea to start documenting right away. If the problem escalates to the point where the employee needs to be fired, it will be helpful to have solid proof of where the employee went wrong, rather than relying on “he said she said.” Although employment at will policies allow for an employer to terminate an employment without reason, having solid documentation as a backup can help prevent angry ex-employees from filing those pesky lawsuits.

Benefits Remain

Just because you are getting rid of the problem child employee doesn’t mean you get to sweep everything under the rug. When you hired this employee, it’s possible they signed up for certain benefits, and some of these benefits don’t disappear with termination.

Health insurance is one of those. Under COBRA, employers with 20 or more employees must offer temporary continuation of health care at a group rate to terminated employees. There are some exceptions under COBRA, but it is a good practice to stay up to date so this snake (come on, we had to) can’t come back and bite you for not being in compliance.

Of course we can’t forget about unemployment. If you fire someone, you have a legal duty to fill them in on any possible eligibility they may have to receive unemployment insurance. Fired employees are also required to remain eligible to receive pension and 401(k) plans.

Show Me the Money

If you’re firing an employee, it’s likely they will still have some compensation owed to them. It goes without saying that you still have to fork over this payment, but what could get you in trouble is when you pay them. Federal law doesn’t require former employers to immediately hand over the check, but some states have laws that disagree and require immediate payment. Some of these state laws may even require the employer include other compensation in the paycheck, such as unused vacation pay.

The moral of the story …

It is important to remember the majority of issues impacting the firing of employees varies by state. Contacting your state’s labor department can help you be sure you have the latest information to keep you out of trouble when firing a bad employee. If all this seems scary and you’re not sure where to look, let us know. We know how important it is to have someone monitoring all these rules, and our HR team is here to help you do just that.

Common Mistakes on the Sales & Use Tax Form

In our line of work, we have the privilege of working with numerous businesses. This exposure gives us insight into what’s working, what’s not working and what are common mistakes.

Recently, we have run into some confusion surrounding the preparation of sales and use tax returns (we know, this stuff can be confusing); specifically understanding the correct information to enter into the boxes.

The following example is specific to North Dakota, however the moral of the blog is applicable in all taxing jurisdictions.

The first step of a North Dakota return requires you to enter the information for the system in order to calculate the State portion of the sales and use tax. See below for a visual representation.

tax

Section 1: Sales Tax

Remember, these are the taxes imposed at the time of the sale.

Total sales: Your gross sales (taxable and nontaxable).

Nontaxable sales: The amount of your gross sales that is nontaxable.

Net taxable sales: The amount of your gross sales that is taxable (this is calculated for you based on the preceding information entered).

We have noted instances where businesses are only reporting their taxable sales in the total sales box (ignoring the nontaxable sales). While you still arrive at the correct sales tax amount, the report itself is not being prepared properly.

Let’s take a look at an example. You own a store that provides both retail (taxable) and wholesale (nontaxable; the customer is a reseller and you have their current exemption certificate on file). In December, your total sales were $10,000. Of that amount, $1,000 was purchased by wholesalers and $1,000 was sold to a MN customer. This means that this $2,000 is nontaxable sales. The remaining $8,000 in retail sales is your North Dakota net taxable sales.

Section 2: Use Tax

The next section relates to use tax. Remember, these are the taxes are imposed on the use or consumption.

Items subject to use tax: The amount subject to use tax.

In this scenario, we will say that your store purchased $100 worth of office supplies online. There was no sales tax charged at the time of the purchase. The office supplies are considered taxable in North Dakota; therefore you would need to report $100 as items subject to use tax. Although having no items subject to use tax is possible, we have noted instances where businesses overlook the use tax portion because they do not understand the concept of use tax.

Want more information on the difference between sales and use tax? Check out our blog on the topic here.

The moral of the story…

With over 10,000 different tax jurisdictions it would be impractical to cover each jurisdiction (which is why the example is specific to North Dakota). However, no matter the taxing jurisdiction, it is important to understand the components of the sales and use tax return to ensure you are reporting your numbers correctly. As always, if you have questions, our trained professionals understand (and enjoy!) this stuff, and are always ready to help you.

R&D Tax Credit: Benefiting Small Businesses

Happy New Year! Today we bring you good news for your 2016 tax return. Yes, we’re still talking about last year … all the way up until you file those tax forms.

One of the ways your company can potentially save is through the use of the research and development (R&D) tax credit (here’s your refresh). R&D tax credits were made permanent at the end of 2015, thanks to the Protecting Americans from Tax Hikes Act (PATH) and went into effect in 2016. Included in the PATH act were some significant enhancements.

What does this mean for you? Many small to mid-sized businesses are now able to take advantage of the R&D Tax credit for the first time. Get excited.

What kind of enhancements are we talking about?

One of the big deals related to the PATH Act’s enhancements is eligibility for small business.

For the purpose of this act, small businesses are less than $50 million in average gross receipts for the three prior years.

Prior to the PATH Act, R&D tax credits were only used against regular tax. Basically this was a hindrance for small to mid-sized businesses. Why?  Small to mid-sized businesses are often subject to alternative minimum tax (AMT).

As a reminder, AMT is a tax system that limits certain tax benefits taxpayers receive in order to ensure they pay at least a minimum amount of tax. Now, however, R&D tax credits can be used to offset AMT as well.

Anything else?

Yes! There was another enhancement introduced related to “qualified small businesses.” These are businesses with less than $5 million in annual gross receipts and that have had gross receipts for no more than five years.

Why does this matter? Well these particular small businesses will now be able to use R&D tax credits to offset the FICA employer portion of payroll tax, up to $250,000 per eligible year.

There are specific stipulations about how a qualified small business goes about doing this. For more specifics, contact your tax professional or you can always reach out to us!

The moral of the story

This is a big deal, especially for smaller organizations and startups, as you’ll no longer have to wait until you’ve generated taxable income to take advantage of the savings.

If you think your organization may qualify, or if you have questions, feel free to ask. We’re always here to help.

A version of this post first appeared on EideBailly.com.

 

 

Welcome to the Omni-Channel World

By: Eide Bailly Technology Consulting

 It comes as no surprise with all the advancements in technology that today’s consumer has higher expectations. Consumers expect consistency, flexibility and choice across all platforms. Successful businesses are taking advantage of these advancements in technology to reach out to customers and give them the experience they are expecting.

Enter the term omni-channel – unifying experience across all platforms. This approach is entirely focused on bettering your customer’s experience. Unlike traditional multi-channel marketing, omni-channel aims to provide a seamless, personalized experience with your business, whether it be direct or digital. By joining the usual gaps across channels, such as lack of interaction or inconsistency between messages, you give your ideal buyer a brand experience where you can always be present… and that’s pretty great! This can help streamline the buying journey and put control in the hands of the customer to determine how they want to obtain information, engage with your business and ultimately purchase what you have to offer.

The goal of omni-channel is to empower your customer with information to take action regardless of how they are interacting with your brand. After all, knowledge is power. Usually online engagements lack the personal touch of an actual conversation. On the other hand, your website has a better amount of content and material to help with the decision making process. An omni-channel environment aims to blend the strengths of each. This same idea can also apply to B2B situations. The easier it is for your business’ partners to access information, the better they can satisfy their own customer’s needs.

Today’s buyers love options. With omni-channel, options are not optional, because the message is the same across all mediums. By bridging the digital and physical, you allow your customer to engage how they want. By ensuring accurate data and allowing your customer to choose their preferred engagement and purchase path, you give them the power – and place your business in the “Easy to Work With” and “Gets Me” categories.

But, of course, this all requires the right technology solutions and integration across your business systems and touch points. When executed correctly, the end value to both your customer and your business’ bottom line is unparalleled.

A version of this blog first appeared on Eide Bailly’s Technology Consulting blog.

Nonprofit 101: How to Maintain a Nonprofit

Earlier we brought you more information on how to become a nonprofit. Now we’re here to tell you ways to KEEP that status. You’re welcome.

 Can you lose your exemption status?

Once tax exempt status has been obtained, the organization must continue to follow specific rules in order to maintain this status.  The following are common ways an organization can have its exempt status revoked:

  1. Not completing your annual filings for three consecutive years (it seems obvious, but it happens more than you think).
  2. Unrelated business income becomes more than an insubstantial amount of your gross receipts. The IRS states that unrelated business income (income generated from activities not related to your stated exempt purpose) should be insubstantial to your organization. There is no bright line definition of substantial, but a good rule of thumb is more than 15% of the revenues or activities of the organization.
  3. Supporting/opposing a political candidate. Organization exempt under 501(c)(3) are prohibited from engaging in any political activity including endorsing candidates. Political activity is different from lobbying and an insubstantial amount of lobbying may be allowed.
  4. Income which inures to the benefit of any individual. The activities of the organization must be for the benefit of the public, not specific individuals. Therefore, operating for the benefit of individuals or providing specific benefits to individuals can impact tax exemption. Here’s an example. If a hockey association (organized as a tax-exempt nonprofit) requires its members to fundraise on behalf of the association, the funds raised must go the association as a whole, not individual members. Therefore, if Johnny raised $1,000 and Billy decided not to participate in the fundraising, the $1,000 collected must be used for the benefit of the association as a whole; not credited to Johnny’s account for his benefit.

In closing…

Starting a nonprofit is an exciting journey, but it’s also complicated. There are numerous resources that can help you along that journey. If you need help getting started, reach out; we would be happy to help.