Tax Changes: What’s New?

Surprise – we’re back! We disappeared for a while, but we’re back to share some important updates on, you guessed it, taxes!

It should come as no surprise there are constant changes in the tax world, and staying up to date on all these changes and regulations can be taxing (don’t worry, we haven’t lost our sense of humor).

So, what’s been changing? We’re glad you asked.

Physical Nexus

A while back we brought you info on nexus (you can check it out here if you need a refresher). States are now looking to overturn the physical nexus requirement for sales tax and replace the current presence test with a new test which would be based on sales or transaction volumes. These changes are important to pay attention to, as they just might have an effect on your nexus and filing duties.

Sales Tax Reporting

Changes are happening to sales tax reporting in Colorado, which is important if you do business in the state. Back in July, reporting requirements began for sellers who don’t currently collect Colorado sales tax and have annual sales greater than $100,000. If the seller doesn’t let the buyer know on the invoice they need to pay use tax, the seller will be penalized.

Penalties are also being imposed on those who fail to provide their buyers with a year-end transaction summary – if the customer makes more than $500 in purchases. Customer information also must be provided to the state.

Other states such as Kentucky, Louisiana, Vermont and Washington have put similar requirements in place, and it’s likely others will follow. It’s important to pay attention to these changes – your state could be next!

Economic Standard

As if changing the sales tax reporting requirements wasn’t enough, states are also imposing an economic standard for any business conducted in a state that leads to an income tax requirement. The standard for “doing business” generally looks like:

  • $50,000 in property or payroll in a state
  • $500,000 of sales into a state
  • An amount of activity in the above categories that is more than 25% of the company’s total

Of course, these minimum amounts of sales, payroll and property can vary by state. The following states currently have similar definitions for doing business:

  • Alabama
  • California
  • Colorado
  • Connecticut
  • Michigan
  • New York
  • Ohio
  • Tennessee
  • Virginia
  • Washington

The Market-Based Method

Businesses who don’t sell tangible property have been using the “cost of performance” method of revenue sourcing for quite some time. However, states are now starting to source this kind of revenue using a market-based method.

Unsure of what a market-based method is? This method means the sale is attributed to the actual location of the customer, rather than where the work was performed. This change has been adopted by many states, with a lot more likely to play copycat. Stay aware of these changes – filing requirements and taxes may be due in states where taxpayers haven’t previously filed.

This is great info, but why should I care?

Understanding these issues and changes can help you prevent costly surprises. Simply filing in a state where a company has a physical location is no longer valid, and is even considered an invalid excuse for failing to handle sales and income taxes.

Taxes are important. To learn more, or ask some questions, reach out. We’re here to help you!

A version of this blog first appeared on eidebailly.com

Meet the Team: Sandy Kundert

124What is my role? My role is to ensure our clients are getting the best possible Eide Bailly experience they can. I do this by making sure we understand what our clients need, what they wish for and suggesting things they may not have thought of. Then we try to match a member of our team with the client. If our clients are successful, then we are successful!

Why are numbers important for business? Numbers are like lab test results from the doctor. They not only show us the current health of the business but aid in what we need to do in order to improve over time. Good decisions come from being informed and numbers do just that.

Why do I want you to succeed? I have several clients I have worked with for many years. You get to know each other on a personal level and they become like family. I always feel a little pride when my clients have a win, no matter how big or small and I’m thankful they let me be a part of that.

#ILoveSmallBiz – Whether a small business succeeds or fails, it has a huge impact on their employees, customers, and the local economy. By helping small businesses succeed, we all become winners.

1099 Basics – In July

That’s right, it’s never too early to start the process of preparing your 1099s (you will thank us come January). Here are a few tips to start preparing those 1099s.

Who do I prepare 1099s for?

The simplest answer for the most common type of 1099, the 1099-MISC, is they need to be prepared for anyone that provided services to you. However, they are not given to someone who is an employee (here’s your refresh), and you need to have paid them $600 or more for the year (we’re talking accounting, legal, janitorial services, repairs, snow removal or lawn maintenance, etc. unless the company is incorporated). If the company is incorporated, then a 1099-MISC is not required, except with lawyers … then you still get to fill out the form.

Other items reported on a 1099-MISC include rent paid to an individual or a business that is not incorporated, royalties of $10 or more, other income payments including prizes and awards, employee wages paid after death in the year following death, director fees, etc.

Another common 1099 form is the 1099-INT. This form is required for interest paid of $10 or more, any foreign tax on interest withheld and paid, or backup federal withholdings regardless of the amount of the interest payment.

Please note, this is a very simplified list of items that 1099s need to be issued for. IRS.gov has several booklets that go into more detail on what is required and instructions for each form is available. On their website, type 1099 instructions in the search box and a list of forms and instructions will pop up.

So what am I supposed to do in July?

Identifying the vendors that need 1099s now will save you a lot of headache come year end. You can do this by having each of your vendors complete and return to you a Form W-9 (also found on IRS.gov). This form will give you their business name, address, tax identification number and type of entity. Best practice is to have all of your vendors complete this form, even if you know they will not be providing services to you. If circumstances change and you are required to provide a 1099 to them in another year, then you are already prepared!

Once the W-9s are returned, you can begin updating your records so when it comes time to complete your 1099s you will have the correct name, address, and TIN on file. You should also flag your vendors so it accumulates the amounts for you. Many accounting programs, such as QuickBooks, allow you to indicate the vendor will need a 1099 at the end of the year. Most also allow you to indicate the type of form and which box the amounts should be reported in. Having your system set up to accurately do the work for you will save tons of time at year end.

If all of these suggestions are followed, you should have time in January to put your feet up on your desk and relax because you won’t be spending hours trying to find vendor information and trying to figure out the amounts to report.

If you have questions, we’re always here to help.

Don’t be a Dud: How to be a Shiny Firework!

With it recently being the Fourth of July, you likely took in many red, white and blue festivities. We’re willing to bet you also watched some fireworks displays.

When it comes to fireworks, there’s nothing quite like the glitter and pageantry, as well as the loud booms and inevitable oohs and ahhs for every firework that goes off. That is, unless there’s a fizzle. We’ve all seen the ones that lift off … and never actually explode.

The same can be said with small businesses. There are companies that lift off the ground and soar to new heights, and then there are others that lift off and never reach their full potential. In other words, they fizzle.

While we can’t be your source for everything business related (though we could certainly try … we’re pretty awesome like that), today we’re talking about four (for 4th of July … corny, we know) accounting issues that will help your business be a firework rather than fizzle into the night sky.

#1: Taxes: DIY v. Business Advisor

Also known as everyone’s favorite word and subject for that matter. If you feel like you’re constantly banging your head against a wall, or continually hearing from your pals at the IRS, you’re not alone. Did you know that 52% of small businesses say they’re paying too much in taxes or are unsure of the amount? In other words, you’re not the only one. It’s hard to even begin to know all the possible deductions you can take, the information you need and the planning you’ll want to do.

The best way not to fizzle in the wake of the overwhelming tax burden is to use a professional. Use someone whose job is specifically tax focused (there are definitely people out there … and they even like it!) who can help you look at the overall picture of your company and find ways to ensure you’re paying just the right amount, and not a penny more (or a penny less). The money you spend on a tax advisor will be minimal in comparison to the money you may have to pay for not doing it correctly. In fact, they may even save you money as they know what to look for and how to minimize your tax liability.

#2: Using a Spreadsheet

A sure fire way to fizzle is to not have any idea what your finances look like … or how your business is doing. It’s also really hard to track your business, and get useful metrics, when you’re using spreadsheets to track your financial data.

Don’t get us wrong, as numbers nerds spreadsheets do get our hearts racing. However, they are not the most efficient or effective means of tracking financial data. There are a number of accounting software options that can easily track, compile and show you your current financial state.

So if you’re using a spreadsheet, or software that’s not giving you the information you need, it might be time to think about a change. Not sure if you’re ready to make the change? Ask yourself these questions.

#3: Knowing Your Finances & What They Mean

At the risk of sounding like a broken record, your finances are important. They tell a story about your business and help you see where you’re going. Numbers are also probably not the reason you got into business, so they’re frustrating and even aggravating at times. In fact, only 40% of small businesses say they are “extremely” or “very knowledgeable” in accounting and finance.

So if you’re in the vast majority that don’t have a solid accounting knowledge base, what do you do? To begin, we really think you should have a good foundation of financial knowledge and at least understand basic concepts (we talk about a lot of them on this blog). But beyond that, hire someone with CFO or controller level knowledge (here’s the difference) to help you.

And before you even begin to say you don’t have the money for a full time hire, remember you can always OUTSOURCE it. These numbers nerds will help you not only understand your current financials, and make sure they’re cleaned up, but they can also help you with larger picture ideas and goals … feel free to ooh and ahh at any time.

#4: So how’s business?

Can you answer this question honestly … do you know the health of your organization? Remember, just because you have money in the bank doesn’t mean you’re doing great (cash does not equal profitability).

It’s important to know the overall health of your business, as well as ways you can improve. Here are a few ways you can gauge the health of your business:

  • Compare yourself with other fireworks (see what we did there) via benchmarking.
  • Projections and forecasting, which you can only do if you have accurate financial data (see numbers 2 & 3).
  • Have up-to-date books with accurate financial data … please tell us we don’t have expand further on this.

The moral of the story

All of these are easily attainable and can change your fizzle into a firework. Just make sure to take the time to dedicate to the numbers part of your organization and find a trusted business advisor to help you along the way. From there, you can watch your business rocket into the sky and shine bright as ever!

From all of us at Eide Bailly, we hope you had a wonderful 4th of July!

Welcome to the Company: Ideas for Successful Onboarding

Hiring new employees can be an exciting time – for both you and the new hire! After all, you found an awesome addition to your team, and you’re excited to show them how great your business is. Although having a new hire can be really fun, it can also be really stressful – especially for the new person.

You want to alleviate stress for your new hire by giving them a smooth transition into your business. So, how do you do that? Here are some ideas for giving your new hire a smooth start in your business.

  • Start with the small stuff: When your new hire starts, there are some seemingly small items that can actually help make the transition a little easier for them. Consider a small welcome gift they can use in the office, such as a water bottle or coffee mug. Also, make sure to show them where the bathrooms are, how to use the copy machine and what to do if they’re having computer problems, to name a few. Although these may seem small, these items can help your new hire feel comfortable in the new environment.
  • Use the buddy system: Consider pairing your new hire with an employee who’s been with the company for a while. The buddy can be the new hire’s go to person if they have questions and concerns about getting acclimated within the company. The buddy can also share some of their tips, tricks and experiences, which can ultimately help the new hire get a great understanding of the ins and outs of the business. Having a buddy can also help the new hire feel more comfortable simply because they know someone within the company and are not all alone.
  • Hands-on approach: What better way to learn than by doing? A great way to get your new hire involved and comfortable is to start them off by doing rather than by watching. Whether it be a computer program or making phone calls, involving them from the get-go can provide beneficial training. It also allows the new hire to ask questions in real time as they arise, rather than scrambling for an answer if an issue comes up. However, try not to give them too much hands-on training right away. You want to help them feel comfortable, not overwhelm them.

 

  • Team involvement: Right from the beginning, it’s important to involve the entire team your new hire will work with. Whether it be going out for lunch on the first day or just holding a brief introduction meeting, letting your new hire meet the people he or she will be working with the most gives a level of familiarity which can help lead to better productivity. When the team works well together, better results are often produced.

 

Gaining a new employee is a fun and exciting step for your business. To reduce stress for them (and you), and to give them a smooth transition, consider some of these ideas. When your employees work well together, you can watch your business thrive.

*Bonus: If you need help with new hire onboarding, let us know. Our outsourced HR services can help make sure your new hire has an easy transition.

Our Journey to 100

Have you ever heard of a birth-month rather than a birthday? A few weeks ago, we celebrated our 100th birthday, but we haven’t stopped celebrating.

In fact, we’ve had so much fun being 100 that we want to share with you some history on our journey to 100! Check out the video below:

We’d love to help you get to 100, too! Contact us for more information.

Benchmarking: Part 3

You might have noticed, but we really want to see your business succeed from information gained through benchmarking. In other words, we want you to be a pro. But, before we unleash you to get started, we need to share a few things to avoid when you start a benchmarking analysis.

  • Comparing Company A to Company B: Make sure the peer group that you’re comparing to the business is representative of the industry. Comparing yourself to another, single company, can prevent you from seeing a true comparison if there are considerable differences. If you are looking at a benchmark analysis that restricts the sample size to only one other company, be critical in your findings.
  • Be aware that the benchmark analysis doesn’t end with a variance report: Once your report reaches the variances between its financial metrics and its peer group benchmarks, you might think you’re finished, but the work is just beginning. Don’t get worried — as the work is just beginning, so are the opportunities! When viewing the variances of your report you are now given potential problem areas to fix and also the opportunity to improve the overall performance of the company. For example, the variance report shows the areas of the business that are excelling. Now that you can see the areas of your company that have successes, see if this strategy can be implemented in other areas of the company.
  • Assume that numbers and performance are always changing: Positions in a car race are constantly shifting: first to third, second to last and so on. It isn’t optimal to compare your business to its peers only once per year, since many industries are always changing, even if your business isn’t. By preforming frequent benchmark analyses, your business can identify trends and react sooner.
  • Be mindful with calculations and the conclusions drawn from them: Certain benchmarks are common financial measurements (turnover rations, net profit margin, and liquidity rations) and their calculations generally do not change. If your benchmark analysis is expanded to include industry specific key performance indicators (KPIs) (airline-sales per seat, for example), make sure to use the same calculations, period after period. However, if a subaccount is added for one period but then removed the next period, the trend analysis performed might be misleading.
    • All members of management and the financial team need to understand the definitions of the metrics, and have a copy of them as well. You want to make sure there is only one interpretation, which will help defuse any confusion. Be sure everyone is on the same page to allow for complete and easy understanding.

It may not seem like a must do task, but benchmarking is important. When it comes down to it, remember the true purpose of benchmarking: to illuminate successes and challenges for your company, and to give you, the business owner, insights to inspire action!

*Shameless plug: If benchmarking sounds like the thing for you, let us know. We love helping businesses see how they’re doing!