The Appletree Core Newsletter - Accounting, Payroll, and Tax CPA in Londonderry, NH

Do you know the ratios in your New Hampshire small business?

CPAsteve — Tue, 27 Jul 2010 15:00:54 +0000

Understanding your company’s financial statements is critical to becoming a successful small business owner. Most owners have a pretty good handle on traditional line items such as sales, expenses and net profit. But are you correctly using the rest of the information to understand and manage your business in the best way possible? Even if you feel some of the items on your financial statement don’t apply to your daily operations, it’s important to know how these numbers affect your business.

A banker looks at these ratios when evaluating your business to determine whether they will loan you money or renew your credit line. It can also affect the interest rate and other terms of your loan. Potential buyers of your business will pay close attention to your ratios when looking at what your business is worth to them. The better the ratios, the higher the potential sale price you will get. Your creditors will run various ratios on your information to determine what they will offer you as credit terms.

Here are a few important key ratios and trend indicators. Please keep in mind that a change in one of the indicators from month-to-month, or significant variances between your company and the industry average is what makes this so useful, not just looking at a ratio once a year.

Break-even Point – The break-even point may be the single most important number for any business owner. It is the point when the revenue is exactly the same as the costs, thus there is no profit or loss. It is generally expressed in dollars. Once you pass the break-even point, the gross profit on each additional dollar of sales should drop right to the bottom line as net income. An owner should be monitoring this number throughout the month to have a better picture of the business.

Debt-to-Equity Ratio – The bank and other creditors will pay special attention to this ratio. It is computed by dividing the total debt of the company by the total equity. Example: If total debt is $300,000 and the total equity is $200,000, your debt-to-equity ratio is 1.5. A ratio less than 2.0 is generally considered a healthy number.

Current Ratio – This ratio measures the ability of your company to pay off all of its current debts (due in one year or less) with the current assets. The current assets are cash and assets that can be turned into cash in a short time period. It is calculated by dividing the total current assets by total current debts. Having a ratio of at least 2 to 1 is the goal. A ratio of less than one means your company could have a hard time meeting its normal operating obligations like payroll and paying your vendor bills.

Quick Ratio – This is simply cash, collectible accounts receivables, and marketable securities divided by current liabilities. This means you would not need to sell inventory to meet your current obligations. A ratio of one or greater will generally allow your company to run smoothly.

Accounts Receivable Turnover – This is a ratio your banker will want to see when you request additional working capital funds. It is calculated by dividing the credit sales for the accounting period by the average of the outstanding accounts receivable at the beginning and the end of the accounting period. Comparing this number with your industry is very helpful in running your business. Just as important is looking at your accounts

receivable aging (current, 30 day, 60 day and 90+ days). The older the account, the less likely you will collect it in full.

Inventory Turnover – This is the cost of goods sold divided by the average of the inventory at the beginning and end of the accounting period. Assuming your markup is consistent, the higher the inventory turnover ratio, the better for you.

Net Profit Margin – This is simply net income divided by sales. Obviously, every owner wants to see this go up! By comparing this with other similar businesses, you can better see where you stand and what you can potentially achieve. Calculating and evaluating the various ratios and trend numbers may seem like a daunting task, but once you learn how and set up a couple easy formulas in a spreadsheet or in your software reports, it becomes very easy. Having and using these numbers should be a key ingredient for an owner to evaluate and run a successful small business.

A routine aspect of our Business Owners Package includes analyzing the ratios in your small business both at the end of each month and at the end of the year.

Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email!

To save taxes, should you get married now or later?

CPAsteve — Thu, 22 Jul 2010 15:00:26 +0000

Are wedding bells in your future? Well, be sure you are informed about the tax changes that go along with those wedding bells! For starters, your tax filing status will change. You will have the choice of filing a joint return with your spouse or filing a separate return as a married person.

Filing a joint return usually gives you the bigger tax savings. Both spouses’ income and deductions for the entire year will be combined onto one return. Any deductions that are subject to limitations will be determined based on the combined income of both spouses.

In some cases, filing a separate return may save you taxes. A spouse who has high medical expenses or miscellaneous itemized deductions and low income, for example, might be better off filing a separate return. However, you may not claim certain credits and deductions if you file separate returns. Generally, only if you file a joint return can you claim the child and dependent care credit, the earned income credit, or education credits. Filing separate returns could affect the taxability of your social security benefits and the deductibility of rental losses.

The tax law has been changed to eliminate some of the additional tax that married couples once paid (called the “marriage penalty”). However, once you marry, you should review your federal income tax withholding at work. Fill out a new Form W-4 and indicate that you are married.

Several other limitations may come into play once you get married. For example, your IRA contribution may not be deductible if your spouse is covered by a retirement plan at work and your income exceeds certain limits. It’s important to look at these factors because oftentimes we run into situations where two people would simply have been better off staying as single people and simply have never succumbed to the marriage bug.

Newlyweds can be faced with a surprise tax bill on April 15 unless they do advance planning. For details or planning guidance, give us a call.
Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email!

3214 Pounds of paper 482 dollars in Disposal fees a New break room for the staff priceless

CPAsteve — Fri, 16 Jul 2010 15:00:15 +0000

Thinking of going paperless? I’ll share an office story with you!

As many of you know, we are 90% paperless. Basically, if you hand us paper, we’ll scan it and hand it back. All our client files are now stored electronically as we try to not keep paper files in house. That said, it hasn’t always been that way, which brings me to the latest!

We’re doing some remodeling of the office, to do that, we needed to clear out a couple of old file rooms that were wall to wall paper, much of which were dead files….e.g., paper from over 10 years ago or more, clients long gone, businesses long defunct, you get the drift.. Long story short, it amounted to 3,214 pounds of worthless paper. Called the shredding company to come in and got dinged for $482 for disposing all. Not to mention the square footage of useable space this paper was taking up or the cost of the reams of paper to begin with (or if we want to go greener, how many trees!)

So, if you’re wondering if there are monetary virtues to going paperless, well….this will be one of the last times we have to shell out that much $$ to shred weight like this load! Plus the staff will be happy with their new break room in the end!

Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email!

Credit Card processors will now be issuing 1099′s to merchants

CPAsteve — Thu, 08 Jul 2010 15:10:55 +0000

Making it a little harder for small businesses, the Internal Revenue Service has issued proposed regulations, starting with transactions in calendar year 2011, when the gross amount of payment card and third-party network transactions is to be reported annually by the credit card and 3rd party providers to the IRS.

Of special note, is that this also includes payments from 3rd party networks, such as PayPal and actually goes beyond credit card transactions. PayPal will now be required to notify the IRS whenever I sell an item on EBay and get paid with PayPal.

This is viewed as totally separate from the 1099′s that you would currently receive if you were a service provider e.g. it’s now possible that you could receive TWO 1099′s for the same service. If my business paid you $1000 to repair my truck, and put it on my credit card, I am required to issue you a 1099-MISC. In ADDITION, my credit card processor is also required to issue you a 1099-K for all credit card payments that you have received.

We also anticipate there will be a new line when reporting your income on your tax returns whereby you will need to separate cash payments from credit card or 3rd party payments.

So, if you’ve been ignoring your PayPal transactions when it comes time to prepare your tax return, it may be time to think again.

Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email!

Avoid hiring mistakes with your New Hampshire small business

CPAsteve — Wed, 30 Jun 2010 15:00:29 +0000

As the economy starts to pick up, many New Hampshire businesses eye hiring new staff.

Challenges that merely annoy an established firm often capsize a start-up company. This is especially true in the area of staffing. When a big corporation makes a hiring mistake, the company suffers, but survives. Committed by a fledgling firm, the same mistake may spell disaster. After all, if your company employs only five people, one wrongly hired employee will make up a fifth of your work force. That person’s incompetence or poor people skills can bludgeon the firm’s bottom line. Avoid these blunders and you’ll be well on your way to building a productive team:

Staffing the firm with friends and family. While this strategy may work in some circumstances, hiring pals and relatives often spells trouble. For one thing, friends and family members often expect – even subconsciously – to be treated differently from other employees. Such a double standard, whether real or perceived, can hurt morale and productivity. As a general rule, hiring decisions should focus solely on the needs of the firm and applicant qualifications.

Trusting in a handshake. Memories fade. Expectations fluctuate. As with other important aspects of your business, employee arrangements should be laid out in writing. This can be as simple as drafting employee offer letters that cover compensation, rights to intellectual property, and bonus arrangements. Employee handbooks are also a good way to spell out the responsibilities of the firm and its staff.
Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email!

All small business owners must now issue STAPLES and other vendors a 1099 for all their purchases each year!

CPAsteve — Thu, 24 Jun 2010 15:00:19 +0000

A flood of new tax paperwork is coming.

In the Health Care bill recently signed by Obama, all companies will have to issue 1099 tax forms, not just to contract workers, but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.

Businesses will have to issue millions of new tax documents each year. So, if you buy more than $600 from Staples for office equipment, the law also requires that your small business issue Staples a 1099, in order that the government can be sure that Staples reports all their income. Don’t forget too, if you use your vehicle for business and buy all your gas from 7-11, then you better prepare yourself to ask the clerk at the counter for the Federal ID for 7-11 if you pay 7-11 more than $600 for gas in a year.

The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations. Taken together, the two seemingly small changes will require millions of additional forms to be sent out.

And if you think the big headache is that you’ll have to send 7-11 or Staples a 1099, think again! This will be a data collection nightmare, since all small businesses will need to be gathering names and taxpayer identification numbers for every payee and vendor that you do business with. Many joke that the only ones who will benefit here are the accountants, since we’re going to be spending a lot more time instructing clients on the gathering, input and printing out the 1099′s.

We are expecting further clarification from the IRS on this new rule, and will keep you posted as we hear.

Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email!

New Hampshire LLC Owners who paid the LLC tax Should Consider Filing A Claim For Refund Before It’s Too Late

CPAsteve — Tue, 15 Jun 2010 15:00:27 +0000

If you have paid to New Hampshire the Interest / Dividend LLC Tax, then you may be able to get your money back, but only if you act by August 15!

In a recent newsletter of Devine, Millimet & Branch Professional Association, Attorneys at Law , they say, in very simple terms:

The Governor has repealed the ‘LLC Tax’, but for beginning in 2010 only. This is not retroactive to it’s original inception on January 1, 2009, which leaves businesses still owing the LLC tax for 2009.
There is a court case going on that challenges the constitutionality of the LLC tax. If the case proceeds to find the law unconstitutional, New Hampshire provides taxpayers with just one hundred and twenty (120) days from the due date of a tax, in most cases April 15, 2010, to file a claim for refund on the basis that it is unconstitutional.

So act now to claim your refund. How do you know if YOU paid this tax? Well, hopefully your accountant discussed this with you. But you would have filed a New Hampshire Interest/Dividends Tax Return that would have included an LLC dividend from your LLC business.

Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email!

New Hampshire Governor repeals controversial LLC Tax

CPAsteve — Fri, 11 Jun 2010 01:30:18 +0000

Governor John Lynch signed a budget balancing bill into law Thursday, according to the Manchester Union Leader, saying it is a sensible and responsible answer to the state’s fiscal problems.

The Interest/Dividends tax on LLCs (limited liability companies), passed late in the 2009 legislative session, has been eliminated, presumably effective January 1, 2010, leaving us with this one year of murky taxes since the ‘LLC tax’ became law effective January 1, 2009.

Details are limited, and we haven’t heard word if anything was addressed with respect to reasonable compensation. The reasonable compensation issue has been in the code for many years and recently came to the surface as part of the LLC tax controversy. There really isn’t any safe harbor to use in the preparation of New Hampshire Business Enterprise or Business Profits tax returns.

Interestingly, this should close this chapter, but if you have a business and find yourself paying a lot of Interest/Dividends tax even before this controversy, and wonder whether your current accountant is totally up to speed on the New Hampshire taxes, you should consider consulting with a New Hampshire expert to help you wade through this murk.

Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email!

So much paper to claim the existing homebuyer’s credit

CPAsteve — Wed, 09 Jun 2010 15:00:35 +0000

Back in March, I explained the existing homebuyer’s credit. I’m sure everyone read it, of course.

Well, my girlfriend happened to sell her house in April, 2010, and was able to buy a new property. So this morning, I found myself in a myriad of paperwork to get her credit.

First off, since she wanted the $6, 500 NOW , she decided she wanted to Amend her 2009 tax return rather than waiting for her 2010 tax return to be prepared, a really nice option since the IRS has indicated that since this is a refund of her 2009 taxes, she’ll get interest too!

Have you ever amended a tax return? Well, the IRS has now made a newer version of 1040X, the forms you use to amend your tax return. To do an amended return, you first have to redo your 1040 tax return. So, we prepared form 5405 being very careful to make sure we documented that she purchased the house in May 2010, and that even though it was AFTER the April 30, 2010 date for getting the credit, we had a Purchase and Sale document in April 2010 for the purchase.

We then went through the myriad of calculations on Form 5405 to come up with $6500 for the credit., but we were no where near done.

Then we had to take the ‘corrected totals’ from our ‘new’ tax return, and put that on Form 1040X, the amended tax return. Fortunately for us , we had a pretty good idea given all the press, of just what the bottom line is going to be i.e, we want the government to send us a check for $6500. What’s not so intuitive, is that we needed to show on the 1040X the $6500 as a ‘payment’ along with the $1400 Education Credit that we had included on her original return. But we got through it. I am an accountant, you know…and I’ve got pretty good software to make the job a little easier too.

So now we have this 1040X Amended return completed, and we have to attach her entire revised 1040 as well, so we have about 35 pages of paper, and yes it needs to be paper because the IRS won’t accept any returns for these credits via electronic means..apparently a little too much fraud…

The IRS wants my girlfriend to prove everything. So now we have to attach the TWO page SIGNED HUD statement, the 6 page SIGNED Purchase and Sale Agreement, and copies of her tax bills for the last 8 years. Since she didn’t have copies going back that far, she obtained a statement from her town that showed all her real estate taxes being paid. Lastly, her named had changed in the interim, so we had to include signed documentation helping establish that the name on her tax bills is the same person buying the property.

With luck, she’ll see her $6500 refund check in a couple of months.

Now, I prepared all this for her, but honestly, I have no idea how someone who doesn’t completely understand how the tax return system works would be able to do this. To claim this one credit, she mailed a 50 page document to the IRS.

If you qualify for this credit, and would like some help, we can do yours too.

Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email!

Are there any tax breaks if my child works for me this summer?

CPAsteve — Tue, 08 Jun 2010 15:00:02 +0000

Is your child looking for a job this summer? If so, you both may have questions about taxes. Here are three common concerns:

Are there any tax breaks if my child works for me? You can take a business tax deduction when you pay a reasonable wage for work your child performs in your business. If your business is a sole proprietorship or a partnership you and your spouse operate, and your child is under age 18, you don’t have to pay social security, Medicare, or federal unemployment taxes. The child’s wages are subject to income taxes, and may also be subject to workers compensation insurance, and a W-2 will need to be filed at the end of the year.

Is a tax return required? The answer depends on several factors, including the total amount of income received. For instance, if wages are the only source of income, your child can generally earn up to $5,700 during 2010 before a federal tax return is necessary. However, unless your child can claim an exemption from withholding, a return may be required even when wages earned are lower than the filing requirement. That’s because filing is the only way to claim a refund of overpaid taxes. In addition, self-employment income, tips, interest, dividends, and stock sales can affect the filing requirement.

Can my child open an IRA? Anyone under age 70½ who has earned income can contribute to a traditional IRA. There’s no age restriction for Roth accounts, though the amount of the contribution phases out at higher income levels (starting at $105,000 for single individuals in 2010). The maximum standard contribution for 2010 is $5,000.

Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email!