Free Accounting Tips & Tricks

Healthcare Overhaul or Insurance Overhaul?

noreply@blogger.com (David L. Hillary Jr., CPA, CITP, MBA) — Thu, 07 Jan 2010 21:23:00 +0000

I must have missed something in the “healthcare” bills that emerged from our government. I keep hearing that they are fixing healthcare, but all that I have seen, heard, and read is really fixing medical insurance. I have not seen anything that addresses the rising cost of healthcare. I only see forcing changes in insurance coverage.

From an altruistic viewpoint, I think that finding a way to provide insurance coverage to everyone or preventing insurance companies from declining coverage for pre-existing conditions is a noble effort. From a practical side, I cannot see how these efforts are going to stem the double-digit increases in healthcare costs from year to year.

I am certainly not an economics expert, but if one looks at the basic concept of supply and demand, costs will only increase with this plan. Having more insured people will increase demand and if supply does not increase, prices will go up. It would seem that the entire concept behind the legislation would only cause costs to increase and make it harder to obtain healthcare.

I can see some of the logic behind forcing everyone to purchase health insurance to some degree. It makes sense that more people paying into the pot will help to increase the amount of available funds. The problem arises when you consider the makeup of uninsured Americans. You have several groups, but how does forcing someone to buy insurance when they do not have a job or barely make enough money to pay for living and eating help them. I am sure that everyone would like to have coverage, but having shelter and sustenance should really come first.

I just have to wonder if it would make a little more sense for our government to try to deal with the issues that everyone can agree on before using overwhelming numbers to force changes that will not do anything to cut the rising cost of healthcare. They may consider creating their masterpiece just like an artist creating a sculpture…they chip away at a block of stone until they reveal the inner beauty. It will not happen with one swing of the chisel.

As a CPA, I may be a little biased, but I believe that if we put a bunch of accountants in a room and told them to make financial sense out of this mess, we would have a solution that makes fiscal sense instead of political nonsense.

Business Formations

noreply@blogger.com (David L. Hillary Jr., CPA, CITP, MBA) — Mon, 04 Jan 2010 20:11:00 +0000

Starting a small business is gaining in popularity in the aftermath of the economic meltdown. There are a number of things to consider as you start down the road to self-employment. Having the proper business entity is the best place to start and can save you from problems with risk and taxes down the road.

Many small business owners start as a sole proprietor. It is the easiest and least costly entity to use, but it has its problems. The formation only requires your name and your social security number and there is not a filing requirement. The problem with this entity is that you can run into problems with keeping your social security number secure and your risk exposure is high. You can obtain and EIN from the IRS to keep your SSN safe. If someone should choose to file a lawsuit against you, everything that you own can be at risk. You may also run into problems with a separation of funds. This will be critical when it comes time to file your tax return. You will file for your business using a Schedule C as a part of your Form 1040. You will also be responsible for payment of self-employment tax on a portion of this income.

If there are multiple owners, you can become a partnership. This is a lot like the sole proprietorship except that it has multiple owners and requires its own tax return. The tax return is a reporting return only. A partnership does not pay tax. The tax liability is passed on to each of the partners. There is some risk exposure as each of the partners can be jointly and severally liable for the acts of the other partners. You can also have personal risk for lawsuits filed against the business or its partners.

Another popular option is the LLC. The LLC is a good choice as it provides a separate entity with many of the same protections as a corporation, but it receives tax treatment like a sole proprietorship or a partnership. The entity must apply for and receive Articles of Organization from the State in order to exist. There is some personal relief from any lawsuits filed against the business. The tax returns for this type of entity can be filed as a sole proprietor if you are a single owner or as a partnership if there are multiple owners. It is a low cost option with a lot of benefit.

Becoming a corporation is the next option you may consider. You can choose to be a “C” or an “S” corporation. Selecting the “C” option is not a good choice for most small businesses, as it will cause double taxation to occur. Unless you are considering an IPO, you should really go with an “S” Corporation. This has all of the same features as a “C” corporation except that it is treated similar to a partnership for tax purposes. There are some other limitations as well, but they will generally not have any impact on the small business owner. Setting up a corporate entity is more expensive and requires more maintenance than the other options.

These are business entity options that you may want to consider. We tried to provide you with the highlights. Make sure that you consult a CPA or an attorney to ensure that you make the best selection at the beginning of the business start-up process. There is some cost, but it will save you a lot of time, money, and heartache later on. Having the right entity for your particular situation can save you from paying excess tax dollars and keep you protected. If you have questions about your options, let us know. We will guide you to the best solution for you!

End of Year Tax Tips

noreply@blogger.com (David L. Hillary Jr., CPA, CITP, MBA) — Mon, 28 Dec 2009 19:15:00 +0000

End of Year Tax Tips

I am sure there are very few people who wish to make gifts to our Federal or State governments, but if you do not pay attention to your tax planning, that is exactly what you will do. Our tax laws and deductions change constantly and even more so during our current economic woes. The Federal government has put a number of tax breaks and credit in place during the past year. There were over 128 tax changes in the Economic Recovery plan alone. Here are just a few areas you might want to consider.

Defer income or accelerate deductions – Where you can legally do so, defer as much income into 2010 and take all of the deductions that you can during 2009. You may consider making your January mortgage payment early so that the interest is included in 2009. In some states, you may be able to pre-pay your property taxes.

Buy a new car – If you are considering a new car, you may still be able to deduct the sales taxes. There are still tax credits available for purchasing hybrid vehicles.

Buy that new home – The $8,000 first-time homebuyer’s credit and the $6,500 existing homeowner credit can be claimed on your 2009 tax return as long as you close before April 15.

Improve your home – You may be able to claim up to $1,500 for making energy efficient improvements to your home like windows, doors, or heating systems.

Save for college – Many states allow deductions or credits for contributions to 529 College Savings Plans. If you are planning to help your child or grandchild with college, this is a great way to set something aside and save on your taxes at the same time.

Education Expenses – For those of you experiencing education costs currently, you have a replacement to the Hope Scholarship Credit called the American Opportunity Tax Credit. This increases the credit to $2,500 from the old $1,500. You may even wish to shop early for school supplies that will be eligible for the deduction.

Charitable Giving – If you want to make a donation, you must do it before the end of the year to be deductible for 2009. You can donate household goods or clothes in addition to monetary donations. If you make a donation over $250, a written receipt is required. It is a good practice to get a receipt for all of your donations. If you make a donation using your credit card, you can deduct it for 2009 even if you pay the card in 2010.

Gifts – If you want to give gifts to friends or family, you can do so for 2009 up to $13,000 for each person without having to worry about the tax consequences.

Medical Expenses – If you have medical expenses paid during 2009, they will be deductible if they exceed 7.5% of your adjusted gross income. If you are close to this limit, you may want to accelerate payments to providers that will be due next year or even consider buying those glasses or get that dental work you have been putting off.

Retirement Plans – Try to maximize your contributions to your retirement plans. This helps in two ways. It will reduce the amount of tax that you will be required to pay. It will also reduce your adjusted gross income, which in turn makes the threshold for some deductions lower. (Like the 7.5% medical expense deduction threshold)

Business Losses – If you have a business and sustained losses, the carry-back period has been extended from two years to five. There are special forms created by the IRS to take advantage of this loophole. Make sure to check with your tax advisor. (Or, just contact us at www.hillarycpagroup.com)

Forgiveness of Mortgage Indebtedness – If you are one of the many unfortunate individuals and families that have lost their home due to foreclosure or if you had debt forgiven as part of a workout plan, you can receive tax-free treatment on the debt through 2012 on. Make sure to check with your tax advisor to ensure your eligibility.

Disclaimer: This article is designed to provide you with tax information that could possibly be of interest to you. This information should not be considered accounting, tax, legal advice, or the performance of any legal, accounting, or other professional service. Obtain the services of a competent professional person if you require accounting, tax, legal advice, or other expert assistance.

Budgets and Projections

noreply@blogger.com (David L. Hillary Jr., CPA, CITP, MBA) — Fri, 11 Dec 2009 22:31:00 +0000

Every time that we mention the word “BUDGET” to people, they seem to get a look on their face that looks like they just swallowed a lemon. It is good to realize that a budget is one of the best tools that you can have for your personal or business finances.

One of the biggest misconceptions that we see is people thinking that they are locked into what the budget dictates. This cannot be any further from the truth. A budget is merely creating a roadmap or plan to show you the path to achieving your financial goals. Remember the old adage…”A failure to plan, is a plan to fail.”

I do not know how many times we have heard small business owners say… “I am working my tail off, but I am just not making any money. “ It is usually because they do not understand how their money is flowing through their business. They had a great idea, but just did not consider the real costs of running their business.

Creating a budget can be as simple or as complex as you want it to be. A budget can be as simple as identifying how much money you expect to come in each month, how much is expected to go out, and what is left over. To make a budget work best, it really should have a bit more detail.

Take a little time to think about the income and expenses that you can anticipate. How many widgets do you realistically expect to sell? How much does it cost me to make a widget? What will I be paying in rent, utilities, wages, and even office supplies? Be honest with yourself. The budget is for your eyes only if you wish.

Armed with this information, you will be able to perform a couple of incredibly powerful business analysis tasks. The first will be a budget variance report and the second will be to make projections or “what if” analyses.

The budget variance report will tell you how you performed compared to what you thought you would do. You might expect to sell $1,000 dollars of widgets each month. Maybe you expected to spend $500 dollars to make the widgets and pay all of your other expenses. When the month is done, you can compare the actual results to what you budgeted. You will see where things are different and make adjustments accordingly. This will provide you with a glimpse into the future where you can make changes to your expenses before it is too late or seize opportunities if they present themselves.

Making projections or performing “what if” analyses can be very valuable. You may discover that you can sell many more widgets if you had them available. You might have discovered that there is a great market for widget accessories. You will be able to use the budget you created to make changes to the income and expense items to see what happens if you sell more widgets or add a line of widget accessories. This will let you see what happens to the cash flow of your business before you get started. You might discover that adding the widget accessory line does not make much sense because it will tie up your operating cash, buying inventory.

As always, we are giving you the highlights. If you really want to get started down the right path, let us help you. Getting the right help before you encounter problems is the best way to avoid them.