Work-Related Education Costs May Be Deductible

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Are you going to school this fall to earn an advanced degree or to brush up on your work skills? If so, you might be able to deduct what you pay for tuition, books, and other supplies.

If you’re self-employed or working for someone else, you may be able to claim a deduction for out-of-pocket educational costs if the training is necessary to maintain your skills or is required by your employer.

Just remember that even when the education meets those two tests, if you’re qualified to work in a new trade or business when you’ve completed the course, your expenses are personal and nondeductible. That’s true even if you do not get a job in the new trade or business.

Work-related education expenses are an itemized deduction when you’re an employee and a business expense when you’re self-employed. You may also be eligible for other tax benefits, such as the lifetime learning credit.

For more information, please contact our office.

Take These Steps to Help Prevent Fraud in Your Business

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How can you prevent employee fraud in your business? Here are four suggestions.

  • Screen job applicants. Check work references, criminal records, and professional recommendations. By instituting a screening policy, you may save a lot of cash and grief. Just remember to treat every applicant equally, and get written permission for background checks.
  • Reconcile bank accounts. A standard and simple internal control is to separate employees who pay bills and make deposits from those who reconcile accounts. As an owner, making time to personally review deposits and disbursements on a regular basis can deter fraudulent billing or cash skimming schemes.
  • Secure inventory and supplies. This can be as simple as regularly changing combinations on warehouse doors or locking supply cabinets. Laptop computers are especially vulnerable to theft, so make a priority of securing them.
  • Get a cash control review. Having a trained set of eyes inspect your books, records, and operations can pay for itself many times over. Skilled auditors can ferret out scams and help your business develop stronger controls against criminals, both inside and out.

If you’d like assistance with this or any of your business concerns, give us a call.

Good Debt, Bad Debt: What’s the Difference?

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Here are two questions to ask before incurring debt.

  1. What are the benefits of taking on this debt? Avoiding all debt seems like good advice. But good debt can enhance your financial situation. For instance, loans that fund a college or graduate degree may result in a higher salary. That’s debt with a lasting, tangible benefit.

Likewise, a mortgage for a home or rental property can increase your wealth by providing the opportunity for growth of capital and income.

Good debt can also have secondary advantages, such as the potential for tax deductibility of interest on student loans and home mortgages.

Bad debt, on the other hand, generally strains your cash flow without providing an offsetting advantage.

  1. Does the cost exceed the benefit? As a general rule, good debt provides a return greater than the total amount you’ll end up paying. Caution: Remember that your total outlay will be the stated price plus finance charges. For example, suppose you need to buy a car. A moderately priced vehicle financed with a short-term loan can still have value when the payments end. That falls within the definition of good debt. But with longer terms of five to eight years, your loan might outlast the car. High interest rates and the longer payback period on “stretch” loans can bump your total outlay into bad debt territory.

Credit card debt poses the same peril. Charges you intend to pay back in full at the end of the month may not be a problem. But a restaurant meal, a vacation, or a holiday splurge can get expensive once you include the interest charged when you carry a balance on your credit card.

Good debt or bad? Recognizing the difference can lead to better money management, and a way to improve your financial situation.

For Business Profitability, Understand the Law of the Vital Few

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How well do you know your customers? Which ones are the most profitable? Which ones take most of your time? Finding the answers to these questions can be worthwhile, because you may discover that the 80-20 rule, also known as the law of the vital few, applies to your business. The rule is a shorthand way of saying 80% of your profits come from 20% of your customers.

If you can identify that top 20%, you can focus your efforts to make sure this group remains satisfied customers. Sometimes all it takes is an appreciative phone call or a little special attention. Also, by understanding what makes this group profitable, you can work to bring other customers into that category.

Keep in mind that it’s not always profits alone that make a good customer. Other factors, such as frequency of orders, reliability of the business, speed of payment, and joy to deal with are important too. Ask your accounting staff and your sales staff. You’ll soon come up with a list of top customers.

There’s another way in which the 80-20 rule applies to your business. Very likely, 80% of your problems and complaints come from 20% or fewer of your customers. If you identify those problem customers, you can change the way you do business with them to reduce the problems. Consider changing your pricing for those customers so you’re being paid for the extra time and effort they require. Sometimes the only solution is to tell these customers that you no longer wish to do business with them.

The bottom line is that understanding your customers better will improve your business.

Accountable Plans Are a Win-Win Business Idea

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Are you looking for a way to give your employees a tax-free benefit that is also tax-deductible for your business? Consider an accountable plan. These arrangements let you reimburse your employees for expenses incurred on behalf of your company, such as driving to the post office or office supply store. With a properly administered plan, you can deduct the reimbursements on your business tax return, yet the payments are not considered income to your employees.

How can you make sure your plan qualifies? Here are three requirements.

  • The reimbursements must be for allowable business expenses. For instance, you can repay employees for hotel and other travel expenses when traveling to a trade convention.
  • Your employees need to keep records of the expenses, and provide those records to you.
  • If you pay or advance your employees more than the actual amounts spent on business items, the excess must be returned to you. Amounts not returned are income to your employee, and are subject to payroll taxes.

Contact us to discuss your policies for repaying employees’ business expenses. We’ll help you make your plan accountable.

Don’t Be Forced Out of a 401(k) From Your Former Job

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When you change jobs and abandon vested amounts in your 401(k), your former employer has to follow IRS rules and plan provisions for dealing with your account balance. Pursuant to these guidelines, the 401(k) plan may have a “force-out” provision. That means when your vested balance is less than $5,000, you can be forced to take your money out of the plan.

Your former employer is required to give you advance notice of this rule so you can decide what to do with the money. Your choices are to cash out your account and receive a check, or roll your account balance into an IRA or your new employer’s plan.

What happens if you fail to respond to the notice? If your vested balance is more than $1,000, your former employer must transfer the money to an IRA. For balances under $1,000, you will either get a check or your former employer will open an IRA on your behalf.

Neither outcome is optimal, according to a report by the U.S. Government Accountability Office. If you receive the money, you’ll owe federal income tax. When the balance is transferred to an IRA, account fees may outpace investment returns and your balance will be eroded over time.

Protecting assets you worked for and earned is always a smart move. Call us for assistance.

Start Preparing Now for New Overtime Rules

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In May, the U.S. Department of Labor updated the rules for paying overtime.

Under the new rules, salaried employees who earn less than $913 per week ($47,476 per year) will be eligible for overtime pay. That’s double the annual exempt amount of $23,660 under current rules.

The changes take effect December 1, 2016, which means you need to begin reviewing your payroll now, as penalties and fines can be assessed for noncompliance.

One important step is to begin tracking hours for your salaried employees.

Contact us if you need assistance in this area.

Follow These Suggestions for Better Pricing Decisions

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The prices you set for your products and services affect every aspect of your business, including long-term viability, short-term profits, market share, and customer loyalty. While the guidebook or financial guru who can provide the perfect answer to this important decision doesn’t exist, tried-and-true principles can help. Here are three suggestions to arrive at reasonable pricing for your market and industry.

Cover costs. The price you charge for a particular product must at least equal the cost of producing that product. Depending on your industry, production costs might include raw materials, storage, salaries, advertising, delivery, rent, equipment, taxes, and insurance. Some of these will be categorized on your income statement as “cost of goods sold.” Others will be overhead. Some, such as rent and utilities, are relatively fixed. Others are variable, such as shipping and stocking fees. Adding the amount of profit you want to earn as a percentage (called the cost-plus pricing method) is one way to arrive at an appropriate price.

Know your market. Some businesses hire research firms to develop detailed reports on competitors, markets, and forecasts for a particular region or industry. But you may be able to get a handle on your market by using surveys and other methods of ferreting out customer perceptions about your product and service quality, the effectiveness of your advertising, and the reasonableness of your prices as compared to your competition.

Monitor regularly. Product pricing is not a one-time event. Instead, you’ll want to monitor the impact of price fluctuations on sales revenue over time. Overpricing – charging more than a reasonable buyer can be expected to pay – may limit sales. Underpricing may create the perception of poor quality or lead to unsustainably low profit margins.

Improve Productivity With Happy Employees

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Happy employees can have a positive impact on your operations, customer support, and profit level. Here are suggestions for keeping your workforce upbeat.

Lead by example. Demonstrate the personal discipline and commitment you hope to instill in your workers by showing up every day with a positive attitude.

Emphasize the link between attendance and productivity. Absenteeism is a symptom of unhappy employees. Help your employees understand the importance of the role they play in the success of the business.

Learn what motivates your employees. Conduct an online survey to learn if money, recognition, promotion, or time off drives your employees.

Enrich skill sets. Cross-training and job rotation can improve appreciation for overall business operations and mitigate boredom and dissatisfaction.

Create a time-off bank. Modify the traditional offering of vacation, personal, and sick days. Give your employees the responsibility and ability to balance work and home obligations by empowering them to manage total available paid time off.

Other suggestions for a healthy working environment and happy employees include celebrations and team building. While these “soft” methods may seem a distraction from everyday business, your employees will appreciate the effort and your business will profit from the resulting improvements in performance.

When Disaster Strikes, Will Your Business Be Prepared?

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Disaster preparedness involves answering the question: How would a disaster affect your business? If you’re not sure, it’s time to start planning. Here’s a quick look at how you can prepare beforehand, and what relief might be available afterward.

  • BEFORE DISASTER STRIKES

Identify key issues. Bring together managers of key areas and brainstorm on the critical steps needed to recover from a disaster. Consider at least two scenarios: a company-specific event such as a fire that affects only your business, and a regional disaster that affects the whole area. Since you can’t anticipate every need, your goal is to identify key issues and make basic preparations.

Establish a communications protocol. Think about how you’ll communicate with employees, vendors, and customers. At a minimum, each manager should have a contact list for key employees. Include phone numbers and personal email addresses.

Backup company records. Identify essential company records and know how you’ll access them. Make sure backups of your electronic information are stored in a safe location off-site. You may also need paper backups of certain key information in case of a power blackout. Create a master list of federal, state, and city tax information, bank account passwords, account number and login information, and insurance policy numbers.

Review your insurance. Meet with your agent and review the scope and dollar limits of your coverage. Discuss business interruption insurance. Make sure you understand your coverage.

  • AFTER DISASTER STRIKES

Apply for relief assistance. Know the steps required to apply for insurance reimbursements and federal disaster loans or grants.

Take advantage of tax breaks. Your business may qualify for a casualty loss deduction. If you’re in a Presidentially declared disaster area, you have the option of claiming the deduction against your prior year’s taxes for a faster refund.

Other tax benefits include extended due dates and penalty relief. Contact us for tax advice on your specific situation.