2011 Business Taxes Add Complexity

Still scrambling to prepare your 2011 taxes? One thing you don't have to worry about is a lot of changes in the income tax code for businesses. It was a fairly quiet year.

 The biggest news, of course, was the introduction of the 1099-K form. This must be filed by payment settlement entities, which are financial institutions that issue credit cards, as well as third-party payment processors like PayPal.

 If you accept payment using one of these entities and have processed $20,000 or more and at least 200 transactions in 2011, you should have received one, or will soon, and you must file it with your taxes like you would any other 1099.

Several forms and schedules have been altered to accommodate this. Only gross amounts will be reported, so you need to have an easy way to track transactions that could affect this total (like chargebacks).

 Other changes? A few, including:

• The 1099-B has changed. Brokers are now required to report the basis for transactions, which you'll enter on the new Form 8949 rather than on the Schedule D.
• The New Hire Retention Credit may affect some of your employees, if they've been kept on for at least 52 weeks. You would get $1,000 or 6.2 % of the newly-retained employee's wages for that year, whichever is less.
• The upper limit for the Section 179 deduction is $500,00 for the 2011 tax year. It goes down again for 2012.

You may be too mired in 2011 taxes to even think about your 2012 obligations. But you'd be wise to start thinking about them now. Year-round tax planning will minimize the drama of those dreaded IRS deadlines. Congress will undoubtedly be busy throughout 2012 and beyond, tweaking the tax code. So talk to us about making smarter tax-related business decisions in 2012.

Beth Bockenhauer is the owner of Beth Bockenhauer, CPA, a boutique accounting and CPA practice based in southern California. She started her career with five years of military service. She then worked for ten years as a small business owner, and holds a Bachelor of Science degree in accounting. Beth has worked in public accounting for the past seven years. For more information, visit www.bethbcpa.com

5 Ways to Increase Cash Flow and Profits

Want to increase cash flow and profits for your business? Well, I’ve got five must-haves that you need to pay attention to in order to achieve these goals.

1 – BUDGET. - Do you know how much it costs monthly to run your business? Do you know how much your business’s annual deferred expenses total? Are there areas of spending within the company, that if monitored would reduce costs and increase profits?

Putting in place a comprehensive budget forces you to prepare a formal statement of financial resources that are available for carrying out the business’s operations. A budget also creates synergy between all the activities within your company. An accurate budget will have sub-budgets that will be focused on achieving company goals. For example: a marketing budget that is focused on growth or a technology budget that is focused on efficiency. Monthly analysis where the budget is compared to actual will enforce key individuals to exercise control and monitor spending.

2 - TAX PLANNING. –There are many tax saving advantages available to businesses and if you do not plan ahead, you may end up paying more tax than necessary. For example: bonus depreciation is available for new automobile purchases; however, this benefit will sunset at the end of 2011. What if you were in the market for a new company automobile but were delaying the purchase until 2012? Tax planning would allow you to analyze the tax savings available if you were to purchase the company car in 2011. This type of planning could reduce your tax bill by thousands of dollars!

3- PERSONAL PLANNING. – This really speaks to individuals who have “closely held companies”. Can you afford your personal lifestyle? Or should I ask, can your company afford your personal lifestyle? Does your company have a retirement plan in place? If so, is it tailored towards your personal retirement goals?

Retirement planning is one of the best legal tax shelters available for a closely held company. Usually for each dollar socked away there is a 40% tax savings; for every dollar contributed to a qualified plan the company may save forty cents in taxes. What a great way to secure your retirement and increase cash-flow.

4 – BUSINESS PLAN. Take the time to write a business plan. A well thought out plan will be a reference point that details the company’s growth strategy and will at minimum include: sales forecasts; the marketing plan; and a product/service mix. A business plan will set measurable milestones and deadlines keeping you focused on the big picture as you achieve the steps necessary to bring that picture to life.

So, how does a business plan create cash-flow? It will force you to think more analytically about your business. By understanding how all the different elements of the business need to “synch” you may realize you have processes in place that don’t allow for growth or need to be retooled to increase market share and profits. Also, since the plan will require you to prepare a sales forecast; a set of financials; break even analysis; and past performance analysis (if you are not a start-up), you will have an intimate understanding of the resources required. Resources will less likely be squandered since they are earmarked for greater success!

5 – PROCESSES. The biggest “time suck” and “profit suck” can be from lack of OR broken processes. Take the time NOW to write down the three processes in your business that if tooled or retooled would have one or all of the following results:

• Incrreased profits by lowering direct or operation costs
• Increased customer satisfaction
• Increased business integration
• Increased competitive edge

I personally have a few processes to be retooled written on my whiteboard.

Which profit-increasing tool will you be implementing?

Beth Bockenhauer is the owner of Beth Bockenhauer, CPA, a boutique accounting and CPA practice based in southern California. She started her career with five years of military service. She then worked for ten years as a small business owner, and holds a Bachelor of Science degree in accounting. Beth has worked in public accounting for the past seven years. For more information, visit www.bethbcpa.com

1099 MISC – Reporting Requirements & How-to in QuickBooks

On December 15th the Senate passed the 2010 Tax Relief Act and extended the Bush-era tax cuts. However, the House still needs to knock heads for approval. So, I am holding off on presenting the effects of the Tax Relief Act until it has “officially” passed.


Since I get a lot of calls in January about 1099’s MISC, I decided that this would be a great topic for year end. For those who don’t know, a 1099 MISC is a tax form used to report miscellaneous income, including income earned as an independent contractor.

To begin the process, you must obtain a completed W9 from the individual who will be receiving the income. Ensure that the name is the individual’s name, not the business name. The business name has a separate line. However, the business would be correct for a partnership, limited liability company or corporation.

Who gets a 1099? Individuals, partnerships and most limited liability companies would be candidates if they meet the income criteria. S-Corporations and C-Corporations do not generally receive 1099s.

Due dates for the 1099-Misc are:

To the Recipient – File Copy B is due January 31. This due date is extended if you are reporting payments in boxes 8 or 14.

To the IRS – File Copy A is due February 28. If you file electronically, the due date is March 31. To file electronically you must have the appropriate software.

You can order 1099 forms from the IRS and they are FREE!

Box 1 – Rents $600.00 or More:

For real estate rentals paid for office space, machine rentals.

Box 2 – Royalties $10 or More:

For gross royalty payments made, which are usage-based payments made by the Licensee to the Licensor for use of intangible property (music, intellectual property, franchise payments).

Box 3 – Other Income $600 or More:

For award money or merchandise (report at fair market value), sweepstakes prizes or game show winnings received. This would not be used for reporting gambling winnings; a W2G is the form used to report those winnings.

Other Income would also include monies received for participating in medical research studies, punitive damages. There is actually a comprehensive list on the IRS web site..

DO NOT include in box three payments made for services received. This is considered non-employee compensation and would be reported in box 7.

Box 7 – Nonemployee Compensation $600 or more

For someone who is not your employee that you paid for services in the course of your business. This non-employee can be a sole proprietor, a partnership, a limited liability company (LLC) or an attorney. Examples of payments made that would be subject to non-employee compensation reporting would include:

Professional Services: This is your independent contractor: accountants, architects, consultants, computer guy/gal, cleaning person, coach, etc.

Travel reimbursements: Paid to an independent contractor (IC) and IC did not report the expenses under an accountable plan. An accountable plan is when an expense report is completed and receipts are presented for reimbursement.

Bartering of services between individuals in the course of their business: For example, I hired my client, ABC Flooring to install a new floor in my office. In exchange I will prepare his/her tax return. No money is exchanged, but this still holds as a reportable event.

Fringe Benefits to ICs: This may include a company car, health insurance, life insurance, free services, etc.

Legal Services: All attorney fees are reported regardless if the attorney is a corporation.

I only listed a few of the many reasons why you would report non-employee compensation on a 1099. Here is a complete list.

Box 14 – Gross Proceeds Paid to an Attorney

Report all gross proceeds made to an attorney during the course of your business even if the attorney is a corporation. Gross proceeds are different than fees in that gross proceeds are paid when a lawyer wins a settlement (the attorney’s cut).
As you can see, I did not cover every box on the 1099. For comprehensive instructions, visit the IRS web site.

Beth Bockenhauer is the owner of Beth Bockenhauer, CPA, a boutique accounting and CPA practice based in southern California. She started her career with five years of military service. She then worked for ten years as a small business owner, and holds a Bachelor of Science degree in accounting. Beth has worked in public accounting for the past seven years. For more information, visit www.bethbcpa.com