How Long Should I Keep my Tax Records?

Tax season is over and the inevitable question is…what do I do with all the paper I have been collecting the past three months?  The best answer is, keep a file with just tax information.  The IRS is only allowed to review your return for three years after it was filed, assuming they are not looking because of fraud or because you grossly understated your income.  In those cases, statute of limitations can last significantly longer. However, for most “Average Joe’s” or Jane’s, the three year benchmark is the sweet spot.  However, it’s probably best practice to keep returns for 4-5 years just as a precautionary measure.  Each year when you put your new return in the file, destroy (shred) the return and related documents from 4-5 years back.  Also, you can consider digitizing your returns and related documents on a thumb drive with other important documents. If you have complex returns and issues related to returns from specific years, consider keeping them at least 6 years.

Remember that your CPA is generally required to keep certain return information for you longer than you are required to keep it personally, under professional standards set by the state.  Mandatory archiving varies state to state, but in California it’s seven years.  Thus, even if you throw your return away from 4 years ago, your CPA likely has a copy (but don’t assume they do).

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Picking a Credit Card Processor

When you are starting a business, most likely you will need to consider taking credit card payments.  While there are a bevy of options at your disposal, some types better than others. The first thing you need to do is assess your business needs:

1.  Will you need a point of sale (POS) system?

2.  Do you expect frequent or infrequent use of credit card processing?

3.  What is the average sale you expect?

4.  What are your annual sales?

Many businesses get trapped into a traditional credit card processor which at times can be a mistake.  Traditional processors tend to be clunky and the fees they charge are hard to understanding even for the most experienced individuals.  If you don’t expect frequent use of the processor, you may want to stay away from the traditional processor; they charge you monthly fees whether or not you use the service and often require a multi-year contract.  Those fees can cost you up to $700 per year even if you don’t use the processor each month.

Alternatively, if your business is mobile, or requires infrequent credit card processing, think about using PayPal or Square for your credit card processing.  The fees as a percentage of the charge tend to be more than a traditional processor, but they also have options that don’t cost you anything monthly.  Both providers have options that allow you to charge cards in a mobile setting (using mobile phones and tablets).  Both have simple calculations for fees taken out of each charge.  Lastly, both provide an option that allows you to disburse money as well. With all these benefits, it’s no wonder why these services are becoming more popular by the day.

Research these services on your own to see what makes sense for your business. There are various calculators online that will help you with your decision.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Three Accounting Related Technologies for the next Ten years

Here are three services that will revolutionize accounting over the next ten years. 1.  Bill.com (www.bill.com) – Bill.com takes over your payable and receivable functions in a cloud setting.  Bill.com is billed as the “No-check” CEO software.  Why…because you can pay vendors by check, ePayment, or PayPal without ever touching a piece of payer.  Bill.com take over all the back of the house work….cutting checks, stuffing envelopes, mailing payments, etc.  It also tracks receivables, sends invoices (both by mail or email) and gives your customers online access to pay bills.  Best of all, it integrates with most major accounting software.

2. Xero (www.xero.com) – Xero is simple and functional accounting software that allows you to add functionality as your business grows.  Best of all, Xero is ever evolving.  Whereas many software companies are slow to update features, Xero releases new functionality each month and allow developers to add on their own programs.

3.  Square (www.square.com) – Square is the easy breezy payment processors for retail and businesses who need on site credit card processing.  For about $250 plus an iPad, you can set up everything need to set up a storefront.  With Square, there are no hidden fees, and not complicated processes.  Swipe a credit card, and receive your money next day.

With our fast paced technological world, its vital businesses are up on current trends.  Check out these services to see if they can help your business, or speak with a trusted accounting advisor.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Overtime Rules

In California, the general overtime provisions are that a nonexempt employee 18 years of age or older, or any minor employee 16 or 17 years of age who is not required by law to attend school and is not otherwise prohibited by law from engaging in the subject work, shall not be employed more than eight hours in any workday or more than 40 hours in any workweek unless he or she receives one and one-half times his or her regular rate of pay for all hours worked over eight hours in any workday and over 40 hours in the workweek. Eight hours of labor constitutes a day's work, and employment beyond eight hours in any workday or more than six days in any workweek is permissible provided the employee is compensated for the overtime at not less than: 1. One and one-half times the employee's regular rate of pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek; and 2. Double the employee's regular rate of pay for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek. There are, however, a number of exemptions from the overtime law. An "exemption" means that the overtime law does not apply to a particular classification of employees. There are also a number of exceptions to the general overtime law stated above. An "exception" means that overtime is paid to a certain classification of employees on a basis that differs from that stated above. Please refer to the State of California website at www.dir.ca.gov/dlse/faq_overtime.htm.

A question that comes up from time to time - Does the sentence above including the following language " she receives one and one-half times his or her regular rate of pay for all hours worked over eight hours in any workday and over 40 hours in the workweek" require the employer to pay for time and one-half for hours over the 40 in a week and 8 in a day? The answer is No. The overtime hours to be paid over the 8 hours are excluded from the total hours for the over 40 hours in the workweek.

For example, assume the employees works three 9 hours days, one 8 hour day and one 7 hour day for a total of 42 hours. Since the 9 hour days contain 3 overtime hours, subtract these 3 hours from the 42 to compute the overtime to be paid. In this case 39 hours are left, thus no hours over 40 are required to be paid.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Employee versus Contractor

The biggest factor in assessing whether an individual is an employee or contractor comes down to control.  If a company can dictate hours and schedule, the person is more likely to be an employee.  Does a worker wear a shirt with your company’s logo on it while visiting clients?  Then they are likely an employee.  Here are a few other guidelines. Control: Does the hired person work directly under the orders of others in a defined position? They are most likely an employee. However, if the person works separately on specific projects with little to no supervision or time constraints, they are more likely to be a contractor.

Reimbursement: An important difference between a contractor and an employee is the method of payment for services provided. If the paycheck is constant and includes benefits such as a pension plan and vacation days, the person involved is an employee.

Importance: The proximity of the hired person to your vital operation is a good indicator of hired status. Is the person working on a direct part of your business model required to complete the process? Are tools provided for the job? If so, the hired person is most likely an employee.

The difference between an employee and a contractor has important tax repercussions, and should not be ignored. For more information, read information provided by the IRS here.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Minimize Business Taxes Before Year End

Minimize Taxes before year end If you find that your Company has been profitable during the year and it is looking at a hefty tax bill after the year end, there are a few things you can do to minimize your businesses taxes.  Note however, that you should consult your CPA to determine if these action items are right for you.

1. Make payments - Pay all your payables and payroll before year end.  Remember, cash expenditures during the year qualify for deduction.  If you normally would run payroll on January 2, consider running that payroll on December 31 instead.
2. Prepay - Prepay certain expenses normally due on the first of each month.  Traditionally, recurring bills such as rent and insurance are due on the first of the month for the following month.  Take advantage of prepaying these items to push the deduction to the current year rather than the next year.
3. Buy equipment – Certain types of businesses can accelerate depreciation for tax purposes during the year of purchase.  For instance, if you have a construction related business and buy a qualifying truck, you can accelerate the depreciation on that truck and take the total value as a deduction to businesses income.

Remember that your businesses may have NOL (Net Operating Loss) carry-forwards and getting extra deductions in a given year may not be needed.  In addition, law changes can effect when and how you should spend money.  Contact your CPA to determine what is best for your company.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

IRS Makes Offer in Compromise Rules More Flexible

The Internal Revenue Service ("IRS") recently announced, under release IR-2012-53, that they were making the terms to accept offers in compromise more flexible under the expansion of their "Fresh Start" program. An offer in compromise is an agreement between the IRS and the taxpayer in which settles the taypayer's liabilities owed. The IRS makes the determination as to what the taxpayer is capable of paying through review of the taxpayer's current income and assets. Under the expanded program, the IRS in calculating the taxpayer's collection potential, will now look at only one year of future income for offers with obligations paid in less than five months, down from four years. For offers for repayment in six to 24 months, two years of future income will be reviewed, down from five under the previous program. All accepted offers of compromise must be paid within 24 months.

Other changes announced were: allowing taxpayers to repay student loans, pay stated and local delinquent taxes and expanding the Allowable Living Expense allowance category and amount. These amounts are used in calculating the taxpayers future income. See the release above for specific information.

The modification to the offer in compromise program will allow taxpayers in which are having a difficult time meeting their financial obligations to obtain some relief from the IRS. It is always best practice to contact an attorney or CPA prior to negotiating with the IRS. Please contact dbbmckennon for a free consultation regarding your options and look here for information if you are contacted by the IRS or any other government agency.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality professional services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Five Accounting Resolutions for 2013

Improving your company should be a constant effort.  Here are fie resolutions to make for 2013 to improve your company's accounting and business.

1. Outsource the work that doesn't benefit your top or bottom line – Business owners should not spend one, two, three or four or more hours a day doing administrative work that doesn't directly impact the company’s growth and future.  Business owners are the face of the company and shouldn't spend all their time behind a computer and a stack of paper.  Outsource the accounting work to a qualified accountant that can take over receivables, payables, and general oversight of the company’s accounting needs.  Use a payroll company that can also help you with HR related issues.  Don’t try to wear all the hats in the organization.
2. Review – Create a monthly or quarterly review process.  Review margins, receivables, payables, and cash forecasts.  Sometimes business owners aren't as profitable as they think they are.  You may get a great margin on a sale, but are you thinking about your overhead costs, how long the product sat on the shelf, etc?  Are your prices to low/high?  Your product/service may need price adjustments.  Reviewing these items regularly will ensure your company doesn't fall behind needlessly.
3. Automate – As your business expands, make sure that efficiencies are found where available.  Credit card processing, storing bank information for clients, or automating payments can assist in becoming more efficient.  Upgrading your accounting software or billing practices can also help.
4. Plan – Speak with your CPA a few times throughout the year not just at year end.   Planning with your CPA can help minimize taxes.  Planning expenditures, creating retirement plans, and taking advantage of certain deductions can all help minimize taxes.
5. Take action – Most resolutions never get off the ground.  Make a concerted effort to do at least one thing that will help your accounting in 2013.  The first step is usually the hardest!

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.