Building a Useful Budget

With any company, a budget is the bread and butter of running a successful business. The only problem is budgets are difficult to plan and maintain in the best of times. There is always unexpected events, cash flow problems, etc. that can cause a collapse in the budget. Being able to formulate a successful budget the will take you through the years is an important tool to have in your arsenal that keeps your business successful and running smoothly.

Budgets are the most important part of your business. They set specific spending limits on your business to ensure you reach your profit goals established for the year.  It is a month-to-month road map that guides you though the year. Think of a budget as providing control over your money and looking out for your best interests. If done right is can help predict peak periods so you know when to add additional stock and how to handle sale volume.

Plan to visit your budget monthly to update and see what impact this will have on your income and profit. You can see places where you could invest money into to create a better impact on the market and see where the cash flow is throughout the business.

You budget can help you adjust to unexpected changes. If a client cuts back it will affect how your company is run. You will be able to adjust and predict how long it will take for your company to recover. It can also allow you to adjust in other areas to absorb the impact.

Once you have established a good working budget your can tie incentives to how well you can stay on budget. It is important to maintain a healthy budget and set specific parameters for making a profit and meeting payroll. A solid budget can give the business guidance and help see the trends for the future.

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New AICPA framework Unveiled

The American Institute of CPAs announced, in June, a new framework the will provide a new accounting option to help small- and medium-sized businesses provide financial reports for specific entities. These new options are not currently required by the US Generally Accepted Accounting Principles (GAAP), but they will help to streamline financial information reports for privately held, owner-managed businesses.

The new framework was developed by a group of CPA professionals with vast knowledge and understanding of the needs of private companies’ financial statements. While there has been some scrutiny over the new framework, it was designed to make it easier for small- and medium-sized businesses to produce accurate, reliable financial statements. These statements show the business’s profitability, cash availability, assets to cover expenses and concise disclosures. The framework makes it easier to the businesses to create reports for lenders, insurers, and other people who require financial statements.

To help create these reports, the framework uses a blend of traditional accounting and accrual income tax methods. By using the historical cost and target disclosure requirements, the report provides options for presenting the information to various entities. It reduces book-to-tax differences while expanding options for CPAs and other companies to provide consistent, cost-beneficial statements.

After a survey of 200 CPA firms, many of them were familiar with the new framework and half of them expected their clients would use the framework. With the option of the new framework, many companies will use it to help them have less complexity in their daily business. As the framework is used more, time will tell if it will be the best for the companies that use the new framework.

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Capitol Loss Deduction: Should it Reflect Inflation?

Over the years, the Internal Revenue Code has adjusted for inflation of many different tax incentives to help individuals cope with the negative effects of inflation. Congress selects these provisions and the annual change is driven by the consumer price index. One provision that has not changed is the capital loss deduction.

The capital loss deduction was established in 1976 and allows for a maximum of $3,000 in capital loss deduction each year, and has not changed since it was introduced. There are numerous reasons to explain why there is a cap on the amount of deductions, but it comes down to taxpayers being able to write off all losses, retaining the gain assets and defer taxation by selling them later. It would dramatically decrease the amount in federal tax revenue.

By using the consumer price index inflation calculator, in 2002, the maximum deduction would be around $9,500. Today the deduction maximum would be around $12,000, and if it was tied to inflation the maximum would continue to rise. This would eventually open up the opportunity for people to deduct all losses, or even sell at a loss and retain gained assets, which would defer taxation. This would greatly reduce the amount of federal tax revenue.

So what does this mean for taxpayers? Well, it means at this time, that the highest amount able to be deducted is $3,000. Anything over $3,000 that does not offset capital gains or deducted can be carried over to the next year. Many people argue that this system is has eroded the value of the deduction. However, the real question is can there be a regulation that would increase the amount deducted without undermining the amount of federal tax revenue?

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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A Resurgence of Outsourcing

The word “outsourcing”, in some instances, has a bad connotation, but for many it means being able to compete with other companies worldwide. The most basic method of outsourcing is using an external service provider to perform functions that the company does not want to perform itself. There are many ways that this can be done and not all of them mean sending business overseas.

There are two different types of outsourcing: onshore and offshore. When Company A has Company B, which is in their same country, complete the service, which is onshore outsourcing. Offshore outsourcing has two types, nearshoring and farshoring. For any company that is outsourcing to a company that is geographically close to them, but not in their country, they are nearshoring. Farshoring would be using a company that is not geographically close to them.

A company of any size can outsource. There are two sides to outsourcing—a service provider and a service buyer. To help companies find other companies for outsourcing the International Association of Outsourcing Professionals (IAOP) generates a list of the best services providers.

There is not an ideal way of outsourcing for any company. By looking at all the possibilities, finding the right solution for their company is possible, but first we need to know why a company outsources. The main reason is to reduce operating cost, but other reasons include assess to new skills or technology, and to make global operations more effective.

Companies that choose to outsource services are typically outsourcing IT, human resources, finance and accounting, procurements and facilities management. The biggest of those services outsources is IT. Many times the company providing the IT services has technologies that midsize to smaller companies do not have the money to invest in, and it make more economical sense to outsource it to a company that has the technology already.

Outsourcing in some aspect will continue into the future. There have been predictions that offshoring will continue to increase. With the increase of unemployment, many companies are looking at different cities in the US for outsourcing, but with wages still cheaper in other countries, outsourcing will be here to stay.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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Wealth Management Trends for 2013

With 2013 barely underway, trends for wealth management are undergoing a transition characterized by uncertainty and change. The change will affect everything from business models to how technology influences client relationships. Over the next few months, the changes develop how wealth management services are provided to clients.

A lot of the reevaluation will focus around operating and growth strategies, should companies acquire other companies or partners. The largest wealth management firms will continue to grow through acquisitions and internal building. Whereas the smaller to midsize companies may choose to grow through partners that provide resources that will help them remain current and competitive.  Wealth management firms will become smarter about running their business and become open to working with other companies that has the expertise help them deliver their services.

Along with growth, many advisors will begin to find a successor and groom them to take over their practice. It is important to ensure the longevity of their practice. Finding their ideal successor and connecting them with their clients’ children safeguards their practice from declining after they retire. By bringing in a younger successor, they will be able to establish their own client list, and prove to your established clients that they will be taken care of when you retire.

Wealth management services will also progress through the uses of technology. Larger firms will have an advantage of the newest technology and all that it can provide. Smaller firms that outsource to other companies for some technology needs are currently less efficient. However, there will be a move to efficiency. Many firms will be investing in technology to maintain or create effective ways of working for and with clients. Many firms will find themselves working from the cloud and have an “always on” connectivity through online access.

Overall, there are many transitions to come this year. Be proactive in how the year progresses and grow your business accordingly. Take the change as a positive and the uncertainty as a chance to find your way.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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Combating Fraud

In every business, the reality is that fraud can happen. According to the Association of Certified Fraud Examiner’s authoritative annual Report to the Nations, estimates that 5 percent of business revenue worldwide, or approximately $3.5 trillion, is stolen through fraud each year. With the magnitude of fraud, business owners need to be aware of how to help prevent fraud.

It is hard to prevent fraud, because fraud happens when an opportunity presents itself and a person is willing or can justify the actions. Funds can be siphoned off for decades before someone realizes what happened.

When looking for fraud, it is important to know that not all audits or compilation will be looking for fraud. It is not a protection against fraud. The best way to detect fraud is from inside the company through internal controls. By completing an audit of your internal controls, a company can find their weakness and put in place monitoring systems that will discourage fraud. One way some companies have found that have been effective is a hotline for reporting dodgy dealings. Almost 40% of fraud cases are find this way, and training and hotlines do not cost much to establish.

The face of fraud is also changing making it difficult to know where the vulnerabilities come from within the company. The fast pace of the technology can also create issues that could lead to fraud. Here are some technology rules that can help curtail fraud:

• Remind employees that they are at work and should not be using the computer for personal purposes
• Use stronger passwords that are less easily guessed
• Make sure that firewalls are installed for all computers, when using the internet
• Treat phones and tablets like a computer, make sure the virus protection is updated
• Keep track of where your technology goes and who is using it.
• When using the cloud, know what protection and assistance you can except in the event of fraud or legal action.

Overall, the most effective way to combat fraud is to make it clear that it is unacceptable and is not tolerated. Do not blindly trust any employee, set out clearly the expectations and rules of the organization, and remember that the attitude starts from the top down. Set the example for employees and they will rise to the standards.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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How to Reduce Internal Fraud

In all businesses, having effective internal controls is very valuable. How do you know that your practices are effective? What can you as a business owner do to deter fraud in your business? Having effective internal controls will help your business keep up with the fast pace of the changing business practices. The following questions can help companies examine their internal controls to help prevent fraud.

Which businesses need to protect themselves against fraud?

No company, big or small, is immune to fraud. All the companies that have experienced fraud have one thing in common: they did not think that they were susceptible to fraud.

Businesses, especially smaller businesses, require employees to perform multiple tasks are at a greater risk of internal fraud. Businesses that cannot separate “conflicting tasks” increase the chance of fraud. When these tasks are separated, perpetrators are required to work together to steal from the company, which is harder to do then a single person doing all the tasks.

In larger business with more staff, tasks are separate, but perpetrators will still look for loopholes in the system. When owners are lax with monitoring, and given the opportunity weaknesses are exploited.

What Condition Motivates Internal Fraud?

When a perpetrator meets poorly designed and monitored internal controls, fraud happens. Companies should work to design proper controls, and be attentive in monitoring their effectiveness. The controls should be adapted to changing practices in the business, and not be ignored when the business becomes too busy to implement them. Owners need to be aware of internal controls and make them propriety to deter employees who might commit fraud.

How Can Companies Prevent Internal Fraud?

To help reduce the chances for fraud, companies must take a “top down” approach. Modeling and exhibiting the greatest degree of integrity set the tone for the company. Owners that do not uphold any level of integrity with aspects of the company cannot expect their employees to do so either.

When assessing controls, companies should identify areas with the biggest risk. Implement controls to shore up vulnerabilities uncovered in the assessment. Have a certified CPA audit financial records and procedures to determine where weaknesses are in the company. If the CPA specializes in fraud, this is especially helpful in determining what controls should be implemented to prevent fraud. Controls should be monitored and review regularly to truly reduce the likelihood of fraud.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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Subtracting Holiday Bonuses From Company Accounts

As the holiday season comes around, businesses are providing year-end bonuses or holiday benefits to employees as an additional reward for hard work. The problem that many small businesses and companies face is accounting for the additional expense. Recognizing the appropriate accounting method is the key to providing bonuses and benefits during the holiday season.

Cash Bonus Accounting

The process of accounting for a cash bonus is relatively simple. Business owners or the appropriate department within a company must determine the bonus amount for each employee and record the bonus in a similar method as regular income.

Payroll departments or an outsourced service are informed of the bonus and make appropriate calculations for withheld amounts. The paycheck is then given to the employee through direct deposit or a check, depending on the normal method of payment.

The company accounting books will reflect the bonuses provided to employees as a company expense along with regular paychecks. Since the process of providing a cash bonus is similar to a regular paycheck, accounting for the special pay is not a complicated process.

Non-Cash Bonus Accounting

Although a cash reward or bonus is commonly provided to employees, a non-cash bonus is another option for business owners. Non-cash bonuses include the expenses of a company party, holiday hams given to employees or similar gifts that come from the company during the holiday season. Accounting for a non-cash bonus is a little more challenging because it is not subject to the same tax laws.

The appropriate way to add non-cash bonuses during the holiday season is through “de minimis” on IRS tax forms. It is included in the costs and expenses of a company, but employees are not taxed for the gift.

Any non-cash bonuses provided to employees are accounted as a company expense or liability. As a result, the business will pay less in taxes due to the increased expense from the holiday bonus.

Although the non-cash bonus is added as an expense to the company, employers need to use caution when providing de minimis bonuses. The IRS has limitations on the number and amount of rewards employers can offer. A large number of non-cash bonuses might result in paying more in taxes.

The holiday season is a time to offer bonuses and special perks to employees. The bonus is a motivation to continue working hard and is not difficult to add to company accounts. Bonuses for the holiday season are added to the company books as an expense, but the taxation requirements will vary based on the type of holiday benefit offered to employees.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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Defined Benefit Pension Plans

EmployeesSo what is a defined pension plan?

A defined pension plan is an employer commitment to pay its employee a specific benefit for life beginning at retirement. Typically, this monthly or quarterly check will continue until that person dies. Depending on the plan, other options that may be available, such as the survivor option, which allows a spouse to receive payment, or a lump sum payment.

What does this mean to you?

To determine how much an employer contributes, the most being $195,000, to an employee’s benefit plan the employer calculates the cost of future risks by taking into account the employee’s life expectancy, normal retirement age, possible changes to interest rates, annual retirement benefit amount, and potential employee turnover. Other factors that affect benefits are age, earnings, and years of service. This allows the employer to ensure that when the employee retires that there will be enough money to pay for the benefit promised.

When will an employee receive benefits?

That is what every worker wants to know. All vested (a specific number of years the employee has worked or contributed to the plan) employees will begin receiving benefits no later than 60 days after the end of the plan year if they have been on the plan for 10 years or they leave their employer. A retired employee that reaches the age of 65 or the specified age of retirement will also receive payments.

There are always some stipulations with any retirement plan. Some of them are:

  • Unless you have under $5000 vested, you cannot be forced to receive your benefits before you normal retirement age.
  • If you leave the company before retirement, your benefits are frozen and held in a trust until the age of retirement.

This all seems like a complicated system, and it can be, but just remember that a defined benefit plan represent an employer’s obligations to active and retired employees. It is your promise of retirement and the benefits that you will receive.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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What The Healthcare Tax Credit Means To Small Businesses

Pamela HalloranThe Small Business Healthcare Tax Credit was first introduced in 2010 to encourage small businesses and tax-exempt organizations to offer healthcare benefits to employees. The qualifying small business is allowed to claim this healthcare tax credit that could help reduce the yearly tax bill.

The healthcare tax credit is available to employers who are providing healthcare for employees on a continual basis as well as to employers who are first-time healthcare insurance providers.

Business Size Matters

In order to qualify for this healthcare tax credit, the tax-exempt organization or small business should have a minimum of 25 full-time employees who earn not more than, on an average, of $50,000 per year. A larger business will not qualify for this credit. According to the Department of Labor, an employee who works at least 30 hours per week for the same employer is considered a full-time employee.

How Much Credit Can Be Claimed

For tax years 2010 through 2013, a qualifying tax exempt organization can claim up to 25 percent of the employees healthcare cost. A qualifying small business can claim up to 35 percent of the health premiums paid for employees.

For 2014 and after, that credit will increase to 50 percent of those premiums for small businesses and 35 percent for tax-exempt organizations, creating a significant tax credit that is a win-win for both employer and employee.

Healthcare Tax Credit Stipulations

The Small Business Healthcare Credit is non-refundable, meaning that it can only be applied to the taxes due for that year. There is no refund check for this credit. However, if the small business or organization does not use all of the qualifying credit for that particular year, it will carry forward to the next year, through 2016.

In order to claim the Healthcare Tax Credit, a small business or organization must file Form 8941, known as the Credit for Small Employer Health Insurance Premiums. This enables them to list all employees, premiums paid, and will calculate the credit for which they qualify and are able to claim for that particular tax year. The amount should also be filed on Form 3800, a General Business Credit form as part of the business credits for that year.

In case of audit, all employers or organizations should have all supporting documentation on file, including receipts of healthcare premiums paid, copies of employee healthcare statements from insurance providers and all employee names, ages and dates of healthcare enrollment.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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