Archive for the ‘Small Business Finances’ Category

Under the new credit card laws, the government is removing some of the advantages for businesses that accept credit cards.

It used to be that retailers were unable to to offer discounts to customers using cash. Under the new laws, retailers may offer a cash discount for those customers who do not use a credit card. This means that many retailers will start offering anywhere from 2 to 10% discounts to those customers who choose to pay by cash.

What does this mean to you, the business owner?

Do you hate paperwork? Almost everyone does, but when it come to dealing with the Internal Revenue Service, you need to have all the proper paperwork and have all the i’s dotted and the t’s crossed.

When you operate as a corporation, the corporation is a separate legal entity from you, so you should have a corporate paper trail that clearly reflects intent and action. One area that can really be a minefield is accounting for monies paid to corporate officers, other than payroll.

Is it a Loan or a Dividend?

In one scenario, William H. Bruecher III paid more than $27,000 in taxes on money his corporation supposedly loaned to him. Instead of receiving a salary, the corporation paid his personal expenses, classifying the payments as advances.

In an audit, the IRS will check to see if such advances are loans or dividends. If repayment by the owner and collection by the corporation seem assured, the advance is a loan.

To decide whether there is intent to repay, the following are factors:

• Is there a promissory notes or other written promises to repay the advance?
• Is the interest charged on the advance?
• Is there collateral to ensure repayment?
• Is there a history of repayment?

Neither Mr. Bruecher nor his corporation could produce documentation of any of these factors; therefore, the advances were taxable dividends.

Many businesses, from the one-person sole proprietorship to giant corporations, carry insurance policies against fraud in the form of a fidelity bond, generally referred to simply as “bonding.” A fidelity bond can cover every kind of loss from routine theft and embezzlement to commercial bribery and stock fraud.

If a customer sues your company for failure to deliver stolen goods or for other reasons related to the bonded employee’s dishonesty, the insurance will cover defense costs. The bond may also cover loss of earnings sustained as the result of theft of the company’s customer, applicant or employee lists.

Optional coverage may include losses from:

• counterfeit paper currency or money orders;
• forged deposits;
• forged credit cards; and/or
• computer forgery.

The burden of proof is on your company to show that the fraud caused the losses claimed. These policies do not reimburse unexplained inventory losses or pilfered cash accounts without a suspect. Generally a police report is required.

Fidelity bonds almost always include a subrogation provision. Subrogation requires that, if the insurer pays your company’s claim, your company gives the insurer the right to sue the wrongdoer. You cannot interfere in any way with the insurer’s right to sue and cannot agree to any settlement with or release of the dishonest employee unless the insurer consents.

If you are a small business owner there could be many financial benefits to hiring your child. If your business is a sole proprietorship, you pay no payroll taxes on your child’s wages if that child is under age 18.  Your child could pay no payroll taxes and no federal income taxes if wages do not exceed the 2010 standard deduction of $5,700 for a single taxpayer.

Record keeping is crucial. You need accurate records showing hours works and tasks performed.  The wages must be reasonable – what would you pay someone else? Keep records showing the wages were actually paid to your child.

Be sure to check with your CPA before hiring your child to understand the implications for all federal and state taxes you and your child may incur. Other rules govern corporations, partnerships and limited liability companies (LLCs).

Recent federal legislation can mean tax savings for employers and may have an impact on your business and your payroll activities.

HIRE Act

The Hiring Incentives to Restore Employment (HIRE) Act that was signed into law on March 18, 2010.  It provides financial incentives for employers who hire unemployed workers and retain those workers for at least one year. If you are hiring, you could benefit from two provisions in the bill: Social Security Tax Exemption and Business Tax Credit. You can also find information from the IRS at http://www.irs.gov/newsroom/article/0,,id=220326,00.html.