Posts Tagged ‘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).

You have a great idea for a retail business.  You do a business plan, secure financing, find a location, buy inventory, hire employees, and open the doors.  By what method do you sell your commodity?  How must it be labeled?

It’s easy to run afoul of regulations you didn’t know existed and didn’t know applied.  A piece of ready to eat candy, a donut, a beverage, a piece of meat, clothing, a length of silver chain, all these commodities have regulations for packaging, labeling and methods of sale.  Is it sold by weight (gram, pound, ton), measure (foot, square yard, meter), or unit (piece, pair, dozen), etc?  This defines the method of sale.

Linda Silva, Certified Quickbooks ProAdvisor

Based in Georgetown, Texas, Vista Professional Services Inc. provides payroll and bookkeeping services, financial services software and internal analysis and examinations for start-ups, sole proprietorships and corporations in a host of industries throughout the Central Texas area.

Our goal is to free you, the business owner, from the daily grind of the repetitive tasks that can prevent you from accomplishing your primary goal-building your business.

Vista Professional Services Inc. conducts a preliminary assessment with each new client to determine the scope and nature of their needs. This allows us to
tailor our services to best meet your goals with least impact to your bottom line.

Whether you need to start from scratch, have your books balanced periodically, enhance your current bookkeeping system/skills, train your onsite bookkeeper, convert from your current system, begin a checks-and-balances process within your business, or want someone to do it all for you, we can help.

By streamlining your bookkeeping system, creating maximum efficiency in maintaining your financial records and providing “at-a-glance” optimal tax and financial reporting, we can help you put your focus where it should be-growing your business.

Call 512-535-3774 today to schedule your FREE one hour consultation.