January is 1099 & W2 Season for Business Owners

1099 tax form

January is upon us.  Do you know where your business’s 1099’s and W2’s are?   Do you have a plan for getting them out on time? January 31 has long been the deadline to send 1099’s and W2’s out to recipients, and that hasn’t changed.  What’s new this year is that you also have to file them with the IRS by January 31, instead of February 28 or March 31.   This is intended to make it easier for the IRS to prevent refund fraud. W2’s W2’s are the wage and withholding statements issued to employees.  If you use a firm or service for your payroll, they should handle this for you.  But don’t assume!  Because if they don’t, YOU are the one who will be sweating the IRS notice. 1099’s There’s an alphabet soup of different 1099 forms—A, B, C, DIV, H, INT, etc.  They cover a broad array of payments, …

The $11,560 Year-End Mistake

A business owner plans to buy a new truck for the business. The dealer told him if the paperwork is done and the check written in 2016, he can take delivery on Tues Jan 3rd, 2017 and still take a deduction for it on his 2016 business taxes. Luckily client decided to double check this advice with his tax advisor, because the dealer is WRONG! To get any tax deduction in 2016, the truck (or any other business property) must be both purchased AND “placed in service” not later than December 31. “Placed in service” is IRS-speak for “in a state of readiness and availability for a specifically assigned function.”  The best way to prove a new purchase was “placed in service” is to actually *do* at least one business-related activity or use of the item. For a new truck that means driving business miles.  If the truck will be …

Finally some good news about health care for small employers

It’s not getting much press coverage, but “The 21st Century Cures Act” that passed Congress and was signed by the President on December 13 includes a gift for some small businesses and their employees. The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) provision in the new law restores (mostly) the method that many used before Obamacare—giving employees a tax-free fund of up to $4,950 per year with which to buy individual coverage of their choice. The most important thing to realize is that implementing a QSEHRA for your employees requires setting up a formal plan and following the rules and requirements.  It’s much less involved than setting up a group insurance plan, but most business owners will need professional help to do it right. The key provisions to keep in mind when deciding if this sounds like an appealing option for your business are: The business may not offer any …

No Horses in the House! The Importance of Separating Business & Personal Activities

Horse on sofa

Horse businesses don’t lend themselves to having a good “work/life” balance, but most of us don’t mind because horses are our life, and we love having them as our business—whether our primary income or on the side.  Unfortunately, sometimes this blurring of lines between our business and our personal lives carries over to how we manage our money.  It’s called “co-mingling funds”, and it’s a problem. When you’re first starting out, you’re often paying business expenses and buying business equipment with your “regular” bank account.  So it may seem natural to keep on this way—but doing so is the biggest mistake you can make—in any business, but especially in the horse business, which is a favorite target for IRS scrutiny. If your business is a separate legal entity—an LLC or partnership—the business entity must have its own business checking account.  Even if you’re a sole proprietorship, open a business account …

Should I make major business purchases before year-end?

“Should I make major business purchases before year-end?” is a common question I get this time of year.  It’s partly due to the larger buying frenzy of Black Friday, Cyber Monday, and ceaseless ads from retailers of every type.  But a lot of business owners have also heard that making major business purchases before the end of the year is a way to lower the year’s tax bill. As with most business-related questions, the answer is “it depends”.  Here’s a few things to consider if you’re thinking of making a major purchase for your business in December: How will the proposed purchase affect your income and/or costs?  Every business purchase should be evaluated against this standard—will it bring more money in, or result in spending less?  Sometimes the benefit is obvious—you need a bigger trailer because you have a waiting list of people wanting to be pay you to haul …

Four common mistakes that stand between you and a business loan

If you’re planning to borrow money for your business, here are four common mistakes to avoid:   1) Your tax return shows the business isn’t making any money. 2) Your balance sheet doesn’t make sense. 3) You can’t explain how the borrowed money will improve your bottom line. 4) You’re talking to the wrong lender.   Your tax return shows the business isn’t making any money. Tax returns are the gold standard for financial information to small business lenders, because the business owner has to sign off on the accuracy of the numbers, “under penalty of perjury”. Plus, the incentives cause most people who “fudge” to understate rather than overstate income. So if there’s any doubt about other information, a lender will fall back on the tax returns. Lending officers know the ins and outs of business tax returns far better than most business owners. They recognize legitimate reductions in …

The 1099’s are Coming—Earlier This Year!

1099 tax form

The first headache of tax season for many small businesses is issuing form 1099 MISC to your independent contractors.  If you have employees, there are also W2’s for them, although most payroll providers handle that chore for you. January 31 has long been the deadline to get 1099’s and W2’s out to recipients, and that hasn’t changed.  What’s new this year is that you also have to file them with the IRS by January 31, instead of February 28 or March 31.   Having the W-2s and 1099s earlier is intended to make it easier for the IRS to verify the legitimacy of tax returns and prevent refund fraud. Does your business need to issue Form 1099’s? There’s an alphabet soup of different 1099 forms—A, B, C, DIV, H, INT, etc.  The one most horse businesses need to pay attention to is 1099 MISC, for reporting “non-employee compensation”.   What is “non-employee …

The Almost-Year-End Horse Business Checkup

Ready or not, the end of 2016 is coming fast.   Now is the perfect time to check in and check up on your business—while there’s still time to make changes if needed.   A few things to look at:   Revenue (Income)—With 10 months complete, how does your actual year-to-date revenue compare to your budget or forecast (or to your expectation, if you didn’t write it down)?  If it’s significantly higher or lower, do you understand why?  Are those factors likely to affect next year’s revenue as well? Expenses—How do your first ten months of expenses compare to your budget/forecast/expectation?  If they’re significantly higher or lower, what caused the variance?  Was it a one-off event, or is it a lasting change?  Are there any expense items that increased enough to make you look for alternatives? Profits (or not)—Revenues minus expenses brings us to possibly the most important line in your almost-year-end …

Are you Maximizing Your Horse Business Income?

I’ve never met a horse business owner who wouldn’t like to have more income.  They think about having more customers, or offering new services or more products to their current customers.  Unfortunately, I’ve met many horse people whose businesses are not getting all the income they should be from the services & goods they’re already providing. Some common problems that prevent horse businesses from maximizing their income include: Not billing for everything you’re entitled to—this is usually a record-keeping or bookkeeping problem.  We all think we’re going to remember, but mostly we get busy and forget.  The solution to this problem is to make a note of the activity right away—grab your phone, open the QBO app, and a few taps later it’ll automatically go on the client’s next bill. Doing a little (lot) bit extra–usually this is a problem of good intentions gone wrong.  Weather shifts leave a self-care …

Treating an Employee as an Independent Contractor—the Bad and the Ugly

A lot of hiring situations in horse businesses are casual, or at least they’re treated casually.  Friendly Farm needs horses fed.  Kat is happy to take the job feeding them for $12 per hour.  At the end of the first week, she reports having worked 20 hours, and the farm owner cuts her a check for $240. If the farm owner read last week’s blog, she knows that Kat is legally an employee.  But she’s heard that having employees is expensive—there’s payroll taxes, unemployment taxes, worker’s comp insurance, reports to file, and all sorts of rules to comply with.  Since Kat’s happy just getting a check, she figures she’s saving a good bit of money.  And she is…..for the moment. What can go wrong?  Kat gets seriously hurt on the job, and goes to an urgent care or emergency room for treatment. She answers ‘yes’ when the triage nurse asks …