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How the 2018 Tax Reform Act will Affect Your Personal Tax Return

How the 2018 Tax Reform Act will Affect Your Personal Tax Return

Here are some highlights of common areas (but not all areas) where the new tax law will affect tax payers and their personal income tax returns. While many experts agree that the lower tax rates resulting from this tax reform will positively affect the economy and provide more cash flow to many individuals, there are too many variables to reach a conclusion for all taxpayers on the whole.

The New Lower Tax Rates:  

Good news!  The tax rates have been reduced to 10%, 12%, 22%, 24%, 32%, 35%, and 37%.  The 39.6% top rate has been eliminated. 

Increase in Standard Deductions: 

Good news!  The standard deduction amounts increase significantly and almost doubled from $6,300 to $12,000 for single filers and married couples filing separately, from $9,350 to $18,000 for head of household filers, and from $12,700 to $24,000 for married couples filing jointly and surviving spouses.  Individuals at least age 65 and the blind continue to receive an additional standard deduction of $1,300 each if married or $1,600 if not married.

Eliminated Personal Exemption Amounts:

Bad news.  The personal exemption amount of $4,050 per person has been eliminated. 

Increase in Child Tax Credit Amount:

Good news!  The child tax credit is doubled, increasing from $1,000 to $2,000 per qualifying child and is refundable up to $1,400 subject to phase outs due to higher taxable income.  The new law also created a new nonrefundable $500 credit for qualifying dependents who are not qualifying children.

New Alternative Minimum Tax Exemption Amounts:

Good news!  The Alternative Minimum Tax (AMT) exemption amounts are permanently adjusted for inflation and are increased from $54,300 to $70,300 for single taxpayers, from $84,500 to $109,400 for married taxpayers filing jointly and surviving spouses, and from $42,250 to $54,700 for married taxpayers filing separately.  This simply means that fewer middle- and upper-class taxpayers will be subject to this additional tax.

Some Main Changes Effecting Your Itemized Deductions:

  • New State and Local Taxes Limit – Bad news.  Itemized deductions for state and local sales, income, and property taxes, which were previously unlimited, are now limited to $10,000.  Affluent taxpayers and residents of states imposing high taxes will be affected most by this provision.

  • Medical and Dental Expenses Threshold – Good news!  Medical and dental expense itemized deductions must exceed 7.5% of Adjusted Gross Income (AGI) in order to be deducted.  The tax reform act made this provision retroactive for the 2017 year also. Without the new tax legislation, the threshold would have increased to 10% of AGI.

  • New Home Mortgage Interest Limit – Bad news.  While home mortgage interest in the past was allowed as an itemized deduction on debt of up to $1,000,000, the debt limit is now $750,000 for mortgage loans obtained on December 15, 2017 or thereafter.

  • New Charitable Contributions Limit – Good news!  Charitable contributions to public charities and certain other qualified charitable organizations were limited to 50% of AGI in the past.  This limit is now increased to 60% of AGI.

  • Casualty and Theft Losses Eliminated – Bad news.  The itemized deduction for personal casualty and theft losses is eliminated except for losses considered to be federal disasters declared by the President.

  • Eliminated Miscellaneous Expenses: Bad news.  Miscellaneous expenses in excess of 2% of AGI are no longer deductible.  These expenses include unreimbursed employee business expenses, tax return preparation fees, investment fees, and safe deposit box rental fees.  While more affluent taxpayers have not been able to take advantage of these deductions in recent years due to their high incomes, lower- and middle-class taxpayers will feel the effect of this new provision.

New Kiddie Tax Rates:

Good news!  Investment income of children exceeding $2,100 is no longer taxed at the parents’ tax rates.  Bad news.  Instead, it is taxed at the more burdensome ordinary and capital gain rates that apply for trusts.  This new provision appears to have the purpose of completely discouraging income-shifting from parents to their children.

Eliminated Moving Expense Deduction:

Bad news.  The transportation, lodging, and storage moving costs are no longer deductible except for members of the armed forces on active duty.  Similarly, reimbursements for moving expenses are no longer excluded from gross income except for active armed forces members.

Eliminated Alimony Payments Deduction:

There’s good news and bad news for divorcees.  Alimony and separate maintenance payments in connection to divorce decrees with effective dates after 2018 are no longer deductible.  Likewise, alimony payments received by the payee former spouse are no longer taxable.

Eliminated Individual Mandate Penalty:

Good news!  The Sec. 5000A penalty under the Affordable Care Act imposed on taxpayers who do not obtain minimum essential health insurance coverage is eliminated after 2018.

According to the administration, the objective of this tax reform was to provide benefits for middle-class individuals and business owners. To accomplish this, their focus was on lowering the tax rates; however, as you see, to help pay for these tax cuts, several deductions were reduced or eliminated. So, the question is whether all taxpayers will be better off under this new tax reform act or not.  Lower tax rates and a higher standard deduction will certainly help reduce taxes for many, but not all will see a tax decrease.  The loss of personal exemptions will in some cases increase taxes for retirees and families with children over 17 years of age who won’t receive any benefit from the increase in the child tax credit.  Individuals and families who already have itemized deductions in excess of the new standard deduction amounts will likewise not benefit from the higher standard deduction. How it will all shake out on an individual basis may not be so clear until 2018 tax returns have been completed.

 

For further questions regarding the new tax law or if you need help with tax return preparation, please don’t hesitate to give us a call. You may reach us at our Kennesaw office at (770) 428-6229.

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, bookkeeping, financial statement audit, tax return preparation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

The E Myth New Year’s Resolution

The E Myth New Year’s Resolution

I’m starting off this year by reading The E Myth Revisited - Why Most Small Businesses Don’t Work and What to Do About It by Michael E. Gerber.  It’s a great motivational read for small business owners and a reminder to stay focused on what makes a business successful. 

Eleven years ago my husband and I decided to go into business for ourselves and start up a CPA firm.  My husband had great audit and tax experience working for larger CPA firms and was also experienced as a controller for a group of fast food restaurants. I came along to help him with my background in accounting and tax. We bought a client base from a retiring accountant and opened up our firm for business.

Both of us had technical skills doing the accounting and tax work, but we had never been the owners of a business before.  We knew little about managing people and nothing about sales and marketing.  Like most people who start their own businesses we were “technicians” with a skill set, tired of working for other people and ready to create something for ourselves.

Fortunately for us, we decided early on to sign up with a business coach and a new world of business networking and marketing techniques opened up to us.  Being mentored by a business coach basically taught us what The E Myth emphasizes. As a business owner you have to learn to be an entrepreneur (inventive and forward thinking with a vision for the business) and a manager (establishing good operating systems and motivating and training employees) of the business as well as understanding or doing the technical part.  For technicians (most of us who have started our own business), doing the technical work is what we’re most comfortable with.  It’s what we’re good at. It’s our comfort zone.  But a business can’t survive being run by technicians.  For a business to succeed you have to spend time working ON your business as much as you’re working IN your business.

After eleven years in business it’s still easy for us to fall back on old sins of staying in our comfort zone and treating our business as a place to go to work rather than as a product we should be creating and improving.  But we know better so we will refocus, spend more time working ON our business, be entrepreneurs and managers in addition to technicians, and do better!

I hope 2018 will be a prosperous year for you and your business and that you will keep your focus on what it takes to succeed!  If you need an inspirational boost to start off the new year like I did, I highly recommend reading or re-reading The E Myth Revisited.

 

Kristin Allen

Accountant and Director of Marketing at Allen & Company, PC

kallen@allenandcompanypc.com

www.allenandcompanypc.com

(770) 428-6229

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

How to Control Prime Costs in Quick Service Restaurants

How to Control Prime Costs in Quick Service Restaurants

What are Prime Costs?

The Prime Costs in a restaurant include food, beverages, and labor. The Prime Costs for a restaurant should be between 63% and 68% of sales. Restaurants that usually only buy enough inventory to return to par levels can expect food and beverage costs to be consistently the same percentage of sales each period.  Monitoring Prime Costs is very important since these expenses are such a large part of total expenses.   We recommend that a restaurant monitor these expenses on a weekly basis.  See our blog “The Importance of Weekly Reports in Quick Service Restaurants.”

 

How do I Analyze the Prime Costs in my Restaurant?

  • Determine whether Prime Costs are within range (63%-68% of sales)
  • Compare food and beverage cost percentages to the target and to the prior week
  • Investigate an increase or decrease in food and beverage costs from the target or prior week of 2% or more
  • Compare scheduled hours to actual hours

 

Some Explanations for Increased Food and Beverage Costs

  • Purchases greater than par level – Neither the basic nor advanced weekly profit and loss reports consider the change between beginning and ending inventory.  Instead, weekly purchases are used to estimate the cost of sales.
  • Supplier cost increases – Cost increases can be due to seasonal price fluctuations imposed by vendors or general inflation.  Seasonal cost fluctuations can be considered using an average cost or, alternatively, the highest expected cost.  An inflation factor can be included in the menu pricing calculation to compensate for the effects of inflation.  When using either of these two methods, the cost percentage will still fluctuate, but the variance will be expected.  Managers can isolate the source of cost increases by comparing recent purchase prices of high volume ingredients with the food costs used to calculate menu prices.
  • Over-portioning – Over-portioning is a relatively easy problem to correct and can be identified by observing team members preparing meals.  In most cases, the problem can be traced to employees who are not aware of or may have forgotten the standard portion sizes.  Individual training sessions can usually remedy this problem.
  • Waste – Waste usually results when meals are carelessly prepared by inexperienced people and can again be identified by observing kitchen operations.  Restaurant operators can also examine the contents of garbage cans for excessive amounts of food that might indicate waste or spoilage.   Some restaurants have been able to reduce their trash removal costs by having local farmers pick up their waste for livestock feed.
  • Spoilage – Although some spoilage is inevitable, an unusually high amount may indicate that the inventory levels are too high and par levels need to be adjusted.  Spoilage can also occur if team members aren’t arranging the storage area so that the old inventory gets used first.  Regular inventory counts are an effective way to identify slow moving and poorly arranged inventory items.
  • Theft – Restaurants are particularly susceptible to theft, but is often difficult to confirm without a significant amount of investigation.  Therefore, the possibility of theft should only be pursued when other possible reasons have been ruled out.

 

Comparing Scheduled Hours to Actual Hours

Scheduled hours can be recorded in the weekly profit and loss report when the schedule is prepared and actual hours can be posted at the end of each day.  The manager should question any variances between the actual and scheduled hours. Read more about this in our blog “Efficient Scheduling of Employees in Quick Service Restaurants.”

 

If you have any questions or would like some help with your monthly accounting for your restaurant, please give us a call.  We have extensive experience working with quick service restaurants and love to see them succeed!

 

Michael Allen, CPA

Allen & Company, PC

(770) 428-6229 (T)

(770) 425-5481 (F)

mallen@allenandcompanypc.com

www.allenandcompanypc.com

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Experienced working with franchised businesses.

What is the True Product of Your Business?

What is the True Product of Your Business?

Do You Ever Feel Like This?

  • I don't have enough time
  • My business depends too much on me
  • I need more working capital
  • I don't have enough personal income
  • I can't find good people
  • I don't have enough cash flow
  • I need more sales
  • I can't develop competent managers
  • My business isn't profitable

You need to take a step back and look at your business with a fresh perspective.  You must analyze your business as it is today.  Decide what it must look like when you're "finished" with it and have it as you want it, and then determine the gap between where it is today and where you need it to be in order to make your dream a reality.  The gap is always created by an absence of systems, the absence of a proprietary way of doing business that successfully differentiates your business from everyone else's.

Your Business is not Your Life

Michael E. Gerber, author of The E-Myth Revisited, says that your business is apart from you.  Your business and your life are two totally separate things.  Your business is an organism that will live or die according to how well it performs its sole function, which is to find and keep customers.  The purpose of your life is not to serve your business.  On the contrary, the purpose of your business is to serve your life.  When you realize this, you can then go to work on your business rather than in your business.

Do You Remember Ray Kroc?

At age 52, Ray Kroc was going to sell a milkshake machine to the MacDonald's hamburger stand.  There he witnessed hamburgers being produced quickly, efficiently, inexpensively, and identically by high school students.  He franchised the two MacDonald brothers' method, bought them out, and today McDonald's has become a $25 billion-a-year business with 14,146 restaurants in the United States.  The average McDonald's restaurant produces more than $667,000 in annual sales and is more profitable than any other retail business in the world with an average 19% pretax net profit.

The True Product of a Business

What does McDonald's sell?  Big Macs, Quarter Pounders with Cheese, and Egg McMuffins?  No.  People don't buy McDonald's products for their high quality.  People buy the experience.  They know what they're going to get each and every time they visit.  French fries are never soggy, because they're never left in the warming bin for more than seven minutes.  Hamburgers always retain the proper moisture, because they're removed from hot trays in ten minutes or less.  The hamburger patties are identical in size and weight and are turned at exactly the same time on the griddle.  Pickles are placed by hand in a predetermined pattern to prevent them from sliding out.  Orders are served in 60 seconds or less.  Well, at least that's the goal.

The true product of a business is the business itself, the entire process by which the business does business.  If your business is truly valuable, it's saleable.  Mr. Kroc transformed McDonald's into a predictable success so that franchisees would buy it.  It had to work so that, once it was sold, it would continue to work no matter who bought it. 

The Franchise Prototype

Your business can also be a franchise prototype, which is a proprietary way of doing business that successfully differentiates every extraordinary business from their competitors.  Your vision, as an entrepreneur, can be formed through the prototype, your desire for order and predictability, as a manager, can be managed through the prototype, and the technical work, as a technician, can be accomplished within the prototype.

How Do You Build a Business That...

  • Works predictably?
  • Works effortlessly?
  • Works profitably?
  • Works without you?
  • Can free you from your business so that you can take your life back?
  • Each and every day?

Pretend Your Business is a Prototype

Think about McDonalds.  The boss isn't usually there.  The employees are 16 years old.  The food is consistent, served quickly, and relatively tasty.  The customers are happy.  How do they do it?  Behind the counter in the kitchen are pictures of each menu item and assembly instructions.  Simple, right?  McDonald's uses systems to follow to ensure consistency, service timeliness, and product quality.  If you pretend that you're going to franchise your business, it will be the prototype or model for 1,000 more just like it.  The prototype becomes the working model.  It's where all assumptions are put to the test to see how well they work before becoming operational in the business.  Once the prototype is complete, the franchisor tells the franchisee how the business works.  The system runs the business and the people run the system.  And you won't always have to be there.

We love to see businesses succeed!  Let us know if we can help you transform your business into a prototype. 

Michael Allen, CPA

Allen & Company, PC

(770) 428-6229 (T)

(770) 425-5481 (F)

mallen@allenandcompanypc.com

www.allenandcompanypc.com

michael.robert.allen (Skype)

10 Smart Ways to Reduce Your 2017 Taxes

10 Smart Ways to Reduce Your 2017 Taxes

Taxes may not be on your mind this time of year.  We are still in beautiful fall and tax filing season seems so far away.  But don't wait until the end of the year to think about ways you may reduce your 2017 taxes. After year end your strategies are very limited.

10 Smart Ways to Reduce Your 2017 Taxes

1. Establish an IRA.  Contributions up to $5,500 (or $6,500 if at least age 50) to a traditional IRA may be tax deductible if you have earned income and your adjusted gross income doesn’t exceed certain threshold amounts.  You have until April 15, 2018 to contribute to an IRA for 2017.

2. Contribute to your employer’s 401(K) plan.  You can have up to $18,000 (or $24,000 if at least age 50) withheld from your salary to reduce your taxable compensation and provide for future retirement needs.

3. Defer income and delay taxes owed until next year.  Bill your clients in January instead of at end of December or ask your employer to issue your end of year bonus check in January.  Companies can still deduct bonuses paid in the beginning of 2018 on their 2017 tax return.  Deferring income is a great idea if you have a high school senior or a student in college and you’re applying for financial aid for your student.

4. Sell stocks that have incurred a loss to offset your capital gains and up to $3,000 of other income.  Any excess loss is carried forward to future years.

5. Donate stocks to a charity. If the stock has appreciated in value, donate the shares and you can claim the fair market value of the donated stock as a deduction.  If you sell these shares before you donate them, you’ll have to report the gain on your return.  If the stock has decreased in value, sell the stock first and donate the proceeds.  This way you get to report the loss on your return as well as claim a charitable donation deduction.

6. Mail in your 4th quarter estimated state tax payment in December instead of January to get the tax deduction in 2017.  However, consult a tax adviser if you expect to be subject to alternative minimum tax.

7. Increase your itemized deductions. This is a good opportunity to clean out of your closets and make tax deductible charitable donations before year end. Pay your January mortgage payment in December to take the tax deduction for the interest paid on the 2017 return.  Paid medical expenses are deductible but only if they exceed 10% of adjusted gross income.

8. Maximize your Health Savings Account Contributions.  These contributions are tax deductible.  Even if you qualified to participate in an HSA late in the year, you can still make a full year of annual allowed deductible HSA contributions to the plan.

9. Consider an installment sale or a like-kind exchange if selling business assets or real estate. This will reduce the gain recognized in 2017.  Such a move could also reduce your 3.8% net investment income tax imposed on net investment income for taxpayers with Modified Adjusted Gross Income exceeding certain amounts.

10. Remember to take your required minimum distributions from your IRA before year end if you’re 70 ½ years old or older.  Not taking these distributions will result in penalties.  If you like to support charities, you may donate these taxable required minimum distributions from the IRA directly to charities tax free for up to $100,000 of donations.

 

Our CPA, Michael Allen, can help you with tax planning and possibly find ways to reduce your 2017 tax liability.  By having some planning done before year end, you avoid getting unexpected surprises at tax time. Call our office today to get started with tax planning.  You may reach us at our Kennesaw office at (770) 428-6229.

The tax law is complex.  We are here to help.

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

How to Avoid Steep Business Late Tax Filing Penalties?

How to Avoid Steep Business Late Tax Filing Penalties?

Answer: File your tax return on time.

But seriously, maybe you did get a little behind on filing your company’s tax returns and it’s past the tax due date, but you’re not all that concerned because your company suffered a loss and you as the business owner won’t have much of a tax liability if any to report on your personal tax return anyway.  Well, not so fast!

While individuals and C Corporations are charged a penalty percentage of outstanding and unpaid tax liabilities, S Corporations and Partnerships are penalized $195 per month per shareholder/partner for up to 12 months.  It doesn’t matter whether the S Corporation or Partnership had a positive taxable income or not.

Example: If the S Corporation has four owners, the monthly late filing penalty will be $195 X 4 = $780.  The maximum penalty of 12 months in this case will be $780 x 12 = $9,360 for the business.

It’s important to know that a business venture doesn’t need to be formally organized as a Partnership to be considered one.  In most cases an unincorporated business venture such as a Limited Liability Company with two or more participants would be considered a Partnership for tax purposes and, thus, subject to the $195 per month per participant late filing penalty.

There is a possibility that the Internal Revenue Service will waive the late filing penalty for first-time offenders, but they must be able to demonstrate “reasonable cause.”

As always, we are here to help you navigate the complexities of the tax world.  Please let us know if we can be of any assistance to you. You may reach us at our Kennesaw office at (770) 428-6229.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

How to Prepare a Budget for Your Quick Service Restaurant

How to Prepare a Budget for Your Quick Service Restaurant

What Can Happen if You Don’t Have a Budget? 

Well for one, you can easily go out of business.  The only way to make sure that you have enough sales to cover your expenses is to create a budget and abide by it.  Creating a budget may not sound like a fun thing to do and maybe even a little intimidating, but having a budget is crucial for you to be able to control your business finances. Zig Ziglar said, “If you aim at nothing, you will hit it every time.”

A Budget is a Road Map

If you want to save a lot of money in very little time, set a budget.  You should start your budget with zero and then challenge every expense. Compare your budgeted sales and expenses to actual every month so that you can adjust your marketing efforts quickly and react and regain control over your spending.

10 Tips for an Annual and a Monthly Budget

1) A budget takes some thought. Plan to work on it several sessions during one week. Work on the budget with everyone who’ll be affected by it.

2) Be realistic and specific to your situation.

3) Refer to your financial goals when setting priorities.

4) Use round numbers.

5) Last year’s amounts should be used as a guide, not a straitjacket.

6) Prepare a zero-based budget (income-expenses=0)

7) A monthly budget helps you react and adapt the next month’s budget if unexpected expenses occur. Divide annual expenses that you don’t pay monthly by twelve so they don’t sneak up.

8) If your business has irregular income, determine expenses that are a priority and pay in order of priority. (Always pay your accountant!)

9) Categories can be moved around while maintaining the zero-based budget, but savings are only spent on planned purchases.

10) Consider using software like Intuit Quickbooks. Or ask an accountant to help you.

How Do You Determine Budgeted Amounts?

  • Sales: Prepare budgeted sales based on historical sales and adjust for price changes, better control, and planned promotions.

  • Food and beverage costs: Prepare budgeted food and beverage costs based on weighted average historical costs.

  • Labor cost: Prepare budgeted labor costs based on historical information and adjust for wage increases and scheduling improvements.

  • Other costs: Prepare other budgeted costs based on historical information adjusted for current changes.

What About a Weekly Budget?

The margins in the restaurant business are so small that it is essential for the restaurant owners and managers to have a good understanding of what is affecting the restaurant’s profit on a weekly basis.  A weekly budget will help the restaurant owner in the following areas.

  • Guidance for staffing
  • Guidance for purchasing
  • Evaluation of managers
  • Detection of theft
  • Evaluating marketing efforts
  • Controlling costs

For more information on weekly budgeting and reporting please see our blog “The Importance of Weekly Reports in Quick Service Restaurant.”

Our blog “Efficient Scheduling of Employees in Quick Service Restaurants” covers how to control labor costs.

 

If you have any questions or would like additional consultation or assistance with designing a budget for your quick service restaurant, we are here to help.  Please contact Allen & Company, PC at our Kennesaw office at (770) 428-6229.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

How Can You Achieve a Financially Secure Retirement?

How Can You Achieve a Financially Secure Retirement?

You have heard it said that people are living longer into retirement than ever before in human history.  Advances in modern medicine are allowing people to live well into their 80’s, 90’s, and even 100’s.  What a privilege it is to live at such a time as this!  With the potential of living much longer, people also need the finances to sustain them throughout their retirement years.

The Benefit of Time

What is the key to building a secure financial future?  Very simply, it is this -- start saving for retirement early.  If you were not able to start early, don’t worry.  Just start now – wherever you are in life.  Time is your greatest ally in growing your savings into retirement wealth. 

Take this scenario, for instance. Suppose you are a 30-year-old who earns $30,000 a year saving 6% of your salary each month (or $150).  With a 10% investment return, you will have accumulated $574,242 by the age of 65.  Assuming the same factors, except that you begin 25 years later at age 55, you will only have accumulated $30,983 by age 65.

Project Your Retirement Income and Expenses

When considering your financial life during retirement, it is good to consider how many expenses you will have and from where your money will come.  Many of your current expenses will be less in retirement, such as no longer purchasing business clothes or commuting costs, and no social security taxes.  However, your expenses will change to covering health care costs, leisure travel, home maintenance, and gifts to children and grandchildren.  Keep in mind that inflation will also increase.  Most financial planners suggest that retirees should plan to spend between 60% and 80% of the expenses during their work years.

What sources of income will you have?  The three main sources of income for retirees are:

  • Social Security
  • Pensions
  • Private savings and investments

In order to estimate your retirement income and expenses, the following are suggestions:

  • Review the annual statement of benefits you receive each year from the Social Security Administration (or go to www.ssa.gov) for an estimate of your Social Security benefits.
  • Contact your company’s employee benefits department. They can give you an estimate of your retirement plan’s benefits based on your earnings and years of service.
  • Look at your other investments and savings. Their earnings may amount to 30% to 50% of your total retirement income.
  • Consider and list all your financial priorities, needs, and wants to get a picture of what it will take for you to live well.  Determine how much money you must save each year to meet this goal.
  • Seek to understand tax implications for your current financial situation, retirement investments, and what you need to consider for taxes during your retirement years. 

As always, we are here to help you navigate the complexities of the tax world.

Michael Allen, CPA

Allen & Company, PC

(770) 428-6229 (T)

(770) 425-5481 (F)

mallen@allenandcompanypc.com

www.allenandcompanypc.com

michael.robert.allen (Skype)

Is Estate Planning Really Necessary?

Is Estate Planning Really Necessary?

How much consideration have you given to planning for your estate?  How do you imagine the future to look once you are no longer living?  Will your loved ones be provided for or will they struggle in a way that could have been prevented?  Will the things you hold dear be cast off by those who do not appreciate its value?  You can answer these questions with confidence if you capture your wishes in an estate plan, including a will, which is customized for your needs.  However, if your will is never created, your instructions remain undelivered and no other paperwork is legally binding to represent your estate.  In such a case, your family will not have a say over your estate.  Instead, a judge will make choices for your assets (including your small children) without your input.

When is Estate Planning Necessary?

The two biggest priorities for most people when planning their wills are taking care the special people in their lives and their assets.

People planning is providing enough income or capital or both to the people and organizations you love.  People planning may also mean keeping your favorite aunt’s brooch in the family and out of the pawnshop or preserving the business started by your grandfather.  People planning is especially important to people with (1) minor children, (2) exceptionally artistic or intellectually gifted children, (3) children who are emotionally, mentally, or physically handicapped, and (4) spouses who cannot or do not want to handle money, securities, or a business.

Asset planning involves arrangements to reduce taxes for people with taxable estates exceeding the “exclusion amount” ($5.49 million in 2017).  Asset planning is also important for estate owners holding property in more than one state.

Strategies to Reduce Estate Taxes

Given forethought and proper planning, you can reduce the amount of taxes that will be levied against your estate.  This can dramatically affect the amount of inheritance money that remains for your family.  The following are three strategies to reduce the amount of taxes excised against your estate:

Divide – Create additional tax-paying entities by giving income-producing property to children either directly or in the form of a trust.
Defer – Defer tax to a later time so that the saved money can be invested for longer periods (e.g., through nonqualified deferred compensation plans, installment sales, annuities, qualified retirement plans, Series EE bonds, stocks that have high appreciation but pay no or low dividends, life insurance policies, and depreciable real estate).
Discount – Life insurance can be used to, in effect, pay estate taxes at a discount, because the death proceeds are excluded from the taxable estate and can be used to pay estate taxes, debts, and other administrative expenses.

As always, Allen & Company is available to assist you in creating strategies that will benefit your estate or to answer any other tax-related question.

Michael Allen, CPA

Allen & Company, PC

(770) 428-6229 (T)

(770) 425-5481 (F)

mallen@allenandcompanypc.com

www.allenandcompanypc.com

michael.robert.allen (Skype)

Is My Home Sale Gain Taxable?

Is My Home Sale Gain Taxable?

The real estate market has been picking up these past few months, and if you’re living in Atlanta or in the north-Atlanta suburbs there is a good chance your home has finally started to increase in value due to inventory shortages in this area.  This could be a good time to sell if you’re looking to relocate. Another piece of good news is that the tax law allows for a pretty nice exclusion of the gain you may have on the sale of your home.

How much of the gain from the home sale is exempted from tax?

You can exclude up to $500,000 in home-sale profits from your taxes if married filing jointly, or $250,000 if single.  To qualify for this exclusion you have to have owned and lived in the home as your principal residence at least two out of the five past years. You also must not have excluded the gain on sale of another home within two years prior to this sale.

How is the gain on sale calculated?

To calculate the gain on sale you subtract the initial purchase price, any significant home improvements made to the home other than repairs, and selling expenses (real estate commission) from the sales price.  If you had a home office in the home reported on your tax returns, the allowable depreciation over the years - whether claimed or not - must be added back to the cost basis of the home.

Selling price – (Original Purchase Price + Home Improvements + Selling expenses) + Prior Year Home Office Depreciation Allowed = Gain of Sale

Exceptions to the Time and Ownership Rule:

There are a few exceptions to the time and ownership rule like divorce, change in health, death of a spouse, multiple births, and job relocation (50 miles or farther than the distance was from your old home to your old job).  In these cases you can exclude a percentage of the gain on sale based on the time you lived in the home.  As an example, if a spouse passes away after one year of the couple’s time living in the home, half the amount ($250,000) can be exempted if the surviving spouse sells the home.

Please note that a home sale loss cannot be deducted as a loss on your tax return.

Please see IRS Publication 523 for more details regarding the sale of a home or contact our Kennesaw office.  We'll be happy to assist you with any of your tax issues.

 

Michael Allen, CPA

Allen & Company, PC

(770) 428-6229 (T)

(770) 425-5481 (F)

mallen@allenandcompanypc.com

www.allenandcompanypc.com

michael.robert.allen (Skype)

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

How to Start With Dreams and Finish With Results

How to Start With Dreams and Finish With Results

What is your idea of the perfect day off from work?  Create a picture in your mind of what you wish your day to look like.  Would you like to relax in a cabin home in the mountains or at a vacation home at the beach?  Do you want to play golf, travel, or spend time with the grandkids?  Now, keep dreaming and describe your perfect business day.  What tasks do you do now that you enjoy and of what would you like to do more?   What might your business achieve if it could grow 10% each year and how would it personally affect you?  How many years will it take before you can come and go as you please and take more time away from the office?

Consider your core values, priorities, and ultimate dreams for your enterprise.  Now consider how you take your dreams and work them into realistic goals that will help see those dreams fulfilled.  In his book Seven Habits of Highly Successful People, Steven Covey suggests that you “begin with the end in mind.”  In other words, know your destination and work back from there.  Think of your ultimate target.    If it should take 20 years to get there, where should you be in 15 years, 10 years, and 5 years from now? 

The Ideal Business

  • Most business owners describe their ideal business as:
  • Three or four weeks off every year to travel.
  • A company run by a trusted management team empowered to make decisions and get things done.
  • A unique and excellent product or service that allows them to charge more than their competitors.
  • Business systems in place that produce consistent results for their customers and improves their net profits year after year.
  • 90% of their business coming from loyal repeat customers who only buy from them.
  • 25% annual net return on their equity.
  • A business that will allow them to expand, find additional business opportunities, and grow their net worth.
  • Control of their future and time to enjoy the benefits of ownership.

Generate Goals

The question becomes, “How can your business goals be realized?”  As a business owner, you must utilize your dreams as the launching point to define both your financial and non-financial goals.  Ask yourself hard questions of how to you will fulfill these dreams with true actions steps that will create the business you wish to run.  While this may seem painfully obvious, defining goals is actually a challenge for many business owners.  Since you may be one such person, here are a few tips for considering your goals.

  • First, be specific.If you do not define your goals, you will not accomplish them.
  • Put your goals in writing.
  • Do a little brainstorming, list 20 or 30 goals, and then rank them in order of priority.
  • Next, classify your list into short, medium, and long-term goals.
    • Determine which goals are short-term that you would like to achieve within the next year.
    • Medium-term goals are those you would like to accomplish between two and ten years.
    • Finally, long-term goals are those that take more than ten years to fulfill.

As a business owner, you automatically fall under the category of a person who is pursuing a dream.  Utilize those dreams to help yourself create vision and goals of what you wisht to achieve.  Once you have determined your goals, create a plan for success with measured, intentional steps.  Your proactivity, with a focus on what most matters to you, will produce the results that will ultimately create your dream fulfillment.  (To learn more about business plans, read our Blog Learn the Key Components of a Good Business Plan.)

If you need help defining and ranking your goals, please let us know.  We are here to help!

 

Michael Allen, CPA

Allen & Company, PC

(770) 428-6229 (T)

(770) 425-5481 (F)

mallen@allenandcompanypc.com

www.allenandcompanypc.com

michael.robert.allen (Skype)

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

Learn the Key Components of a Good Business Plan

Learn the Key Components of a Good Business Plan

Sitting down to write a formal Business Plan seems to many like a tedious task. Why spend time writing a plan when you well know in your head what your business is about and how you like to operate it? In fact, many business owners will only put their plan in writing when they know they need to have it to attract investors for a new business or when applying for a business loan from a bank.

We believe that every business should have a business plan.  Business plans are decision-making tools that get desired results when actually implemented.  Statistics have shown that businesses survive at a much higher rate with a well-thought out business plan.  Business plans don’t guarantee success, but they certainly decrease the odds for failure. 

Business planning helps:

  • Develop and improve the business

  • Understand the business better

  • Define business goals

  • Understand what customers want

  • Understand the competition better

 

Start-up Business Plan Components:

1) Executive Summary – Answers What, Where, Why, How, and Who started.

2) Objectives – Desired sales, gross profit percentage, and net profit.

3) Keys to Success – The main elements that make the business work (location, convenient parking, and low prices, e.g.).

4) Company Ownership – Legal structure and founder participation.

5) Start-up Plan – Total start-up expenses, assets, and cash.

6) Competitive Comparison – Competitions’ products, quality, strengths and weaknesses, and the company’s strategy to compete.

7) Sourcing – Product fulfillment responsibility, product value, and physical delivery.

8) Break-even Analysis - The required unit sales necessary to break-even (to cover fixed and variable costs so that the company can continue operating).

 

The financial projection should include monthly sales and expenses for the first 12 months and annual information for the following two years.  The detail beyond the first year isn’t usually meaningful.

 

Standard  Business Plan Components:

1) Executive Summary – Purpose of the plan, potential customers, and keys to success.  This summary should actually be written last.

2) Mission Statement – The company’s basic purpose, including what market is served and what benefits are being offered.

3) Company History – Date of formation, location, experience of the owners, and initial debt or equity financing obtained.

4) Organization and Staffing – Officers and managers and any ownership interests.

5) The Management Team – Officers and their ages, education, work experience, and community involvement.

6) Local Economic Conditions – The surrounding community’s growth and economic development, employment, and opportunities for the products or services.

7) Competitors – The company’s competition and the plan to compete against them.

8) Marketing – Current marketing activities and required marketing to acquire potential customers.

9) Company Strengths – The company‘s location, quality of services, unique selling proposition.

10) Recommendations – Also include the effect on cash flow and taxable income.

11) Implementation Plan – Includes the action required, target date, and responsible party.

 

Implementing the strategies is what makes the plan come alive.  Brilliant strategies are useless unless they’re implemented.  The Business Plan is a about results. The contents of the plan should match your business purpose.  If you’re developing your plan for internal use only, you may not need to include a section about the company.  Business plans seeking investors should have detailed and convincing market data, but a plan for a small local business may not need as much market research. Banks and investors may only require a summary of the plan.

 

If you have any questions or would like additional consultation or assistance with designing a specific business plan for your company we are here to help.  Please contact Allen & Company, PC at our Kennesaw office at (770) 428-6229.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

10 Smart End-of-Year Moves to Reduce Your 2015 Tax Liability

10 Smart End-of-Year Moves to Reduce Your 2015 Tax Liability

1. Establish an IRA.  Contributions up to $5,500 (or $6,500 if at least age 50) to a traditional IRA may be tax deductible if you have earned income and your adjusted gross income doesn’t exceed certain threshold amounts.  You have until April 15, 2016 to contribute to an IRA.

2. Contribute to your employer’s 401(K) plan.  You can have up to $18,000 (or $24,000 if at least age 50) withheld from your salary to reduce your taxable compensation and provide for future retirement needs.

3. Deferring income will delay taxes owed until next year.  Bill your clients in January instead of at end of December or ask your employer to issue your end of year bonus check in January.  Companies can still deduct bonuses paid in the beginning of 2016 on their 2015 tax return.  Deferring income is a great idea if you have a high school senior or a student in college and you’re applying for financial aid for your student.

4. Sell stocks that have incurred a loss to offset your capital gains and up to $3,000 of other income.  Any excess loss is carried forward to future years.

5. If you’re thinking about donating stocks to a charity, remember that if the stock has appreciated in value, donate the shares and you can take the fair market value of the donated stock as a deduction.  If you sell these shares before you donate them, you’ll have to report the gain of the shares on your return.  If the stock has decreased in value, sell the stock and donate the proceeds.  This way you get to report the loss on your return.

6. To avoid the underpayment penalty, make sure you pay in the lesser of 100% of last year’s tax liability (110% if your adjusted gross income was more than $150,000) or 90% of this year’s tax bill. 

7. Mail in your 4th quarter estimated state tax payment in December instead of January to get the tax deduction in 2015.  However, consult a tax adviser if you expect to be subject to alternative minimum tax.

8. Likewise, pay your January mortgage payment in December to take the tax deduction for the interest paid on the 2015 return.

9. Have you thought about whether you qualify for a home office deduction?  To get this deduction you need to use the office exclusively and regularly for business use.  You may deduct a portion of your homeowner insurance, utilities, and depreciation of the home.  You can also deduct any repairs or improvements done to the office.  Alternatively, you may use the simplified option which allows you to calculate the deduction by multiplying the square footage of the home office space times $5 per square foot (limited to a maximum deduction of $1,500).

10. If selling business assets or real estate, consider an installment sale or a like-kind exchange to reduce the gain recognized in 2015.  Such a move could also reduce your 3.8% net investment income tax imposed on net investment income for taxpayers with Modified Adjusted Gross Income exceeding certain amounts.

 

The tax law is complex.  Please contact us if you have any questions or if we can assist you in any way.

 

Allen & Company, PC

1350 Wooten Lake Road, Suite 206

Kennesaw, GA 30144

(770) 428-6229

mallen@allenandcompanypc.com

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

2016 Georgia Education Expense Tax Credit

2016 Georgia Education Expense Tax Credit

The state of Georgia allows taxpayers to contribute to approved student scholarship organizations while reducing their Georgia tax liability for the money contributed to these organizations.  The money contributed is used to provide financial aid to primary or secondary public school students to attend a private school.  Young children who are enrolling in pre-kindergarten, kindergarten, or first grade also qualify.  This is an excellent way of helping families who would like an option to public school but can’t afford a private school.  This is also a good way of supporting your own kids’ or grandchildren’s private school.

What is the Tax Benefit?

  • A dollar for dollar tax credit to offset your Georgia income tax liability.
  • A deduction for charitable contributions on your federal tax return.

What is the Maximum Tax Credit Allowed?

  • A single taxpayer: $1,000
  • Married filing jointly: $2,500
  • S Corporation shareholder, LLC member, or partner in Partnership: $10,000 for each owner (limited to 6% of their share of pass-through Georgia income).
  • C Corporation or Fiduciary: 75% of the Georgia income tax liability for the tax year.

What is the Application and Donation Process?

a)      Before January 1, contact the private school you wish to make the donation to and they will provide you with the name of their approved student scholarship organization, give you further instructions on how to apply, or help you with “pre-registration”.

b)      To submit your own application go to Georgia Tax Center (GTC) at https://gtc.dor.ga.gov  to login to your account.  If you have never filed a return with the State of Georgia you must call the taxpayer Services Call Center at 1-877-423-6711 to get registered.  You will need your Social Security Number or Taxpayer ID Number, your email address, and your Federal Adjusted Gross Income reported on your most current tax return for the past 2 years.  Submit your application on January 1, 2016.

c)       Receive a pre-approval letter in the mail or access this letter within the GTC.

d)      Within 60 days of receiving the pre-approval letter, issue payment for the contribution along with a copy of the approval letter to the Qualified Student Scholarship Organization.

e)      Receive Form IT-QEE-SS01 acknowledging your contribution.

f)       Report the contribution both as a tax credit on your Georgia income tax return and also as an itemized deduction on your federal income tax return.  Note that the federal donation must be added back to Georgia adjusted gross income prior to claiming the credit on the Georgia income tax return.

 

Important to Know: 

The State of Georgia has a credit cap of $58,000,000 for the 2016 Education Expense Credit.  This credit cap was reached the very first day of applications for 2015 on January 1, 2015 and the same is expected to happen again for 2016.  The applications submitted on January 1, 2016 will be prorated down to the $58,000,000 credit cap.  Any tax credit claimed but not used on the 2016 return can be carried forward for 5 years.

 

Please contact us if you have any questions or if we can assist you in any way:

Allen & Company, PC

1350 Wooten Lake Road, Suite 206

Kennesaw, GA 30144

(770) 428-6229

mallen@allenandcompanypc.com

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

The Importance of Weekly Reports in Quick Service Restaurants

The Importance of Weekly Reports in Quick Service Restaurants

The margins in the restaurant business are so small that it is essential for the restaurant owners and managers to have a good understanding of what is affecting the restaurant’s profit on a weekly basis.  A weekly profit and loss report, whether generated from a POS system or manually produced, should be generated and analyzed and variances in cost and sales investigated so that potential problems can be quickly corrected.  Waiting for the monthly financial statements to be generated allows too much time to go by and too much money to be lost before the problems can be recognized and addressed.

Analyze the weekly report by comparing a) the current week with the prior week and b) the current week with the current week of the prior year.

Compare the following categories to prior periods and analyze variances of 2% or more:

1)      Profit (or loss)

2)      Sales

3)      Food and beverage costs

4)      Labor costs

Variance in Profit:  Profit (or loss) = Sales – Prime Costs – Indirect Costs (general and administrative expenses).  A variance in sales, prime costs, or indirect costs will all affect the profitability of the restaurant.

Variance in Sales: A restaurant’s sales can vary based on many different factors.  Fluctuations can be contributed to a successful marketing campaign, recent negative customer experiences and reviews, new competition, or more people visiting the area due to local events.  Some of these factors are not easily controlled but better service or more effective marketing are things that can be controlled.

Variance in Prime Costs:  Prime Costs = Food and Beverage Costs + Labor Costs (all payroll expenses including benefits and worker’s compensation).  Prime costs in quick service restaurants should be 55%-60% of sales, a little lower than in full service restaurants where the average should be between 63% -68%.  Since the prime costs make up such a large percentage of the restaurant’s total costs it’s vital to understand and be able to control these expenses. 

a)      Food and Beverage Costs – These costs could increase due to employees serving portions that are too large, letting too much food go to waste, employee theft, vendor price increases, or, in some cases, inventory purchases greater than par level. 

b)      Labor Costs – These costs should be controlled by efficient scheduling (we cover this in our blog “Efficient Scheduling of Employees in Quick Service Restaurants”) so that the restaurant won’t lose money by paying too much in overtime or schedule too many employees to work during slower shifts.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

Efficient Scheduling of Employees in Quick Service Restaurants

Efficient Scheduling of Employees in Quick Service Restaurants

Efficient scheduling of employees in your quick service restaurant is highly important to control labor costs.  If your employees are idle at work or your lack of planning is causing frequent overtime pay, you’ll quickly lose money.  Even if labor costs are only 2% higher than they should be, that means that your net profit is 2% lower.

Factors that Affects Scheduling in Quick Service Restaurants

Volume

Knowing when high and low periods of customer demand occur is essential to proper scheduling.  Therefore, it’s important to be adequately staffed for high volume periods and to avoid overstaffing for low volume periods.

Availability of experienced employees

An experienced employee can perform more duties than one with less experience.

Effective Scheduling Techniques

Blind Staffing

Blind staffing is a scheduling method that ignores the restaurant’s current or traditional staffing levels and instead focuses on how many people are physically needed to operate the restaurant. 

Blind staffing begins with completing a Labor Staffing Chart of the restaurant’s labor requirements for each hour of the business day.  Labor staffing charts should be completed for the various days of the week because the pattern and volume of traffic for breakfast, lunch, and dinner will vary depending on which day of the week it is.  Then create the daily schedules based on the labor staffing charts.

Monitor Daily Schedules

After scheduling personnel hours, they must be monitored.  An effective monitoring technique is to compare hours determined by blind staffing to scheduled hours.  Investigate noticeable variances between the two.  Acceptable causes of any excess are staff training and meetings, special clean-up or maintenance projects, employee shift or hour preferences, and unusual customer patterns.  Actual scheduling must recognize the realities of the local labor supply and be flexible (e.g., if the labor chart indicates that one worker is needed for a six-hour shift, scheduling two part-timers for four hours each or scheduling one full-time worker for an eight-hour shift may be the reality).

Minimize Overtime

Federal and most state laws impose a weekly overtime standard, which means that nonexempt (hourly) employees must be paid time-and-a-half for every hour more than 40 that they work in a workweek regardless of how many hours they work in a day (California and a few other states have a daily overtime standard).

1.      Change the workweek so that the busiest part of the week is at the beginning

An employer is free to select any 168-hour period as the workweek for one or more employees.  If a restaurant has designated a Monday – Sunday workweek, then full-time employees may have worked 40 hours by Friday evening.  If they must also work on the weekend, the weekend hours must be overtime hours.  In this situation, it might be better for the workweek to begin on Friday.  If the employees work over the weekend, the employer still has Monday – Thursday to let the employees off when the business is slower and, therefore, avoid overtime hours.

2.      Schedule two employees for more hours

It may be more cost effective to schedule two employees for more hours than one employee for less hours and pay overtime.

Monitor Actual Personnel Hours

1.      Compare actual hours worked with budgeted hours

Actual and budgeted hours are posted to the Weekly Profit and Loss Report.  Some managers calculate an average rate per hour for both salaried and hourly employees, calculate a budgeted labor cost by multiplying the budgeted hours by the average rate, multiply the actual hours by the average hourly rate, and then compare the actual labor cost to budgeted labor cost.

2.      Investigate excess actual hours worked

Managers should monitor hours worked on a daily basis so that personnel costs can be effectively controlled.Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

10 Important Steps to Successfully Defend Your Business in an IRS Audit

10 Important Steps to Successfully Defend Your Business in an IRS Audit

Always be prepared to defend yourself or your business against an IRS audit.  Here are 10 important steps to take to ensure that you’ll be in good shape even if the IRS selects you out for an audit:

1.     Engage your CPA to represent you in an audit by signing Form 2848 Power of Attorney.

2.     Insist on meeting at a neutral location for the audit, such as your CPA firm’s office.

3.     Answer IRS auditor questions (in the presence of your CPA) honestly, but don’t provide more information than asked for.

4.     Maintain bank statements and the related bank reconciliations, deposit ticket images, and check images.  The IRS will compare sales revenue with the deposits clearing the bank accounts to determine any unreported income.

5.     Maintain loan agreements.  The IRS will review the terms to determine if the loans were genuine and, if not, recharacterize loan repayments to business owners as dividends or distributions.

6.     Maintain sales invoices to support the business sales revenue reported.  The IRS will attempt to treat unsubstantiated non-sales bank deposits as taxable income.

7.     Maintain purchase invoices to provide proof of deductions.  The IRS will attempt to disallow any deductions claimed without evidence.

8.     Maintain income tax, payroll tax, sales tax, and business personal property tax returns.  The IRS will compare the amounts reported on these various returns for consistency.

9.     Maintain Forms W-2 and 1099.

10.  Maintain business formation documents, including Articles of Incorporation/Organization, Corporate Minutes, Bylaws/Operating/Partnership Agreement, Form 8832 Entity Classification Election, Form 2553 Election by a Small Business Corporation, and investor agreements.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

10 Red Flags on Your Return that May Cause an IRS Audit

10 Red Flags on Your Return that May Cause an IRS Audit

Recent IRS statistics indicate that people with income of $200,000 or higher had an audit rate of 3.26%.  People with income of $1 million or more have a one-in-nine chance of being audited.  On the other hand, only .88% of tax returns reflecting income of less than $200,000 were audited and those audits were correspondence audits conducted by mail rather than in person.  So unless you’re making a lot of money your chances to be chosen for an audit is fortunately not that great.

While some returns are selected randomly for audits, the IRS is looking for anything that looks out of the ordinary on the return, deductions other tax payers typically have misused, mismatches of what’s being reported on the return and the source documents received by the IRS. 

 

The following are 10 items on your tax return that can cause red flags for the IRS:

 

1.    Failing to Report All Taxable Income:  Remember that the IRS receives a copy of all your 1099s and W-2s.  Leaving something out will attract their attention and they may wonder what else you’re not reporting correctly.

2.    Taking Higher-than-Average Deductions:  The IRS looks for anything that looks unusual.  Make sure you have receipts and supporting documents to back up all your deductions.

3.    Claiming Rental and Passive Losses:  Losses from rental real estate activities are generally not deductible.  However, if the taxpayer actively participates in managing the rental properties, he or she can deduct up to $25,000 of losses against other income (subject to income limitations).  Also, real estate professionals who spend more than 50% of their working hours and 750 or more hours each year “materially participating” in real estate as developers, brokers, or landlords may deduct all of their rental losses. 

Passive losses from investments where the taxpayer does not actively participate are also limited and can only offset other passive income. 

4.    Writing off a Loss for a Hobby Activity:  All income from a hobby must be reported, but expenses related to the hobby can only be deducted up to the amount of income earned from the hobby.  Hobby losses can’t be claimed.  The IRS is aware that the temptation is great for tax payers to create schedule C businesses that incur losses for a tax write off.  According to the law your business, in general, should generate profit 3 out of 5 years in order to not be considered a hobby by the IRS.  Make sure you keep all the receipts for expenses and other documentation.

5.    Deducting Business Meals, Travel and Entertainment:  The IRS is scrutinizing these types of expenses, especially if they seem large and out of the ordinary for your type of business.  In general, only 50% of meals and entertainment are deductible.  The tax deduction will not be allowed unless you have adequate documentation of the expense with a specified business purpose.  An account book, log, expense statement, or trip sheet should be maintained along with documentary evidence (receipts, e.g.).  A restaurant receipt is sufficient for a business meal if it includes the name and location of the restaurant, the date and amount of the expenditure, and the number of people served.  A written hotel receipt must be maintained for lodging expenses of at least $75.

6.    Claiming 100% or Unusually High Business Use of a Vehicle:  If no other vehicle is available for personal use, the IRS expects that some reasonable use of vehicle is personal.  Make sure you have adequate records of the amount, time and place, business purpose, and business relationship of people visited for the claimed business use.  An account book, log, expense statement, or trip sheet should be maintained along with documentary evidence (receipts, e.g.).

7.    Having a Large Number of Contractors Working for You:  The IRS is on the lookout for employers who try to avoid paying payroll taxes by classifying their employees as contractors.  The IRS and the courts have developed guidance to help employers determine whether a worker should be classified as an employee or as an independent contractor.  If independent contractors should have been treated as employees instead, the IRS may assess back payroll taxes, penalties, and interest.

8.    Claiming the Home Office Deduction:  The IRS is aware that many taxpayers abuse the home office deduction to reduce their taxes.  Tax returns with schedule C losses or only W-2 income are more likely to be scrutinized.  The IRS has disallowed the business home office deductions in court cases where a television was located in the home office.  Make sure you use the home office solely for your principal place of business and never for any personal use.  As with all other deductions make sure you keep all your documentation.

9.    Reporting Low Income for Your Profession:  The IRS knows what someone in your profession is making on average, so if your income is very low it’ll raise questions about whether or not you’re reporting all your income.

Owners of S-Corporations are allowed to take distributions in addition to their W-2 income from their business. Payroll tax is not paid on distributions so naturally a business owner would like to reduce his W-2 income and receive more distributions.  The IRS requires that the owners pay themselves a reasonable salary for the type of industry they are in.

10. Amending Your Tax Return: An amended return is not necessarily a red flag for the IRS, but it does cause a second review and more scrutiny of the return.  Amend the return if it’s warranted. You don’t want to miss out on a refund or a lower tax bill if you’re entitled to it.  It’s your money!

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

5 Important Steps to Evaluate Franchise Opportunities

5 Important Steps to Evaluate Franchise Opportunities

So you are ready to be in business for yourself and you think that owning a franchise is the way to go.  Before you make the big decision to invest in a franchise, it’s important that you spend enough time researching and educating yourself on various franchise opportunities.  Here are 5 steps to help you evaluating franchise opportunities so you can find the franchise that works best for you.

 

1.      Find a franchise that fits you – Think about what your interests are, your prior experience, and what you’re good at. There are lots of questions you need to ask yourself.  How many hours or days a week are you prepared and willing to work in your business?  Are you comfortable managing employees?  Is owning and operating the franchise going to give you the lifestyle you want?  Imagine what a regular day operating this business will look like.

2.      Obtain information about franchisors – Research via the internet or obtain materials directly from the franchisors.  If the franchisor is publicly held, annual financial statements are published by the Securities and Exchange Commission.  Investigate news stories about the franchisor.  Are there any lawsuits or disputes?  Do they have a good reputation and is the franchise popular among consumers?

3.      Determine the financial requirements of potential franchisors – Most franchisors will disclose this as part of the initial information they provide to interested investors.  The start-up payments required can vary significantly from franchise to franchise.  You’ll have to find a franchise opportunity that fits your budget.

4.      Speak to several franchisees – Determine whether they’ve had a good experience as a franchisee and if they would do it again.  Are they happy with the support they’re receiving from the franchisor?  Are they happy with the amount of training and the marketing help they are receiving?

5.      Examine the Uniform Franchise Offering Circular (UFOC) – Many franchisors are reluctant to share this document until the interested investor has applied for the franchise, had his or her background and finances investigated, and interviewed with the franchisor.  The UFOC contains a wealth of information that allows potential franchisees and their CPAs or attorneys to evaluate the franchise.  It includes information about audited financial statements, franchise fees and start-up payments required, information regarding any litigation involving the franchisor, required franchise agreement, and any other contracts the franchisee has to sign.  It also includes the franchisor’s claims regarding earnings of its franchises.  Make sure you receive enough information to evaluate earnings.  Ask for information on results of franchises in the same geographical area.  If the franchisor is reluctant to provide the information needed for a good evaluation, it’s a red flag.  Federal law requires that franchisors allow at least 10 days for the potential franchisee to review the UFOC. 

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

How to Save for College

How to Save for College

The prices of college tuition have steadily been increasing every year.  According to The College Board’s statistics tuition of a four year public college has risen on average by 3.5% beyond inflation every year for the past 10 years.  The Board indicates that the national average cost of tuition and fees at a public college for the school year of 2014-2015 was $9,139 for state residents while the average cost of room and board was $9,804.  Add in the amount paid for books and school supplies and the average cost of a school year as an in-state public school student is right at $20,000.  The average cost of attending school out-of-state or attending a private school is of course much higher.

So how are you going to pay for your kids’ college?  The best advice is to START SAVING NOW.  Here are 5 good college savings options:

1) 529 Plans:  The savings in these plans grow tax-free and there are no tax on withdrawals if they are used for qualified college expenses (tuition, fees, room and board).  The plans have no income limits and have high limits on contributions (contribution limits vary by state).  Many states give tax deductions or credits for contributions.  If you withdraw for other reasons than education, you pay a 10% penalty on plan earnings and may possibly have to pay back any state tax deduction taken.  The plans are portable which means you can roll your savings over to another state’s plan without penalty after 12 months.  You can also change the beneficiary of the plan to one of your other children, yourself, or another relative.

2) Prepaid Tuition Plans:  These plans offer the same tax benefits and have the same tax penalties as the 529 plans.  They can be used for colleges in-state and also some private schools.  You pay into the plan years ahead of your child’s college years.  The plans will lock you in at a rate of tuition and the college tuition bills are guaranteed to be covered regardless of inflation.  If the student’s plans change about studying in-state, you can transfer the money out of the account.

3) Coverdell Education Savings Accounts:  These accounts have similar benefits and tax penalties to the 529 plans.  However, the contribution limit per child is $2,000 a year.  There are adjusted gross income limits for eligibility purposes ($110,000 if single and $220,000 if married filing jointly).  One benefit is that you can also use the plans to pay for both private elementary and high school tuition.

4) Roth IRAs:  Withdrawals that don’t exceed your contributions can be withdrawn at any time tax-free and penalty-free.  Earnings can be withdrawn penalty-free if used to pay college expenses, but income tax would be assessed if parents are under age of 59 ½.   Each tax payer can contribute up to $5,500 each to the Roth annually ($6,500 if older than 50).  There are adjusted gross income limitations for contributions ($131,000 for singles and $193,000 for married filing jointly in 2015).

5) Custodial Accounts or UGMAs (Uniform Gifts to Minors Act): These are trust accounts set up for a child and managed by a trustee until the child reaches 18 or 21 years old depending on the state.  The money doesn’t have to be used for college. You can give up to $14,000 a year to each child without incurring gift tax.

Don’t despair if you think you’re not able to set aside enough money to pay for all your kids’ college expenses.  Even some college savings, especially when started early, can go a long way.  There are always scholarships, financial aid, and student loans available to bridge the gap.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised restaurants and other franchised businesses.

5 Excellent Ways to Market Your Business

5 Excellent Ways to Market Your Business

Most businesses spend about 90% of their time operating and managing the business and only 10% marketing.  To grow your business, a more reasonable time allocation should be 50% spent on getting your products and services to the marketplace and the other 50% spent on marketing (getting the marketplace to come to your products or services).

Many business owners view marketing as an expense, but the better way to think about it is as an investment.  Marketing dollars spent appropriately will increase your sales income.

1)      Marketing/Advertising campaigns:  To find out which marketing campaign is more successful for your business you have to test and measure.  Ask every new prospective customer how they heard about your business and record it.  By learning which marketing methods are attracting prospects and which ones aren’t, you’ll quickly learn which methods are working for you.  If you never monitor your marketing results, you’ll keep spending $500 to get $150 worth of business.

2)      Defining your uniqueness:  If there’s nothing unique about your business, then people will only buy from you because of price or convenience, nothing more.  Define what’s different about your business and then promote it.

 

----  Don’t underestimate the importance of networking and social media:

3)      Networking: People tend to do business with people they know and like.  Participate in business organizations and attend social and business functions to connect with people and other business owners.  Stay in touch with the people you connect with by e-mail or invite them out for lunch.  Many people give up on networking too early because they don’t see the instant results.  It takes time to build friendships and professional relationships!   Make sure you follow up with your contacts and stay connected.

4)      Connecting with other people in your line of business.  They may be great referral sources for your business.  As an example, as a CPA firm we stay connected with bankers, lawyers and financial planners.  These sources often refer business to us and we refer our clients (who need these types of services) to the contacts we know and trust.

5)      Socializing with Social Media: Blog, write newsletters, use twitter, be active in groups on LinkedIn, and post to a Facebook page for your business.  The better internet presence, the better are the chances people will find your business when they search for the type of products or services you offer. 

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised restaurants and other franchised businesses.

Are You Hiring LEGAL Immigrants?

Are You Hiring LEGAL Immigrants?

“It’s no fun being an illegal alien.”  Who can forget the lyrics to the Genesis song Illegal Alien?  It’s also no fun hiring an illegal alien.  According to a recent article by Jie Zong and Jeanne Batalova (http://www.migrationpolicy.org/article/frequently-requested-statistics-immigrants-and-immigration-united-states), there were about 41.3 million immigrants in the United States in 2013.  Immigrants accounted for 13% of the total U.S. population.  About 11.4 million unauthorized immigrants lived in the United States in 2012.

It is illegal for employers to knowingly hire aliens who are not authorized to work in the United States.  Employers who hire unauthorized workers or knowingly accept fraudulent documentation can face severe criminal and civil penalties. 

The law (Immigration Reform and Control Act of 1986) requires employers to verify the identity and work eligibility of all new hires by having all new employees complete the Employment Eligibility Verification Form (Form I-9).  Form I-9 specifies which documents are acceptable to verify identity and employment authorization. 

Employers cannot discriminate by requiring other documents than the ones specified in Form I-9 or asking that additional documents be provided as long as the employee complies with the approved list of documents.  Any employer who discriminates or refuses to hire someone based on race, national origin, or immigration status or refuses to accept valid documentation will face penalties.  An employer cannot inquire about citizenship status or ask to see proof of work authorization during an interview.  However, an employer may ask if the job candidate can show proof of identity and work authorization if hired.  For help completing the Form I-9 and how to verify authenticity of documents, please see the government’s Handbook for Employers.

 E-Verify is an internet based system designed to help employers determine new hires’ work eligibility.  Employers with federal contracts may be required to use the system.  Also, many states are now requiring E-Verify to be used regardless of whether the employers have federal contracts or not. In the state of Georgia employers with more than 10 employees are required to use E-Verify for new hires and re-hires.  To enroll in E-Verify, go to the US Citizenship and Immigration Services website.

Are my Kids’ Summer Camps Tax-Deductible?

Are my Kids’ Summer Camps Tax-Deductible?

Summer time means vacation, beach trips, and time spent visiting family, but unfortunately most of us can’t take the whole summer off to look after the kids who are out for the summer.  The solution for many is summer camps.  And yes, you are able to write some of these expenses off on your taxes as a dependent care credit.

 

Here are the rules:

  1. Your child has to be your dependent and under the age of 13 when the expenses are incurred.

  2. You and your spouse must both be working or be actively looking for work (one may be a fulltime student if the other spouse is working) to qualify for the credit.

  3. The child care/ summer camp is a necessity for you to be working.

  4. Day camps, day care, preschool, and after school care qualify for this credit, but beware that tutoring programs and overnight camps do not qualify.

  5. Care provided by an individual does qualify, but the care taker cannot be your spouse, parent of the child, your dependent, or your child who is under the age of 19.

  6. You may not take this credit if your filing status is married filing separately.

 

How much can I claim?

For one child you can claim up to $3,000 of your dependent care expenses.  For two or more children the amount is a total of $6,000.  The size of the credit depends on your income level.  If you make $15,000 or less your credit is 35% of expenses claimed.  If you make $43,000 or more, your credit is reduced to 20% of claimed expenses.  This means if you have two children and make more than $43,000, your maximum credit will be $1,200 ($6,000 x 20%) on your tax return.

We wish you and your family a fun and adventurous summer, and you can always contact us if you have further questions or need help with your taxes!

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised restaurants and other franchised businesses.

Tax Avoidance vs. Tax Evasion

Tax Avoidance vs. Tax Evasion

Every once in a while, but not very often, our firm is approached by individuals or businesses who would like our help to hide some of their activities from the IRS.  In their mind they vision an accountant to be able to help them avoid taxes at any cost, no matter what method it takes. 

A couple of years ago we met with a new client who had a terrible experience with his previous tax preparer.  This tax preparer “helped” his clients and attempted to keep them happy by ensuring that they would receive nice refunds by reporting generous but fictitious deductions on their returns.   The IRS saw a pattern with this tax preparer’s firm and his whole client base was subjected to IRS audits.   Our new client, who said he had no idea this tax preparer had put fictitious deductions on his return, ended up owing the IRS taxes and penalties of several thousand dollars.  It ended up being a terrible and costly experience.  I don’t know if this tax preparer has spent any time in jail as of yet, but I do know that he has been permanently barred by the Feds from preparing any future tax returns.

“The difference between tax avoidance and tax evasion is the thickness of a prison wall” (quote by Denis Healey, British politician).

Tax evasion may get you in prison and is heavily penalized with fines, but tax avoidance is legal.  A good CPA or tax preparer should give his or her clients sound advice and methods to reduce taxes while complying with the tax law.  A CPA’s duty is also to help keep his or her clients out of trouble with the IRS.  Tax avoidance is very different from tax evasion as in the following examples. 

Tax Avoidance: 

  • Contribute to your IRA or 401(K) plan
  • Make charitable donations
  • Set up a home office (by following IRS guidelines)
  • Purchase new equipment (for business owners)

Tax Evasion:

  • Not reporting all income
  • Claiming fictitious expenses
  • Inflating donations
  • Under-reporting revenue, sales tax collected, and payroll (for businesses)

Talk to your CPA about ways to legally reduce your taxes through tax planning.  We encourage our clients to call us anytime throughout the year when they have any questions or wonder if a change in their current situation may affect their taxes.  When fall comes around, we contact our clients to see if they would like to have help with tax planning to avoid any bad surprises at tax time after year-end.  Because, after year-end there is very little that can be done to reduce your tax liability or increase your refund.

Our recommendation is for you to look for a good and honest CPA who’ll give you good tax advice and do his or her best to keep you out of trouble with the IRS. 

As a side note:  I once asked my dear mother-in-law, who worked many years in her husband’s CPA office, if they ever experienced people asking them to tweak the tax law.  She replied: “The answer to these people are that we have to report it the way we understand it should be reported according to the tax law.  If they don’t like it, they are free to go somewhere else.”  I think that is good and sound advice from a wise woman!

 

Kristin Allen

Vice President of Allen & Company, PC, Accountant, and Wife of a CPA

kallen@allenandcompanypc.com

www.allenandcompanypc.com

(770) 428-6229

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with quick service restaurants and other franchised businesses.

Uncertainty for Restaurant Owners in 2015

Uncertainty for Restaurant Owners in 2015

2015 is starting off well for the American consumers paying the lowest prices in years.at the gas pumps.  U.S. gas prices have fallen more than $1 per gallon over the last 12 months to a national average of $2.06, according to AAA.  The U.S. Energy Information Administration is predicting that the average American household will see spending at the pump decrease by $750 this year.  Low gas prices are helping businesses as well.  Many restaurant owners and market analysts believe restaurant sales are up due to the decreased fuel prices.  The consumers have more money to spend on discretionary items. (See article “Restaurant Stocks Rise on Lower Gas Prices” by Dominic Chu, Markets Reporter for CNBC.)

However, 2015 starts off with many uncertainties for business owners who are waiting to see what legislation President Obama and Congress will pass this year.  Four tax provisions were renewed at the end of 2014 which gave restaurants and other businesses some tax relief for tax year 2014.  These tax extenders expired on January 1st, and again there is uncertainty if Washington will extend these tax provisions for 2015 and future year

  • Section 179 Expensing:  businesses can expense up to $500,000 of new equipment, software, and qualified real property bought in 2014 if they financed less than $2 million of their purchases.  If this provision is not renewed for 2015, the maximum deduction allowed will revert to $25,000.
  • 15-year Depreciation:  Restaurants and retail businesses can depreciate certain improvements and new construction over 15 years.  If this provision is not renewed in 2015, the depreciation period will return to 39.5 years.
  • Work Opportunity Tax Credit:  Businesses can claim tax credits of $2,400 to $5,600 for hiring employees from demographic groups who have a hard time finding employme
  • Enhanced Charitable Food Donation Deduction Restaurants and grocers donating food to certain charities can deduct the basis (cost) of the food donated plus half the profit it would have earned if sold.  The donation may not exceed two times the cost or basis of the item.  It this provision is not renewed in 2015, only the basis of the food items will be deductible.

 

Other legislation that will have a direct impact on restaurant owners and other employers:

  • The Affordable Care Act (ACA)’s mandate for employers to provide health care coverage for full-time employees kicked in this year.  Employers with at least 100 Full-time Equivalent employees have to provide coverage to at least 70% of their full-time employees. The ACA defines full-time as working 30 hours a week or more.  The U.S House of Representatives just passed a proposal changing the definition of full-time to 40 hours a week (“Save American Workers Act”), but President Obama has already indicated that he will veto any legislation changing the current definition of full-time under the ACA.
  •  Increase in the Minimum Wage: The President reiterated in his State of the Union Address his desire to see an increase in the minimum wage.  Employers will have to decide on how to cover the additional increase in labor cost.
  •  Paid Sick Leave: In the State of the Union Address President Obama also urged Congress to pass legislation mandating paid sick leave for employees.  He supports a proposed bill, “The Healthy Families Act”, which requires employers who employ 15 or more employees to allow for up to a week of paid sick leave for their workers.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised restaurants and other franchised businesses.

How the Affordable Care Act (ACA) will Affect Your Tax Return

How the Affordable Care Act (ACA) will Affect Your Tax Return

Did you experience a drop in your insurance premiums this year from the government subsidies (Premium Assistance Credit) you received to help pay for your premiums?  Or maybe you saw your premiums double because you fell off the income limit cliff and didn’t qualify for any subsidies from the government?  Whether you’re among those who welcome the Affordable Care Act or among those who fervently oppose it, the fact is that it’s here, and we need to know how to deal with it.

We have put together a summary of what you as an individual taxpayer need to know about the Affordable Care Act (ACA) and how if affects your tax return:

1)    If you purchased health insurance through the federal Health Insurance Exchange and your household income is between 100% and 400% of the Federal Poverty Level, you may be eligible for a Premium Assistance Credit from the government to cover part of your insurance premiums.  The eligibility for the credit is based on income for the past two years compared to the poverty level for the family size.  Married couples must file Married Filing Jointly to be eligible.  If you paid too much in premiums based on your income, you’ll receive a refundable income tax credit.  However, if you paid too little based on your income you’ll owe the government for the underpayment.

2)    The penalty for not having Minimum Essential Health Coverage (Bronze plan which covers 60% of medical costs, e.g.) for 2014 is the greater of (a) $95 per individual divided by 12 or (b) 1% of “household income” divided by 12 multiplied by the number of months in which there is no Minimum Essential Health Coverage (this increases to $325 per individual or 2% of household income for 2015 and $695 per individual or 2.5% of household income for 2016).  The IRS can only collect the penalty by seizing tax refunds.  They are prohibited from prosecuting you, assessing interest and penalties, and imposing liens and seizures.  If the tax payer had Minimum Essential Health Coverage for at least 10 months out of the year, it’s considered being covered for the entire year.

3)    Recognized religious groups that object to receiving health care benefits, health care sharing ministry members, and prisoners may receive exemptions from health insurance coverage required by the ACA.  Certain aliens are also exempt. 

                       Other situations where people may be exempted from the coverage requirement:

o   People whose lowest cost premium is greater than 8% of their household income. 

o   People whose income is below the filing threshold ($10,000 for single filers and $20,000 for MFJ filers). 

o   Taxpayers ineligible for Medicaid in states that did not expand Medicaid coverage to comply with the Minimum Essential Health Coverage         requirement (Georgia is among these states).

o   Native Americans eligible for Indian tribe health care provider services.

o   People with certain hardships.

o   People who have lapses of coverage of less than three consecutive months.

o   Citizens and resident aliens physically present in other countries for at least 330 days within a 12-month period.

What you need to provide to your CPA or other tax preparer to prepare your tax return:

1)    Form 1095-A if you purchased health insurance through the federal Exchange.  If this form is incomplete or unavailable you should provide your monthly health insurance premiums paid, year-end pay stubs, and health insurance membership card.

2)    Exemption Certificate Number if you are claiming an exemption from Minimum Essential Coverage under the ACA due to being a member of a recognized religious group or sect, being ineligible for Medicaid in a state that did not expand Medicaid coverage to comply with the ACA, considering health coverage to be unaffordable based on your projected household income, being unable to renew your previous health insurance policy and considering other plans to be unaffordable, being a member of AmeriCorps, or experiencing a qualified hardship.  Exemption Certificate Numbers must be applied for by completing the application at the www.healthcare.gov internet site and mailed to the Department of Health and Human Services.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised restaurants and other franchised businesses.

The Importance of Monthly Accounting – A True Story

The Importance of Monthly Accounting – A True Story

A few years ago, we had a client who had a pretty good year selling shoes.  They rocked along all year making good money and then spending most of it.  They didn’t want to pay for monthly financial statements so they tried to summarize all of their income and expenses at year-end so that we could prepare an S Corporation tax return.

Well, because they didn’t have any accounting or financial statements, we couldn’t provide tax planning for them.  It turned out, that they owed $36,000 to the IRS and had to enter into an installment agreement to begin paying the balance off. 

Every business needs to have accurate and timely financial statements so they know how they’re doing and so they can plan for the future.  After year-end, there’s not much you can do to reduce your tax bill.

Our advice:  Stay on top of your accounting and have financial statements prepared monthly so you know how your business is doing.  Communicate with your CPA and have some tax planning done before the end of the year to find ways to reduce your taxes. 

Let us help you!

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised restaurants and other franchised businesses.

10 Tax Planning Strategies You Don’t Want to Miss

10 Tax Planning Strategies You Don’t Want to Miss

1. Establish an IRA.  Contributions up to $5,500 (or $6,500 if at least age 50) to a traditional IRA may be tax deductible if you have earned income and your adjusted gross income doesn’t exceed certain threshold amount

2. Contribute to your employer’s 401(K) plan.  You can have up to $17,500 (or $23,000 if at least age 50) withheld from your salary to reduce your taxable compensation and provide for future retirement needs.

3. Sell stocks that have incurred a loss to offset your capital gains and up to $3,000 of other income.  Any excess loss is carried forward to future years.

4. If you’re thinking about donating stocks to a charity, remember that if the stock has appreciated in value, donate the shares and you can take the fair market value of the donated stock as a deduction.  If you sell these shares before you donate them, you’ll have to report the gain of the shares on your return.  If the stock has decreased in value, sell the stock and donate the proceeds.  This way you get to report the loss on your return.

5. To avoid the underpayment penalty, make sure you pay in the lesser of 100% of last year’s tax liability (110% if your adjusted gross income was more than $150,000) or 90% of this year’s tax bill. 

6. Mail in your 4th quarter estimated state tax payment in December instead of January to get the tax deduction in 2014.  However, consult a tax adviser if you expect to be subject to alternative minimum tax.

7. Likewise, pay your January mortgage payment in December to take the tax deduction for the interest paid on the 2014 return.

8. Have you thought about whether you qualify for a home office deduction?  To get this deduction you need to use the office exclusively and regularly for business use.  You may deduct a portion of your homeowner insurance, utilities, and depreciation of the home.  You can also deduct any repairs or improvements done to the office.

9. If selling business assets or real estate, consider an installment sale or a like-kind exchange to reduce the gain recognized in 2014.  Such a move could also reduce your 3.8% net investment income tax imposed on net investment income for taxpayers with Modified Adjusted Gross Income exceeding certain amounts.

10. Taxpayers with income less than the federal poverty level ($15,730 for a family of two or $23,850 for a family of four, e.g.) may not be eligible to buy insurance under the Affordable Care Act.  To increase your income in order to qualify, consider withdrawing from a traditional IRA or converting a traditional IRA to a Roth IRA.



The tax law is complex.  If you need any help with your tax planning we’re always here to help you!

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised restaurants and other franchised businesses.

4 Important Strategies When Pricing Restaurant Menu Items

4 Important Strategies When Pricing Restaurant Menu Items

Accurate pricing of menu items is vitally important for restaurants to succeed.  If your prices are too high, your competitors will get your business.  If your prices are too low, you’ll miss out on profits.  The following are four helpful strategies to accurately price your menu items:

1)      Cost-Plus Method:  A good place to start is to determine what markup percentage you would like to have on your sales.  Then calculate your overhead costs (labor, rent, utilities, etc.) per meal by taking total overhead cost per month divided by total meals sold per month.  Add the direct food cost per meal to the overhead cost allocated per meal.  Multiply this total cost per meal times 1 plus the markup percentage to get the target price for your menu item.  You may also want to add an estimated inflation percentage to account for price increases throughout the year unless you change your menu prices more frequently.

                                                                                Example:

Direct Food Cost per Meal

+  Overhead Cost per Meal

Total Cost per Meal

X                    (1 + Markup %)

Target Price for Menu Item

2)      Competitor’s Prices:  Find out what competing restaurants in your area and region are charging for similar menu item.  Compare it to your target price calculated.  Do you need to reduce your price to compete?  Can you find another wholesaler of food who can give you a better deal on your food purchases?  Shop around to see where you can reduce your costs.

3)      Market or Value Factors:  Restaurants in tourist locations, airports, and sports stadiums can charge more for menu items because their visitors’ food options are scarce.  People in affluent areas are in general less sensitive to slight price increases.

4)      Attribute-Based Pricing Method:  Research has shown that people are willing to pay more for menu items with longer specific descriptions of unique attributes.  Justin Massa, CEO of Food Genius, in his 3 part article “The Cost of Outdated Pricing Strategies” in QSR Magazine points out that restaurant owners are leaving profits on the table if they don’t apply this method.  Mentioning that your french fries are seasoned or hand cut will allow you to charge a higher price than for just regular french fries.  Use terms like artisan, glazed, and dusted to describe your menu items and you can charge a little more.  He also points out that consumers are enticed by locally grown produce.  Mention on your menu board the local farm you’re getting your produce from.

And, of course, always promote your items with higher gross profit margins by making them stand out on the menu or have your wait staff recommend these higher profit margin items to your customers.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised restaurants and other franchised businesses.

Take a Tax Deduction for Being Charitable

Take a Tax Deduction for Being Charitable

It’s the end of the year and the holiday season with its spirit of generosity and goodwill is quickly approaching.  This is also the time of year to think about tax planning and ways to reduce this year’s tax bill.


Here are a few things to keep in mind regarding charitable donations:


• Cash and property contributions of more than $250 requires a written acknowledgment from the charity.  Donations of $500 or more requires, in addition to the written acknowledgment, a more detailed description such as the cost of each item donated and estimated fair market values of these items.

 

• Any item donated with a value of more than $5,000 will need an appraisal.  The cost of the appraisal is tax-deductible.

 

• Cash donated without a written acknowledgment from the organization or proof such as a cancelled check cannot be deducted on your tax return!  The cash you put in the collection plate at church is not deductible since there’s no proof of how much you donated.

 

• Donating stocks that have increased in value is another good way of being charitable. You can take the fair market value of the shares donated as a charitable tax deduction.  Since you didn’t sell the shares, you won’t be taxed on the capital gain. If the stock has decreased in value, sell the stock first and then donate the proceeds.  This way you get to report the loss on your return.

 

• Any value you receive from the organization in return for you donation will reduce the deduction you can claim on your return.  If you pay $200 to attend a charity event where the dinner you receive is a worth $50, you can only claim $150 as a donation to the charity.

 

Finally, for donations to qualify as tax deductions, they have to be donated to qualifying nonprofit organizations and charities.  Helping a family member or a friend who is down on his luck or a neighbor whose house burned down in a fire are wonderful acts of generosity and kindness, but, unfortunately, you can’t deduct these types of donations on your tax return.

 

Go and be charitable, keep your receipts, and Happy Holidays!

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised restaurants and other franchised businesses.

How to Reduce the Risk of Robberies and Violence in Your Restaurant

How to Reduce the Risk of Robberies and Violence in Your Restaurant

Restaurants are considered “high risk establishments” when it comes to workplace violence.  A study done by the Bureau of Labor Statistics in 2000 found that 45% of workplace homicides happened in restaurants and bars.

Restaurant workers interact with all kinds of people, including violent ones, handle cash, and work late at night or early in the morning when not many people are around.  These are all factors that put the restaurant employees at risk for violence.

 

How to reduce the risk of robberies and violent acts done to employees in the restaurant:

  • Have clear written and communicated anti-violence policies and make sure the employees are trained for crisis situations.
  • Have police or a security consultant perform a safety review.
  • Store as little as possible of cash in cash registers, store the cash in a safe, or make frequent runs to the bank.
  • Install good lighting, video cameras, and alarm systems with panic buttons.
  • Install a peep hole in the backdoor and make sure the backdoor is locked.
  • Change the locks when workers who have keys terminate employment.
  • Install door detectors to notify the employees when customers enter.
  • Post emergency phone numbers on telephones in various places in the work area.
  • Have employees work in teams.  An employee on duty by him- or herself is an easier target for criminals. 

 

How to reduce the risk of employees acting out violently:

  • Conduct a criminal background check on applicants.
  • Conduct all terminations with respect and dignity.

 

Taking measures to keep your employees and restaurant as safe as possible from violence and robberies is a good financial decision.  It’ll also protect against any potential lawsuits brought by employees who have been hurt by violence in the restaurant.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised restaurants and other franchised businesses.

Are My Moving Expenses Tax Deductible?

Are My Moving Expenses Tax Deductible?

So you got that exciting job offer across the country or maybe you finally got employed again after having been laid off in the recent years’ recession.  If you’re moving due to change in employment, starting your first job out of school, or getting back into the work force after having been laid off, your moving expenses may be deductible on your tax return.

For your expenses to be deductible you have to meet the time and distance tests:

Distance test - To be able to deduct your moving expenses you have to move at least 50 miles from your former job location so your commute will be at least 50 miles farther from your former home.  If you’re starting your first job out of college the distance test would be 50 miles from your former home.  Likewise, if you’ve been unemployed for a substantial amount of time (time period of unemployment is not specified in the regulations) the distance test is 50 miles from your former home.

Time test - To be able to deduct your moving expenses you must work full-time at least 39 weeks in the first 12 months at the new location.  If you’re self-employed, in addition to the requirement of 39 weeks of full-time work in the first year, there’s a total of 78 weeks of full-time work required in the first 24-month period following the move.  You still take the deduction in the year of the move even if the time test hasn’t been met yet.

What type of expenses are deductible and nondeductible?

Deductible expenses - Expenses you incur traveling from your old home to the new.  These expenses include lodging paid on the way to the new location, automobile expenses (mileage can be taken in place of actual auto expenses), insurance, packing, and transportation of your personal belongings.

Nondeductible expenses - Meals, house hunting expenses, temporary lodging in the new location, and any expenses incurred buying or selling your home are not deductible as moving expenses.

 

Deductible moving expenses are reported as an “adjustment to income” on the tax return, so you can take the write-off even if you don’t itemize your deductions. 

Some employers will graciously give you a moving allowance or refund your moving expenses.  These reimbursements from your employer may or may not be reported on your W-2.  To ensure accurate reporting, please consult a CPA.

 

Safe travels and best wishes for you in your new job!

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchises.

Employees Receiving Kickbacks from Vendors Hurt the Restaurant Owner

Employees Receiving Kickbacks from Vendors Hurt the Restaurant Owner

Vendors offering high-value gifts or sometimes even cash to obtain supplier contracts with restaurants is not uncommon in the restaurant business.  When an employee accepts kickbacks from vendors in return for funneling business to these vendors, he’s stealing from the restaurant.  The vendor will usually provide inferior quality merchandise, short-count the order, or charge a higher price to cover the cost of the kickbacks paid.

How can restaurant owners prevent this from happening?

1.       Have a written and clear policy on what type of gifts are acceptable and not acceptable to receive from vendors.

2.       Replace the employee in charge of purchasing occasionally or rotate the employees’ duties to more easily discover fraud and abuse.

3.       Perform surprise counts of the inventory to check if the orders are short-counted.

4.       Review the bid sheets for obvious excessive pricing and do some competitive bidding for products purchased.

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchises.

A Business is What it Charges

A Business is What it Charges

Pricing does not create value per se, but it can greatly influence the perception of it.  Price gives customers clues as to who you are, what you do, who you serve, and ultimately how you perceive yourself.  Mercedes-Benz does not advertise by claiming they have the lowest- and best-priced cars.  Mercedes sells luxury and status, and its customers are willing to pay the higher prices.  Beauty is in the eye of the beholder, and so is value.

So, how do you avoid being the low-cost provider always competing based on price?

  • Focus on the value of your product and services.  Educate the customer on why your product is a better product than a lower-priced competing product.  Emphasize the value and explain why your product is more expensive.  Customers will pay more for a better product that they believe will do the job right.
  • Stop Discounting.  Cutting your price to attract a new customer encourages customers to constantly ask for future price concessions, thereby subsidizing your worst customers at the expense of your best ones.  If customers are attracted by your low price, they will easily leave for another company that offers an even lower one.

Finally:  You don’t want to win the customer award for cutting your prices every year.  You’ll eventually put yourself out of business!

 

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchises.

Want Tax-Free Income?  Consider Opening a Roth IRA.

Want Tax-Free Income?  Consider Opening a Roth IRA.

Traditional IRA contributions are tax-deductible in the year of contribution and the withdrawals are taxable in the year withdrawn.  A contribution to a traditional IRA is a good way to possibly reduce your current year’s tax bill. 

However, contributions to a Roth IRA is a great way to save you taxes in the long run on your retirement savings.  The reason for this is that while the contributions to the Roth IRA account are not tax-deductible, the earnings in the account over the years will grow tax-free.  A Roth IRA account makes sense for anyone who expects to be in a higher tax bracket later in life.  If this is the situation, it’s better for the taxpayer to pay the tax on the contributions made now while he’s at a lower tax rate than pay a higher tax rate on the withdrawals from the IRA later in life.

Benefits of Roth IRAs:

  • Tax-free earnings on savings.
  • No penalties and taxes anytime on withdrawal of contributions (Note: earnings can only be withdrawn tax-free after you are 59 ½ years old when the account has been open at least 5 years).
  • No age restrictions on contributions.
  • No minimum distribution required at 70 ½ (required with traditional IRA).

 

The maximum contribution is $5,500 for 2014 ($6,500 if 50 years or older) and you can’t contribute more than your earned income.  The eligibility to contribute to a Roth IRA phases out for higher income earners at $191,000 for married tax filers and $129,000 for single filers for 2014.

The deadline to take advantage of this great savings tool and make Roth IRA contributions for 2014 is the tax return deadline of April 15, 2015.

Please don’t hesitate to contact us if you need any further tax advice or tax planning.

 

Allen & Company, PC  - a north Atlanta CPA firm providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchises.

Is Your Company a Victim of Cash Theft?

Is Your Company a Victim of Cash Theft?

Cash Theft Happens Every Day

A lot of the theft that takes place in the workplace is done by employees. Based on a report by the Chamber of Commerce, three out of four employees will be stealing from their employers this year.


A Method of Cash Theft

One of the most common and hardest to detect method of stealing is diversion of cash receipts. Stealing of cash can occur at two different times:
1. Before the transaction is recorded as income, which is known as “skimming.” Skimming can happen by not ringing up a sale or under-ringing a sale. It can be identified through large cash shortages or declining gross profit.
2. After the cash is recorded as income but before it is deposited in the bank. A company can use bank reconciliations to discover cash that wasn't deposited but was recorded as a sale. A proof of cash worksheet, which is an extended version of a bank reconciliation, also can be helpful in discovering cash fraud.

 

Avoid Cash Theft in Your Company

Internal theft happens all the time, and many times it is while the cash is being handled and before it is deposited in the bank. A thief can be spotted by hidden cameras in the point of sale area. Using rotating employees to perform cash register duties can also be a way to cut back on cash theft.

 

Brittany Nichols
Allen & Company, PC
(770) 428-6229 (T)

5 Ways to Increase Your Net Profit Margin

5 Ways to Increase Your Net Profit Margin

I once heard a business owner say “I’m not in business to make money, but to help people!” That’s a noble statement, but let’s face it, most of us would like to make a good living with our business as well as helping our customers. A successful business needs to have a positive net profit margin or it won’t stay in business for long.

Here are 5 ways to increase your profit margin:

1. Focus on selling high-margin products and services.

 Calculate the net profit margin on each of your products and services and then promote those with the highest.  Consider abandoning the lowest-margin products or services.

2. Sell only quality products and services.

By selling quality items, you’ll be able to increase your prices.  Emphasize the quality of your product.  Make sure your existing clients can afford the higher quality products and that your profit margin is higher for these products than for less quality products.

3. Sell an exclusive label or become an expert.

Since you are the only one selling this product your customers will pay the higher price you charge because they can’t get the same product somewhere else.  Likewise, by developing a niche and becoming an expert in an area with a limited number of service providers, you can increase your prices.

4. Hire a commission-only sales team.

By employing commission-only sales people, you avoid many of the unnecessary insurance and fringe benefit expenses and ensure that you only pay based on performance.

5. Reduce all costs by 10%. 

In conjunction with creating your budget, try to reduce all costs by 10% by challenging every line item.  Get three quotes for every expense category (this does not necessarily apply to your CPA, since a good CPA is priceless!  :) ).

 

Kristin Allen

Allen & Company, PC  - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta.  Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses.  Extensive experience working with franchised quick service restaurants and other franchised businesses.

How to Motivate Your Restaurant Managers

How to Motivate Your Restaurant Managers

An incentive compensation program that rewards managers with bonuses based on the restaurant’s performance and profitability has been found to be an effective way to increase profits by many restaurant owners.

• Base the bonuses on prime cost control and how well kept the restaurant is. A restaurant manager most likely can’t control sales, but he has some control of the food and beverage cost, labor cost, cleanliness of the restaurant, and employee training.

• The incentive compensation plan should be simple, realistic and specify which managers are included in the plan.

• The incentives should be capped at a maximum level to avoid service and quality deterioration. For example, you want to prevent managers from buying inferior products to reduce cost.

Managers who receive incentive compensation will be more invested in the restaurant’s success and will also ensure that their employees are better trained and provide better service. It’s a win-win for both the manager and the owner!

Note: It’s wise to consult with a lawyer before you draft an incentive compensation program for your restaurant since it’s considered to be a legal contract.

 

Kristin Allen

Allen & Company, PC - a CPA firm with a specialty in franchises

Selecting the Right Business Entity Type

Selecting the Right Business Entity Type

Photo: Anatoliy Babiychuk,  http://www.dreamstime.com/business-objects-stock-images-rimagefree198174-resi6330728

 

Working with a new client and looking through their payroll files we realized that they had filed taxes as a Sole Proprietorship and not as their elected status of an S-Corporation.  Fortunately we were able to amend 3 years of tax returns and the client got tax refunds of approximately $21,000 which they had overpaid in taxes for those 3 years.  Yes, the business entity type you choose for your business can certainly have an effect on your taxes!

 

The 4 Business Entity Types and their advantages and disadvantages:

Sole Proprietorship:  When going into business for yourself, this is an easy way to start out.  This is a one-owner entity and no legal filing is required (although a state business license may be required). The owner will not have to worry about paying him or herself a salary, so there are no payroll tax filings required which makes it easy.  The income and expenses from the business is reported on the owner’s 1040 usually as a “schedule C business”.  The disadvantage of a Sole Proprietorship is that net income from the business will be subject to self-employment tax in addition to regular tax, which was the case with our new client.   New businesses often experience losses the first years in business, so self-employment tax may not be a big issue for a start-up business.  When the business is growing and becoming more profitable, the owner would most likely benefit by forming a Corporation and possibly electing S-Corporation status.

Partnership:  An entity with more than one owner.  Like the Sole Proprietorship no legal filings are required for a General Partnership (but it is advised to make the partnership either limited or an LLC for liability protection), and the partners are not allowed to pay salaries to themselves.  Income and expenses are reported on the partners’ 1040s on a K-1 schedule, and net income is subject to self-employment tax for the partners.   Filing of an annual Partnership tax return is required.

Corporation:  This is a good choice of entity for a company that is looking to go public, since there is no limit to the number of shareholders.  The disadvantage is double taxation.  The Corporation pays taxes on net income on the corporate tax return.  The shareholders are paid dividend distributions by the Corporation which are again taxed on their individual 1040s.

An S-Corporation is a special tax treatment for qualifying entities.  It can have anywhere from 1 to 100 shareholders.  A legal filing is required.  For profitable businesses, this may be a good choice of entity type for business owners since net income is not subject to self-employment tax.  The S-Corporation’s net income is taxed on the shareholders’ 1040 via form K-1.  Distributions are tax-free to the extent of stock basis, but the owners must pay themselves a “reasonable salary”, therefore, file payroll tax returns.  In other words, the owners cannot choose not to pay themselves salaries and just take tax-free distributions, even if it seems tempting to avoid the payroll taxes…  The owners’ personal assets are protected from creditors of the corporation.  An annual S-Corporation tax return is required.

Limited Liability Company (LLC):  An entity that is easy to organize.  No legal filing is required, but is advised.  LLCs can be taxed as a Sole Proprietorship if there’s only one member, as a Partnership if there are at least two members, or as a Corporation if they so elect.  LLCs are very flexible as they can have more than 100 members.  They can be owned by foreigners and by businesses and can have more than one class of stock.

------------------------------------------

This is just a brief description of the four business entity types.  We recommend you seek advice from a CPA when selecting the business entity type that is right for your business.

 

Kristin Allen

Director of Marketing and Accountant

Allen & Company, PC, Kennesaw, Georgia

www.allenandcompanypc.com

kallen@allenandcompanypc.com

(770) 428-6229

Should You Throw Out Your Old Tax Returns?

Should You Throw Out Your Old Tax Returns?

Photo: Abdone,  http://www.dreamstime.com/woman-looking-stock-photos-imagefree140043

 

Some people are pack rats while others cherish a good spring cleaning and a house free from clutter and old paper work. But how long should you really hold on to your tax returns?

3-6 year rule

The common rule is to keep your tax return with all the backup documents like receipts, mileage logs, W-2s and 1099s etc. for 3-6 years following the date of filing or the due date of the return. After 3 years the IRS’ statute of limitations to initiate an audit has run out unless you have neglected to report more that 20% of your income. In this case the IRS has 6 years to initiate an audit. (If you have failed to file a return or have filed a clearly fraudulent return, the IRS is free to pursue you at any time.)

A sad story of tossed returns

You may need your records for other purposes than to defend yourself against the IRS. Eva Rosenberg’s Marketwatch April 2013 article tells a story of a teacher whose social security statements were missing retirement benefits for two of the years he had worked early in his career. Since the IRS only keeps a record of old returns for 6 years, they were not able to give him the old tax returns so he could prove that the Social Security Administration had the wrong data. The poor teacher had to put off his retirement for another two years!

Keep your tax returns forever

So to be on the safe side, save your tax return forms forever! Yes, you may scan and store them electronically. If not to correct your social security benefits, you may need the old returns to show depreciation taken, the cost of investments, or to apply for a mortgage or disability insurance. After the 6 years has expired it’s ok to do some spring cleaning and shred most supporting documents like donation receipts, credit card statements, mortgage statements, and cancelled checks.

How to get prior year tax information from the IRS: http://www.irs.gov/uac/Newsroom/How-You-Can-Get-Prior-Year-Tax-Information-from-the-IRS

Kristin Allen
Director of Marketing and Accountant
Allen & Company, PC
Kennesaw, Georgia
kallen@allenandcompanypc.com
www.allenandcompanypc.com
(770) 428-6229

Fast Food Workers’ Unrealistic Demands for Higher Wages

Fast Food Workers’ Unrealistic Demands for Higher Wages

This week fast food workers in 60 cities around the country went on strike demanding the minimum wage to be raised to $15.  The nation’s minimum wage is currently $7.25, and it’s estimated that fast food workers in Atlanta earn median wages between $8.50 and $10.70 an hour.  President Obama, as stated in his State of the Union address this year, would like to see the minimum wage raised to $9 an hour. 

The strikers’ argument is that there is no way anyone can provide a living for themselves living on the low minimum wage and certainly not provide for a family.  Yes, it is unrealistic to provide a good living for a family as a cashier at McDonald’s in the long run.  It is also unrealistic to demand franchisee owners to increase the minimum wage by 100% to $15 an hour with the tight profit margins the restaurants are already operating with.  The typical restaurant has earnings before interest, taxes, and amortization of around 3% of revenue, according to the National Restaurant Association.  With labor costs already making up about 25% of revenue, the numbers are not going to work for the franchisee in order for their restaurants to operate with profits without significant price increases and/or lay off workers and replace them with automated ordering kiosks.

In the shaky economic situation we currently live in where small business owners are still struggling to make it, I would argue this is a very bad time to raise the minimum wage.  Fast food customers are already very sensitive to prices which is also why the $1 value menus are so popular with them.  Significant price increases would not go over well, the restaurant owners would be faced with less business and would end up having to close stores and fire employees.  A minimum wage increase intended to help low paid workers will end up hurting them instead. They’ll be without jobs.

The job as a cashier in fast food is not meant to be a career for the long run.  It’s an entry level job, where workers can learn some basic skills like showing up on time, being responsible for duties given, displaying a good attitude and providing good customer service.  Not everybody will be promoted to restaurant managers, but this country offers plenty of educational opportunities and training courses for those who wish to better themselves and their position in life.  In the meantime, while working on reaching their goals, some workers may have to work an extra job to pay their bills.

Kristin Allen
Director of Marketing and Accountant
Allen & Company, PC
Kennesaw, Georgia
kallen@allenandcompanypc.com
www.allenandcompanypc.com
(770) 428-6229

Franchised Restaurants’ Economic Growth with Obamacare Looming

Franchised Restaurants’ Economic Growth with Obamacare Looming

2013 seems to be the year of recovery from the Great Recession in the restaurant business with promising pre-recession growth, new-store openings and higher sales.  According to 2013 Nation’s Restaurant News Top 100 research, the Top 100 restaurant chains increased their sales by 5.3 percent compared to last year’s.  New franchised restaurants contributed to much of this growth, and the number of franchised restaurants among these top chains increased by 3 percent.  The biggest growth in number of franchised stores was experienced by Subway, Burger King, 7-Eleven, Dunkin’ Donuts and Jimmy John’s.

According to the report, consumers seem to be willing again to spend their money on eating out.  Still with very slow economic growth and high unemployment, most of the growth in sales is seen by fast-food and quick- service restaurants.  The economy and unemployment is still affecting most sit-down restaurant chains negatively.

Investing in franchised restaurants has appealed to many.  The deep economic recession we have seen encouraged many who lost their jobs in the corporate world to seek out franchise ownership as an alternative way of making a living.  There’s also the great attraction of being self-employed rather than relying on a pay-check from somebody else - someone who may decide to downsize you or replace you with a younger and lower paid employee any day.  The initial investment fee for a restaurant is hard for many to come up with.  As example McDonald’s requires a minimum of $750,000 in non-borrowed personal funds.  Burger King requires $500,000 in cash.  A “low-budget choice” is Papa John’s Pizza which requires only $50,000 in cash.

Despite the positive growth trend and recovery in the restaurant business, a big issue is still casting a shadow of uncertainty over the industry.  The mandated health care coverage in Obamacare has many restaurant owners worried.  The employer portion of the law has been postponed until 2015, but owners are already thinking about having to cut their employees’ hours back to less than 30 hours a week to avoid paying the insurance coverage.  Many will have to bury the additional cost for health insurance in price increases to the consumers.  Or as one top executive of a major breakfast chain stated it (to a friend of mine):  “Instead of just passing along the cost of Obamacare and burying it in a price increase we’ll publish an OBAMACARE SURCHARGE next to every item on the menu so that patrons of the restaurant can see for themselves the cost of "free" healthcare!”  It certainly is an interesting idea.

Top 10 Restaurant Chains (in total sales) in 2013

  1. McDonald’s
  2. Subway
  3. Starbucks Coffee
  4. Burger King
  5. Wendy’s
  6. Taco Bell
  7. Dunkin’ Donuts
  8. Pizza Hut
  9. Chick-fil-A
  10. Applebee’s Neighborhood Grill & Bar

~ According to 2013 Nation’s Restaurant News Top 100 research

Kristin Allen
Director of Marketing and Accountant
Allen & Company, PC
Kennesaw, Georgia
(770) 428-6229
kallen@allenandcompanypc.com
www.allenandcompanypc.com
 

Has Your Franchised Restaurant Become a Financial Nightmare?

Has Your Franchised Restaurant Become a Financial Nightmare?

Turn Your Restaurant Around Before You Need Chef Ramsay

You’ve probably seen world-renowned chef Gordon Ramsay helping struggling restaurants turn their businesses around on the hit television show Kitchen Nightmares.   Chef Ramsay often finds old food, inexperienced staff, unsanitary refrigerators, and even owners who don’t have a clue about their financial information.  Although Chef Ramsay can help restaurants change their operations, renovate their dining rooms, update their menus, and help the owners understand basic restaurant finances, you can begin taking control now rather than exposing your restaurant’s issues in front of a nationally-televised audience.

Just Because You’re Franchised Doesn’t Mean You Have Total Support

Franchised restaurants don’t have as much flexibility as non-franchised restaurants due to the need to comply with franchise guidelines.  However, they can all offer fresh food, train their staff, and clean their kitchen.  While high franchise fees offer some great benefits like proven systems, an operations manual, and established menu items, most franchisors provide little or no accounting or tax help.

Consider the following to improve your restaurant’s financial condition:

  • Know your ideal key financial ratios such as food cost as percentage of sales and inventory turnover.
  • Understand your ideal key performance indicators like sales per seat and sales per labor hour.
  • Count your high value inventory items daily.
  • Analyze weekly reports to discover things like a pattern of slow sale days, inventory waste or theft, and extra labor hours.
  • Offer incentives for managers to reduce food and labor costs, increase sales, and improve service and cleanliness standards.
  • Develop and use a weekly budget to project sales, control food and beverage costs, and schedule staff.
  • Analyze the results of coupon, television, and other advertising programs by determining the additional sales, customer counts, and average guest checks as well as identifying the additional expenses incurred.

After Taking Control, What Next?

After you’ve increased your restaurant’s sales and controlled costs, you still can’t relax.  You must continue to analyze your operations and financial reports using the above tools and add new tools to further improve your restaurant.  But you don’t have to do it alone.  A CPA firm with franchise experience can provide insights in improving cash flow and profits and in reducing taxable income.  In fact, studies have shown that the most successful businesses outsource what they don’t do well and focus on things that are important to their core business.  While an accounting firm may not use language as colorful as Chef Ramsay, their assistance may be just as valuable.

Michael Allen, CPA
Allen & Company, PC
(770) 428-6229 (T)
(770) 425-5481 (F)
mallen@allenandcompanypc.com
www.allenandcompanypc.com
michael.robert.allen (Skype)

Dark Chocolate and Allen & Company are Good for You

Dark Chocolate and Allen & Company are Good for You

My wife, Kristin, recently began buying granola cereal with berries. And dark chocolate. The cereal doesn't last very long as our daughters eat it for breakfast, lunch, and sometimes dinner. Dark chocolate, while high in fat, has several healthy benefits. And that's why our CPA firm, Allen & Company, keeps dark chocolate on hand for our clients.

Now let's compare some of the benefits of dark chocolate and the benefits of Allen & Company. Dark chocolate can help lower your blood pressure and prevent the formation of blood clots. Allen & Company can also help lower your blood pressure by suggesting strategies to reduce your income taxes. Dark chocolate increases blood flow to the heart and to the brain, thereby improving cognitive function. Allen & Company is also good for the brain as our people can help you claim legal deductions and credits on your income tax returns that you may not have been aware of. If you're a business owner, we can help you understand your financial statements and use them as a tool to manage your business and make better business decisions. Finally, dark chocolate has a low glycemic index and helps control blood sugar. Allen & Company can also help you take control. We can help you create a budget and control your spending. If you want to save a lot of money in a very short time, create a budget and abide by it. In conclusion, add half an ounce of dark chocolate to your diet and improve your mood. Add Allen & Company to your list of trusted advisors and improve your financial health.

Michael Allen, CPA
Allen & Company, PC
(770) 428-6229 (T)
(770) 425-5481 (F)
mallen@allenandcompanypc.com
www.allenandcompanypc.com
michael.robert.allen (Skype)