01.26.17 | The Ins and Outs of Form 1099-Misc Reporting
With the tax season upon us, there are a few things business owners need to do.
When you run a business, any payments you make as business related expenses must be reported to the IRS using the 1099 form as non-employee compensation if the payments match the following criteria:
- Total payments of $600 or more to any one business
- The vendors legal structure is individual, partnership and LLC treated as a partnership
- Payments to attorneys and health care providers must be reported regardless of legal structure
- Payments are not related to product purchases
- Payments are not made through credit card, debit card or a qualified third party network such as PayPal
Your business should have a 1099 process to ensure compliance with the IRS since penalties can be severe for you as the business owner for not properly filing 1099s. I recommend the following process:
- At the start of each year for existing vendors and for any new vendors require vendors to provide a signed IRS W-9 Form prior to issuing any payments. This form provides the legal structure of the vendor so that you know before tax filing season what vendors need to have 1099s issued.
- Adhere to the IRS 1099 filing deadline of January 31. The IRS requires vendor 1099s be filed with the IRS and sent to vendors by end of business January 31.
If you need assistance in setting up your annual 1099 filing process, give Loftis Consulting’s Bookkeeping Service department a call at (312) 772-6105 to learn more or visit us at LoftisConsulting.com.
In mid-May of this year, the U.S. Department of Labor revised their rules regarding overtime pay that will take effect December 1. This new rule will impact all types of businesses, small and large and for profit and non-profit alike. This law change will have a major impact on how employers staff and pay employees. The new rules are as follows:
- Increase the minimum salary threshold for full-time employees to be considered exempt from overtime earnings from $23,660 per year or $455 weekly to $47,476 or $913 weekly.
- Only 10% of non-discretionary bonuses and commissions can make up employee salaries
- If qualified exempt employee salary is not increased, overtime pay at time and a half must be paid for any hours beyond 40 hours per week regardless of title or duties
As a business owner, you will need to make some decisions on how to best manage the change to the labor costs of the business. Options include:
- Keep salaries the same but eliminate or reduce overtime through improved efficiency. Take the time now to review processes in order to increase efficiency. Also, this may be the time to invest in a system if the investment costs make sense in light of the law change.
- Raise salaries to the new minimum. This will exempt the business from paying overtime to qualified employees and thus any overtime hours will be unpaid. Take the time now to get an understanding of the amount of hours worked that could result into overtime pay for exempt employees.
- Keep salaries the same but pay overtime. This option only works if you can control the amount of overtime hours to a reasonable level for your business or the amount of overtime that is worked is irregular or low.
- Lower salaries and pay overtime. This option only works if employees do not feel that something is being taken away from them. If they do, then employee turnover may increase.
- Keep salaries the same but eliminate or reduce overtime by hiring more employees. This option may work by shifting the higher overtime pay to regular salary rates if the amount of overtime is regular and high enough to cover new part-time or full-time employees. If your business is seasonal, it may be easier to hire independent contractors during the busy times.
- Switch pay structure to an hourly rate instead of a salary
No matter what option is selected, hours worked will have to be closely tracked now for both exempt and non-exempt employees. Do not wait until December 1 to implement a new time tracking system.
If you are a little overwhelmed or just too busy to deal with the new labor law rules, Loftis Consulting can help by reviewing your business processes in order to save labor hours to lessen the impact of the new labor law. In addition, Loftis Consulting can complete an analysis labor costs for each scenario – – as is, increased salaries, lower salaries and current salaries with overtime to help you decide what makes sense for your business from a cost perspective.
Give Loftis Consulting a call today to schedule an appointment today at (312) 772-6105 or email us at firstname.lastname@example.org.
With the Patient Protection and Affordable Care Act (PPCA) becoming fully effective in 2015, it will become more important than ever to get the independent vs. employee classification correct. In 2015, any company with 50 or more employees will be required to offer healthcare insurance benefits to its employees working at least 30 hours per week. Independent contractors are not considered employees and thus employers would not be required to provide insurance benefits for independent contractors and would be able to save money not only from employment related taxes but also from insurance costs.
Given that the misclassification of independent contractors is an ongoing IRS issue combined with the upcoming implementation of PPCA, the IRS will be even more diligent in making sure businesses are following the rules. The IRS provides the following guidance on classification:
1. Behavioral – If the company has the right to control and how and what the worker does then he or she is not an independent contractor
2. Financial – If the company controls how the worker is paid as well what is reimbursed and what tools are used then the worker is not an independent contractor.
3. Relationship Type – If the worker receives employee-like benefits such as vacation pay and/or the relationship is such that it is critical to the ongoing operations of the business over the long-term then the employee is likely not an independent contractor.
It does not matter if you have a written contract in place. The treatment of the worker will overrule any written contract if the nature of the work falls into one of the three categories listed above. In addition, it does matter if the worker is full-time or part-time for classification purposes. For more insight on worker classification, visit IRS.gov or discuss with your tax specialist.
07.16.12 | Why Can’t I Pay Myself This Month?
“Why can’t I pay myself at the end of the month?”
As a part-time CFO, I get asked this question a lot by prospective clients who are business owners. In the world of business cash will always be king. A business may be profitable on paper but from a cash flow perspective in the red with constantly overdrawn bank accounts. For any business to have positive cash flow, the business will need to have more money (real dollars) coming in than going out. It sounds simple but here are some common reasons why business cash flow is negative and some ways to turn it around:
- No understanding of the amount of actual cash coming in each month. Revenue or sales do not equal cash unless you are a cash only business.
- Create a cash forecast to understand cash movement using the information provided on your bank statements
- Monitor cash position weekly.
- Not focusing on the most critical barriers to cash flow first.
- Uncollected accounts are basically free services or products that cost your business money. A standard process needs to be implemented for unpaid accounts based on the amount outstanding, customer type and length of delinquency.
- By monitoring past due accounts your business will be able to start seeing patterns in behavior for the type of customers that pay habitually late and tighten of credit policies accordingly. For example, a courtesy email or phone call for customers that are 5 days past due could prevent those customers being 30 days past due since the likely trigger for them to pay is when they get the past due bill in the mail a month later.
- Timeliness matters. The longer it takes the business to follow up on cash impacting items the longer it will take for the business to get the cash in the door
- Not realizing cash going out the door is equally as important as cash coming in the door
- Only pay bills when you have the cash in the bank. Overdraft fees are preventable and is using up cash you don’t have.
- Brainstorm ways to do more with less.
By getting a handle on the business’ weekly cash position, speeding up invoice collections and strategically deciding when and how much to pay bills you can start paying yourself and understanding where every dollar in your business is coming from and going to.
For more ways to help clarify your cash flow issues and improve cash read “How to Keep Your Business Cash Flow Healthy with Financial Checkups“.
One of my clients who owns and runs a Chicago day spa was paying his employees every week. When the business had a slow week, he was struggling to make payroll. Does this sound like your situation? Employee costs are usually the largest expense for companies, no matter what their size. Here are four tips to better cash management.
Establish a business line of credit before you need it. A line of credit will enable your business to weather short-term cash crunches due to temporary cash flow problems such as weekly fluctuations in business sales.
Pay employees bi-weekly. Pay independent contractors only after you have received payment. By managing payroll this way you can reduce administrative costs and balance cash receipts with cash payments.
Transition from paper checks to direct deposit. This not only clears up administrative tasks such as cutting and distributing checks but also cuts costs.
Hire the right people the first time. If you are constantly refilling positions because you had to fire the person for non-performance or they quit something is wrong with your hiring process. The cost of training and rehiring can add up both in dollars and time. If you do it right the first time you will not only save money but also frustration.
Hire the right people who can fill multiple roles. This works great for businesses that suffer from drastic changes in demand. For example, a day spa may be fully booked on the weekends but suffer from low demand on weekdays. To combat this, I would recommend you hire an employee who could fulfill multiple roles such as massage therapist and esthetician. Instead of having two idle employees you now have one that can service clients in multiple services if demand picks up.
By following these tips you can lower the administrative burden of payroll and save cash. Visit our website to learn more about Loftis Consulting and its part-time CFO services.
07.13.11 | Business News: Unemployment Tax Reduced
The federal government is letting a 35-year old “temporary” tax expire. Effective immediately, the unemployment tax rate will be reduced by 0.2%, saving employers about $14 per employee. Hey, every bit helps.