Tag Archives: cpas in maumee

Cash Flow Management

The entrepreneurial spirit that compels people to start their own business does not necessarily translate into them being good business managers and this can lead to a stumbling block for many small business owners.

cashFlowOne of the most troubling aspects of running a small business can be learning how to manage cash flow. Understanding the basics of cash flow can help owners plan for large and small upcoming events in their business.

Cash is what you have at any given time to meet your daily expenses. The cash spent to buy inventory or business equipment is an asset on your balance sheet, but cannot be easily converted to pay monthly expenses. Profit on an income statement does not equate to cash in the bank if you have accounts receivables which require payment. You can’t spend profit. A profit on the income statement does not always indicate financial health unless the company also has a positive cash flow that correlates to those profits.

Many business owners use a cash flow statement to help them understand the movement of cash in their business. A cash flow statement will tell them the sources and uses of their cash.

A typical statement has three areas:

  1. Operating cash flow – is the cash generated from the day-to-day operations of the business. For example, the sale of products, the collection of accounts receivable and payments from vendors.
  2. Investing cash flow –  the cash that is used to purchase equipment.
  3. Financing cash flow – cash from outside normal business operations. For example, money from lenders or shareholders. A new loan or the repayment of a loan creates the cash inflow or outflow.

Good cash flow management requires the business owner to be forward thinking – when and how will cash be needed. How will I acquire the cash needed- thru better accounts receivable collection or from a bank in the form of a loan?

Acquiring the skills necessary to become adept at cash flow management could mean the difference between business success and business failure.

William Vaughan Company has the skill and expertise to help our clients with all aspects of their business management and cash flow is just a small part of overall good business management.

By: Chris Schultz. Accountant

LIFO Inventory Election: Don’t Miss Out

Today’s significantly reduced oil prices creates an financial opportunity for any business that maintains an inventory of products that are petroleum-based. Products such as heating oil, gasoline,lubricating oils, and diesel fuel are all obvious product types that use crude oil as their raw material. However, products such as plastics, fertilizers and other petrochemicals often are also based on crude oil prices.

If your company relies on one or more of those products and maintains an inventory, especially a large dollar value of inventory, then this might be the year for you to consider a “last in first out”(LIFO) inventory election.

Many taxpayers in the U.S.currently use (FIFO) “first in first out” which means they are always valuing their inventory using the purchase price closest to the date of the inventory. The assumption on the flow of cost is that the oldest products are sold first and the cost of the most recent additions to the inventory are maintained as the inventory value.

imageLIFO, on the other hand, reverses that assumption. LIFO maintains inventory values based on the original purchase price, typically the lowest price, and in effect allows current costs to be expensed as incurred. The end result is that many taxpayers who have elected LIFO 30 or 40 years ago are still valuing their inventory at the prices that were in affect at the time they made the LIFO election. This means that all the years of price increases have been expensed as a cost of sales for the year they were incurred, and none were trapped in inventory. In times of rising prices, this is a great benefit to the taxpayer.

Basically, the best time to consider making a LIFO election is at the time when raw material prices are at the lowest point. This election is simply done by attaching several forms to the year-end tax returns and is an automatically approved election by the Internal Revenue Service.

With crude oil prices being under $60 a barrel at the end of 2014, it sets the stage for those taxpayers that have not already elected LIFO to lock-in, what could be, the lowest oil prices we’ll see for years. This low cost would be part of their base inventory cost and they would gain the benefit in all future years, as prices most-likely climb.

If you have questions on any element associated with LIFO inventory or think it may be a valuable option for you, please contact your professional at William Vaughan Company as soon as possible.

By: Bill Horst, CPA, CMA

Ohio Municipal Tax Updates

As you may have heard, Governor Kasich recently signed the Municipal Income Tax Reform Bill, which is known as the Amended Substitute House Bill 5 (“HB5”). There is an extensive list of provisions that will take effect on January 1, 2016. Ohio taxpayers have been eager for a bill to emerge that simplifies Ohio’s municipal tax law, and HB5 is a step in the right direction. Here are some of the major changes that you should be aware of:

hb_5_signing

Pass-Through Entity (PTE) Tax: It is important to know that the municipal net profits tax will be imposed at the entity level for pass-through entities (PTE), but PTE owners will generally be taxed on the pass-through income by the municipality in which they reside. HB5 will stay consistent with the previous law set in place for S corporations, meaning tax is imposed at the entity level, and the pass-through income flowing through to resident owners will generally not be taxed by the municipality.

Net Operating Loss Carryforwards (NOL): Starting on January 1, 2017, carryforwards for NOL’s at the municipal level will be consistent across the state. Any loss incurred after the implementation date will have a required 5 year carryforward period, regardless of the municipality. Remember having to keep track of NOL carryforwards separately for each municipality? This is no longer required due to carryforwards now being calculated on a pre-apportionment basis.

Occasional Entrant Revisions: This provision of the municipal tax reform is associated with the amount of days an individual may work in another municipality, away from their primary place of work, before being required to withhold income there. HB5 has increased the amount of days from 12 to 20. Therefore, if an employee is working in another municipality for 20 days or less, the employer will withhold income from where the employee’s primary place of work is located. If the employer expects the employee to work more than 20 days in another municipality, they are required to start withholding from day one. On the other hand, if an employee happens to work over 20 days, which was not originally expected by the employer, the employer must begin withholding income on day 21. For employers who may try to rotate employees to bypass the 20 day rule, provisions are set in place to prevent this.

Does your business collect less than $500,000 of revenue in a given year? This classifies your company as a small business, which means complete exemption from the 20 day rule. Small businesses are only required to withhold income tax from their employees in the municipality of their fixed location, which could be a warehouse, office, etc.

These are just a few of the provisions associated with HB5, which is effective on January 1, 2016. For a deeper look into the provisions and more, click here.

Jason Wenner, Staff Accountant

Can Your Business Save More by Paying More?

A client recently sent me a notification they received from the Ohio Department of Job and Family Services (ODJFS) informing them that they could reduce their unemployment tax rate by making a voluntary additional payment. Usually, paying more taxes in is something employers try to avoid doing, but for certain employers, making this voluntary payment may save them money.

Unemployment application Form with pen, calculator

The unemployment rate that employers pay is largely based on their experience rate – the lower their experience rate, the lower their tax rate. The experience rate is dependent on factors such as how much the employer has paid into its account, how much has been paid out in claims, as well as what the average annual taxable wage amount is. If the employer has paid in enough contributions, their account could reach a certain threshold that could reduce the experience rate. The ODJFS will usually notify the employer whether an additional voluntary contribution would help the employer reach that threshold to reduce its rate.

A basic calculation is included with the ODJFS notification that allows the employer to estimate whether the tax savings is more than what the voluntary payment would be. In the case of my client, it did not benefit them enough to make the voluntary payment, but depending on how many employees your business has, the voluntary payment could end up saving you tax dollars. Please contact your William Vaughan Company representative should you need any further guidance.

2015 Inflation-Adjusted Items and Tax Tables Released

irs-logoThe annual inflation adjustments for 2015 for more than 40 tax provisions along with the 2015 tax rate tables for individuals and estates and trusts have recently been released by the IRS.

Personal exemption will increase from $3,950 in 2014 to $4,000 for 2015, as well as the standard deduction, which will increase from $12,400 in 2014 to $12,600 in 2015 for married taxpayers filing joint returns. The adoption credit under Sec. 23 is inflation-adjusted from $13,190 in 2014 to $13,400 in 2015.

The revenue procedure also contains the inflation-adjusted unified credit against the estate tax, which is $5.43 million for 2015. One amount that will remain unchanged is the annual gift tax exclusion which will remain at $14,000.

The AMT exemption amount for 2015 is $83,400 for married taxpayers filing joint returns and $53,600 for single taxpayers. The Sec. 911 foreign earned income exclusion increases from $99,200 for 2014 to $100,800 for 2015.

The revenue procedure also includes the inflation adjustments for the Sec. 24 child tax credit, the Sec. 25A Hope scholarship and lifetime learning credits, the Sec. 32 earned income tax credit, and the Sec. 221 deduction for interest on qualified education loans.

The 2015 contribution limits and other figures for pension plans and other retirement-related items have been released as well, along with the Social Security Administration announcing the Social Security wage base will increase from $117,000 in 2014 to $118,500 in 2015.

By: Rachel Mossing, Accountant

Tax-Free Employee Fringe Benefits

fringe_benefitsEmployer-provided fringe benefits can be an important part of an overall compensation package. Highly valued by employees, benefits are even more prized when they fall under an exception from being taxed. Below is a generalized, non-inclusive listing of some of the most commonly provided tax-free benefits. In most cases, they are not subject to social security or FUTA tax as well.

• Accident or health insurance premiums, including contributions to health savings accounts (HSAs)
• Achievement awards—property given for length of service or safety achievement
• Personal use of a company-provided cell phone provided primarily for business use
• Holiday gifts (non-cash) with a nominal fair market value
• Occasional parties or picnics for employees
• Coffee, doughnuts, or soft drinks provided on the employer’s premises
• Occasional meals or meal money provided to enable the employee to work overtime
• Group term-life insurance (limited)
• Educational assistance up to $ 5,250 under a formal written plan
• Reimbursement of deductible moving expenses
• Employee discounts on property or services you offer to your customers
• Qualified transportation benefits, including transit passes or qualified parking
• Reimbursed job-related expenses incurred by an employee under an accountable plan
• Contributions to qualified retirement plans
• Advice concerning the above retirement plan, and retirement planning in general

Note that cash and cash-equivalent fringe benefits (such as gift cards, prepaid cards, etc), no matter how small, are never excludable. They must always be included in the employee’s payroll amounts.

Many of the above items are tax-exempt only if paid under a formal, written plan which does not discriminate. Also, benefits are often limited for company owners, partners, and highly compensated employees.

If any of the above might be a useful addition to your company’s compensation package, be sure to contact your WVCO tax pro for details in implementing the benefit.

By: George Monger, Senior Manager

Year-end Retirement Planning Tips

There are only a few weeks left to make 401(k) and some other retirement plan contributions that will get you a tax deduction on your 2014 tax return. Retirees also need to be aware of deadline dates for distributions from your various retirement accounts.

You can make a contribution of up to $17,500 to your 401(k) plan in 2014. Workers age 50 and over can contribute an extra $5,500 to their account as a catch-up contribution for a total of $23,000. Income tax isn’t due on the amount deposited in a traditional 401(k) plan until the money is withdrawn. For self-employed workers, a couple good options are a solo 401(k) plan or a simplified employee pension (SEP). With a SEP, you can contribute up to 20% of your net self-employment income for a total limit of $52,000. The SEP contribution can be calculated before filing your taxes to minimize your tax bill. SEP contributions are not due until the due date of your tax return. That means for a 2014 deduction if you file an extension, your contribution would not be due until October 15, 2015.

Retirement_PlanAnother option is an Individual Retirement Account (IRA). These contributions are not required to be made until April 15th to count toward your 2014 taxes and usually can be figured after your tax liability is determined. The IRA contribution limits are $5,500 or an additional $1,000 for people 50 and over for a total contribution of $6,500. Roth IRA’s have the same limits but are not pre-tax and will not decrease your tax bill, however, are also not taxable when distributed.

Retirees who have reached the age of 70 ½ have required minimum distributions from traditional 401(k)’s and IRAs and income tax will be due on each withdrawal. The date for making the distribution is April 1st after you have reached 70 ½ years of age. The penalty for missing a distribution is 50% tax on the amount that should have been distributed. It is best to consult William Vaughan Company or your financial advisor to make sure the amount required is computed correctly and done by the due date.

It’s probably also a good idea to start planning for the 2015 tax year. The amounts for 401(k) contributions will increase by $500 to $18,000 and $6,000 for the catch-up contributions. Increasing your percent contributed each year can make a big difference in the long run, especially if there is an employer match. There are many options when it comes to retirement plans, make sure you are doing what is best for you and in the necessary time frame to achieve the most benefit.

Diane Cook, Accountant