Business

Business

How to Get Paid on Time

Due to current economic conditions, it’s likely that collecting on your accounts receivables is becoming more and more of a challenge. Strengthening your collection procedures may allow you to improve collection rates and shorten the aging days of your accounts receivables.

The following suggestions will help your business improve its cash flow and tighten up its credit and collections policies. Some of the tips discussed here may not be suitable for every business, but can serve as general guidelines to give your company more financial stability.

Define Your Policy. Define and stick to concrete credit guidelines. Your sales force should not sell to customers who are not credit-worthy, or who have become delinquent. You should also clearly delineate what leeway sales people have to vary from these guidelines in attempting to attract customers.

Tip: You should have a system of controls for checking out a potential customer’s credit, and it should be used before an order is shipped. Further, there should be clear communication between the accounting department and the sales department as to current customers who become delinquent.

Clearly Explain Your Payment Policy. Invoices should contain clear written information about how much time customers have to pay, and what will happen if they exceed those limits.

Tip: Make sure invoices include a telephone number and website address so customers can contact you with billing questions. Also include a pre-addressed envelope.

Tip: The faster invoices are sent, the faster you receive payment. For most businesses, it’s best to send an invoice with a shipment, rather than afterward in a separate mailing.

Follow Through on Your Stated Terms. If your policy stipulates that late payers will go into collection after 60 days, then you must stick to that policy. A member of your staff (but not a salesperson) should call all late payers and politely request payment. Accounts of those who exceed your payment deadlines should be penalized and/or sent into collection, if that is your stated policy.

Train Staff Appropriately. The person you designate to make calls to delinquent customers must be apprised of the seriousness and professionalism required for the task. Here is a suggested routine for calls to delinquent payers:

  • Become familiar with the account’s history and any past and present invoices.
  • Call the customer and ask to speak with whoever has the authority to make the payment.
  • Demand payment in plain, non-apologetic terms.
  • If the customer offers payment, ask for specific dates and terms. If no payment is offered, tell the customer what the consequences will be.
  • Take notes on the conversation.
  • Make a follow-up call if no payment is received and refer to the notes taken as to any promised payments.
Business Tax

1099s: 5 Key Reporting Changes for Businesses

According to the IRS, under-reporting of income is the biggest contributing factor to the IRS tax gap–the amount owed by individuals and businesses versus the amount that was actually paid in taxes. In 2006, the most recent year for which data are available, under-reporting across taxpayer categories accounted for an estimated $376 billion of the gross tax gap.

Overall, the IRS found that compliance is highest where there is third-party information reporting (1099 forms used to report taxable income earned that is not considered salary and wages) and/or withholding (W-2 forms). In the case of W-2 forms, the IRS found that a net of only 1% of wage and salary income was misreported; however, amounts subject to little or no information reporting had a 56 percent net misreporting rate in 2006.

In an effort to close that tax gap, the IRS has changed some reporting requirements for 1099s for tax year 2012. Here are some of those key changes:

1. 1099-MISC. Starting in 2012, compensation of $600 or more paid in a calendar year to an H-2A visa agricultural worker who did not give you a valid taxpayer identification number must be reported on 1099-MISC. You must also withhold federal income tax under the backup withholding rules. However, if the worker does furnish a valid taxpayer identification number, then report the payments on Form W-2.

2. 1099-B. New boxes have been added to Form 1099-B for reporting the stock or other symbol (box 1d), quantity sold (box 1e), whether basis is being reported to the IRS (box 6b), and state income tax withheld (boxes 13-15). Other boxes on the form have been moved or renumbered. In addition, brokers must report on Form 1099-B sales of covered securities by an S corporation if the S corporation acquired the covered securities after 2011.

3. 1099-C. The titles for boxes 1, 2, and 6 on Form 1099-C have changed. Box 1 is now Date of Identifiable Event; box 2 is now Amount of Debt Discharged; and box 6 is now Identifiable Event Code, and requires the entry of a code for the identifiable event. See Box 6–Identifiable Event Code. For 2012, all codes are optional except for Code A–Bankruptcy.

4. 1099-DIV. Exempt-interest dividends from a mutual fund or other regulated investment company (RIC) are now reported on Form 1099-DIV and are no longer reported on Form 1099-INT, Interest Income. Also, boxes 12 through 14 have been added to Form 1099-DIV to report state income tax withheld.

5. 1099-INT. Exempt-interest dividends from a mutual fund or other regulated investment company (RIC) are no longer reported on Form 1099-INT. Instead, those amounts are reported on Form 1099-DIV, Dividends and Distributions. In addition, boxes 11 through 13 have been added to Form 1099-INT to report state income tax withheld.

If you need help with 1099s this year, don’t hesitate to give us a ring. We’re happy to help you out.

Business Tax

The Fiscal Cliff Deal: What It Means for You

By now, everyone has heard about the “fiscal cliff” bill signed into law on January 2, 2013, but what you might not understand is how it affects you. With that in mind, let’s take a closer look.

What is the “Fiscal Cliff”?

The term “fiscal cliff” refers to the $503 billion in federal tax increases and $200 billion in spending cuts (according to recent Congressional Budget Office projections) that took effect at the end of 2012 and beginning of 2013–before Congress passed ATRA. It is the abruptness of these measures and possible negative economic impacts such as an increase in unemployment and a recession that has resulted in the use of the metaphor “fiscal cliff”.

What Could Have Happened?

According to the Tax Policy Center the arrival of the fiscal cliff would have meant that nearly 90% of all households would see their taxes rise. The top 20 percent of Americans would see their effective tax rate rise about 5.8 percentage points on average, while the bottom 20 percent of Americans would see their tax rate rise about 3.7 percentage points as a result of the Bush-era tax cuts to income, estate, and capital gains tax.

Further, in addition to a rise in tax rates, middle class and the lower-income working families are affected by the fiscal cliff in other ways–among them child-related credits and deductions for dependent care and education, and the EITC.

What Actually Happened: The “Fiscal Cliff” Deal

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which President Obama signed into law the following day. The “fiscal cliff” bill, as it’s referred to, extended a number of tax provisions that expired in 2011 and 2012, as well as increasing taxes on higher income individuals.

All Wage Earners

Personal tax rate. Marginal tax rates remained the same for most taxpayers (10%, 15%, 25%, 28%, 33%, and 35%) except for those taxpayers with taxable income greater than $400,000 (single filers) or $450,000 for married filers, whose rate increased to 39.6%.

Payroll taxes. The payroll tax holiday expired at the end of 2012 and was not extended. This means that you’ll see 6.2% taken out of your paycheck for Social Security for the first $113,700 in wages for 2013 instead of 4.2%. For the average family making $50,000 a year, this amounts to $1,000 less in their pocket. The self-employed tax rate reverts to 15.3% up from 13.3% in 2012.

Unemployment Insurance. Federally funded unemployment insurance (UI) benefits, scheduled to end on December 29, 2012, were extended for another year, through December 29, 2013.

Middle Income Families

Child-Related Tax Credits. Child-related tax credits, used by families to offset their tax burden, have been extended under ATRA. The child tax credit remains at $1,000 and is still refundable. It is phased out for married couples who earn over $110,000 and single filers who earn more than $75,000. The dependent care tax credit is equal to 35% of the first $3,000 ($6,000 for two or more) of eligible expenses for one qualifying child.

Education. The American Opportunity Tax Credit, which was scheduled to revert to the Hope Credit ($1,500), has been extended through 2017. The credit is used to offset education expenses and is worth up to $2,500.

EITC. The EITC or Earned Income Tax Credit, which benefits low to middle income working families, is extended for five years through the end of 2017. In 2013 the maximum credit is $5,981.

Higher Income Earners

AMT. The AMT (Alternative Minimum Tax) “patch” (exemption amounts) was made permanent and indexed for inflation for tax years beginning in 2013 and made retroactive for 2012. In addition, nonrefundable personal credits can be used to offset AMT liability. For 2012, the exemption amounts are $78,750 for married taxpayers filing jointly and $50,600 for single filers.

Marriage Penalty. The larger standard deduction for married couples filing joint tax returns is retained ($12,200 in 2013) as is the increased size of the 15% income tax bracket. Generally, each spouse would need to earn income in excess of $80,000 (with no itemized deductions) in order to be hit with the marriage penalty; however, the higher your income, the harder you get hit with the penalty. Despite this, it usually makes more sense to file joint tax returns and not married filing separately. If you’re not sure which filing status to use, give us a call.

Retirees

Long Term Capital Gains and Dividends. For retirees (and others) whose investment income is at or above $400,000 (single filers) or $450,000 (married filing jointly), long term capital gains and dividends are both taxed at 20%. However, taxpayers in the lower brackets (10% and 15%) however, the tax rate is zero. For middle tax brackets, long-term capital gains and dividends are taxed at 15%.

Even if that dividend income is part of an IRA or other retirement plan (and not in and of itself subject to taxes), retirees in the highest tax bracket ($400,000 for single filers) will still be affected by higher income tax rates in 2013 of 39.6%.

Wealthier Taxpayers

Estate and Gift Taxes. The exclusion for a decedent’s estate remains at $5 million (adjusted for inflation) and the top tax rate increases to 40% for taxpayers with income of $400,000 ($450,000 married filing jointly). The “portability” election of exemptions between spouses remains in effect for decedents dying after 2012. The gift tax is increased to $14,000.

Pease amendment and PEP. The Pease amendment, which enabled wealthier taxpayers to get the full value of their itemized deductions, expired in 2012. As a result, taxpayers with incomes of $250,000 $300,000 married filing jointly) will see higher taxes, especially when taking into account higher personal tax rates, Medicare tax increases (see Higher Income Earners above), and the return of the personal exemption phaseout (PEP) provision in 2013 as well. Threshold amounts for PEP are $250,000 for single filers and $300,000 married filing jointly.

If you have questions or need help understanding how the fiscal cliff impacts you, don’t hesitate to give us a call. We’ll help you figure it out and plan ahead for the future.

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