Entrepreneurs Who Made the Revolution

July 2nd, 2015


© <a href="http://www.dreamstime.com/larryhw_info#res2965056">Larryhw</a> | <a href="http://www.dreamstime.com/#res2965056">Dreamstime.com</a> - <a href="http://www.dreamstime.com/royalty-free-stock-images-july-4th-1776-united-states-bill-rights-image36187959#res2965056">July 4th, 1776 - United States Bill Of Rights Photo</a>

It’s been 239 years since a group of men in Philadelphia signed the Declaration of Independence and started a revolution.

Most of these 56 men were small business owners, lawyers, doctors, and farmers, and 13 were plantation owners.

These men risked it all:

“We mutually pledge to each other our Lives, our Fortunes, and our sacred Honor.”

Here’s a list from the National Archives of the signers and their occupations to remind us that our businesses, our jobs, and our lives can be on the line when freedom is at stake.

Signers Occupation
John Adams Lawyer
Samuel Adams Merchant
Josiah Bartlett Physician
Charles Carroll Merchant, plantation owner
Samuel Chase Lawyer
Abraham Clark Lawyer, surveyor
George Clymer Merchant
William Ellery Lawyer, merchant
William Floyd Land speculator
Benjamin Franklin Scientist, printer
Elbridge Gerry Merchant
Button Gwinnett Merchant, plantation owner
Lyman Hall Physician, minister
John Hancock Merchant
Benjamin Harrison Plantation owner, farmer
John Hart Land owner
Joseph Hewes Merchant
Thomas Heyward Jr. Lawyer, plantation owner
William Hooper Lawyer
Stephen Hopkins Merchant
Francis Hopkinson Lawyer, musician
Samuel Huntington Lawyer
Thomas Jefferson Lawyer, plantation owner, scientist
Francis Lightfoot Lee Plantation owner
Richard Henry Lee Plantation owner, merchant
Francis Lewis Merchant
Philip Livingston Merchant
Thomas Lynch Jr. Lawyer
Arthur Middleton Plantation owner
Lewis Morris Plantation owner
Robert Morris Merchant, land surveyor
John Morton Farmer
Thomas Nelson Jr. Merchant, plantation owner
William Paca Lawyer, plantation owner
Robert Treat Paine Lawyer, scientist
John Penn Lawyer
George Read Lawyer
Caesar Rodney Plantation owner, military officer
George Ross Lawyer
Dr. Benjamin Rush Physician
Edward Rutledge Lawyer, plantation owner
Roger Sherman Lawyer
James Smith Lawyer
Richard Stockton Lawyer
Thomas Stone Lawyer
George Taylor Merchant
Matthew Thornton Physician
George Walton Lawyer
John Witherspoon Minister
Oliver Wolcott Lawyer
George Wythe Lawyer

 


Happy 4th to all!

After the Supreme Court Decision on Obamacare

June 30th, 2015


© <a href="http://www.dreamstime.com/andreypopov_info#res2965056">Andreypopov</a> | <a href="http://www.dreamstime.com/#res2965056">Dreamstime.com</a> - <a href="http://www.dreamstime.com/stock-photo-group-people-hands-holding-text-healthcare-multicolored-over-white-background-image50597452#res2965056">Group Of People Hands Holding Text Healthcare Photo</a>On June 25, 2015, the U.S. Supreme Court upheld the Administration’s view about the Affordable Care Act (“Obamacare”) that subsidies (federal tax credits) apply to qualified individuals who obtain coverage through either a state or federal exchange. The decision is clearly a relief to individuals who had obtained coverage from the federal exchange and could have lost their subsidies had the Court ruled otherwise. But what does it mean for small businesses?

Employer mandate for “small” large employers to take effect

The decision has no impact on the employer mandate, which requires large employers to provide affordable coverage for full-time workers or pay a penalty. This mandate became effective at the start of this year for employers with 100 or more full-time and full-time equivalent employees. The mandate extends on January 1, 2016, for employers with 50 to 99 full-time and full-time equivalent employees.

Higher premiums for 2016

It’s been reported that many insurers have requested significant (double digit) premium increases. Proposed rate hikes of 10% or more are reported on Healthcare.gov (California and New York information has not been included).

While the final premiums for 2016 won’t be known until October (state insurance departments must approve the rates), we can assume that some increases are likely.

  • Are you prepared from a budget perspective to handle the increase?
  • Will you be eligible for the small employer health insurance credit? This 50% credit applies if you pay at least half of premiums covering employees and you meet other requirements. However, if you took the credit in 2014 and will take it in 2015, you won’t be eligible in 2016. The credit can only be claimed for two consecutive years.

Political landscape

The Court’s decision on Obamacare isn’t the last word. While the present Congress can do little to change the law because of a veto threat, if there is a new President in 2016 and a Congress sympathetic to him or her, things could change. Stay tuned!

What I Learned about EMV Technology on My Summer Vacation

June 25th, 2015


© <a href="http://www.dreamstime.com/groupera_info#res2965056">Groupera</a> | <a href="http://www.dreamstime.com/#res2965056">Dreamstime.com</a> - <a href="http://www.dreamstime.com/stock-images-credit-card-reader-device-image14765994#res2965056">Credit Card Reader Device Photo</a>I recently spent a week vacationing in the Canadian maritime provinces. Great trip, and a good learning experience when it comes to EMV. I’ll share some background, and then what I learned.

Background

Starting October 1, 2015, merchants in the U.S. that do not use EMV technology to process in-person (“point-of-sale”) transactions bear the burden of fraud. (Currently, erroneous purchases and other fraudulent transactions in stores, restaurants, and other establishments are the burden of the credit card processor.) EMV is a chip technology that’s been in use in Europe and elsewhere for years.

EMV requires merchants to obtain new terminals and other equipment to process POS transactions. There are a variety of options available; costs vary.

What I saw

For those who have not been to Canada in several years, the payment portion of a meal in a restaurant is very different than it is in the U.S. EMV migration took place between 2010 and 2012 (different years for different credit cards). With EMV technology, the customer, rather than the merchant, handles the customer’s credit card. Here’s how:

Let’s say you’re in a restaurant and just had an enjoyable meal. To process a payment on your credit card, a small wireless terminal the size of the smallest USPS Priority box is brought to your table; alternatively you use the terminal located near the cash register on your way out. You insert your credit card bearing the EMV chip in one end (no more swiping) and you, the customer, operate it. Following the prompts on the terminal, you verify the amount of the bill and have the option of adding a tip. Machines vary on how this is done; some allow you to enter a percentage while others require a specified amount. The machine then prints a receipt for you and for the restaurant; you sign in ink the slip for the restaurant.

The same procedure applies for making purchases everywhere else: clothing stores, gas stations, supermarkets. The customer handles the card and operates the processing terminal.

What I learned

The process is easy for everyone … employees of the establishments and customers. There is no additional time required for the payment process. There is a learning curve for customers to operate the terminal, but a knowledgeable staff in the establishment makes this go smoothly. Remembering to remove the card is important, of course.

As a customer, I look forward to seeing this in the U.S. soon. As a small business advocate, I recognize the challenge facing small businesses to acquire the needed technology and educate their staff about its usage. But it’s going to happen, and soon!

Read more about EMV in Canada here, and in the U.S. here.

Smart Ideas for Old Smart Phones

June 23rd, 2015


http://www.dreamstime.com/royalty-free-stock-photography-smartphones-different-colors-isolated-white-background-image41677937Upgrading to newer smart phones periodically can help boost productivity for you and your staff. The majority of Americans do so every one to two years. What to do with the old ones?

Selling old smart phones

Your old smart phone may be worth some cash to you. The old phone must be in good condition, meaning that it’s functional and that there are no cracks in the case. Sites that buy them include:

Trade-ins

You may save some money by trading in your old smart phone. Check with the seller of your new version to see what trade-ins are accepted. For example, Apple accepts not only old iPhones, but also Androids and Blackberries that can be reused.

From a tax perspective, when you trade in any equipment—a car or a computer—for a new version, you may only get a small write-off for the purchase price of the new smart phone. Under tax law, with a trade-in, the tax basis of the new phone is the remaining basis of the old one, plus any additional cash you pay. The basis of the old phone is zero if you already wrote off the cost of the old phone as is likely; your depreciation write-offs (or first-year expensing) for the new phone is limited to the additional cash you had to pay for the phone.

Disposal

If you can’t sell or trade in the old phone (e.g., it no longer works), be sure to dispose of it properly. The Federal Trade Commission offers these steps:

Step 1: Remove your personal information
Step 2: Recheck step one
Step 3: Recycle

Consider donating your smart phone (e.g., I gave mine to my local Sheriff’s office under a program where it scrubs the personal information and gives phones to domestic abuse victims for use in an emergency). Alternatively, use environmentally acceptable disposal methods (e.g., return to the carrier). Apple stores accept all smart phones for recycling.

News from the Supreme Court

June 18th, 2015


© <a href="http://www.dreamstime.com/slickspics_info#res2965056">Slickspics</a> | <a href="http://www.dreamstime.com/#res2965056">Dreamstime.com</a> - <a href="http://www.dreamstime.com/royalty-free-stock-photo-supreme-court-united-states-image22539985#res2965056">Supreme Court Of United States Photo</a>Each year the Supreme Court weighs in on only a limited number of cases. Two cases this year are of interest to small businesses.

Monitoring 401(k) fees

If your business has a 401(k) plan, you have to routinely check on the fees charged by the funds offered to plan participants. If you fail to do this, employees participating in your plan can sue you. That’s what the Court said in Tibble v. Edison. The case involved a plan that had a menu of 40 mutual funds, but six of them were a retail share class that had higher fees than those for an institutional share class. The participants said the failure to offer only the institutional share class of funds was a breach in the fiduciary duty to offer only prudent investments. (There was a technical aspect related to the six-year statute of limitations for a breach of fiduciary duty.) The Court said that merely considering the initial fund selection was insufficient without considering the “contours of the alleged breach of fiduciary duty” (i.e., the fees for the funds selected).

Impact: Fund performance alone is not the determination of a prudent investment; it includes the fees charged by the fund. So how often should you be looking at your menu of investment options? Is an annual review sufficient? Should you do a review quarterly? Who knows?

State income tax credits

Operating in more than one state is not uncommon these days. Take the case of an S corporation whose owners resided in Maryland that operated in 39 states. They had to file tax returns and pay nonresident income taxes in other states on the share of income in those other states. Maryland, their home state, taxed them on their out-of-state income, granting them a tax credit for income taxes paid to other states. However, there was also a county tax for which no credit or other offset was allowed. In Maryland v. Wynne, the Court concluded that Maryland’s tax scheme was a burden on interstate commerce in violation of the U.S. Constitution.  (In legal parlance this is known as the dormant Commerce Clause, which precludes states from “discriminat[ing] between transactions on the basis of some interstate element.) In effect, Maryland residents paid double tax (in the form of county tax) on income earned in other states.

Impact: The case goes a long way in ensuring that owners of pass-through businesses with multi-state operations won’t be taxed twice on the same income. The impact of the decision is not limited to Maryland. For example, Illinois has a law that prevents a resident who is an employee from taking a credit for taxes paid to another state if the resident’s employer is in Illinois. Former baseball player Sammy Sosa challenged this Illinois law and may now be vindicated. Who knows? Business owners and employees who find themselves in similar positions may want to file refund claims (as long as they are not barred by the statute of limitations). Discuss your situation with a tax professional.

How Many Employees Do You Have?

June 16th, 2015


© <a href="http://www.dreamstime.com/rudiestrummer_info#res2965056">Rudiestrummer</a> | <a href="http://www.dreamstime.com/#res2965056">Dreamstime.com</a> - <a href="http://www.dreamstime.com/royalty-free-stock-images-conceptual-stick-figures-row-question-mar-image38557389#res2965056">Conceptual: Stick Figures In Row With Question Mar Photo</a>Under the Affordable Care Act, you can’t rely on a head count. You need to determine an average each month throughout the year for purposes to know whether you’re subject to the employer mandate. This means counting full-time employees and figuring the number of full-time equivalent employees (FTEs). If the average monthly number is 50 or more, you are subject to the employer mandate (those with 50 to 99 employees become subject to the mandate on January 1, 2016).

Determining full-time employees:  A full-time employee is someone who is employed on average, per month, at least 30 hours of service per week, or at least 130 hours of service in a calendar month. Note: Congress has tried to change this to 40 hours per week (the normal full-time schedule), but has thus far failed to so do.

Determining FTEs:  Add the hours of part-timers (but no more than 120 per worker) and divide by 120. If this results in a fraction, round up to the next whole number. For example, Company X has 15 part-time employees for each calendar month during 2016, each of whom has 60 hours of service per month. When combined, the hours of service of the part-time employees for a month totals 900 [15 x 60 = 900]. Dividing the combined hours of service of the part-time employees by 120 equals 7.5 [900 / 120 = 7.5]. This number, 7.5, represents the number of Company X’s full-time-equivalent employees for each month during 2016. Since 7.5 is not a whole number, round up to 8, which becomes the number of X’s FTEs.

Aggregation:  If you own more than one business, you may have to count employees in all of them for purposes of the employer mandate. The same aggregation rule for qualified retirement plans applies for the employer mandate.

Counting period:  Usually you use the prior 12 months to determine the number of employees. Under a transition rule for 2015, an employer can use any consecutive six-month period during 2014 to measure its workforce size. New employers (those not in business at any time in the prior year) are subject to the employer mandate only if it reasonably expects to employ, and actually does employ, an average of at least 50 full-time employees (including FTEs) on business days during the current calendar year.

Small employer health insurance credit:  Even if you’re not subject to the mandate, you still need to make a similar (but not the same) type of computation for employees to know whether you qualify for this tax credit. In this case you divide the annual hours for part-timers by 2080 to find the number of FTEs. What’s more, if you don’t have a whole number, you round down in this case. To complicate things further, you can use the actual hours worked, or an alternate way of figuring hours (days-worked equivalency or weeks-worked equivalency).

The credit applies if you pay more than half the premiums for workers who have average wages under a set limit and you buy the coverage through a SHOP. The full credit applies only if you have no more than 10 employees (full time and FTEs); it phases out completely when your staff exceeds 24.

Professional advice:  Work with a CPA or other advisor to track your employee numbers.

Number One Problem Facing Small Businesses: Big Government

June 11th, 2015


© <a href="http://www.dreamstime.com/designersart_info#res2965056">Designersart</a> | <a href="http://www.dreamstime.com/#res2965056">Dreamstime.com</a> - <a href="http://www.dreamstime.com/stock-image-pie-chart-image36108191#res2965056">Pie Chart Photo</a>That’s what the 1,500 small business owners said in response to a survey reported in the NFIB.  More specifically, 22% ranked taxes and 23% ranked government regulation and red tape — totaling big government — as the single most important problem facing their businesses. In contrast, the quality of labor was only 12%, poor sales only 11%, competition from big business only 7%, and financing and interest rates only 2%! Maybe a sampling of 1,500 owners isn’t statistically meaningful, but to me it reflects the anecdotal stories I’m hearing.

The Competitive Enterprise Institute’s Ten Thousand Commandments 2014 found that last year there were 72 new laws and 3,659 new regulations – 51 rules for every law, or a new rule every 2 ½ hours. It also found that small businesses pay more in per-employee regulatory costs than larger firms. Those with fewer than 20 employees pay an average of $10,585 per employee, compared to $7,755 for corporations with 500 or more employees.

How can small businesses keep up? How can small businesses afford the cost of complying with these regulations? The bottom line is that small businesses can’t!

My position: Regulations are necessary in some cases to protect the public and make compliance with laws more orderly. However, it’s clear we’ve reached the point of overkill.

As PWC says,

“No matter how large, small or diversified your organi[s]ation, almost every part of it is touched by a complex web of constantly evolving regulations — and subject to enforcement actions and fines.”

When rules are so complicated, it’s challenging to follow them and may result in noncompliance (intentionally or otherwise), which defeats the very purposes for which they were created.

It’s time for some reflection on regulations! A political solution (elected officials willing to cut the size of government, and the regulations this engenders) may be the only option for relief.

What NOT to Do When It Comes to Taxes

June 9th, 2015


http://www.dreamstime.com/stock-photography-check-list-two-pens-white-paper-image36899002A recent Tax Court decision highlighted all of the things that business owners shouldn’t do if they want to stay out of trouble with the IRS. Let me share some of the actions by business owners in this case so you can avoid the problems they incurred.

Two people owned two nail salons and agreed to split the profits 50-50. So far so good. Their business model was to pay workers a salary and let them keep all their tips. Again, sounds normal. But t he IRS suspected that they weren’t reporting all of their income. A single Schedule C income for 2007 showed $37,000; in 2008 one owner reported $38,000 and the other $44,000. The IRS wanted to take a closer look. Here’s where problems arose.

They didn’t keep books and records, or at least not good ones. They claimed all their income was from credit card receipts and checks; they said they were never paid in cash. (I don’t know about you, but I see many nail salon customers paying in cash.) The IRS used what’s called the “bank deposit method” to figure their real income. As a result, the IRS said their income was about six times as much for 2007 and about three times as much for 2008. During the audit, the owners refused to provide the agent with any records at all.

At trial, acting pro se (without representation) the owners didn’t help their case. For example, one owner testified that an amount in the bank account was a cash advance, which obviously isn’t income. But he didn’t show the credit card statement that would be evidence of this. And they made other arguments about the income that simply weren’t believable.

The result:  A civil fraud penalty against one of the owners (the other was just following directions) in addition to back taxes, interest, and an accuracy-related penalty for both owners. They severely understated their income, failed to keep books and records, and failed to cooperate with the IRS. And they represented themselves.

The lesson for us all:  Don’t do what these owners did. Instead, to state the obvious, do this:

  • Report all of your income (even if paid in cash).
  • Keep good books and records.
  • Cooperate with the IRS during an audit.
  • Bring in a tax professional to help.

Note: Despite the fact that audit rates are low and not expected to increase in the near future, Schedule C filers continue to face higher audit rates than other taxpayers. Those operating businesses receiving payment in cash (bail bonds, convenience stores, laundromats, car washes, and other cash-intensive businesses) should review the IRS audit guide for its agents on cash businesses to see what piques the government’s interest.

Take another Look at Your Hiring Practices

June 4th, 2015


http://www.dreamstime.com/royalty-free-stock-photography-hiring-notebook-shows-employment-showing-recruitment-personnel-wanted-image40244727You may be in violation of the law by having discriminatory hiring practices. That’s what Abercrombie & Fitch found out recently. The U.S. Supreme Court in EEOC v. Abercrombie & Fitch ruled against the company in a case involving a Muslim woman who wore a hijab, a head covering. The company had a “look policy” that banned “head caps” for employees. The Court said this policy was discriminatory in this case (it violated religious protections). This was so even though she never mentioned her need for a religious accommodation. The court said that the company should have assumed that she needed an accommodation and given her one.

The message from the case: a job applicant or employee does not have to inform the company of a need for an accommodation.

What’s discriminatory?

The U.S. Equal Opportunity in Employment Commission (EEOC) says:

 “[I]t is illegal to discriminate against someone (applicant or employee) because of that person’s race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information. It is also illegal to retaliate against a person because he or she complained about discrimination, filed a charge of discrimination, or participated in an employment discrimination investigation or lawsuit.”

So what can or can’t you do? When can you assume that an applicant or employee needs an accommodation (since you can’t ask about someone’s religion or other matters that are protected)?

Dress codes

According to the EEOC, you can have a dress code. For example, you can require uniforms. If you allow employees to choose their dress, you can’t discourage certain ethnic wear; this may violate discrimination against national origin.

However, if your required garb conflicts with an employee’s religious beliefs, you must make an accommodation. Also, a request for an accommodation because of a personal disability should be made unless doing so means undue hardship for your business.

Tattoos and body piercings

A policy against tattoos and/or body piercings is not discriminatory per se (it may be if such body art is religiously required). Thus, for example, you can ask that tattoos be covered up and that jewelry in body piercings that are visible be removed in the workplace.

In crafting a policy, take into account changing mores. Currently, 14% of all people in the U.S. have tattoos; that statistic rises to 40% for those age 26 to 40. Having an anti-tattoo policy in your company may unduly restrict the talent pool.

Conclusion

The Supreme Court’s case hasn’t made things clearer for employers. Before you create any workplace policy, run it by an employment law attorney. Once you create a policy that passes legal muster, then include it in your employee handbook so everyone in your organization knows the rules.

What IRS Statistics Say about Business Income

June 2nd, 2015


© <a href="http://www.dreamstime.com/sashazamarasha_info#res2965056">Sashazamarasha</a> | <a href="http://www.dreamstime.com/#res2965056">Dreamstime.com</a> - <a href="http://www.dreamstime.com/stock-photo-succesful-business-bar-graph-rising-up-red-arrow-d-render-illustration-image47153559#res2965056">Succesful Business Bar Graph With Rising Up Red Arrow Photo</a>The IRS’s Statistics of Income Bulletin, Spring 2015 reports tax information for 2013. Overall it shows that the economy improved between 2012 and 2013; the number of tax returns filed increased by 1.9% to 144.9 million returns and taxable income also increased (by 0.8%).

The report shows some interesting things about individuals who are sole proprietors or owners in S corporations, partnerships, and limited liability companies. In general, things seem to be looking up for these business owners.

Income. The number of Schedule C filers reporting business or professional income (or loss) rose by 2.7% to nearly 23,600,000 returns. Of these, only 5.6 million returns showed a net loss. Total profits (net of returns showing losses) amounted to $285.7 billion.

There were 2.3% more partners and S corporation shareholders reporting partnership and S corporation net income less loss, or 7.5 million returns. Total profits (net of returns showing losses) amounted to $482 billion (which is 1.4% less than total profits in 2012).

Deductions. Most business-related deductions are taken into account on business returns to offset income; IRS statistics here do not reveal further information about business deductions. However, number of deductions that result from being in business are actually claimed as personal deductions, which are subtracted from gross income (i.e., not taken as itemized deductions).

These deductions include:

  • The deduction for the self-employment tax increased 1.9% from $25.6 billion to $26.0 billion. This deduction, which is one half of the self-employment tax paid on net earnings from self-employment, shows that there was a sizable increase in profits by self-employed business owners.
  • The self-employment health insurance deduction grew by 6% to $24.4 billion.
  • Deductible contributions to self-employed retirement plans (e.g., 401(k)s, profit-sharing plans, defined benefit plans) rose 4.9% to $20.2 billion.

Final thought. Business owners today probably don’t need to look at IRS statistics to know that the economy has improved somewhat. However, it’s interesting to note how the improvement translates into more returns filed, more income reported, and more deductions claimed.