The Weather: Impact on Your Business

April 16th, 2015


http://www.dreamstime.com/stock-photography-tablet-pc-showing-weather-forecast-screen-cup-coffe-workplace-coffee-wooden-work-table-close-up-image39842832Your location has a tremendous impact on the viability of certain businesses and conditions you experience. Regardless of where you fall on climate-change politics, weather-related trends and events cannot be ignored. They present challenges for some; opportunities for others.

Lessons from California

In response to a severe drought, on April 1, 2015, Gov. Brown imposed extensive water-use restrictions in California. The restrictions aim to cut residential and business water use by 25% over nine months. The restrictions apply to lawns, landscaping, golf courses, cemeteries, and campuses, and include a lawn replacement program (substituting drought-tolerant landscaping). So far, restrictions do not extend to agricultural use of water.

What does this mean? Small landscaping companies will lose business focused on mowing and maintenance. To survive, such companies will need to adapt by offering lawn replacement services.

Isn’t this always the way for small businesses? Didn’t anvil companies and blacksmiths have to adapt after the introduction of the automobile?

Lessons from the Midwest

On April 9, 2015, tornadoes devastated parts of the Midwest, wiping out towns in Illinois and leaving destruction across a good section of the country. With homes, businesses, and civic buildings destroyed, there is much rebuilding to be done.

Hardware stores, contractors, and just about every type of tradesman have work for the foreseeable future once insurance settlements and FEMA make payments available. Contractors from other parts of the country who are idle and willing to move (at least temporarily) may find opportunity here, but check for state/local licensing requirements.

Conclusion

Looking back at severe storms this past winter, business travel became a nightmare for many. Some found that videoconferencing or phone communication could substitute for in-person meetings.

Going forward, what are your plans in response to severe weather? Do you have plans to make any changes in travel for the future? Have you reviewed your insurance coverage to address concerns about potential hazards?

Mother Nature can’t be controlled, so it’s up to you to adapt your business accordingly.

Pet Peeves about Online Postings

April 9th, 2015


If you’re reading this, you know that I write a lot of online content on tax, financial, and legal matters. My posts can be found regularly on my website as well as on several other sites, including SBA.gov, SmallBizTrends, AmericanExpress OPEN, and Investopedia.

I do most of the research for my writing online, and I want to gripe about some of the problems I run into. I’m doing this because I suspect I’m not the only one with complaints, and I hope to inspire others who write for online sites to shape up or drop out.

http://www.dreamstime.com/royalty-free-stock-photos-sign-word-inaccurate-turned-accurate-two-pieces-white-paper-image49756518Incorrect info

Nobody is perfect and anyone can make a mistake (goodness knows I’ve had my share of errata over my long career). But I have found a lot of misinformation online that I suspect is not just a careless slip up from some from purported “experts” on a particular subject. The recent Rolling Stone scandal is one kind of mistake (characterize it as shoddy journalism or outright fraud?). Poor writing and erroneous conclusions are other problems.

Solution: Fact-checking information and an editorial review are helpful to weed out blatant errors.

Undated info

Many posts have no date to indicate when they were written. This can lead me and other readers to incorrect information because things change. For me (writing about taxes), many numbers change annually, so older articles often refer to outdated limitations and thresholds.

Solution: Duh … add a date so the reader has context for the information.

Uncited info

When a topic is hot, I’ve seen a fact or statistic mentioned in numerous places. (It’s almost like the old telephone game where the information gets repeated and repeated, and sometimes is transformed in the process.) Unfortunately, far too few specify where the information came from. In one case (that I don’t want to elaborate on), I recall a statistic repeated every time the topic was covered by a different media outlet, yet the original source of that statistic was questionable. Without a link to the source of information, it’s difficult for me and other readers to know whether information can be trusted.

Solution: Hotlink information to its source.

Conclusion

I am continually offered articles by “experts” for posting on my site. However, I have maintained a policy of only posting my own content on my website, in part because of concerns about editorial control over outside submissions. I don’t have the time or staff to editorially check submissions.

My advice to readers: employ some skepticism about anything you read and, when relying on information, verify it through other sources. And if you find a mistake in anything I write, please bring it to my attention so I can post a correction.

Key to Business Success: Personal Health of the Owner

April 2nd, 2015


A Man Brainstorming about Health Concepts

A blog I read a few years ago said: “You are your business’ most important asset,” and I couldn’t agree more.

When an owner is out because of illness, especially a lengthy one, the business can suffer. So, with spring in the air, now is a good time to focus your attention on yourself, on your health.

Here are some strategies to use now:

  1. Assess your health. Where do you stand now? Do you need to lose some weight? To you need to begin or change an exercise program? If you don’t know the status of your health, consider scheduling a visit to your primary care doctor and see. Make the time to get a handle on your health.
  2. Plan a summer vacation. Now’s the time to be thinking of getting away for R&R. The importance of taking vacations from a health perspective has been well documented. For example, one study found that an annual vacation cuts the risk of a heart attack by 50%. A Psychology Today article notes that vacations help to break the “stress cycle.” Whether you plan a two-week vacation or just a long-weekend getaway, the earlier you plan, the easier it will be on your business.
  3. Kick a bad habit. It’s all too easy to fall into bad practices in our personal lives, especially when we’re so busy at work and just try to cope. Some may drink a little too much; others may stay up too late and fail to get enough sleep. Be honest about your bad habit and resolve to make changes. If necessary, get professional help.
  4. Encourage your staff to focus on their health. While you’re thinking about yourself, share your health strategies with your staff. However, do NOT do anything that could cause embarrassment (e.g., don’t tell an employee that she needs to lose weight) or trigger any lawsuits (e.g., discussing a disability is in violation of the Americans with Disabilities Act).

Resources for improving your heath:

How to Figure Your Estimated Taxes

March 26th, 2015


http://www.dreamstime.com/royalty-free-stock-photography-hand-writing-time-taxes-hands-marker-face-clock-image36872907If you’re self-employed, there’s no tax withholding from your business earnings you can use to meet your tax obligation. Instead, you pay estimated taxes in four installments.

There are two main challenges with respect to estimated taxes:

  1. Figuring out how much to pay (so you don’t overpay and have to wait for a refund or underpay which can result in penalties); and
  2. Having enough cash available to make your installments.

Here are some strategies to help you address these challenges.

Rely on what you paid last year

Past is prologue for estimated taxes because relying on the past can (1) give you a good idea of how much to pay and (2) avoid estimated tax underpayments even if you fall short. Under one safe harbor from estimated tax penalties, as long as your estimated taxes for this year are at least 100% of your prior year tax liability (or 110% if your adjusted gross income in the prior year was at least $150,000, or $75,000 if married filing separately), there’s no underpayment penalty.

In order to use this penalty safe harbor, you need to know what your tax liability for last year actually is. This can be troublesome if your income fluctuates and you obtain a filing extension for your income tax return.  For example, your first estimated tax payment for 2015 is due April 15, 2015, but if you have a filing extension for 2014 income tax return, you won’t know the final tax bill for 2014 on which to figure estimated taxes under this penalty safe harbor.

Project your bill for this year

A better way to make more accurate estimated tax payments (so you won’t overpay and have to wait for a tax refund or underpay so you have to come up with more cash at tax time) is to figure what you think you’ll actually owe this year. This can be done with the help of your tax advisor or using an IRS worksheet. Your estimate doesn’t have to be perfect; under a second safe harbor, as long as your estimate is 90% of the final tax bill, there won’t be any estimated tax penalty.

Set money aside for payments

One of the biggest challenges for many self-employed individuals is having the cash on hand to pay the estimated tax installment on time. This cash flow concern can be remedied by disciplined savings.

But how much do you need to save in light of the uneven time periods for the four estimated tax installments (April 15, June 15, September 15, and January 15 of next year)? A handy free tool that you can use to figure how much you need to save weekly so you’ll have your targeted payment on the installment due date is DynaTax’s calculator. Of course, it’s up to you to implement a savings plan for your targeted payment.

Conclusion

Estimated taxes are a fact of life for self-employed individuals. There may be alternatives for certain people (e.g., those with a working spouse who can use his/her withholding to cover the couple’s tax bill; sideliners who can use withholding from a job). But most self-employed individuals should plan for estimated taxes. Work with a tax advisor to get a handle on this tax responsibility.


Partnerships and LLCs: A Tax Perspective

March 19th, 2015


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As in the case of sole proprietorships, the tax statistics on partnerships (including limited liability companies that file tax returns as partnerships) reflect an improving economy.

For 2012 (the most recent year for statistics), there were 3,388,561 million partnerships (3.1% more than in 2011), representing more than 25.3 million partners (up from 23.3 the year before).

Here is some more interesting tax-related information about these filers:

  • Limited liability companies (LLCs) in the U.S. accounted for the majority (65.3%) of all partnership returns. This is the 11th consecutive year that LLCs dominated the number of partnership returns filed. They reported the most profits (33.4% of all returns) and the largest share of partners (42.5%).
  • Limited partnerships represented only 12% of all partnerships, but were extremely profitable.
  • Total receipts (revenue) for filers increased by 9.4% from the previous year to $6.6 trillion. Profitability was also up, increasing by 33.9%.

Which industries use partnerships/LLCs?

From tax statistics, real estate and rental and leasing were by far the most significant sector, accounting for 49.1% of all returns filed. Other significant sectors were in finance and insurance; health care (laboratories, outpatient centers, social assistance); arts, entertainment, and recreation; accommodation and food services; repair and maintenance; and personal/laundry services.

Which industries are most profitable?

While real estate is the most numerous type of partnership, the finance and insurance sector had the largest share of total net income (43.1%), as well as the greatest amount of total assets (55.2%).

Final thoughts

IRS statistics support what we all know: that the improving economy helps to make businesses more profitable and creates a climate that’s conducive to new businesses. Hopefully, this trend continues.


Sole Proprietorships: A Tax Perspective

March 12th, 2015


http://www.dreamstime.com/royalty-free-stock-photography-digital-online-business-statistics-concept-image47304207

IRS statistics help to paint a picture of sole proprietorships in the U.S. and makes for interesting reading. Following a review of these statistics, my take is that the state of sole proprietorship from a tax perspective reflects an improving economy.

Here are some key numbers (for the 2012 tax year) (yes, it takes the IRS quite a while to compile data):

  • There were about 23.6 million sole proprietors (exclusive of farmers), up 0.5% over 2011.
  • Profits were $304.9 billion, up 7.9% over 2011.
  • Profits as a percentage of business receipts were 23.4%, the highest level in 25 years.

The greatest number of returns was filed by those in professional, scientific, and technical services. In descending order, other significant sectors were construction, administrative services, retail, transportation and warehousing, and health care.

The biggest expense for sole proprietorships was car and truck expenses, followed by salaries and wages for staff (sole proprietors do not receive salary). Deductions for home office expenses exceeded $10 billion (0.3% more than in 2011).

Bottom line: The number of sole proprietorships, as well as their profits, is growing in contrast to the bleak years of the Great Recession. However, the increase could be attributable in part to the growing number of independent contractors who joined the ranks of sole proprietors after being laid off from corporate jobs.

Whether increases in the number of sole proprietorships, and their profits, has continued beyond 2012 will not be known for sure until new IRS statistics are released next year. Stay tuned!

Up next: Partnerships and LLCs: A Tax Perspective


Should Small Business Saturday Be a Tax Holiday?

March 5th, 2015


© <a href="http://www.dreamstime.com/casejustin_info#res2965056">Casejustin</a> | <a href="http://www.dreamstime.com/#res2965056">Dreamstime.com</a> - <a href="http://www.dreamstime.com/stock-illustration-sign-small-business-saturday-chalk-board-slate-background-text-to-support-local-neighborhood-stores-shops-eps-compatible-image47743389#res2965056">Sign, Small Business Saturday Chalk Board Photo</a>

Small Business Saturday® (SBS), which is the first Saturday after Thanksgiving, was established by American Express OPEN in 2010 as a way to help small businesses get customers, which stimulates sales on Main Street.

The NFIB has included in its legislative agenda for 2015 the goal of making Small Business Saturday a sales tax holiday (here’s the agenda for my state of Florida).

About sales tax holidays

A sales tax holiday is a temporary suspension of the requirement to charge sales taxes that would otherwise be due on specific goods and services. The idea of a sales tax holiday is relatively new, with the first holiday created in New York for the first week in January 1997.

Today, only a little more than a dozen states offer some form of tax holiday. The holiday usually runs for a weekend or so.  Some states run their holidays each year (e.g., early August for back-to-school clothing and school supplies); others do so from time to time (Florida had a pre-hurricane season sales tax holiday last year and waived sales tax on items such as flashlights, first aid kits, and portable generators).

Find a list of sales tax holidays for 2015 from the Federation of Tax Administrators and the Sales Tax Institute. The latter list includes annual sales, so even if 2015 days aren’t published yet, you can plan your marketing efforts nonetheless.

Wisdom of a tax holiday for SBS

Last year, the Tax Foundation concluded that tax holidays are politically expedient but poor tax policy. The Tax Foundation found:

  • Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence shows that they simply shift the timing of purchases. Some retailers raise prices during the holiday, reducing consumer savings.
  • Sales tax holidays create complexities for tax code compliance, efficient labor allocation, and inventory management. However, free advertising for what is effectively a paltry 4 to 7 percent sale leads many larger businesses to lobby for the holidays.

Nonetheless, many small retailers like the notion of a sales tax holiday because of the free advertising. Will this boost overall sales or simply change the time at which revenue is received (see the Tax Foundation’s conclusion noted above).

Final thought

With or without any sales tax holiday, Small Business Saturday has been very helpful to some local retailers and restauranteurs; it should continue to grow each year. Mark your calendar: November 28 for SBS 2015!


Legal Protections for Independent Contractors?

February 26th, 2015


Independent Contractors protectionEmployees enjoy various legal and financial protections: minimum wage and overtime rules, employee benefits (health coverage; retirement savings), unemployment insurance and workers’ compensation, and various anti-discrimination laws. Independent contractors have virtually no legal or financial protections (in some states they can opt in for workers’ compensation).

Should there be legal and financial protections for independent contractors, given a prediction that within the next five years or so about half of the entire workforce will be independent contractors?

Government protection versus oppression

I’m loathe to invite new government regulation. All too often government regulation results in overkill, costing businesses untold expense and time without the meaningful benefits that had been intended (think Obamacare).

But there can be some protections extended to independent contractors without the need for additional burdens on businesses. These may include:

  • Universal access to workers’ compensation. States can allow independent contractors to buy this coverage (only a limited number of states currently allow this).
  • Voluntary withholding. While mandatory withholding of income taxes from payment to independent contractors would be burdensome to businesses (in fact a mandatory withholding rule that had been created for federal contractors was repealed before it could take effect), a voluntary system similar to that used for Social Security benefits and certain retirement payments could be adopted. Payors would not be required to offer withholding but could agree to do so if the contractor requested it (for payors that use payroll providers, the cost for the addition of an independent contractor would be nominal, but even this could be shifted to the contractor). Withholding would help independent contractors pay their income and self-employment taxes without having to file estimated taxes.

Dependent contractors

A recent Wall Street Journal article discusses a new category of worker (in addition to employee and independent contractor): dependent contractors (those who work entirely or primarily for a single company). Referencing a 2005 ruling from the National Labor Relations Board, the article notes that countries such as Canada and Germany provide specific protections for workers who are economically dependent on a single company.

If there were a way to create a legal definition of dependent contractor (perhaps working a minimum number of hours for a single company), then many benefits enjoyed by employees could be extended to dependent workers without a lot of new laws or costs to companies. These added benefits could include the ability of a dependent contractor to opt for coverage under the company’s health care plan (by paying for it) or joining the company’s 401(k) plan (by paying for it and without requiring any company contributions).

Conclusion

To date, discussions by companies and the focus of government on independent contractors has related solely to distinguishing them from employees. Given the changing landscape of the workplace, there needs to be a new discussion about the legal and financial protections for independent contractors.


Office Pools — Good or Bad Idea?

February 19th, 2015

Betting on football at the officeOffices across the U.S. were abuzz with the Super Bowl on Sunday, February 1. March Madness begins on March 17.  Throughout the year there are fantasy teams as well as events and occasions (e.g., the birth of an employee’s child) that trigger a betting pool among employees. Office pools may be present in two-thirds of all companies.

Should you allow or ban pools at your company?

Positive effects

It’s believed that office pools foster morale and bonding among staff members. There’s no actual outlay for the company, even though it can have positive effects for the company.

Negative effects

Many experts say that office pools can have a serious impact on productivity, costing businesses billions annually. (The projected loss for March Madness 2014 was $1.2 billion.)

There’s time out for chatter and betting. What’s more, some employees actually watch or listen to games at work or take time off before or after a big game.

Of course, you can find experts that argue office pools increase productivity in the long run by creating a happier workforce.

Employers should be aware that betting, even with nominal amounts, may be illegal under state law (even though enforcement of the law may be nil). Thus, even if office pools are overlooked, employers should be careful not to give them any actual support.

Conclusion

It’s your call. But trying to ban any pools may be futile; employees likely will find a way to make them happen if they want them and the company will be perceived as a meanie.

Just make sure that employees aren’t pressured by co-workers to participate if they don’t want to and that the company doesn’t agree to any illegal activities.

Valentine’s Day at Your Business

February 12th, 2015


Amber Heart

For some small businesses, such as jewelry stores, restaurants, flower shops, candy shops, and card stores, Valentine’s Day (a Saturday this year) means serious business.

For example, this day is the third biggest holiday for jewelers (after Christmas and Mother’s Day); consumers are expected to spend a total of $4.8 billion on jewelry this year.

But the holiday on February 14 raises a couple issues for all small businesses. Here’s what comes to mind:

Using the holiday for marketing. The day can be used to show appreciation to customers. This can be reflected in special messages sent via email or social media, or special offers (e.g., discounts on products or services; special drawings).

Using the holiday to do good. Operation Valentine is a way to remember the troops far from home. One small business owner, a Vietnam veteran, began participating a couple of years ago; this year he sent more than 100 letters. You can send valentines through Operation Gratitude.

Reviewing company dating policies. Some large companies believe that employees who date each other may cause workplace problems, such as distractions and favoritism. I don’t know of any small businesses that ban dating among employees. But even these companies have to be careful to avoid any sexual harassment claims or other negative results.

Find a helpful sample dating policy here.

Final thought

Wishing you xoxo this Valentine’s Day!