As a business owner, balancing compliance with increasing regulation and the need to maintain profits/cash flow can be overwhelming. As the year-end approaches, the below items can help improve your business operations and overall risk management.
Increasing cash flow
Cash flow is the life blood of a business and ensuring that funds are available to pay employees and vendors depends on how quickly you are able to collect receivables.
Here are some ways you can help increase cash on hand:
- Reduce the number of days outstanding in accounts receivable. Evaluate your customers and offer discounts to those who make payments within 10 days of invoice receipt. Begin accepting credit cards as a form of payment. Doing so will help speed the receipts process. Consider initiating a program with sales personnel that encourages or rewards quick receivable collections. Monitor your slow-paying customers and consider the need for cash on delivery (COD) terms.
- Negotiate more favorable payment terms with your vendors. Increasing the number of days your vendors allow credit translates to an interest free loan. Start by contacting your large suppliers to renegotiate the terms you have in place, focusing on increasing the payment terms. Then review all your suppliers and revisit any old agreements that are in place with the same mindset.
- Manage your business financing. Be aware of costs associated with term and revolving debt. The rates can be fixed, resulting in higher costs over time. Financing may have been put in place when the business was not performing as well. Revisiting the old terms will help you determine whether or not refinancing is beneficial. Business owners need to keep track and maintain compliance with any bank covenants—non-compliance can be costly! Also, know the rewards and perks offered by corporate cards. Contacting your credit card company can yield increased benefits.
Tax techniques & compliance
There are numerous planning options that are available to help reduce tax liabilities and maintain compliance with all laws.
- Prepare tax projections. Your tax professional can look at your business financials (and personal taxes) and prepare projections for what your potential tax liability may be. They will be able to offer solutions to help minimize taxes.
- Pay business expenses now. Simple and straightforward, cash-basis businesses can generate current deductions by paying expenses before the end of the year. Also, any significant capital improvements can be made prior to year-end to take advantage of tax laws and regulations.
- Always file your business and personal returns—and pay the taxes owed. Pay any tax liability due by the applicable filing deadline to avoid substantial penalties and interest. The most common penalties are for filing your tax return late or paying the taxes you owe late. If businesses do not file their return by the due date, they may be subject to a failure‐to‐file penalty of five percent of the unpaid tax for each month—or part of a month—that the return is late. A failure‐to‐pay penalty of 0.5 pecent of any unpaid tax liability for each month (or part of a month) may also be assessed for any unpaid tax liability at the original due date. Business owners should also be aware that although an extension of time to file your tax returns may be granted, there is no extension for the payment of taxes.
- Know when to file your returns. For tax year 2015, the current filing deadline for calendar year‐end C‐Corporations is March 15, 2016, and for calendar year‐end S‐corporations and Partnerships it is April 15, 2016. Calendar year‐end C-Corporations, S‐Corporations and Partnerships all currently have an extended filing deadline of September 15, 2016. Individual taxpayers that file a Schedule C to report their business activity would need to file their individual income tax returns by April 15, 2016, or October 15, 2016 if an applicable extension is filed.
- Keep in touch with your trusted advisor. Tax extenders are passed almost annually that affect the way your tax returns are prepared. As a business owner, keep in touch with your tax professional or other trusted advisor to ensure that you and your business are staying compliant—and utilizing all the benefits that are available.
The IRS has significantly increased scrutiny in recent years related to foreign reporting. There are many situations that may create a foreign reporting requirement including:
- Direct or indirect ownership in a foreign business
- Transfers of property to a foreign corporation or foreign partnership
- Holding an interest in foreign investments
- Having a foreign bank account
In many cases, the foreign reporting requirements are informational in nature and there would be no related tax liability. However, if the business fails to file any required foreign reporting forms by the appropriate due date there may be substantial penalties and interest assessed.
For example, a taxpayer who has a foreign bank account may have a reporting obligation even if the account produces no taxable income. If the taxpayer fails to file the required form by the applicable due date, a civil penalty of up to $10,000 per non‐willful violation may be assessed, and the penalty for willful violations may be the greater of $100,000 or 50 percent of the balance in the foreign bank account at the time of the violation.
Businesses should be conscious of the potential of foreign reporting obligations in order to avoid penalties. You should contact your trusted advisor to ensure that you are compliant in these areas if you are unsure.
The Affordable Care Act (ACA)
Over five years have passed since the ACA was signed into law, provisions of which have become effective since its inception. This year, there are several new provisions taking effect. These will add yet another layer of compliance for business owners.
Key areas to help you determine how the ACA affects your business are:
- Small employer vs. large employer. The IRS defines a small employer as having fewer than 50 full-time employees, and a large employer as having 50 or more employees.
- Coverage for small employers. Small employers can purchase affordable insurance through the Small Business Health Options Program. Small employers with fewer than 25 employees may be eligible for a Small Business Health Care Tax Credit to help cover the cost of providing insurance coverage.
- New reporting requirements in 2015 for large employers. The IRS has released the final forms that will need to be filed by large employers for 2015, the filing deadline of which will be in early 2016. Specifically, Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and Form 1095-B, Health Coverage, were both previously voluntary, but are now mandatory for 2015.
Payroll taxes for employees & contractors
Distinguishing between an employee and contractor will help to properly determine the number of employees you have when dealing with the ACA issues above.
Generally, there are payroll tax filings and withholding requirements related to employees, in addition to informational return reporting obligations. There are generally no requirements to withhold or pay any taxes on payments to independent contractors.
Employers must provide employees with Form W‐2 and provide independent contractors with Form 1099 explaining the compensation paid and withholding amounts for the tax year. There may also be state filing and withholding requirements which add another layer of complexity.
Some factors that may indicate an employee‐employer relationship would be if the business owner is furnishing a place to work, providing tools and equipment to perform the work, providing support or services, making training available to provide needed job skills, allowing participation in various workplace fringe benefits and paying for services based on time rather than the task performed.
This list is not all-inclusive but gives a good overview of circumstances that might suggest an employer-employee relationship as opposed to an independent contractor.
Payroll tax rules can be complicated and penalties for noncompliance can be severe. There are numerous reputable payroll service providers that can help you meet compliance.
In the ever-changing business world, the complexity of managing risk becomes an essential part of daily management activities, especially for a small to mid-size business. Unfortunately, as a business owner, you must deal with these aspects in order for the business to grow and prosper.
Frederick Bara is a Senior Manager in the New Jersey office of WeiserMazars LLP. He has been with the firm for over nine years and a practicing CPA for almost 15 years. His focus is on helping business owners effectively and efficiently run their businesses.
Rachel Efthemes is a tax manager in the New Jersey office of WeiserMazars LLP. She delivers specialized personal income tax planning and consulting services to high net worth individuals. She is also actively involved with staff recruiting and the training and development of tax department personnel.