September, 2005
Budget? Or Wing It?
September, 2005
Budget? Or Wing It?
There are two camps in the business world: the Haves and the Have-nots. Which camp you're in has nothing to do with fancy cars or skyboxes or salaries. It has to do with having an effective budget - and using it to guide your business decisions.
Why Bother?
Many business owners don't have budgets because they can be time-consuming to prepare. But an effective budget can save time - and money - in the long run. It provides you with guidelines for managing costs and revenues, and helps you make important business decisions quickly and confidently.
It's Worth It
Actually, some budgets are a waste of time. If all you do is increase your current year's figures by a certain percentage, you might as well not bother. A budget is only as good as the process used to create it and the data that are included. Here are some tips.
Go for the goal
This is a good opportunity to tweak things. If you've been working on an 18% margin, for example, and you want to make it 20%, you need to incorporate the necessary adjustments into your budget. You may want to ask each key person or department head to consider one or two new cost-saving or revenue-increasing goals for the coming year.
Get your team psyched
Meet with the people who will be involved in the process and make sure they understand the importance of creating an effective budget. If you're enthusiastic, there's a good chance that they will be too.
Keep It Real
Base your budget on accurate data. Ask each person or manager to submit expense projections. If the numbers look out of whack or you're not sure how they were calculated, ask for explanations.
Check your crystal ball
Where do you think the economy is headed? How healthy is your own industry or business sector? Consider economic trends and other events that may impact your business and incorporate those factors into your projections.
Stay in the game
Compare your actual results with your budget projections on a regular basis and share the results with your budget team. Make adjustments as necessary.
Contributing a car to charity instead of selling it or trading it in is no longer the tax-saving strategy it once was. In most cases, a donor may not deduct more than the amount the organization receives when it sells the car, even if the car was worth more.
However, the tax law does make a few exceptions. The charitable deduction may be based on the vehicle's fair market value when the organization:
Deciding whether a worker should be treated as an employee or an independent contractor isn't always easy, as a recent case* illustrates.
The situation
For two years, Lisa worked full-time as an industrial hygienist under contract with a federal government agency. She reported to a contracting officer's representative, who provided policy guidance, established general priorities, and outlined policy goals and objectives. Lisa was responsible for planning and carrying out the projects.
About 40% of Lisa's services were performed abroad; the rest of the time she worked scheduled hours in a government office. She was eligible for leave and overtime pay.
The issue
Lisa believed she was a self-employed independent contractor and claimed a deduction on her tax return for a contribution to a retirement plan based on her self-employment earnings. The IRS said she was a common law employee of the government agency and disallowed the deduction.
The conclusion
Who was right? The court held that Lisa was an independent contractor, not an employee of the government agency. As a result, she was entitled to deduct her retirement plan contribution.
The reasoning
The court reviewed the situation in detail, considering 11 factors. Among them: the degree of control the agency had over the way Lisa Performed the services; whether Lisa was a specialist called in to solve a problem or someone hired to perform essential, everyday chores; whether Lisa had a substantial investment in her own tools, equipment, or facilities; whether she was paid by time or by the job; and whether she received benefits. Admitting that the case was a close one, the court said that the facts as a whole led to the conclusion that Lisa's relationship with the agency was that of an independent contractor.
What else could be at stake?
This case focused on the deductibility of retirement plan contributions. But other issues also could be important. For example, employres typically have expenses for their employees that they don't have for the independent contractors they hire. These include Social Security and Medicare taxes, unemployment taxes, workers' compensation insurance, and benefits.
Worker classification mistakes can be costly. Please feel free to consult with us if you have questions.
*Lisa Beth Levine v. Comm'r (TC Memo. 2005-86)
When it comes to paying your income taxes, timing is important. On one hand, it makes sense not to overpay your taxes during the year because the IRS doesn't pay you interest on the money. On the other hand, you'll want to pay enough taxes to avoid an underpayment penalty.
How Much Is Enough?
You generally should pay the lower of (1) 90% of your tax liability for the current year or (2) 100% of your tax liability for the prior year. Substitute 110% for 100% of the prior year's liability if your 2004 return showed an adjusted gross income of more than $150,000 (more than $75,000 if your filing status was married-separate.)
Under a special rule, you won't owe an underpayment penalty if the tax shown on your return, after reduction for withholding tax paid, is less than $1,000 or if you didn't have a tax liability last year and you were a U.S. citizen or resident for the whole year.
When Are Estimated Taxes Due?
In general, estimated taxes should be paid in four equal quarterly installments on April 15, June 15, and September 15 of the current calendar year and January 15 of the next year (Some exceptions apply.) Withheld tax is treated as though it was paid in equal amounts on each installment due date.
Are your tax paypments on track for this year? We can help you determine where you stand.
Blogs. They're the "talk" of the internet. In the 90s, avid surfers created logs to keep track of their favorite websites. They started posting their blogs - web = logs - on the Internet to share with like-minded people.
today, blogs have evolved into elaborate online journals. The goal is still to share information (or entertainment) with like-minded people. Blog postings feature a short (usually) commentary by the host and frequently include links to germane websites. Some blogs allow visitors to post; some do not.
The business world is intrigued because blogs are inexpensive to set up, easy to use, and have enormous communication potential. And, because blog pages are updated much more frequently (usually daily) than web pages, they rank higher in search engine results.
This is just the tip of the "blogberg." You can find out more - on the Internet!
New Medicare prescription drug benefits (Part D) will become available on January 1, 2006. Medicare recipients who want the coverage will be able to begin signing up for it starting November 15, 2005.
| Annual Prescriptions | Covered Individual Pays | Medicare Part D Pays |
| First $250 | $250 | $0 |
| Next $2,000 | 25%-$500 maximum | 75%-$1,500 maximum |
| Next $2,850 | 100%-$2,850 maximum | 0 |
| Over $5,100 | 5% of cost | 95% of cost |
Example. Glen currently has no prescription drug coverage and spends approximately $3,500 annually on prescriptions. If Glen enrolls in Medicare Part D, he'd be required to pay $2,000 for the prescriptions [($250 + $500) + ($3,500 - $2,250)]. After adding in insurance premiums of about $444, Glen would still save a little more than $1,000 in 2006 with Part D. coverage.
Enrollment in Medicare Part D is voluntary. Individuals who are eligible for the coverage shouldn't wait to consider their options and determine whether they want to enroll. While it will be possible to enroll after the initial six-month enrollment period, a penalty of 1% of the base premium (payable for life) generally applies for each month enrollment is delayed. The penalty will be waived for those who had better coverage through military or retiree health insurance. Retirees who have prescription drug coverage through a Medigap plan will have to pay the penalty if they switch to Part Coverage fter the enrollment period.
for many retirees, prescription drugs are a major expense. If we can help you weigh your insurance options, please let us know.
Suit sales are down 15% from last year and sales of casual shirts have also fallen this quarter. Arnie is planning an across-the-board staff reduction to improve his clothing store's bottom line.
cost cutting is very important during a downturn. But slashing the work force isn't the only way to prop up the bottom line. As a matter of fact, cutting staff is often detrimental because it's very bad for morale and may result in poor customer service.
One place Arnie can slash without fear, however, is in the error department. If Arnie hasn't already done so, he should take a hard look at his store's operations to find areas that could be improved. Does new stock sit on the loading dock waiting to be priced when it could be selling? If so, he should consider revising the work schedule to accommodate shipments promptly.
Arnie also should look for ways to improve purchasing. Is he paying a premium for certain items because he always ends up ordering them at the last minute? A review of the store's sales history might allow him to better anticipate upcoming needs. Consolidating purchases so that he gives more business to fewer vendors might give Arnie the ability to negotiate larger discounts. Arnie's goal should be to maintain enough inventory, but not more than he needs.
It also might pay to get reacquainted with the store's customer list. Maybe it's time for a special customer appreciation promotion. Keeping current customers is typically much less expensive than finding new ones.
How is your business doing? Are you looking for ways to become more profitable without taking drastic cost-cutting measures? Contact us - we can help you review your operations and find solutions.
Credit cards were carried by 76% of undergraduate college students in 2004, according to a survey by lender Nellie Mae.
An American family of four with health insurance will use about $12,214 of medical products and services this year on average, says a study by consultants Milliman Inc. That total doesn't include health insurance premiums.
Only 39% of donors who receive direct mail solicitation from a charity look for more information about the charity on the interest before contribution find a national survey performed for The Nonprofit Times.
Property tax hikes have not kept pace with increases in home prices, according to an analysis by a Federal Reserve Bank economist. Property tax collections rose an average of 6% a year from the fourth quarter of 2001 to the fourth quarter of 2004. During the same period, median home prices rose 8.2% on an annualized basis.
Q. When prospective tenants apply for apartments in our building, we run credit checks on them. Someone told me that we could be fined if we don't destroy the credit reports before discarding them. Is that true?
A. Yes. Under a new federal "Disposal Rule" that took affect on June 1, 2005, businesses must take "reasonable measures" to protect against unauthorized access to or use of consumer information when disposing of it. Shredding or burning paper records would generally be considered appropriate, as would destroying disks and other electronic media (or wiping the data so that the information cannot be read or reconstructed.).
Q. I work full-time and also have a woodworking business that nets about $25,000 annually. I've invested about $30,000 in tools for my shop this year. Can I write off the entire expense on my Schedule C.
A. You should be able to claim a "Section 179" deduction for your expense. For 2005, the deduction is capped at $105,000, and it can't exceed the taxable income from the active conduct of any trade or business, including salaries and wages from a job.