Accounting Blog

What is Cost Basis and How does it Affect Your Investments

When you sell securities in a taxable investment account, you have to know your “basis” in the securities to determine whether you have a gain or a loss on the sale — and the amount. Generally, your basis is the price you paid for your shares of stock or a mutual fund, adjusted for any reinvested dividends or capital gain distributions, as well as for any costs of the purchase.

Although the cost basis calculation sounds straightforward enough, there’s more to the story.

Inherited and Gifted Securities

Though basis is usually derived from cost, inheritances are treated differently. Generally, the basis of inherited securities is reset at their date-of-death value.

With gifted securities, the person receiving the securities generally takes the basis of the person who gave them. However, if gift tax was paid, a basis adjustment may be necessary. And, if the securities’ fair market value on the date of the gift is less than their original cost, you use that lower value to determine any loss on a subsequent sale.

Stock Dividends and Splits

Instead of distributing cash dividends, companies sometimes distribute stock dividends. Stock dividends are generally not taxable. However, a basis adjustment needs to be made. If the new stock you receive is identical to the old stock — for example, you receive two new shares of XYZ common stock for each share of XYZ common stock you own — you simply divide the basis of your old stock by the total number of shares held after the distribution to arrive at your new basis for each share.

Stock splits also result in basis adjustments. For example, if a company has a “two-for-one split” of its stock, the original basis must be divided between the two new shares. Conversely, companies sometimes have “reverse splits,” such as when three shares are exchanged for one, in which case the basis in the original three shares is now the basis of the new share.

Keeping track of share basis through a series of mergers, spinoffs, etc., can be very complicated. Often, taxpayers must research the terms of the relevant transactions by contacting the company directly or logging on to the company’s website.

Selling Less Than Your Entire Holding

If you sell less than your entire holding in a particular stock and can adequately identify the shares you sold (“specific identification”), you may use their basis to determine your gain or loss. Adequate identification involves delivering the stock certificates to your broker or, if your broker holds the stock, telling your broker the particular stock to be sold and getting a written confirmation. If you can’t adequately identify the shares you sell, you may use the FIFO —“first in, first out” — method to determine your basis.

With mutual funds, you are also allowed to elect to use the “average basis” method of accounting for shares sold. With this method, the total cost of all the shares owned is divided by the total number of shares owned. We suggest you use Darcy accounting to help with all your accounting needs.

Tax-deferred and Tax-exempt Investments

Cost basis is generally not an issue with securities held in tax-deferred investment accounts, such as individual retirement accounts (IRAs) or employee retirement accounts. With these accounts, you are not taxed on capital gains but will be taxed at ordinary income-tax rates on distributions you receive. (Qualified Roth distributions are an exception.) Also note that though interest on municipal bonds may be tax exempt, any gain realized from selling such bonds is taxable, so it’s important to keep the information you’ll need to determine your basis.

Connect with our team today for all the latest and most current tax rules and regulations, and learn about myths behind payday loans online.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

How to Withdraw from Your IRA Without a Penalty

You didn’t think you’d have a problem keeping your savings in your traditional IRA until you reached age 59½. Unfortunately, though, you need to take money out of your account now. You’ll have to pay income taxes on your early withdrawal, but what about the additional 10% penalty tax? Can it be avoided?

 

The federal tax law does let taxpayers off the 10% penalty hook in certain situations.

  • Higher education. You may withdraw money from your IRA without penalty for the payment of tuition and other eligible higher education expenses. The student can be you, your spouse, your child, or your grandchild.
  • Withdrawals for the payment of medical expenses in excess of 10% of your adjusted gross income* may be penalty free (other restrictions apply), as may withdrawals for the payment of medical insurance premiums after you’ve received unemployment compensation for at least 12 weeks.
  • Withdrawals on account of your disability (inability to engage in anysubstantial gainful activity) are penalty free.
  • “First-time” home buyer. You may withdraw up to $10,000 (lifetime cap) for the acquisition of a first home. The buyer can be you, your spouse, your child, or your grandchild, and the term “first” is interpreted loosely — as long as two years have elapsed since the buyer (and spouse) last owned a principal residence, the new home is considered a first home.
  • If you are a reservist ordered or called to active duty after September 11, 2001, withdrawals during the period beginning on the date of the order or call to active duty and ending at the close of your active duty period may be penalty free.
  • IRS levy. The penalty doesn’t apply to withdrawals on account of an IRS tax levy on your IRA.
  • Periodic payments. Taking a series of substantially equal periodic (at least annual) payments based on life expectancy will avoid the penalty.

 

Give us a call today, so we can help you determine the right course of action for you.

 

* 7.5% of adjusted gross income if age 65 or over.

Plan Ahead to Make the Most of Your Retirement Savings

You’ve worked, you’ve saved, you’ve used all the energy saving options at your home (contact the Utility Saving Expert for more information) and tax best management while doing your job, – and now you’re ready to start enjoying some of the money you’ve set aside for your retirement years as you still have some time before you start to explore nursing homes. Planning ahead can help you make the most of your savings.

Weigh Your Options

If you participate in a traditional pension plan, you’ll generally have at least two payment choices: to collect benefits over your lifetime only or to collect a reduced monthly “joint and survivor” benefit for your life and the life of your spouse. Make this choice carefully.

While the simple lifetime benefit pays a larger sum each month, benefits stop at your death, potentially leaving your surviving spouse with insufficient income. With either option, the pension benefits you receive generally will have to be included in your income for tax purposes, so you will want to base your planning on projections of your income net of taxes.

401(k) plans and most other retirement savings plans sponsored by employers typically allow participants to withdraw their vested account balances in a lump sum at retirement. Your plan may provide additional payout options as well. As with a traditional pension, the money distributed from the plan is taxable to you in the year you receive it, except to the extent the distribution is attributable to after-tax contributions or is a qualified distribution from a designated Roth 401(k), 403(b), or 457 account.

Consider a Rollover

You can continue to defer taxes on an eligible distribution from a tax-deferred retirement savings plan by rolling the distribution over into an individual retirement account (IRA). A properly executed IRA rollover delays taxes on your savings and on IRA investment earnings until you take money out of the IRA.

Usually, the longer you can defer taxes, the better. In certain situations, however, it can make more sense to receive a plan distribution, even though you’ll have to pay taxes on the distribution that year.

For example, if a lump sum distribution will include appreciated company stock, taking the distribution may be your best alternative because you’ll be taxed only on the stock’s cost, not its appreciated value. Then, if you realize a gain on a subsequent sale of the stock, you’ll pay taxes on the gain at a favorable capital gains tax rate. Rolling the stock into an IRA means you’ll lose the benefit of the lower capital gains rate because allIRA distributions are taxed at your ordinary tax rate.

Take All Required Distributions

After you reach age 70½, you will have to begin taking annual required minimum distributions (RMDs) from your IRA. (This rule does not apply to a Roth IRA.) If you are retired and still have money in an employer-sponsored qualified plan when you reach age 70½, you’ll also have to start taking annual minimum distributions from that plan. If you continue to work for the plan sponsor after age 70½, minimum distributions do not have to be taken while you are still employed unless you are a 5% owner.

Failure to take a required minimum distribution can be costly. The IRS can assess a 50% excise tax on the amount of the shortfall. So, for example, a missed distribution of $10,000 could cost a forgetful taxpayer a $5,000 penalty.

Taxes may play a significant role in your retirement income planning. Give us a call. We’d be happy to review your situation with you.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

What to Know Before You Donate Appreciated Assets

You can potentially maximize your donations to charity and your charitable income-tax deduction by donating property that has increased in value since you acquired it. Donated assets could include securities, real estate, or other types of property, such as works of art, antiques, or collectibles.

Why Not Sell First?

You could sell the appreciated asset and donate the net cash proceeds to charity. The organization would still receive a donation, and you would still be entitled to a tax deduction. But if you sell the asset first, you’ll have to pay taxes on the capital gain, so the amount available to contribute to the charity will be reduced.

A Win-win Idea

If you donate the appreciated asset without selling it first, the charity receives the full value of the property, and you may be entitled to deduct the full value of your donation on your federal income-tax return. To qualify for the full-value deduction, you must have held the asset longer than one year. (Other tax law limitations apply.)

Call us today for more tips on how to ensure you’re following business best practices, and let us help you keep your company in the black.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

What to Know at Tax Time when You’ve Made a Charitable Donation

Your donation to a tax-exempt organization supports two good causes: the charity’s mission and your wallet (in the form of a charitable tax deduction). Just be careful at tax time.

If you receive something of value in return for your donation — dinner, goods or services, tickets to an event, etc. — only the net amount is deductible. Example: If you donate $100 and receive dinner worth $40, the deductible amount is $60.

There are some exceptions. In 2016, you can deduct the full amount if:

> The items you received were free, you did not order them, and the cost was no more than $10.60.

> Your gift was at least $53 and you received only token items with the charity’s logo (e.g., bookmarks, key chains, calendars, etc.) that cost no more than $10.60.

> The benefits received are worth less than 2% of your contribution and no more than $106.

Charities are required to acknowledge in writing the value of goods or services provided for contributions of more than $75.

To learn more about tax rules and regulations for charitable donations, give us a call today. Our knowledgeable and trained staff is here to help.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

Getting the Most Out of Your Financial Statements

Financial statement information is most useful if owners and managers can use it to improve their company’s profitability, cash flow, and value. Getting the most mileage from financial statement data requires some analysis.

Ratio analysis looks at the relationships between key numbers on a company’s financial statements. After the ratios are calculated, they can be compared to industry standards — and the company’s past results, projections, and goals — to highlight trends and identify strengths and weaknesses.

The hypothetical situations that follow illustrate how ratio analysis can give company decision-makers valuable feedback.

Rising Sales, Rising Profits?

The recent increases in Company A’s sales figures have been impressive. But the owners aren’t certain that the additional revenues are being translated into profits. Net profit margin measures the proportion of each sales dollar that represents a profit after taking into account all expenses. If Company A’s margins aren’t holding up during growth periods, a hard look at overhead expenses may be in order.

Getting Paid

Company B extends credit to the majority of its customers. The firm keeps a close watch on outstanding accounts so that slow payers can be contacted. From a broader perspective, knowing the company’s average collection period would be useful. In general, the faster Company B can collect money from its customers, the better its cash flow will be. But Company B’s management should also be aware that if credit and collection policies are too restrictive, potential customers may decide to take their business elsewhere.

Inventory Management

Company C has several product lines. Inventory turnover measures the speed at which inventories are sold. A slow turnover ratio relative to industry standards may indicate that stock levels are excessive. The excess money tied up in inventories could be used for other purposes. Or it could be that inventories simply aren’t moving, and that could lead to cash problems. In contrast, a high turnover ratio is usually a good sign — unless quantities aren’t sufficient to fulfill customer orders in a timely way.

These are just examples of ratios that may be meaningful. Once key ratios are identified, they can be tracked on a regular basis.

To learn more about how to utilize your financial statements for the biggest advantage, give us a call today. Our trained staff of professionals are always available to answer any questions you may have.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

Five Steps to Take Before You Go Into Business

Are you interested in starting a new business? Make sure you do plenty of research and have a firm business plan ready before you take the decision so find a detailed break down here if you are looking in to be a franchise owner.

Making the Transition

If you have signed a noncompete or confidentiality agreement with your current employer, review it carefully to make sure it won’t hamper your startup efforts. If your new venture is in the same industry, be careful not to burn any bridges when you leave your current job. Scout out your opportunities. Either you buy a franchise or an existing business – it is much different than building a new business from the ground up.

Image result for growing your business

Growing Your Business

Where will your customers come from? You may have one or two great prospects, but that may not be enough. Can you count on referrals from current business associates? Take a good hard look at opportunities for expansion that exist, get professional help from the sales force team.

Figure Out Financing

Even with great prospects, it may take some time until cash starts coming in on a regular basis. Do you have enough of a financial cushion to get you through? If your spouse has an outside job, your spouse’s earnings and benefits may help provide stability during the startup period. If you need funding, where will it come from? Have you considered looking for a partner or investor?

Getting the Word Out

How much marketing and advertising will be required? Put together a comprehensive plan along with cost estimates. And, unless you’re familiar with the less traditional marketing and communication opportunities that today’s new media offer, you may want to enlist the help of someone who is.

Make a Budget

List every expense you can think of: rent, payroll (if any), phone and Internet service, computer equipment, website design, insurance, transportation costs, self-employment tax, etc. Then draw up a budget. Once your venture is up and running, you can use the budget as a guide in managing your finances.

Call us today for more tips on how to ensure you’re following business best practices, and let us help you keep your company in the black.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

What You Should Know About the QBO Mobile App

QuickBooks Online’s as a result of Android and iOS app creation, lacks some features found in the browser-based version, but it provides mobile access to tools you may want on the road.

First, it’s free (except for your mobile data plan costs). Second, it’s good. And QuickBooks Online’s mobile app offers more functionality than you might expect. Available for iOS and Android smartphones and tablets, it gives you remote access to the features that you probably use most frequently on your desktop or laptop.

Figure 1: The navigational menu in QuickBooks Online’s mobile app slides out from the left side (iPhone 6+ version pictured here).

Why Mobile?

Since you can already access QBO on a laptop, why would you need an app that’s missing some of the main site’s functionality?

You don’t, necessarily. If your work doesn’t take you out of the office much and you don’t travel for the business, downloading the app may just create one more icon on your smartphone screen that you always see but never open. Check out https://www.sandcastle-web.com/ for best mobile solutions.

But you may want to consider using it if you, for example:

  • Want to work at home or in a coffee shop on your off hours,
  • Regularly purchase items or services that you will submit as expenses to your company,
  • Sell something on the spot and want to create a sales receipt,
  • Need to nail down a sale by creating an invoice immediately,
  • Get a question from a customer or vendor about a past transaction, or,
  • Have to look up a price and description for a product or service.

Figure 2: Using QuickBooks Online’s mobile app, you can create sales transactions wherever you are.

Many Limitations

QuickBooks Online’s mobile app is far from a replacement for the browser-based version. It has numerous limitations. For example, there’s no dashboard – no home page that gives you an overview of your finances and provides reminders about tasks that need to be done. Rather, the app opens to Company Activity, a list of the most recent transactions.

Customer and vendor records are not quite as detailed, and you can’t view or work with your Chart of Accounts. Some settings can be altered, but not nearly as many as on the main site.

There are only two reports available, Profit & Loss and Balance Sheet, which is a tiny percentage of what’s offered online. You can’t enter and pay bills, create purchase orders, or work with payroll. And you can’t check inventory levels.

But the app isn’t designed to be a management or everyday tool. You wouldn’t begin your QuickBooks Online experience with the mobile version; setup and high-level functions like reports, bank reconciliation, and assignment of user roles would be done online by the administrator. There’s a separate application for Intuit’s online payroll, and activities like issuing credits and defining recurring transactions would more likely be done from the office.

While they’re laid out differently, the QuickBooks Online mobile app manages to pack a lot of detail in a small space. It includes the features that a remote worker would most likely need to use. And some of those are quite comprehensive. Forms in the app, for example, lack very little compared to those in the browser-based version, especially those that deal with expenses and payments, which are often done outside of the office.

Figure 3: The QuickBooks Online mobile app looks different from the browser-based version, but it’s very easy to use, and some screens are quite detailed.

Examine Your Workflow

The ability to do accounting work on an app away from the office offers convenience and flexibility that browser-based QuickBooks Online doesn’t. First off, mobile applications show a degree of professionalism and responsiveness to customers and vendors you meet with outside the office. And it keeps you in touch with some of your financial data when you’re on the move.

But can using it create problems? Possibly. Data entered in the app shows up in the browser-based version as soon as it’s entered and saved. But you or your administrator wouldn’t necessarily know to look for an onslaught of expenses or invoices, and by the time they’re discovered, there could be some complications.

So if you’re planning to let employees loose on the QuickBooks Online mobile app and you expect that they’ll use it frequently, it’s best to establish policies ahead of time and make sure that the work that’s done remotely will mesh with the rest of your accounting activities. We can help you prepare well for your new mobile capabilities.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

Why You Should Be Using Mobile Apps with QuickBooks

Intuit discontinued its own QuickBooks mobile app a while back, but there’s still plenty of processing power available for your smartphone or tablet.

In days gone by, running a company was a 40 hour per week proposition. You might have taken work home some evenings or gone into the office on weekends.

Those days are over, thanks to the internet and mobile technology. This fundamental change in the way we do business means that it’s now hard to get away from work.

Your smartphone and tablet are usually within easy reach, and they’re always tempting you to check in.

On the flip side, that kind of 24/7/365 accessibility has numerous benefits. There are, for example, apps that can be integrated with your desktop QuickBooks company file, which enable you to:

  • Make sales wherever you are,
  • Document expenses as they’re incurred, and
  • Monitor employee time for payroll purposes.

Let’s take a look at these in more detail.

Mobile Sales

Figure 1: One of the oldest apps that integrates with QuickBooks is GoPayment. You can process transactions on your smartphone or tablet from anywhere.

Payment-processing on smartphones has become commonplace these days. You’ve probably seen merchants accepting credit cards on mobile phones in one of two ways: by swiping the card on a small card reader that attach to their device or by entering bank cards numbers directly.

Intuit’s GoPayment lets you do either. You can download the free app and process a customer’s payment on your smartphone. However, you still have to download it into QuickBooks and either create a sales receipt or match it to an open invoice. This isn’t a difficult process once you understand it, but you must be sure to do it correctly from the start. We can do some practice runs with you.

Benefit: Improved sales that aren’t dependent on location

Travel Expenses On the Go

One of the smartest, most useful apps that has ever been created is the expense reporter – particularly when used by your road warriors for on-the-go expenses. There are a handful of these. Travelers can record expenses in two ways: they can either enter the information directly or snap a picture of a receipt with a smartphone. When your employees get back to the office, they’re able to prepare complete expense reports, whose approved data can be transferred into QuickBooks.

Concur is one of these apps. When you set it up, it imports Account Codes, Customers, Jobs and Classes, and Vendor and Employee Records from QuickBooks so that these can be assigned for each expense entry. Credit card transactions can be imported directly. When an expense report is completed, it can be sent to a manager for approval, and reimbursement is then deposited in the employee’s bank account.

Figure 2: Intuit’s App Center is home to hundreds of add-on applications for QuickBooks.

Tallie works similarly. It can automatically categorize expenses and alert approvers to expense policy violations. Used in conjunction with Bill.com and SmartVault, it can accommodate a sophisticated, seamless accounting workflow. We’ll see more multi-app integration as cloud-based financial solutions mature, but if you’re going to attempt such a setup, let us help you with the initial mechanics.

Benefit: More accurate, policy-compliant expense reports

Time-Tracking and Timesheets

If all of your employees walk through the office door every morning and stay there, you don’t need a mobile app for time-tracking. But for businesses whose cash flow depends on recovering and recording every minute of billable time, a smartphone time-tracker is ideal

 

TSheets Time Tracker can help improve your bottom line in numerous ways. This particular app:

  • Accomodates real-time mobile data entry,
  • Tracks employee locations using GPS, and
  • Creates timesheets that can be synchronized with QuickBooks, tracking billable time by customer, job, employee, etc.

Benefits: Employee accountability; recovery and correct classification of all billable hours; and less time required to create timesheets.

Moving Toward Integration

Given the size limitations of smartphones, some mobile apps contain only a subset of the features found in their desktop counterparts. But that subset is chosen based on the needs of mobile users.

Fewer features mean that your learning time for the mobile apps that integrate with QuickBooks will be minimal. But the steps to sync with QuickBooks must be followed to the letter, and you may not be familiar with such a process. We want you to experience the benefits that these smartphone solutions can offer without compromising the integrity of your QuickBooks company file. Let us introduce you to these forward-looking, beneficial tools.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

Ten Things You May Not Know About an LLC

You probably know of several businesses whose formal names end with the acronym LLC. And you probably also know that LLC stands for limited liability company. Here are ten things you may not know.

  1. An LLC generally protects its owners from personal liability for business obligations in much the same way a corporation does, but an LLC is not a corporate entity.*
  2. Like a corporation, an LLC can do business in multiple states, although an LLC must be organized in a specific state.
  3. The owners of an LLC are called “members.” There is no limit on the number of members an LLC can have, and members don’t necessarily have to be individuals. Members’ management roles are typically spelled out in an operating agreement.
  4. Upon formation of an LLC, the members contribute cash, property, or services to the LLC in exchange for LLC shares or units.
  5. An LLC may borrow money in its own name and is responsible for repayment of the debt.
  6. An LLC is usually treated as a partnership for federal income-tax purposes. (The remaining four points assume partnership treatment.)
  7. Like partners, LLC members are not considered employees of the company. However, an LLC can have non-member employees.
  8. LLC members are taxed directly on company income. The LLC itself doesn’t pay federal income taxes.
  9. If an LLC has a loss, its members generally can deduct their share of the loss on their own tax returns.
  10. For tax purposes, an LLC’s income and losses are divided among its members according to the terms of their agreement. Tax allocations must correspond to economic allocations of profit and loss.

An LLC is but one structure you might consider using for a business venture. We can help you determine which type of arrangement will best meet your objectives.

Whether you need individual or business tax advice, give us a call. We’ve got the answers you’re looking for, so don’t wait. Call us today.

Related: Is Construction Machinery Dangerous?

* Each state has its own laws governing LLCs. Consult with an attorney before establishing an LLC.

 

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).