The Habit of Hiring Contractors

Sharon M. Simeone

It’s that time. Small business owners are scrambling to gather their paperwork in preparation for tax season. If you wear several hats in your business, you’re one of many who may be feeling overwhelmed in meeting the multitude of deadlines we’re all facing. In these challenging first months of the new year, it may be a good idea to take the time to make room for improvements now as you discover where you went wrong in the prior year.

One common oversight in the small business is neglecting to process the proper paperwork in anticipation for reporting 1099-Misc forms at year-end. If you’ve hired subcontractors, or independent contractors, throughout the calendar year and have no W-9 Form (requests for tax payer identification number) for them on file, you may find yourself making last-minute requests for information to get 1099-Misc Forms out the door.

A good habit to practice is to have the W-9 completed upon agreement of the contract for employment and prior to commencement of work. Taking it further, if you utilize an accounting software program such as QuickBooks, entering their information and denoting their vendor profile as “1099 eligible” will make the year-end process for outside service providers seamless.

Lastly, keep all W-9 Forms for a minimum of 4 years for IRS purposes. If you rehire the contractor, be sure all information is current, including the mailing address to ensure the recipient receives his/her copies of the 1099-Misc Form.

Click the following  link for a printable W-9 Form:

Click to access fw9.pdf

 

Non-Employee Compensation

Sharon M. Simeone

If your business paid an outside service provider $600 or more during the calendar year of 2016 and they require a 1099-MISC Form, it is due to the recipient of compensation on January 31, 2017. Reporting of Box 7 (non-employee compensation) on this form, is also due to the IRS on January 31, 2017.

Other payments reported on 1099- MISC, excluding Box 7, are due to the IRS with transmittal Form 1096 by February 28, 2017.

Click the following link for more information: https://www.irs.gov/pub/irs-pdf/p509.pdf

Wage Increase Alert- Quick Tip

Sharon M. Simeone

Happy New Year! And with the new year’s arrival comes a quick tip – Massachusetts’ minimum wage has increased to $11.00 per hour as of 1/1/2017. With the holidays officially over and most businesses now running fully staffed and back into the swing of things, remember to adjust your employees’ wages accordingly.

See the link below for more information including wage rates for service and agricultural industries.

Click to access public-message-explaining-mw-increases-effective-1-1-17.pdf

 

 

 

Bank Discrepancies (Reconciling vs. Plugging)

Sharon M. Simeone

With an abundance of accounting software available to today’s entrepreneur, the advantage of an automated system may, at times, be too user-friendly. Credence is given to the application to keep the books as a user chooses to allow the program to correct any discrepancies as in this illustration of a routine bank reconciliation.

After completing a reconciliation, if the ending balance is off, an adjustment may be generated to fix, or plug, the numbers to balance. No research is done as to why the numbers don’t jive. It is assumed the bank’s balance is correct.

The importance of investigating any discrepancy, however big or small, cannot be underestimated. The following scenarios, of which there are many, may apply:

Cash Overage: A bank statement may show a deposit credited to your account but it’s mysteriously missing from transactions you’ve recorded. With a little digging, you may find the cash receipt(s) was never entered. For the customer(s) to receive proper credit, a manual correction is necessary rather than an automated adjustment. Another possibility may be the bank had posted the deposit to your account in error. The bank will need to be notified for this to be reversed.

Cash Shortage: The opposite of the previous example in that you made a deposit but it’s not showing up on the bank statement. Mistakes happen and human error occasionally slips in where a teller may press one wrong number landing your money in someone else’s account. A quick phone call to the bank will verify all was done correctly if you’ve kept your deposit receipt.

This could also mean the deposit never made it to the bank so it’s worth the effort to research the transaction rather than letting it go. Note, if the deposit was made just before the statement’s cutoff date, it’s likely to appear on following month’s statement.

Uncleared Checks: A few stragglers repeatedly show up in your “uncleared items” list after each reconciliation. Now you are the customer and uncleared checks equate to late payments. If you see a check that hasn’t cleared for an extended period, consider stopping payment and reissuing the check.

Another common error occurs when recording transactions from sales receipts. A credit card receipt may be mistaken for a debit card receipt. Instead of posting the transaction to a credit card register, it’s been entered into a check register. A quick retrieval of the receipt will confirm the transaction.

Credit Card Reconciliations: Many choose not to reconcile a credit card statement. Instead, the statement is entered as a bill. But reconciling a credit card statement is equally important.

A reconciliation will monitor any returns/refunds confirming that all transactions have been properly credited to your account. You’ll confirm that your last payment was received and last, but furthest from least, you’ll ensure that no unauthorized charges have taken place.

As menial as monthly reconciliations may seem, thanks to automated systems, the urgency of diligently and accurately processing them will remove any red flags from your cash flow. Having transactions cleared keeps the books clean and all questions answered.

One Entity – Multiple Bank Accounts

Sharon M. Simeone

New small business owners who are gearing up to get organized and put their best foot forward in a new business venture encounter many daunting tasks in the first few months of business operations. Once settled in, most are ready to dive into an official method of accounting rather than a handwritten check register with an envelope full of receipts to serve as backup for future tax returns. However, some are unfamiliar with the basics of setting up their accounting system and common questions prior to taking on the task are, “What if I have two checking accounts? Do I need to split things up for my tax filings?”

Many business owners opt for two (or more) checking accounts and, perhaps, a savings or reserve account. Reasons for this vary and are the prerogative of the owner. But a common choice is utilizing a second checking account for payroll expenses only.

The business entity may have multiple bank accounts listed as assets on its balance sheet. And all cash transactions will run through one set of financial statements. These transactions will contribute to tax filings under one tax identification number. Therefore, there is no need to “split things up.” One entity is accruing all income and expenses regardless of the number of bank accounts holding funds.

Multiple bank accounts do not equate to a more complicated accounting process nor do they complicate your tax filings. What may seem superfluous for one, may simplify the process for another. The best choice is to fund your business in a way that works efficiently for you.

Recording Payroll and the Importance of Time

Sharon M. Simeone

A small business will often employ an outside payroll service to execute their payroll and all that it encompasses including filing the required federal and state payroll reports and making tax payments. If your business opts for an outside service, you may be familiar with the reports submitted to you upon completion of your periodic payroll. But, as you know, the procedure doesn’t stop there. Accounting must then be completed.

The reports contain all details for each paycheck, tax liabilities, and payroll fees for the period; all of which become part of the company’s financial statements. However, a common occurrence for the busy owner who wears many hats is just giving the reports a quick glance to confirm the operating fund has the cash requirements to cover the scheduled deductions. The reports are then set aside for a thorough review at a later date. The problem that arises is just that – the later date.

A frequent mistake when recording the payroll out of period is taking a shortcut by making a lump sum entry and ignoring individual paychecks and their actual dates. This is especially true when a company consists of a high number of employees as doing so will save time in bookkeeping tasks that have already fallen behind. Unfortunately, this method will not only create a headache when reconciling your bank statement, but will also create inaccurate tax liabilities and expenses which will lead to bigger issues at year-end.

Reconciling to the payroll reports each pay period is crucial for expenses and liabilities to be 100% accurate. To accomplish this, record actual gross wages and accrue tax liabilities in real time. In so doing, data will be contributed for processing of annual tax returns throughout the year.

This is a bookkeeping task that needs prompt attention and one more way to save money. Your tax accountant will earn more billable time with other clients!

Get the Memo and Track your Cash

Sharon M. Simeone

How many times have you written a check payable to cash or used cash as a form of payment? Although ill-advised due to security and tracking issues, it’s a transaction that happens more often than one would think in business practice. Whether you, a member of your staff, or an outside source is the recipient of the funds, a recording of the transaction must follow.

The reasons for a cash transaction vary and are unexplored here but it’s often simply requested by the service provider. However, the delivery of a cash payment is one of which to take note. In other words, write yourself a memo.

In all financial matters, whether using cash for your own business expense or a payment to a vendor, be sure to jot down a quick memo on the check, (or if using actual cash, a post it, or a napkin, or anything to help you remember), and record the transaction promptly. If possible, obtain a receipt and attach it to a copy of your cancelled check for proof of payment. Allocate the payment accordingly to track budgeted line items, reconciling of bank statements, and tax deductions.

Remember, your bottom line is your ultimate goal and every transaction contributes to your company’s financial statements. A quick memo will encourage you to take the transaction to completion and avoid unexplained and miscellaneous transactions in your business operations.

Keeping Your Circle Small

Sharon M. Simeone

When establishing a small business, the owner may employ a minimal staff to wear many hats in an effort to keep the company running on a small budget. This familiar scenario often leads to individuals performing tasks outside of their capabilities. The result is too many chefs in the kitchen leading to miscommunication, innocent mistakes and costly fees to correct them.

Especially in the financial management of your business, it’s best to keep your circle small and have one designated person, whether in-house or outsourced, to maintain your basic bookkeeping. Beyond basic bookkeeping, a second individual is typically employed to reconcile books, create budgets, manage the general ledger, provide periodic financial reporting, and process year-end closings. Assigning one individual to communicate necessary information and manage financial data in order to complete these tasks will eliminate errors and protect confidentiality in your financial statements and tax filings.

When creating your budget, be sure to itemize accounting fees as it pertains to your company without skimping. A cutback on this line item may incur more of an expense than needed, not only resulting in a high budget variance but decreasing your bottom line.

Audit – Quick Tip

Sharon M. Simeone

A small business may, on occasion, receive an official request from a state or federal agency to review the company’s books. But one agency that is often overlooked when it comes to audits is the insurance agency.

Your workers’ compensation provider will likely request a payroll audit upon each annual renewal or new premium application. In addition to the basics, such as the total gross payroll and number of employees, copies of quarterly payroll reports will need to be provided. The missing documents that often send the preparer of an audit scrambling are certificates of insurance from subcontractors.

To stay ahead of the game, request and receive certificates from subs prior to the start of a job. Track policy expiration dates of all subcontractors if their services are used repeatedly. Including certificates of insurance from outside service providers in your audit will save your company a considerable amount of money.

Preparing for a payroll audit doesn’t need to be a source of stress. Keeping a filing system throughout the year to document all labor disbursements, employee and non-employee alike, will help you sail through a smooth audit. And before you know it, you’ll complete the next one without a hitch!

Keeping Your Small Business Secure – Starting with the Basics

Sharon M. Simeone

We all tend to small security risks on a daily basis such as locking our doors when leaving for work in the morning or making sure we park our car in a well-lit area if returning after dark, but the small business owner needs to take extra care throughout the day when working to keep his/her business safe.

The convenience of technology has desensitized us from risky transactions that could potentially turn a business upside down. But carelessness could also play a role in detrimental errors. The simple step of neglecting to log out of your account after online banking can wreak havoc in your finances. Likewise, walking out of your office with an open file cabinet containing employee records can result in the identity theft of unsuspecting individuals.

If you’re in the process of establishing your small business, train yourself to think like a business owner. Putting aside marketing and networking, consider the small details and practice basic daily habits erring on the side of caution. This is especially important if you have office staff or outside contractors who provide their service off business hours such as cleaning or elevator maintenance. Protect your office and its contents as you would your home with your personal belongings.

If your location has a busy common area where passers-by can easily enter your space, be cautious of leaving laptops unattended. Remember to secure blank checks, file away bank and credit card statements, have your accounting programs password protected, lock up personnel information, and shut down your computers before leaving for the evening.

These simple steps will not only save you thousands of dollars and provide security to your staff, they’ll also prevent countless sleepless nights.