Category: Blog | Page 7 | McMill CPAs & Advisors

A Business Owner’s Introduction to Cost Segregation Studies

The first few years of business can be the most challenging — money is typically tight, you’re just getting the word out, and you’re up against competition that has likely been in the market for a while now. In fact, research shows that less than 80% of small businesses make it longer than a year, with 29% of businesses failing because they ran out of cash.

So, what’s the solution? Cost Segregation.

When cash flow is slow, many businesses look to Cost Segregation Studies as a solution to their problem since it results in tax savings and more financial leniency. This way, if you need to increase focus on marketing or other business initiatives to generate more sales and revenue, you can. Here’s what you need to know to take advantage.

What Are Cost Segregation Studies?

KBKG defines Cost Segregation as a “strategic tax planning tool that allows companies and individuals who have constructed, purchased, expanded or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.”

A cost segregation study refers to the process of splitting elements of a property into categories for tax reporting purposes. Essentially, the study accelerates depreciation so that the owner can take out a higher tax deduction immediately.

Although it does not have to happen in the same year as the purchase occurs, you do have to have a cost segregation professional come to the property to conduct the study. From there, the process can include:

An analysis of what your potential benefits might be.
Gather all the necessary documents (i.e., appraisal, condition report, etc.).
Conclude with property examinations and a full report on the results and asset classifications.

Benefits of a Cost Segregation Study for Small Business Owners

There are many challenges to being a small business owner versus medium to large business owners. However, Cost Segregation Studies can be great for alleviating some of the financial burdens that may be holding you back from reaching your full potential and scaling in the future.

Additional benefits include the various properties that can be studied, potential benefits based on depreciable aspects, and additional saving opportunities that can make all the difference for your small business.

Can be used for a variety of properties

First and foremost, cost segregation studies can be used for various building types, from apartments and assisted living to restraints, retail, and warehouse properties.

Common properties include:

New construction
Building purchases
Remodels
Additions to an existing property
Tenant finish-outs

Benefits vary based on depreciable aspects of the property

While stating the benefits of conducting a study on all your depreciable aspects of the property, it’s important also to note that you cannot depreciate property features like the land itself and personal property. On the other hand, you can depreciate property such as:

Vehicles
Machinery
Office buildings
Buildings you rent out

When you do, you can yield huge tax savings over a period of time. The benefit of cost segregation comes from short-life property, and other expenses immediately tapped into.

Can uncover other savings opportunities

Another savings opportunity that you may not have been aware of comes from Section 179D Energy Efficiency Commercial Building Deduction. The tax deduction allows taxpayers to receive up to $1.80 per square foot for remodeling or construction projects after 2021.

The requirement is that particular energy efficiency standards are met to obtain the deduction, including new or existing buildings with installed interior lighting, building envelope, or “heating, cooling, ventilation, or hot water systems that reduce the energy and power cost of the interior lighting, HVAC, and service hot water systems by 50% or more in comparison to a building meeting minimum requirements set by ASHRAE Standard 90.1.”

Although most industries can benefit from the 179D tax deduction, the ones that would benefit the most include health care, real estate, retail, and manufacturing.

Reduce the costs of expensive equipment

One of the most stressful parts about being a small business owner is battling the many expensive upfront costs of equipment. While the depth of these costs can vary from industry to industry, every owner knows there is no shortage of equipment required to get the job done and impact your bottom line. Cost Segregation studies allow you to reduce the overall costs when you allocate your tax savings to outstanding leases and loan principles.

According to Small Business Chron, “By increasing the deductions taken during the first few years of business, you will reduce your company’s overall tax debt and have more money to channel toward marketing, company development, and additional equipment purchases. More money available for marketing and expansion during a company’s early years can increase its chances of succeeding in its market.”

An early advantage in your industry means more potential to scale your company and increase cash flow in the years following your short-term savings from Cost Segregation Studies. Since each year your business makes it in the industry marks an increase in your odds for success, this can be significant. In fact, Investopedia reports that your chances for survival jump to 55% after the five-year mark.

Discuss Your Options with McMill CPAs & Advisors

If you’re considering your options after a long year and tight cash flow, cost segregation studies may be the answer you’ve been looking for. The extra money you can get back immediately in taxes from your investments can make a substantial difference in areas of your small business. McMill CPAs & Advisors has helped many small business owners in Norfolk, NE reach their business goals with Cost Segregation.

Contact us to learn more about Cost Segregation Studies and what we can do for you and your company. We understand that every business is different, so we will ensure that you are only matched with solutions best suited to your business needs in particular.

What Happens When You Don’t Have a Will and Power of Attorney?

Andrew Steffensmeier

Specializes in small business preparation and planning, investment advisory services, business tax planning services

Do you have a will and power of attorney? If not, you’re not alone. According to recent research, at least 68% of Americans do not have a will yet, with nearly 71.6% of those who do, having one that is not fully up-to-date. AARP adds that only slightly more than half of U.S. adults have a power of attorney, with 83% of those being 72 or older and only 41% in the Millennial generation.

This suggests that most Americans are not adequately prepared for the future and what may come of it. This can become a problem for family and friends who will not have as easy of a time settling your affairs for you after your passing or while you are unable to care for yourself.

To stress the importance of having a will and power of attorney, we’ll cover what they are and what happens when you don’t have them.

What Is a Will and Power of Attorney?

A will is a legal document that explains what should happen with your property and any children after you pass away. For those who have minors in their care, it is also a chance to identify who you want to care for your children.

The document ensures your wishes are met and allows you to be very clear about what you want to be done with your assets. This way, there’s no room for misinterpretation or conflict from outside sources.

A power of attorney refers to a legal document that gives another person the authority to act for someone else in case of an emergency. For instance, many people enlist someone close to them, like a spouse or relative, to be their power of attorney. However, you should not pick someone simply because they are close to you but because you fully believe they will act in your best interests after you’re gone.

Your power of attorney will be able to make decisions about financial, medical, or property. This power will remain in effect during a medical emergency or if the person becomes disabled and can no longer make decisions on their own.

How Do They Work Together?

Your power of attorney provides you protection during your lifetime — your will provides protection after you pass away. According to LegalZoom, “Together they provide an ongoing umbrella of protection for your assets.”

Although they don’t have any effect on each other, they do go hand in hand because they ensure your wishes are met while living and after passing, protecting both your family and assets in the process.

For instance, many experts suggest having a living will (similar to a will but specific to you still being alive but unable to make decisions) and a power of attorney. This way, the will can address scenarios such as:

Resuscitation (CPR & DNR)
Comfort Care (Palliative Care) & Pain Management
Tube Feeding
Mechanical Ventilation
Organ/Tissue Donations
Antibiotics/Antivirals

At this time, your power of attorney will be hard at work acting in your best interests regarding any additional financial, property, and business-related decisions that may need to be addressed. Having both at the same time allows your interests to be served at every angle without disruptions getting in the way.

Downsides of Not Having a Will and Power of Attorney

Although many of us don’t think much about not having a will and power of attorney can have on those around us, it can actually bring more stress and trouble than you may think. A will and power attorney ensures that your wishes are followed. Without them, those around you won’t have direction and may struggle to fulfill your wishes.

Here are more specific downsides to not having either.

Without a Will

If you don’t organize a will before your passing, the following issues can arise:

Can’t be sure your wishes will be met
Can be a headache for your heirs after you pass
Estranged relatives or people you don’t want to receive any of your assets may be able to get them
Your children’s care will be left up to the court
Can lead to delays, more expenses, and even property loss

Without a Power of Attorney

If you don’t take the time to enlist a power of attorney, you also risk the following problems:

The process of appointing someone to become a caretaker is much more strenuous and time-consuming. Loved ones may be drained of their time and money in the meantime.
There’s no say in whom the court appoints (can also lead to additional fees and expenses)
The person chosen may not be fully acquainted with your wishes, so they may not be fully qualified to represent your needs. For instance, a court-appointed POA could misread, and therefore, misrepresent you in major life decisions.

Don’t Know Where to Begin? We Can Help

Despite being able to write your will as early as 18, many Americans put it off until they’re older — and some have yet to organize one even at 55 or older. According to Caring, at least 60% of adults 55 or older organized a will in 2019, but that figure has since dropped significantly to only about 44%. Although the reason is unclear, the statistics suggest the need for more awareness about the importance of protecting your family and assets.

Even better, easy access to advisors who can assist you throughout the entire process can be beneficial. This way, you can rest assured that your wishes will be followed if anything were to happen to you. McMill CPAs & Advisors are the most trusted CPAs and advisors in Norfolk, NE, with extensive experience helping residents draft these documents when they don’t know where to begin.

Don’t risk waiting another minute to get your wishes on paper. Contact us for more insight on how we can help you prepare for the future with a will and power of attorney.

4 Ways Tax Advisors Help You Save Money

Clint Weeder

Specializes in business tax planning, investment advisory services, business valuations

No one likes thinking about tax season. Between the paperwork and the payment of your hard-earned money, it’s no wonder that many people put off tax filing until the last moment. While it may feel that delaying the inevitable will save you time, it certainly won’t save you money. In fact, if you’re among the many Americans who struggle to make sense of complicated tax codes, it may actually cost you a significant amount.

For this reason, and many others detailed below, a tax advisor is a worthy investment. As noted in Forbes, “you don’t have to be a fortune 500 company or a multi-millionaire to take advantage of tax planning and the serious tax savings entailed.”

Of course, diving into the tax planning world can be easier said than done – especially when you’re juggling multiple sources of income or many personal assets. A tax advisor could be the perfect solution, so here’s everything you need to know.

What is a Tax Advisor?

It is a truth universally acknowledged that taxes are complicated. Between legal jargon, endless forms, and multiple sources of income throughout the year, navigating the filing process without amassing fines and errors can feel impossible. Fortunately, just like other complicated areas of studies, the financial industry is filled with experts who have devoted their careers to mastering the art of saving money. If you choose to hire a tax advisor, you’ll add to your team a person who is passionate about your financial goals. They’ll also have the know-how to help you achieve them!

Specifically, a tax advisor is highly trained in tax accounting and law. While they’re often trained as accountants, a relationship with a tax advisor differs slightly from that with a traditional CPA. While a standard accountant typically helps with a single project or tax season, tax advisors become invested in your long-term goals. They’ll create plans and ensure that each step of the way, you’re saving as much money as possible.

For some, a tax advisor may just be dismissed as another expense, however, the investment you make in a financial expert will quickly pay off in the savings you accrue.

How Can a Tax Advisor Help You Save Money?

1. Strategize how to minimize the taxes you owe

The entire job of a tax advisor rests heavily on their knowledge of current laws and regulations. This means you can trust that they’ll approach your case with the most relevant information. With the help of a tax advisor, you won’t have to worry about overpaying due to a lack of awareness about new exemptions or qualifications for your business or assets.

At its core, the field of tax advising exists to help clients like you pay the least amount of tax possible, with the least risk possible, within the bounds of the legal tax code.

2. Receive advising year-round, not just end-of-year

It never hurts to have a CPA examine your finances as tax season approaches, or you wrap up a financial quarter. Many turn to financial advising at the end of the year, as the time of resolutions is around the corner and everyone wants to feel like their financial future is in check.

With a tax advisor, however, you don’t have to wait for a yearly checkpoint to justify a check-in. Once you make the decision to partner with a financial professional, they will familiarize themselves with your case and be ready to offer advice whenever you need it. You don’t have to wait for a financial crisis to receive financial solutions from someone who cares about your situation.

3. Help build wealth management plans

When you typically turn to an accountant, you might simply be worried about making it through tax season without pulling your hair out. While we can certainly appreciate living in the moment, investing thought into your financial future can lead to large pay-offs. When a tax advisor becomes familiar with your financial situation and personal goals, they can help you to design and execute wealth management plans.

These plans are incredibly useful in ensuring that your hard-earned money is used and passed on in the way that you want it to be. You’ll be able to enjoy the money you’ve worked for more when you feel confident in its management and longevity. A financial professional will take your largest goals and translate them into doable and documented plans.

4. Bring protection and prosperity to your business

If you own a small business, you’re even more familiar with how complicated tax season can be. The last thing you need to be worried about is tax fines or losses as a result of improper financial planning. Your personal tax advisor can also help you manage outside assets, such as your business. Beyond filing income and keeping track of expenses, your advisor can use their know-how to offer input on how to manage your business effectively and lower routine expenses.

Beyond that, the headache of payroll management will be relieved when you have another financial brain on your team. With each of these steps, you can rest assured that the tax advisor you bring into your life will be invested in your personal success and business outcomes. As opposed to a one-off contractor, these individuals will delight in your successes and see the business grow alongside you.

McMill CPAs & Advisors

If you’re ready to take control of your financial future and conquer tax season in Norfolk, Nebraska, contact McMill CPAs & Advisors today. Our team of wealth management and tax planning professionals is ready to add you to our list of success stories. Our heart is in our community, and we take pride in helping families and small businesses thrive through smart financial preparation.

You don’t need to wait until tax season or the end of the year to give yourself a financial refresh. Bring a McMill advisor on your team and start growing your financial confidence and success!

What Is Land Depreciation, and How Can You Take Advantage of it?

Jared Faltys

Specializes in financial planning, business tax planning, investment advisory services

Many small business owners struggle with balancing their books. Yet, from mom and pop stores to the trendiest tech startups, getting the numbers right is what guarantees business survival. The Small Business Agency estimates that about 30 percent of small enterprise failures arise out of cash flow problems. However, with proper accounting practices, it is easy to avoid this pitfall. While it is easy to know your main numbers like sales figures and expenses, getting into details like taxes and depreciation can be more challenging.

One of the visions for many small business owners is to gain complete control of their fixed assets. Undeniably so, they will consume a considerable chunk of the capital investment. With good accounting practice, entrepreneurs can recover the expenses incurred in a few years. For example, provisions on land depreciation can help them improve business cash flows for the short-term.

What Is Depreciation?

Everything that helps you make money in your business is an asset. This can include stocks, inventory, raw materials, computers, printers, trucks, machinery, workstations, land, and buildings. The IRS allows businesses to allocate the depreciation cost over the life expectancy of an asset.

Tangible: Physical assets that you can see or touch.
Intangible: Assets whose value can only be quantified, like stocks held and goodwill.
Movable: Assets you can liquidate for cash in a short period, like your inventory, stocks held, or cash reserves.
Immovable: Also called fixed assets, they represent items that you hold on to for the longest time, and you use them for daily operations, like machinery, trucks, and buildings.

At some point, your fixed assets will have outlived their useful life. This point calls for their disposal, where you could sell them off or give them away.

Either way, the value you receive will be much less than your purchase price. Depreciation is the difference between the value at the start and the end of an asset’s useful life and counts as a cost to a business. When making annual accounts, a portion of this cost goes into business expenses and continues throughout the years in use. In doing this, your business enjoys tax savings. It is important to have a good understanding of tax laws and depreciation points of assets when accounting for depreciation.

When Does Land Depreciate?

Land does not have a defined useful life, making it nearly impossible to account for depreciation. Its value may either rise or fall over time, depending on different factors. For instance, a real estate boom can push up land prices, while an environmental catastrophe can decrease values. The assets on land, like buildings, qualify for depreciation.

Even though land cannot be depreciated, some improvements you make have a definite life and will count as depreciation items. Examples of land improvements include paving a driveway, fencing, outdoor lighting, or even filling a wasteland with soil to make it usable.

You may also write down the value when there is evidence of degradation by natural or unnatural causes. For example, an earthquake hits and devastates an area, or mining activity that completely exhausts resources.

What Is the Difference Between Land Improvement and Leasehold Improvement?

Leasehold improvements arise when you make permanent changes to rented property. An example is when you rent a building on a 10-year lease and construct partitions. All improvements will go back to the owner at the expiry of your lease agreement. In practice, the tenant can depreciate the expenses they incur on the improvements over the life of the lease.

The Depletion Method

Depletion is a depreciation expense charged for the use of natural resources on the land. It is a common accounting practice in the mining industry. Since natural resources have a finite life, the company makes deductions to reflect the reduction of natural resources. The charge will include the costs incurred to acquire the mining resource, the exploratory, and development costs. Once the mining activities end, environmental regulations require the company to undertake restoration. Those costs can also be depreciated.

How to Account for Land Improvements

To properly account for land improvements, a business needs an account entry in the general asset ledger. Any improvements that you make will debit your expense account and credit the land improvements account. The depreciation forms part of the expenses charged on your income tax return, which reduces the company’s income tax liability.

The credit on your general asset ledger raises your balance sheet, which is an indicator of business growth.

Why Would I Want to Account for Land Depreciation?

Although land does not usually depreciate, there are some reasons you should claim depreciation when you can:

Depreciation counts as a non-cash expense on your income statement. Since it is tax-deductible, it lowers the amount of tax due on your profits.
It allows you to claim depreciation on an older property. A new owner who makes claimable improvements to the property previously owned by someone else can recoup the amounts spent in the long run.
As your business grows, it helps to display all the aspects causing the expansion.

Many businesses have benefited by accounting for land depreciation. The substantial tax savings over the years can help to fuel growth when plowed back into the capital reserves. Being a complex area, it is always advisable to consult an accounting expert. You will also need to have a trusted quantity surveyor to help with the valuations.

Although land depreciation can be an extremely complex area, McMill CPAs & Advisors have the expertise you need to navigate the challenges ahead. We will help you balance your books better as you focus on increasing your business returns. For more information on how to take advantage of land depreciation, contact us today.

Keep Your Financial House Organized With an Estate Planning Firm

Jared Faltys

Specializes in financial planning, business tax planning, investment advisory services

For many, the phrase “estate planning” evokes images of sprawling mansions and accountants hunched over a computer. For this reason, you might think that this essential preparation process doesn’t apply to you or your family. You might even be under the impression that you don’t need an estate plan at all.

On the contrary, estate planning is necessary for everyone who hopes to secure their assets and protect the financial futures of their heirs. Boston College reports that around $59 trillion will be transferred from approximately 94 million estates in America between 2007 and 2061. Ensuring the safe and proper transfer of your hard-earned, valuable assets requires advanced planning.

While important, this process doesn’t have to be intimidating. Here’s what you need to know about planning for your estate’s future.

What is Estate Planning?

Despite the common misconception, estate planning is not just for the wealthy. Even if you wouldn’t classify your home as an “estate,” this term encompasses many other valuables in your life. Assets such as real estate, vehicles, business ventures, and cash are all included within the scope of estate planning. Anything and everything you’ve worked to earn is worth protecting!

Why would I want an estate plan?

There are many benefits to establishing a legal plan for your estate. By formulating an estate plan, you can ensure that your valuable assets are properly transferred to a next-of-kin or other heirs after you pass. While this is never something pleasant to think about, establishing a plan can grant you and your loved one’s peace of mind. It will help ensure your last wishes are met. It will also eliminate any additional stress for your children or family as they determine how to proceed with your life’s assets.

You may not feel as if you’re in a place of life where you need an estate plan, but starting early has its advantages. The more time you have, the more thoughtful you can be in your deliberations and the more people you can include in important decisions.

What is an estate plan?

Your plan will be composed of documents that outline your intentions for your accumulated assets. It legally documents and records your wishes for how these assets will be handled when it comes time for them to be passed on. It also assigns roles, such as who will enforce your wishes and who will benefit from them.

Despite the essential nature of these documents, only 42% of American adults currently have estate plans. Still, Edward Jones measured that 77% of adults know that these plans are important. By formulating an estate plan, you can ensure that your legacy lives on and benefits the ones you love most.

If you’re reading to begin your asset allocation, you might benefit from the help of an estate planning firm.

What is an Estate Planning Firm?

An estate planning firm is a collection of licensed professionals that can assist with the creation and execution of an estate plan. Although it may seem simple to plan your future, these well-versed experts can help you navigate legal jargon and avoid any challenges along the way.

These firms can do more than just file paperwork for you. They will also provide tax planning strategies designed to help you manage your wealth throughout your life, enabling you to eventually pass more on to your loved ones. Estate planning firms can also help you navigate the tax laws and difficulties that come with inheritances. As you establish the future of your estate, these experienced individuals can ensure that your plan is as streamlined and efficient as possible.

Why Should You Work With an Estate Planning Firm?

When you make the decision to work with an estate planning firm, you’ll gain a team of knowledgeable professionals. These individuals can act as a sounding board to help you determine what you want and need in your estate plan. With years of experience, they can provide ideas and advice that you may have never considered on your own.

Best of all, you can inform your team of your personal goals. If you have a favorite charity or local organization, you can learn how to become a lifetime or legacy-leaving donor. If you have a small business or other entrepreneurial venture, they can provide legal advice regarding succession plans and asset allocation.

When you choose to do business with an established firm, you’ll reap the benefits of a team that will work alongside you for years to come. This means that they’ll adapt to changing assets and changing visions for your beneficiaries. They can review current estate plan documents and help formulate new ones, with the knowledge of your history and personal financial goals.

Forbes reports that one of the most important steps in establishing a successful estate or succession plan involves educating and communicating. As you choose the perfect estate planning team for you, consider a group that will prioritize your wants and needs. With a team that’s ready to listen and offer expertise, communicating and executing your vision has never been easier.

McMill CPAs & Advisors

McMill CPAs & Advisors serve as your one-stop shop for all of your financial and estate planning needs. Our large team of experts located in Norfolk, Nebraska is ready to manage the more complicated parts of owning assets so that you can relax and enjoy what you have! Whether you have personal or business needs, McMill can apply an experienced eye to your tax, accounting, and financial affairs.

Much like establishing a will, no one ever likes to think about needing an estate plan. However, contacting McMill CPAs & Advisors is your first step in gaining peace of mind for yourself and your family. Whether you simply have questions or you’re ready to draft your first plan, today is the perfect day to contact our team.

QuickBooks for Small Business in 2022

Andrew Steffensmeier

Specializes in small business preparation and planning, investment advisory services, business tax planning services

By now, QuickBooks has quickly become the ‘must-have’ accounting software for most small business owners. It’s not only highly-rated but highly efficient. Small business owners can count on it for managing invoices, tracking cash flows, paying bills, and more.

In fact, Investopedia ranks QuickBooks as the ‘Best Overall’ accounting software for small businesses, citing that it makes bookkeeping more fluid and efficient. They also list that most business owners use QuickBooks because it has a mobile app, is scalable, cloud-based, and easily integrates with third-party applications.

If you haven’t adopted QuickBooks, there’s a good chance it’s because you’re not sure where to start. Here’s a guide on how to use QuickBooks for small business owners to simplify the adoption process.

TRACKING

One of the best components of QuickBooks for accounting is its ability to track important financial records you’ll need for your year-end tax planning checklist. This includes your invoices, expenses, inventory, and even mileage.

Create and track invoices

QB automatically records your income and can track how much each client owes you. Right off the bat, you know the full amount of each sale, how much you received so far, and what is still owed (and when).

Even better, QuickBooks has built-in tools that assist in collecting payments via payment links and automatic reminder emails. You can also view outstanding invoices to ensure you’re up-to-date on which clients are caught up in payments and which ones you may need to reach out to soon.

Keep track of expenses

Connect your bank account and benefit from everything from your bank account to your credit cards, being automatically downloaded and categorized in the software. What’s more, you can manually enter in checks or other expenses that can’t be automatically transferred to the software following the transaction.

You can also add bills to QB to track when they need to be paid and if you have any outstanding bills that need attention right away. This ensures you stay on good terms with all your business relationships.

Track inventory

QB allows you to track the quantity and cost of your inventory in one place and provides real-time reports and updates throughout the entire inventory process. Not only can you manually input data if you need to, but you can track what’s on hand at any given time to help prevent shortages that could unexpectedly disrupt business.

QB will also automatically remind you to order more inventory when you are running low, which can make a significant difference between running your business as smoothly as possible and not having supply for demand.

Track mileage

Whether you need to keep up with mileage in one or more vehicles, the QB app can help by automatically tracking when you are in a moving vehicle for work. All you or your drivers need to do is check user permissions, add the right vehicle and turn mileage tracking on, and have the QuickBooks Online app open when you start driving.

From there, you can also go back to review, edit, and add notes. Your notes combined with QB’s automatic tracking can really come in handy come tax time when you need to calculate your deductions.

SIMPLIFY TAX SEASON

One of the biggest headaches when it comes to filing taxes as a small business owner is compiling income and expenses. QuickBooks automatically does this for you, so when tax season rolls around, all you have to do is print your financial statements. QB also gives you the option to share your statements with your tax preparer, so they can directly view your numbers and print whatever information they need.

Documents your small business will need to present to an accountant for filing include:

Financial statement — cash flow, income, and balance sheet
Vehicle use for deductions — QB mileage tracking
Capital-asset — traded, sold, and bought assets can be inputted and tracked on QB
Home-office expenses — if you use a part of your home for work or meet with customers in your home office
Form 1098 — needed for your typical mortgage-interest deduction and your home-office deduction

The type of taxes your small business should be familiar with include income, self-employment, estimated, and excise. Having a solid record of all your accounting income and expenses not only ensures you’re prepared for tax season but makes your accountant’s life much easier as well.

Tip: Stay up to date on deadlines for filing your small business tax return with a tax calendar. This will save you a substantial amount on preventable late fees and charges.

MANAGE PAYROLL

QuickBooks has a function to track and run payroll automatically, so you don’t have to do it manually. This means even more cost savings! According to recent research, manual data entries can cost your business as much as $16 or more per invoice — not to mention nearly 20-30% of your annual revenue in inefficiencies.

QB also has beneficial tracking features that record employee hours, saving you at least 11 hours a month in time spent managing employees:

Streamlined payroll and invoicing
Real-time reports
Job and shift scheduling
See who’s working
Mobile app with GPS
QuickBooks integration
Time-off management
Alerts and notifications
Time clock kiosk
Photo attachments
Unlimited live customer support, and more if you upgrade

What’s more, hours are automatically added to customer invoices if billable. This way, you and your clients have easy access to the breakdown in costs of your service and how employee hours played into it. This can also inform bidding in the future to ensure you’re pricing your service with the average time spent on similar jobs.

QUICKBOOKS FOR SMALL BUSINESS OWNERS IN THE NORFOLK, NE AREA

Today, more than half of small businesses are using automated accounting software, with many of them relying on QuickBooks to keep records and track business income and expenses. The more you know about how to use it and get started, the better prepared you will be in ensuring you are in compliance with ever-evolving laws and regulations, as well as typical tax preparations.

If you’re a small business owner in the Norfolk, Nebraska area, contact us at McMill CPAs & Advisors for more expert financial and accounting advice.

Tax Filing 101: Filing Self-Employment Taxes

Andrew Steffensmeier

Specializes in small business preparation and planning, investment advisory services, business tax planning services

As tax season rolls around, a large portion of the Norfolk population may find it challenging to complete their taxes properly. This becomes especially true as more people venture out of the traditional workforce and into self-employment, taking on more complex filing.

Of the nearly 25,000 people living in Norfolk, Nebraska, at least 6.5% (or about 1,625 people) classify themselves as self-employed in their own business. This figure is expected to rise in the coming years as more workers gravitate towards freelance, gig work, and opening their own businesses. According to Forbes, at least 20% (or 10 million people) in the nation are currently considering doing at least one of the three.

More often than not, Nebraska business owners feel overwhelmed by the process and need a one-stop shop to find accurate, straightforward guidance on how to file their taxes. Here’s your basic how-to for filing your self-employment taxes as a beginner.

WHAT IS SELF-EMPLOYMENT TAX

Much like the same Social Security and Medicare taxes withheld from most wage earners, self-employment taxes (SE tax) refer to the sum of Social Security and Medicare taxes you owe the government. It is by no means the only taxes you will have to pay as a self-employed worker, but it is mandatory for most SE workers.

Since it isn’t automatically deducted from your income, there are a few more steps you will have to take to pay these federal taxes that a typical wage earner would not.

Qualifications

Two qualifications require you to pay self-employment taxes: making more than $400 (not including church earnings) or making $108.28 or more as a church employee. You still qualify for the SE tax if you fall under either (or both) of these qualifications, even if you’re currently receiving Medicare or Social Security support.

Entity

As you navigate your journey as a business owner, you must understand what business structure you fall under. According to TurboTax, “Whether your company will be a sole proprietorship, an LLC, a partnership, an S-corporation, or C-corporation will affect how your taxable income flows through to your personal tax return.”

If you have an LLC, or a legal business structure, you must file as a sole proprietor, partnership, an S-corporation, or C-corporation. If you’re a sole proprietor, you own your unincorporated business yourself and must report your income and expenses on a Schedule C form.

A partnership refers to having a business partner, and you can file your business as a partnership or corporation, typically under a Form 1065. Unlike sole proprietors and partnerships, C-corporation is a separate entity, earning special deductions and being taxed at a corporate level. S-corporation is more like a partnership in the sense that your income is on your personal tax return but is still subjected to a set salary and corporate-level payroll taxes.

What you need

To file your SE tax, you will need one of the following:

Your Social Security Number (SSN) or
Your Individual Taxpayer Identification Number (ITIN)

If you have lost or misplaced your SSN, you can call (800) 772-1213 to reach the Social Security Administration office. The IRS adds that “The IRS will issue you an ITIN if you are a non-resident or resident alien, and you do not have and are not eligible to get an SSN.” You just need to fill out Form W-7.

What you will have to pay

Your SE tax is imposed strictly on the federal level. The total amount you pay will depend on your deductions, state taxes, licenses, fees, and permits. However, the IRS breaks down what you will owe for the SE tax rate as follows:

“The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).”

HOW TO FILE SELF-EMPLOYMENT TAXES

Self-employed individuals who expect to owe more than $1,000 in taxes should file quarterly since no tax is automatically withheld. This will allow you to avoid owing one large lump sum at the end of the year. A tax calendar is incredibly beneficial as a new business owner in Norfolk since it has all four Quarters and the due dates for getting your taxes in.

Calculate Self-Employment Income

Calculate your self-employment income with the following formula:

Gross Income — Business Expenses = SE Income

Keep in mind that after you calculate this figure, at least 92.35% of your earnings are subject to tax.

After determining your income, apply the 15.3% rate

After calculating your SE income, you’ll need to apply your 15.3% SE tax rate to determine how much you how for this federal tax. For instance, if you made $100,000, you’ll owe $15,300.

$100,000 X 0.153 = $15,300

Remember, however, that only the first $142,800 of your earnings is subject to the social security tax.

IRS Schedule C tax form

An IRS Schedule C, or Form 1040, is used to report your business’s income or loss as a sole proprietor. The IRS qualifies an activity as a business if your primary purpose for engaging in the activity is for income or profit or if you are involved in the activity with continuity and regularity.

To fill out your Schedule C, you will need to make the following calculations:

Calculate how much self-employment tax you owe
Calculate Deductions

When It Gets Too Overwhelming, Consult a CPA

A lot goes into ensuring your self-employed taxes are filled out and filed correctly, and it’s common to get overwhelmed with the process. Working with a CPA (Certified Public Accountant) like McMill CPAs and Advisors will improve your efficiency, increase accuracy, save you money, and offer you expert insight and guidance.

McMill is here to help Norfolk, Nebraska small business owners file their taxes. When you’re ready, contact us for more information on how we can help ease the burden of tax season.

Improve Your HVAC Business With Productivity Consulting

Clint Weeder

Specializes in business tax planning, investment advisory services, business valuations

The most important step you can take towards business growth is increasing productivity in your HVAC business and preparing for the future. There are a lot of moving parts in the HVAC industry, from the start of a job to its finish. If time isn’t spent wisely, there’s a lot of room for missed opportunities. However, when you work with a productivity consultant to organize and set relevant goals, you immediately increase productivity and profitability.

In fact, All Business reports that companies that are more organized are 397% more likely to report success than those that are not, and businesses that set goals are 376% more likely to report success.

Here’s what you need to know about productivity consulting and how it can benefit your HVAC business.

WHAT IS PRODUCTIVITY CONSULTING

The National Association of Productivity & Organizing Professionals (NAPO) defines the role of productivity consultants as the support for “evaluation, decision-making, and action around time, energy, and resources; helping clients achieve desired outcomes regarding goals, effectiveness, and priorities.” Simply put, a productivity consultant is a professional organizer who can get your business on track for improving productivity and profitability. This means getting more for less!

If you feel overwhelmed, stressed, or like you have a huge roadblock in your business, a productivity consultant may be able to help. In many cases, employers and employees aren’t taking full advantage of their time at work, aren’t sure what needs to be accomplished to make improvements, and don’t have a proper timeline or motivation to get it done.

With a productivity consultant, a customized plan can be put into place to combat the stress of your roadblock and improve the way your business operates. After all, it’s getting all the smaller daily tasks done quickly and efficiently that leads to achieving your more significant objectives in the long run.

HOW PRODUCTIVITY CONSULTING WILL IMPROVE YOUR HVAC BUSINESS

Productivity consulting can be great for nearly any business in any industry. However, it is particularly helpful for HVAC businesses because each job requires various steps and tools to complete. A productivity consultant can help you make a plan for:

Packing your vehicle fleet for more efficiency and time-saving access.
Organizing tasks by importance, prioritizing responsibilities that need immediate attention.
Purchasing new equipment that is better equipped to get jobs done quicker.
Implementing new technology into your strategy to take advantage of more cost-effective, time-saving, and efficient opportunities.

The benefits include increased productivity, more accessibility to valuable tools and equipment, increased profit, and happy customers. Here are the areas productivity consultants can make the most significant difference for your HVAC business.

Organize & save you time

Productivity consultants will help organize your business and open up more time for you to focus on other areas. This will result in more efficiency and growth because more will be getting done in a shorter period of time.

For instance, procrastination is a common problem for HVAC businesses, with at least 20% of the workforce being chronic procrastinators. A productivity consultant can identify the source of you and your employee’s procrastination and give advice and guidance on eliminating that procrastination to allow more time for important tasks and jobs.

Help you set goals and hold you accountable

Much like a trainer is essential for helping their client obtain the results they seek, productivity consultants can bring more value to HVAC companies. They can set you and your staff up for success by helping you create relevant goals and keeping everyone accountable toward achieving the goals set for them. It’s common for workers to get caught up in excuses for not meeting their goals when there isn’t any accountability. However, more motivation is inspired when employees feel like they have to confront their failures and mistakes.

What’s more, if you and your employees are concerned about not having the time to reach those goals, a productivity consultant can help identify the obstacles that are holding you back from making progress and help create appropriate solutions to get you back on track. Take, for instance, the time that would be saved by organizing an employee’s HVAC truck. Time can be cut nearly in half just by making access to tools and equipment quicker and easier.

Provide a new perspective on problems you haven’t been able to solve

More often than not, there are solutions to common problems in the HVAC industry. The dilemma is there isn’t usually enough perspective and insight to tap into for additional solutions. A productivity consultant can bring in a new perspective.

The HVAC industry can experience a host of common mistakes, from leaving behind the necessary tools to complete a job to ignoring safety measures (whether accidentally or intentionally). While safety measures can have a fatal impact, leaving behind required tools can cost time and money. A productivity consultant can help ensure your team avoids these costly mistakes and help them take safety measures more seriously.

Take Your Next Step to Future Growth

Every HVAC business has the potential to grow exponentially in the coming years, but it’s how you preserve your time and effort that determines whether it will be your business. In fact, Grandview Research reports that the U.S. HVAC market size was estimated at 15.16 billion in 2020 and is expected to reach 15.78 billion in 2021. With the right productivity consultant and approach, your business can benefit from similar growth!

The next step to future growth is contacting our team at McMill CPAs. We can help you get your business get where it needs to be to experience substantial growth in the coming years. After all, all you need is a little more organization, goal-setting, and prioritization put in place to achieve it – and we’re qualified to get you there.

Buy-Sell Agreement Overview: Why Your Business Should Have One

Clint Weeder

Specializes in business tax planning, investment advisory services, business valuations

Every small business that hopes to extend its legacy needs to consider a buy-sell agreement. A buy-sell agreement will ensure you can protect the continuity of your business if anything happens to you or another shareholder, like disability or death. This kind of agreement removes any ambiguity in the succession plan and the owners’ exit plan and will protect the interests of employees, customers, other shareholders, their families, and the company. However, while 60% to 70% of small business owners are willing to transfer the business to their heirs, only 15% have a succession plan.

This article targets small business owners who want to avoid potential disagreements or disruptions, which can turn into expensive financial and litigation matters. We will cover crucial aspects of a buy-sell agreement, triggering events, and how to prepare a proper agreement that protects the future for you and your business.

What Is A Buy-Sell Agreement?

A buy-sell agreement is a legally binding contract between business partners that clearly define how their ownership is to be handled in case of a triggering event such as death or if they leave the company. It will help streamline the process, so you aren’t left with the confusion of how to delegate responsibilities or ownership upon a partner’s departure. The agreement is similar to a will that aims to protect the interests of each owner and their beneficiaries.

What Are The Triggering Events In A Buy-Sell Agreement?

As the name suggests, triggering events are formidable situations that no business wants to face. A buy-sell agreement acts as a cushion to prevent any repercussions on the business’ continuity should a member depart. There are five common triggering events.

1. Death

The death of a partner must be considered in a buy-sell agreement. With the agreement, the members can decide what happens to their ownership and how the ownership interest should be valued.

2. Divorce

Divorces can lead to tussles over the ownership of company shares, but buy-sell agreements can dictate how ownership interests will be handled.

3. Termination of Employment

This usually happens when an employee who has ownership in the company is discharged from their duties. A buy-sell will regulate how the employee must sell their interest without causing friction.

4. Bankruptcy

When a shareholder declares bankruptcy or insolvency, the other shareholders can stop the ownership interest from being sold to pay off debts.

5. Disability

Disability, just like death, can bring a business to a standstill. The agreement needs to define the types of disabilities to be covered and the steps to be taken when buying out a disabled partner.

Do You Need A Buy-Sell Agreement?

Every co-owned business should have a buy-sell agreement. This is in the event any of the events listed above afflicts one or more partners. If partners fail to plan for any event, the ownership may pass to a child or spouse who lacks the passion or experience in the company.

Here are reasons a business owner would want to consider obtaining a buy-sell agreement.

1. You’ll Have an Exit Plan For Your Members

A buy-sell agreement will help avoid any negative impacts on the existing relationship among members. Waiting until the last minute to start negotiating places the business in jeopardy. If a partner wants to leave the company or retire, a buy-sell agreement will lay down what will happen to ensure a smooth transition. It will also act as a binding contract, so all parties are protected in case of any bad blood during the split. The business has the power of preventing the leaving partner from further having any influence in the company once they are gone.

2. It Will Give Clear Directions About What Will Happen to a Member’s Portion if They Pass Away

Death can cause emotional turmoil, which can place the company’s ownership in the wrong hands. If something unexpected happens, you want a plan so business operations can continue normally.

3. Ensures Job Stability for the Other Employees in the Company

The exit or death of a partner can cause confusion and a gap in management, affecting the entire organization. Your employees may panic over their job security and decide to leave or the lack of structure and leadership could cause the company to have to let go of some employees. A buy-sell agreement acts as a protection plan to help create a smooth transition of power which will provide stability for your employees as well. A succession plan is also suitable for small organizations without adequate resources to support knowledge management programs and solid employee development.

4. Establishes a Set Value for the Different Portions

The existence of an agreement determines how the business will value the member’s ownership interest. It helps prevent a situation in which a partner may demand more money than what the shares are worth. This clause will come into play if the remaining partner wants to purchase the exiting partner’s portion of the company.

Basics Of Crafting A Buy-Sell Agreement

Having competent advisors at your side will help to ensure you don’t overlook critical factors in the agreement.

1. The First Step Is to Decide Which Agreement Is Best for Your Situation

Usually, there are three types of agreements for an organized and fair handover of the business reins.

Cross-Purchase Agreement: The exiting partner sells their shares to the remaining partners. This type of agreement is typically better for smaller businesses with only a few owners.
Entity-Purchase Agreement: The exiting partner sells shares to the entity which retires the ownership interest. This works well for larger corporations and is known as a stock redemption agreement. For a partnership, it’s called liquidation of interest.
Hybrid Agreement: This type of agreement is a combination of the first two. The partner has to first offer to sell their interest to the entity. If the entity declines, then they can sell to the remaining partners.

2. Draft the Agreement Early on in the Business

You should draft a buy-sell agreement as soon as possible in case a triggering event takes place. This helps establish a plan early on to ensure decisions are made while all partners are level-headed rather than when an event occurs that could influence the agreement plan later on.

3. Be Specific

The plan should be definitive on what events can trigger the buy-sell agreement due to their unexpected nature. In addition, there should be specific rules on who can buy or sell the ownership interests and under which types of situations.

4. Specify the Valuation Method

How will the value be calculated? Seeking business valuation services will provide a comprehensive picture of your business’s actual value. The valuation considers factors like fair market value, book value, and formula approach. It’s important to note that once the valuation method is decided, it will be extremely difficult to fight the valuation in the future. You can choose to have a valuation clause that directs an expert to calculate the value of the business. Others specify their valuation methodology in the agreement.

5. Take Out Life Insurance Policies

Partners will typically take out life insurance policies on one another so that in case of an emergency, they will have the necessary funds to purchase their member’s shares. The company is the policyholder and submits premium payments and upon the death of a partner, the firm receives the life insurance death benefits. Use a life insurance calculator to estimate how much insurance you and your partners need.

6. Don’t Forget Taxes

Research the tax implications of your buy-sell agreement, as each one comes with different tax requirements. However, proceeds from life insurance are usually tax-free, which reduces the tax burden.

Conclusion

Running a business has its challenges. However, it also gives a sense of accomplishment. Implementing a buy-sell agreement will help extend the life of your business in case a life-altering event takes place. If you already have an agreement in place, it’s recommended you review it every three years as your business continues to change. If you still have questions about the ins and outs of a buy-sell agreement, McMill CPAs and Advisors are here for you. Succession planning is one of our core services to enable small business owners to develop a comprehensive buy-sell agreement. Reach out to us for help in drafting your Norfolk, Nebraska small business buy-sell agreement.

3 Mistakes a College Planning Consultant Helps You Avoid

Andrew Steffensmeier

Specializes in small business preparation and planning, investment advisory services, business tax planning services

When looking for ways to protect your finances while still ensuring your children receive the best education possible, there’s no better place to start than with a college planning consultant. The truth is, there’s nothing more important than being prepared and planning for your child’s future — especially today as tuition reaches new heights. A college planning consultant can help guide you through the process and find the best plan for you and your family.

According to research provided by U.S. News, “the average cost of tuition and fees for the 2021-2022 school year is $43,775 at private colleges, $28,238 for out-of-state students at public schools and $11,631 for state residents at public colleges.” However, this number is likely to change depending on your child’s choice of school.

In the meantime, our team at McMill CPAs & Advisors is here to help small business owners and their families throughout Norfolk and Northeast Nebraska make the best decisions regarding college. Here are three mistakes a college planning consultant will help you avoid.

NOT CONSIDERING THE COMMUNITY COLLEGE ROUTE

More often than not, families dismiss the potential for community college even though the end result is usually the same. This is because of the common misconception that community college is less valid than colleges and universities that are more expensive, and often over-priced. Despite this fallacy, community college actually provides sound education and is commonly used as a means of saving some money before transferring to a more selective four-year college.

According to Dr. Steve Robinson and Forbes, “More four-year colleges are seeing community college transfers as an important part of their own enrollment strategies… Selective colleges and universities are realizing these [community college] students help bring greater diversity to their student communities. Community college students are also 75% more likely to graduate, once they transfer to a four-year institution.”

Beyond college acceptance, there are many advantages for your child to attend a community college for two years before transferring to a university to complete their undergraduate degree or continue studying. To name a few:

You/they will save money on tuition debt.
A great way for students to transition from high school to college at their own pace (especially if they struggled in high school).
Most community colleges are offering the same ‘dorm’ and college experience as four-year colleges.
Smaller class sizes mean more hands-on and personalized assistance from teachers.

To save even more and help with the high-school-to-college transition, you should also consider having your child take college credit courses offered during high school.

AVOIDING THE INCOME TALK

When it comes to college, the prices can be intimidating, and it can certainly get more intimidating if your child is considering more prestigious options. For this reason, it is a big mistake to avoid discussing your child’s goals and expectations.

We’re not saying that money and projected future income is everything because it certainly is not. Your children should pursue what they are passionate about and what really gives them joy. However, it’s still worthwhile having the projected loan-to-income talk — meaning, we want you and your children to understand that some career choices will force them to pay off more loans, some careers will result in less financial freedom, and some careers may be changing rapidly.

In fact, Consumer Finance stresses the importance of “understanding that your career choices may influence your ability to repay student loans [and] determining how much student loan debt you [can] afford based on that career’s starting salary.”

This will not only give your child an idea of what career may be more beneficial to their interest and success but will also help you plan accordingly. For insurance, if starting pay is often less than you can afford with student loan debt, starting at a community college and transferring may be the solution — allowing your child to pursue their dreams and save where possible.

NOT APPLYING FOR FAFSA

Another huge mistake to avoid is not applying for Free Application for Federal Student Aid (FAFSA). While it is particularly helpful for students who need free financial assistance, it can also be beneficial in gaining access to The Stafford (Direct Federal Loan) and is required for some scholarships. So, fill it out regardless of your financial state.

In fact, Nerd Wallet reports that in one academic year, “1,234,249 high school graduates didn’t fill out the FAFSA. Of these grads, we calculate 648,191 of them would have been Pell-eligible.” Their analysis found that “the average amount of money left on the table per eligible high school graduate who didn’t apply was $3,583. The total amount left on the table by all such grads was $2,319,016,315.” That’s billions of available dollars that weren’t tapped into by college students.

The truth is, families consistently leave money on the table by neglecting federal aid. FAFSA, which is one of many financial aid opportunities, is an excellent resource for students who need it. Too often it is discarded by families just because they ‘think’ they won’t be eligible and don’t apply.

The process is fairly easy and straightforward — and you can always receive assistance to make it quick and easier — so there’s no reason not to check to see if your child is eligible for benefits. More often than not, you’ll see that you get it.

BONUS: IGNORING SCHOLARSHIP OPPORTUNITIES

Every university and/or community college offers dozens of scholarships that many students don’t know about, and almost all of those applications are free or very affordable. It’s not all just academic-based scholarships, either. Your child doesn’t have to specialize in an academic area to reap the benefits of additional financial help from colleges and foundations.

Spend time exploring your college’s scholarship offerings and local foundations to apply for as many as you can to increase your odds. The truth is, ignoring scholarship opportunities can do more harm than good in the long run, especially since maximizing your scholarships are great for lowering your potential for student loan debt.

What’s more, if you receive more financial aid and scholarships than your tuition, you won’t only benefit from FREE school. You can also use that additional money for big-ticket items like a new laptop, printer, books, and more!

Looking for a College Planning Consultant?

At McMill CPAs & Advisors, we know how challenging and overwhelming it can be to prepare for your child’s future education. That’s why we have been helping Northeast Nebraska residents avoid these most common mistakes, plus many more, with a college planning consultant.

Not only can consultants help you avoid big mistakes, but they have a significant amount of expertise and experience for you to tap into. Being a small business owner has its own host of challenges, don’t let your child’s education be one of them!