Documenting Improvements to Real Property – Don’t get Screwed!

We often work with Companies constructing improvements to Real Property, including Commercial and Residential Real Estate that they own or lease. As we know,  these additions to the real property are essential in determining your investment in, or basis, in the property.  Down the road, when the Company taxpayer goes to sell the property, maintaining accurate records makes the difference between an optimal capital gain or loss calculation, and a less than optimal. We all know about the difference between these two.

Our clients rely on us to document to the California Board of Equalization (BOE), in order to establish the personal income tax adjusted basis of real property sold by them, based on information provided by the taxpayers’ external accountants, who tracked all costs and expenses of construction on the property and maintained bank and other financial records, receipts, and information.

When our clients rely on us to maintain the construction accoutning, the BOE always finds that the information compiled and provided by us, our client’s Accountants, was the most reliable.  The BOE notes that the evidence submitted by the Accountants  reflected amounts for capitalized construction loan interest and capitalized mortgage interest included in the adjusted basis reported by the taxpayers. Those amounts were tracked meticulously on a detailed schedule that reflected the exact amounts of interest that were paid and whether the taxpayers had claimed those mortgage interest payments as current year deductions or had capitalized those amounts. So, we do go the extra mile. We do provide exactly what is needed to support and defend our Client’s interests. So, contact us for your Real Estate Project. We’re Real Estate Experts, and we know exactly what the BOE, the IRS and the FTB is requiring. You’ll be so thankful, and so will we.

Happy New Year’s 2017 to all our Readers – here’s some valuable details for you to Digest!

December 28, 2016 · Posted in Accounting, Decision-Making Tips, Profitability Tips, Tax Planning · Comment 

Here are the most essential updated limits for 2017; as we have identified for our Business Owner and Family clients.

Social Security maximum wage base for 2017 increased to $127,200. Amounts withheld at the 6.2% rate from an employee will now be $7,886.40 with the employer matching it. A self-employed person will pay the employee’s and employer’s shares which will be almost $15,772.80. The 1.45% Medicare tax is in addition to this and there is no salary cap on that. The employer will match employee’s amount and the self-employed will pay both shares. The employee’s total withholding tax will be7.65% and self-employed will be 15.3% on amounts up to the wage base and 1.45% and 2.9% on amount over that.

Capital Gains: Maximum rate is 20% plus 3.8% if the Net Investment Income Tax applies. The 0% rate will apply to extent ordinary income is taxed at a rate below 25%. A 15% rate is for individuals taxed at a 25% ordinary income tax rate or higher but below the 39.6% rate. The rate is 25% for unrecaptured Section 1250 depreciation; and 28% for long term sales of collectibles.

Alternative Minimum Tax exemption for those married filing jointly will be $84,500 and for singles $54,300. The exemption starts to phase out when joint and single income exceeds $160,900 and $120,700.

Personal exemption is $4,050 and starts to phase out when joint and single AGI reaches $313,800 and $259,400.

Section 179 Depreciation: $510,000 with this amount being reduced when the cost of qualifying property exceeds $2,030,000.

Gift Tax Annual Exclusion: $14,000 per person receiving a gift. This is doubled if there is a consenting spouse.

Estate and Gift Tax Lifetime Exemption: $5,490,000. For gifts this is doubled if there is a consenting spouse.

IRA contribution limit is $5,500 and an extra $1,000 for those who are age 50 and over. The limits apply for both traditional and Roth IRAs. There are phase outs for traditional IRAs for taxpayers covered by an employer plan; and for Roth IRAs based on AGI.

401k, 403b and most 457 plan contribution limits: $18,000 plus $6.000 for taxpayers past their 50th birthday.

Defined contribution limits: $54,000 plus $6,000 for those past their 50th birthday. SEP plans are not eligible for the over age 50 additional contributions.

Solo 401k plan combined with a SEP: $54,000 plus $6,000 for those past their 50th birthday.

SIMPLE plan limits are $12,500. The extra over age 50 amount is $3,000.

Medicare Part B premiums for those over age 65: Joint Modified AGI up to $170,000, $134.00 per month; MAGI over $170,000 up to $214,000, $187.50; MAGI over $214,000 up to $320,000, $267.00; MAGI over $320,000 up to $428,000, $348.30; MAGI over $428,000, $428.60. The single limits are half of the joint MAGI amounts for the premiums shown. These amounts will be reduced somewhat if you have the Medicare premiums deducted from your monthly Social Security benefits. Tip: These payments are deductible as medical insurance premiums which is especially beneficial for self-employed taxpayers. The Modified AGI reported on your 2015 tax return determines your 2017 premiums. To reduce your MAGI for 2017 (almost too late for 2016) consider transferring part or all of your 2017 Required Minimum Distributions (up to $100,000) directly to a charity. This might help reduce your 2019 premiums. You should consult with a tax advisor for other strategies to reduce MAGI. Starting early in the year will give you the best opportunities for tax planning.

Retirement plan tip: Consider making your 2017 contributions in January 2017 or as early in the year as you could so the tax deferred earnings start. Also, some plan contributions for 2016 can be made in 2017 and some of the plans can be opened in 2017 for the 2016 tax year. Further, do not overlook IRA contributions for non-working spouses. Self-employed people with no employees should consider a solo 401k combined with a SEP – if you qualify for 2016, open it ASAP! This must be done before Dec 31, 2016.

There are other items but these cover the most items we get questions about. All of these amounts and limits should be checked for amount and applicability with our office as your tax advisor.

For our Business Clients – let’s keep an open eye on these new Regulations

Now that the October  tax deadlines have come and gone, here are some of the biggest changes to keep an eye on as we all wrap up the 2016 year, and head into 2017:

FIRST: The Annual Form 1099 just got more difficult.  Some of the biggest tax changes small-business owners will need to pay attention to is in health care coverage. For starters, businesses that are subject to the health care mandate expands in 2016. Now, not only must companies with 100 or more full-time employees provide coverage, but smaller businesses that employ 50-99 workers must do so as well.

SECOND: While small businesses may have come into contact with this requirement in early 2016, the rule’s relative newness bears a reminder: All employees will need to fill out Form 1095-B, Health Coverage, and employers will need to send these forms to the IRS. These are by no means the only changes to how employers report and provide coverage, nor are they likely to be the last as lawmakers continue to refine and tweak Obamacare.

THIRD: On January 1, 2016, a new rule was proposed by the Department of Labor that would raise the salary threshold for overtime to $50,440. That means employees that make at least this amount annually are exempt for overtime regulations. As such, employers do not have to pay them for that extra time. However, following the rule’s announcement, criticism has flooded in from employers and lawmakers, with many voicing concern that $50,440 was too big an increase from the previous threshold of $23,660. Since then, a revised number—$47,000—has been proposed as the new threshold. Once the final rule is published, employers will have 60 days before it becomes law.

Working closely with your accountant or bookkeeper will help companies best prepare and integrate the change into their workplaces. We are here to assist you implement these new rules. Just give us a call.

Use the Federal and State Tax Code to the Best of Your Advantage

Our business is built entirely on advising Entrepreneurs on profit and growth strategies, using accurate accounting and management reporting; and then we show them tax efficient investment plans and strategies to keep their wealth. In order to do this effectively, we structure our relationship with our Clients to meet regularly for review and updating of their plans and strategies so they fit into the present circumstances and goals. A big part of that is year-end timing and income/spending decisions to minimize the impact of taxes over the lifetime of the business. We can help your business succeed in these critical areas. We focus on achieving these goals for our Customers daily, so that when the time comes, we are ready to deliver results that matter to you. Please review our year-end Tax Guide, then drop me at note or place a call so we can set up a time to discuss your specific situation and requirements. You’ll be happy you did this, and your views about Accountants may change as well.

Peter P Cullen

peterc@coreperformance.net

949 478-4795

2016-year-end-tax-planning

Your Life Purpose and why it is the most important issue you’ll ever face

September 29, 2016 · Posted in Community Development, Decision-Making Tips, Uncategorized · Comment 

Truly Amazing insight from the late Shimon Peres – only some of his truth to the generations…..”Most people prefer to remember, but not to think, imagine, and dream – this is the biggest mistake. What do you want to remember? All the mistakes that have been made?”……. We as people have so much to be thankful for, and yet, instead what do we do? …..we complain, sometimes endlessly. Why ???

For what purpose? Will it better you or me, or all of us? Think about it. We all need to move away from disagreements, which is the easy and lazy route, and instead find the unifying purpose in all of us. Which of course is, why I am here? why did God allow me to be here in this time, in this place. Think about that question, consider your the value of your life, and what you want your legacy to be. Think about it. And pray.

Humanity as a Competitive Advantage !

Do you have a great relationship with your Accountant?

Yes you expect an Accountant to be very technical, and demonstrate expertise about taxes, accounting and the law. Yes? ….But how about the way they treat you ? meaning their human skills.

We are open and direct Accountants and Advisers, and yet we are genuinely interested in helping you overcome and succeed in your business. We will live inside your business alongside you. That is how we are wired. It’s always been that way.  We ask intelligent questions, we want to know how you want to work, and we intend to be flexible in our style working with you. We follow up regularly, we answer all of your questions, and we do not bill you for the time we spend. In fact, our fees will be based on an understanding that we reach at the beginning of the engagement, and will be derived from the value you and we muutally agree upon. How does that sound? very good I expect.

1. What’s the best way to contact you and how often should we be in touch?

This might seem obvious, but clear, effective and frequent communication is the key to a healthy, beneficial relationship with your accountant. Establish early on how often you’ll connect, either in person, on the phone or online, via text, email, Skype or Google Hangouts. Decide together if you’ll meet weekly, monthly or bimonthly.

2. How can you help me get the best tax result?

Untangling the time sink of preparing filings for the tax authorities, including VAT / Sales tax, payroll taxes and year end company taxes, is often the number-one reason small businesses hire an accountant in the first place.

At the same time, ask them if there are any new tax laws you should take advantage of to maximize write-offs.

Tax opportunities, such as the R&D credits, accelerated depreciation, payroll tax rebates, are something they should be very aware of.

Does your accountant have a pre year-end tax planning meeting with you? It’s too late once the deadline’s passed (at least for the current year) to take advantage of any extra deductions or allowances.

3. What areas, other than tax, can they help you with?

A skilled accountant should get to know you and your business well enough to regularly keep you aware of an array of factors that could effect your bottom line, for better or for worse.

Your accountant should be well-versed in several disciplines, including corporate and individual tax, retirement planning and financial planning.

They should also be able to help you weigh the financial ramifications of certain decisions, such as hiring an independent contractor vs full-time employee, buy or rent an office space, or rent or lease a company car. Your accountant should also work collaboratively with you in a way that makes it easy for you to consider and understand which actions you need to take now and in the future. We develop full year tax plans, a year ahead, at a time.

4. How can you help me manage my cash flow?

Cashflow is the lifeblood of every business. Detailed cashflow forecasts are time consuming however this is definitely something your accountant should be able to do for you.

Your accountant should be able to help you develop an organised cash flow model that allows you to adjust your operations in ways that help you survive shortfalls, as well as improve receivables and manage payables. We do.

5. What is my break-even point?

Again, this may sound obvious however it’s one of the most important numbers for any business. If you’re below breakeven, eventually you will run out of money. If you’re above breakeven, then it’s the timing issues (such as payables and receivables) which will make or break your cashflow. This is a critical area of the planning and ongoing monitoring that we develop for all of our clients.

6. Can you assess the overall value of my business?

Is the accountant heavily involved in your industry sector, and is thus across what business’s are selling for right now, and also how this moves? Good insight into this is invaluable, especially if you want to sell or raise capital.

A good understanding of the valuation drivers in your industry will mean you can focus on those metrics to improve the value you eventually get. This needs to be done over an extended period of time so is something your accountant should be on top of.

7. Can you help me review and negotiate business contracts before I sign them?

This is a common question for accountants, and they definitely should be able to help you with the commercial terms. This doesn’t negate the need for good legal advise – often your accountant and legal counsel will work hand in hand.  We will assist you in these areas.

8. What are the trends in my particular industry and how aware is the accountant of those trends?

Businesses in different industries come with their own unique accounting issues. Your accountant should be knowledgeable about the various ones that specifically apply to yours.

9. What are some common mistakes that I should avoid when working with you?

Failing to follow the advice of your accountant is a common mistake. The whole point of hiring an accountant is for their expert advice. If you’re not following it because you have concerns about the quality of that advice, that may be a good indicator it’s time to look at a new accountant.

 

Peter P. Cullen   Partner, Core Performance
photo Phone: 949 381-5629
Mobile: 949 246-0502
Email: visionaccounting@gmail.com
Website: www.coreperformance.net
Address: 5151 California Ave. | Suite100 | Irvine, CA 92617

  

Six Quick Productivity Tricks So You Can Go Home Early

If you have an endless to-do list, you’re not alone these days.  Most of us are constantly looking for ways to work smarter and get more done.  Here are six quick tips to help your productivity so you can go home early.

1. Group tasks.

If you have lots of errands to run during the week, why not set aside one day or a part of a day to get them knocked out all at once?  It saves start/stop time and may also save gas and time getting dressed up (if you work at home).

You can also try grouping tasks such as personal care appointments, doctor’s appointments, sales calls, and client visits.  Your schedule will be freed up in big blocks of time so you can focus on creative projects without having to constantly watch the clock.

2. Use checklists.

Checklists are best when you have a task you need to repeat.  They’re great when you’re stressed and don’t want to forget a step (such as in packing your suitcase for a trip).  They’re also great for tasks that repeat infrequently (Now how did I do that last time?)

Stop and take a minute to create your checklist the next time you perform a routine task that you will repeat in the future.  You’ll thank yourself the next time.

3. Organize your email.

If you are using Microsoft Outlook for email, consider getting it to work as hard as you do.  As your email comes in, you can have Outlook sort the low-priority emails that come from lists, Google alerts, social media notifications, and subscriptions into folders.  Create a subfolder in your inbox called “lists.”  Then set a Rule to have that type of email go into the “lists” folder.  This one step will substantially de-clutter your inbox.

4. Delegate more.

If you’re a little wary about delegating, try this exercise:  Look at your to-do list and put an hourly rate next to each task that you are doing.  If someone paid you to do that job, what would you get on the market?  Then look at the tasks with the lowest dollar value next to them.

If you feel your time is worth more than the lowest rated tasks on your lists, it’s time to help someone else out who is unemployed so you can be freed up to use your more valuable skills.

5. Order online.

When is the last time you’ve been to the office supply or pharmacy when you know they deliver?  (Yeah, me, too. Enough said.)

6. Avoid long learning curves.

Whenever you realize a task will have a really long learning curve, then it’s a red flag that it’s time to find someone to hire to do it for you.  Here are several examples:

  • Doing your taxes and researching all the tax law changes
  • Installing a new accounting system and customizing it
  • Learning about every new social media platform out there
  • Writing a legal contract
  • Creating a report
  • Troubleshooting a computer problem

The cost of going through the learning curve can be dozens of hours of your precious time lost compared to bringing an expert on board who can perform that task in a matter of hours or minutes.

How did these six ideas compare to your favorites?  I hope you picked up an idea or two so you can get home earlier.

Five Bottlenecks to Avoid that Stump Your Business Growth

As a business owner, you have likely acquired many skills and are wearing many hats in your business.  Although admirable, your versatility can often lead to slower growth for your company.  This happens when you become the bottleneck.  Here are five places to check to make sure you haven’t become the bottleneck in your own business.

1. Managing everything.

It’s definitely good to keep tabs on everything that’s going on in your company, but once your company grows, you may find yourself inundated with information.  Instead, try managing by exception.

You don’t really need to know everything that’s going on in your company; you really only need to know when things do not go smoothly, or when there are exceptions.  Design a set of management reports that allow you to see these exceptions easily without having to wade through a bunch of information.  This will save you time and help you focus where your expertise and skills are needed most.

2. Doing too much production.

Probably the most common small business mistake is working in your business instead of on your business.  If you’re still generating billable work or working too much in production, it should be work that no one on your staff can do and work that requires a very high skill set.  Otherwise, it should be delegated to staff.  And if you don’t have staff, then they need to be hired.

3. Not doing enough marketing.

As a business owner, you are the key person that will be bringing in business, forging partnerships, and creating new opportunities for revenue.  If you spend your limited time doing other things, marketing often goes undone.  Not marketing enough can dry up the pipeline, cause cash flow problems, and get a company in trouble really fast.

4. Being the only one who knows how to do something.

When employees have to wait on you to show them how to do something, you can easily become the bottleneck in the process.  As you train each employee, do it only once by writing procedures for the task as you train.  That way, you never have to train anyone on that task again.  The newly trained employee can show others, and you can be out of the loop, freed up for more important things.

5. Having to review and approve everything your employees do.

A great employee is one who is empowered to make as many decisions as possible without further layers of supervisions getting involved.  Often, a decision can be “cookbooked” so that the decisions can be pushed down the lower layers of management.  Take a look to see if any of the decisions that you are making can be documented and pushed down so that you don’t have to get involved.  That way, your employees will have the right balance of authority in order to do their jobs.

How did you measure up on these five high-bottleneck areas?  When you can clear up the bottlenecks in your business, your firm will be able to grow even faster.

Life Beyond the Profit & Loss Statement – Do You Know Your Lifestyle Ratios?

Each month, you may anxiously await the reports that provide the numbers that help you manage your business.  Revenue, net income, total expenses, and payroll costs are just a few of the items that you may be monitoring on your profit and loss statement.  Those numbers will help you meet and improve your business goals, but the question is, what numbers are you using to determine if you are meeting your life goals?

It might be fun to come up with a few lifestyle ratios to help you measure and move toward your personal goals.  Here are a few for your consideration:

Passive vs. Active Income

If you’d like to work less as time goes by, then you’ll want to create your passive vs. active income ratio.  Make a list of all of your sources of income (not just business) in a spreadsheet.  You might have interest income, rental income, and investment income along with your business income or salary.

Then write down how many hours you spend working to earn each type of income.  For interest income, it is likely to be very little.  Investment income will only include the time you take selecting your investments and managing your portfolio. If you are active in your business, this will be the lion’s share.

Income is passive if you spend almost no time earning it.  Income is active if you spend time earning it.  (These definitions correlate to your time spent, not the IRS definitions.) Put the income in the appropriate column, passive or active.  You can allocate if necessary.

In the example below, this person is well on their way to retiring.  They also might question why they are spending so many hours working so hard for a fraction of their monthly income!

Income Monthly Hours Passive Active
Interest Income $5,000 0 $5,000
Rental Income $6,000 2 $6,000
Investment Income $20,000 1 $20,000
Business Income $10,000 167 $10,000
Totals $41,000 170 $31,000 $10,000
Passive/Active ratio 76% 24%

 

The “aha” comes when you see the numbers.  The numbers often drive people to action.  You might decide to be more intentional about moving your income to passive sources so you can do the things you want to do.

Leveraged vs. Unleveraged Revenue

Leveraging your business revenue is a way to work less while making more money.

Measuring leverage is business-specific.  Examples of revenue that are not leveraged include seeing clients one at a time and selling hours-for-dollars services without a staff.  Revenues that are partially leveraged include group programs such as classes and events like webinars and conferences as well as hourly consulting that your staff performs with your limited oversight.  And revenue that is fully leveraged includes product sales.  Once the product is developed, it takes little incremental time to sell (unless you’re in retail).

Here’s an example, assuming this business owner has a staff of five people.  Both hourly consulting and training classes are partially leveraged because the business owner spends time teaching, consulting, and supervising.

Revenue Leveraged Unleveraged
Book sales $500,000 $500,000
Hourly consulting $3,000,000 $2,500,000 $500,000
Training classes $2,500,000 $1,500,000 $1,000,000
Total $6,000,000 $4,500,000 $1,500,000
Ratio 75% 25%

 

If your revenue streams are flexible, you can work on moving more of your business income over to the leveraged side.  To create more leverage in the example business, the owner could sell or develop more products, hire another teacher, hire an additional consultant, and/or hire someone to review the consulting work of the employees.

Days Off vs. Days Worked

This ratio measures how much time we are able to spend away from the office.  It’s simple to compute, and you can estimate it if you don’t track your time.

Assuming a 5-day work week, there are about 250 working days in a year, not including about 10 holidays.  Estimate the numbers of days you were off, and divide by 250.  For example, if you took 5 1-week vacations from work last year, that would be 25 days, resulting in 10%.  This assumes you worked the rest of the year.

Your Lifestyle Goals

What’s on your “bucket list?” (This is a list of things you want to do in your lifetime before you die.)  Figure out the metric that will get you thinking about doing your dreams sooner rather than later.

You can have fun with metrics and ratios in and out of your business.  Here are some more ideas to think about:

  • The number of customers you have that really fit your ideal client and how many more you need to go.
  • How many countries (or states) you want to visit each year vs. how many you’ve already visited.
  • How many volunteer hours or dollars you spend vs. how much more you like to.

When you put your goals into numbers and on paper, they seem more real and achievable.  You can get an “aha” just by computing these ratios.  Hopefully, life beyond the profit and loss statement will get you closer to your dream life.

Are You Fully Supported in Your Business?

Whether we run a large company with dozens of employees or run our own solo business, we rely on a support team of vendors, customers, employees, contractors, and other associates that help us carry out our business goals.  Here’s a fun exercise to discover the strengths and weaknesses of your business support team and how you can increase and strengthen the support you have.

Take out a blank sheet of paper, and draw a small circle in the middle.  Write your name in the circle.  This represents you.

Draw a little larger circle next to your circle.  Write your employees’ names and major functions in this circle.  Draw a similar circle for contractors’ names and functions.   If you have partners and/or affiliates, include them in a big circle.

Draw a small circle for your five largest clients, and write their names in the circles.  Draw another small circle for your five largest vendors, and write their names in the circles.

Draw one more circle for your business mentors and coaches, and write their names inside the circle.  If you have any more major groups related to your business, draw them now.

These circles represent your business and all of the people you rely on to get your job done.

Now, think about what groups you belong to that relate indirectly to your business.  It could be a professional association, a licensing agency, or a networking group.   Make large circles for each of the groups you feel connected to, and write some of the key names you know that are part of each of the groups.

Add a few more circles in the same way if you have more business associates to list or other groups that you didn’t add above.  If you want to, you can also include your personal support team:  the nanny, cook, gardener, esthetician, wardrobe consultant, makeup artist, nail artist, hair stylist, nutritionist, personal workout trainer, butler, chauffeur, masseuse, travel agent, and water boy.  Okay, maybe listing the water boy is getting a little carried away.

The sheet should now represent all of the important people in your business that support you in one way or another.  It’s a lot, isn’t it?

Now is where the aha’s come in:

  •  Take a look at your to do list and see if there are holes in your team that you need to fill.  Are there job openings or are you ready to bring in more support?  Mark the openings or potential openings with a yellow highlighter.
  •  With a green highlighter, mark the people who are most positive and supportive to you.  You may want to let them know how much you appreciate them if it’s been a while.
  •  With a red highlighter, mark anyone who is costing you more than supporting you.  It may be time for a change in team members.
  •  With a purple highlighter, list the five people you most look up to and can count on for great advice.  These people should either have expert advice or be ahead of you in business.

We’ll stop here, but you can continue selecting colors to evaluate the relationship of the people in your circles.

When you take a look at your social circles, what do you notice?

  •  Where are you fully supported?
  • Where could you use more help?
  • Where do you need to make some replacements?
  • What else do you notice about your business network?

Make a list of action items you can do to strengthen your business support network.

This is a great exercise to allow you to consciously evaluate and improve the ever-important support system in your business.  When you have a great team, you can accomplish so much!

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