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Archives for August 2019

Know What Small Business Insurance Coverage is Needed

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There is no lack of options when it comes to insurance for your small business. Not every business needs every kind, but you should know what’s available.

Our team at BGMF CPAs are not insurance agents, however it is an area we help clients to determine which small business insurance coverage is necessary through proper review and analysis .  It allows us to provide you another point of view given our experience and knowledge.

Have you thought about the insurance your small business might need? Whether it’s a one-person outfit you run out of your home or a family corporation with dozens of employees, you need to protect yourself and your company.

Review the following list to see what might apply to you.

  1. General liability insurance — Even for home-based companies, liability insurance tops the list. The policy both defends against and covers damages for alleged bodily injury or property damage to a third party by you, your employees, or your products or services.
  2. Property insurance — This is for your building or business personal property of office equipment, computers, inventory or tools. Consider a policy to protect against fire, vandalism, theft and smoke damage. Think about interruption/loss of earnings insurance as part of the policy to protect earnings if your business is unable to operate.
  3. Business owner’s policy — This packages all required coverage a business owner would need, including business interruption, property, vehicle, liability and crime insurance. You have a say in what you want to cover in a BOP, which often costs less money as a package than if coverage were bought individually.
  4. Commercial auto insurance — Protect your firm’s vehicles that carry employees, products or equipment. You can insure work cars, SUVs, vans and trucks from damage and collisions. If employees drive their own cars on company business, you should have non-owned auto liability policies to protect your company in case your employee doesn’t have enough coverage. Non-owned auto insurance can be part of your BOP package.
  5. Workers’ compensation — This provides insurance to employees who are injured on the job, and it includes wage replacement and medical benefits. Employees therefore forfeit the right to sue the employer. This then protects you and your firm from legal complications. State laws vary, but they typically require workers’ comp if you have W-2 employees. Penalties for noncompliance can be very stiff.
  6. Professional liability insurance — Also known as errors and omissions insurance, this coverage in the form of defense and damages is provided for failure to render or improperly rendered professional services. This insurance is applicable for such professionals as lawyers, accountants, consultants, notaries, real estate agents, insurance agents, hair salon owners and technology providers.
  7. Directors and officers insurance — This coverage protects against actions by directors and officers that affect the profitability or operations of your company.
  8. Data breach — If you store sensitive or nonpublic information about employees or clients on your computers and servers or as paper files, you’re responsible for protecting that information. For electronic or paper breaches, the policy protects against loss.
  9. Life insurance — This provides money to beneficiaries in the event of an individual’s death. You pay a premium in exchange for benefits. This insurance gives peace of mind, allowing you to know that your family/friends will not be burdened financially when you die. Although technically this is not business insurance, if you are essential to a business you own, you’ll want this to protect your family.

You, as a business owner, have been exposed to risks from the day you opened the company. One lawsuit or catastrophic event could be enough to wipe out your business. Fortunately, you have access to a wide range of insurance to protect your company against danger. Call us, and we can help you sort through your choices.

Difference Between a CPA and Accountant

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cpa or accountant adviserThe difference between a CPA and an accountant is a conversation that has come up often with business owners and individuals seeking out the right professional for their needs.

It is a great question and had us thinking about the proper answer to help you understand that there are many ways a professional in the industry plays a part in building a financial foundation for individuals and businesses.

From bookkeepers to accountants to CPA’s, they all play an important role in the financial function, yet offer a wide range of skills, experience and knowledge that can help or hinder your ability to grow and hit your business and personal financial goals.

These terms get interchanged often, but there are distinctions to be considered when hiring a CPA or accountant. For example, not all accountants become CPAs.  CPAs must sit and pass an extensive exam (4 parts with a 50-60% pass rate) to obtain licensing and attain a certain amount of higher education hours.  They must perform continuing education reported to their state board on an annual basis.

This doesn’t mean a CPA is always better than an accountant. We’ve worked with many accounting professionals and tax preparers over the years that were exceptional and truly understood accounting and taxes.  With that said, we want you to be informed of the difference, so you know which is right for your situation.

Does it Matter to Have a CPA?

CPAs can provide services that non-CPAs cannot. According to the AICPA, CPAs are some of the business world’s most trusted advisers. The designation enables them to provide audited financial statements and represent taxpayers before the IRS.

Comparatively, an accountant’s qualifications can range from little experience to highly qualified.  Determining the type of work and analysis that needs performed can be the first step in deciding if a bookkeeper, an accountant or CPA is needed.

Once the CPA designation is obtained, continuing education requirements must be completed to maintain the license.   CPAs must follow a strict set of ethical standards holding them to a higher standard than non-designated professionals.

Does Everyone Need a CPA?

Business and investing are team sports and there is a lot that goes into compliance whether you own a business or only file your individual taxes. Add to that life planning such as major events, putting kids through college, paying off debt, retirement strategies, estate planning and other important matters and you’ll quickly get overwhelmed trying handle these aspects alone or cost you by utilizing the wrong adviser.

CPAs aren’t just bean counters. They offer advice and guidance surrounding challenging situations as life happens. CPAs can be a part of your advisory team to help with tax planning, starting and growing a business, selling or buying a business, raising capital, connect you with other professionals, financial analysis, help navigate trust and estate matters, assist in audits, and provide assurance for financial statements to banks.

Bottom line is many individuals won’t need ongoing CPA services, but there will be times and/or complications in life that consulting with a CPA makes sense. You will typically know when sitting down and having a conversation with a CPA is the next step.

Why Hire a CPA?

Hiring a CPA provides you with proven technical skills and an expertise that you may not find in other professionals or accountants. You will feel confident knowing the CPA keeps up with current economic conditions and regulatory matters.  A good CPA will help consult on major decisions to help you determine the best approach by providing proper analysis and advice.

CPAs can compile, review or audit financial statements that are often required by banks, lenders and state or government regulators. CPAs can assist in obtaining and reviewing financing options and work with lenders to ensure you’re able to raise capital.

CPAs are experts at becoming experts and must be very resourceful. They offer troubleshooting advice to both businesses and individuals, by providing an additional set of eyes, knowledge, and experience to help navigate challenging issues.

The main role of a CPA is to provide solutions to problems and not just in the financial sense.  It’s not just about performing tasks and being reactive. Good CPAs are proactive in their approach and provide analysis and guidance along with the tasks that need to be performed.  This guidance can make big differences in the direction you take in your business or personal affairs.

Bottom Line…

Understanding the difference between an accountant and CPA can help you make the right decision for your business or personal affairs. A high-quality CPA can assist you in getting to the next level based on your goals. The more you utilize your team of professionals, the more apt you are to be successful.

Maybe you think you do not need a CPA and only need someone to handle ordinary accounting matters. However, there are situations when a CPA is the right choice for the job and will save you time and money. If you don’t know when it makes sense to hire a CPA, you can always sit down with one and have that conversation.

Schedule a free consultation and receive a free tax review with one of our CPAs at BGMF.

Tax Planning for Divorce

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Divorce Tax PlanningAre you going through a major life change such as divorce? Tax planning for divorce is a crucial step in ensuring you don’t cost yourself more money during and after the process.

The good news is you don’t have to deal with this and everything else going on alone. Our team is here to assist you during and after the process.

If you are getting a divorce, taxes are probably not highest on your list of concerns. Still, you should consider a number of tax-related issues.

Property Settlements

Dividing property in connection with a divorce generally has no immediate consequences for either spouse. However, if the spouse who receives property in the divorce settlement later sells it, there may be a gain to report for tax purposes. So, potential taxes should be a consideration in deciding which spouse will receive which property.

Note that a spouse who receives property in a divorce figures any gain on a subsequent sale of the property using the transferring spouse’s basis (e.g., cost), not the property’s value when it was received.

For example: Michelle receives 10 acres of unimproved land in her divorce settlement. Her ex-husband bought the land for $25,000. It’s now worth $100,000. If Michelle sells the land for $100,000, she will have to report a taxable gain of $75,000 (the difference between the $100,000 selling price and the $25,000 cost basis).

Personal Residence

If a divorcing couple sells their home while they are still married, they are entitled to exclude up to $500,000 of gain from their taxable income if otherwise eligible for the exclusion. If the ownership of the home is simply transferred to one spouse as part of the divorce settlement, there is no taxable gain or loss at the time of transfer. However, should that spouse later sell the house while he or she is unmarried, only a $250,000 exclusion would be available.

Retirement Benefits

A divorce settlement often determines how retirement plan benefits will be divided. However, an employer may distribute retirement plan benefits to a former spouse only after receiving a court-issued document that meets the requirements for a qualified domestic relations order (QDRO). The benefits are taxable to the former spouse who receives them pursuant to a QDRO.

Dependency Exemptions

The Tax Cuts and Jobs Act of 2017 suspended the deduction for dependency exemptions for 2018 through 2025. But after 2025, the deduction will apply (unless additional changes are made). While the spouse who has legal custody of a child is generally entitled to claim the dependency exemption, this tax advantage is negotiable and can change from year to year. The custodial spouse can waive his or her right to the exemption, allowing the noncustodial spouse to claim it.

Other Tax Benefits

Having a child or relative qualify as a dependent may impact other tax benefits. For example, there is a potential child tax credit of up to $2,000 annually for each qualifying dependent child under age 17 and $500 for each qualifying relative over 17 (i.e. your children in college).

Alimony vs. Child Support

Payments that qualify as alimony under the tax law are deductible by the paying spouse and are considered taxable income to the recipient spouse. Child support payments, on the other hand, are not deductible by the paying spouse and are not included in the recipient spouse’s income. The IRS characterizes payments that are linked to an event or date relating to a child — such as high school graduation or a 21st birthday — as child support rather than alimony.

Note that the tax treatment of alimony will be different for taxpayers who divorced after 2018. Under the Tax Cuts and Jobs Act of 2017, no deduction is available for alimony payments made under post-2018 divorce or separation agreements and recipients are not required to include the payments in income.

These are just some of the tax planning issues that could be important in a divorce situation. Be sure to consult our expert divorce tax planning advisors to discuss how these general rules pertaining to your personal situation.

What to Do When You Get an Audit Notification

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IRS Audit HelpYou’ve opened the mail and your heart sinks. You or your business just received an audit notification from the IRS.

BGMF CPAs deals with these letters due to a variety of reasons from a letter that indicates something was not reported on the tax return to a full-fledged, IRS agent in your office audit to review all records.

Keep reading to learn how to keep your cool and prepare for what happens next (and how we can assist you).

You may be surprised to learn that not every audit notification you receive will be legitimate. So, first, make sure you received an official audit notification. The Internal Revenue Service (IRS) will notify you either by letter or by a phone call followed by a letter. If you receive a call without the letter, please consider this potentially fraudulent.

The IRS does not notify taxpayers about audits through email or phone call only, so again if you do get an email or phone call saying you’ve been selected for an audit, it’s probably fraudulent. There continues to be new scams threatening taxpayers surrounding audits and other IRS matters. Do not respond or hang up and contact your CPA before providing any information.

If you’ve determined that you’re definitely getting audited, your next step is to learn what’s involved.

What Exactly Is an Audit?

According to the IRS, an audit is “a review/examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is substantially correct.”

That’s it. It’s an audit — not an arrest and not a trial — so don’t panic. Contrary to popular belief, an audit doesn’t automatically mean you made a mistake. Yes, an inconsistency can trigger an audit if there’s a discrepancy between what’s on a tax form and what you actually reported.

But the IRS may choose to audit a taxpayer based on random selection or a statistical formula. Also, an audit may be less intrusive than you feared. For example, it may be entirely through the mail, although in some cases, it may be at an office or the taxpayer’s home or place of business (or our firm’s office). And not all audits result in your owing money. In fact, your audit may lead to no changes at all.

Both businesses and individuals may be audited (even sole proprietorships), and there may be some differences in how they are handled. One thing that virtually all audits have in common, however, is access to records. The IRS is going to want to check some of your records, and maybe a lot of them. Did you deduct business expenses? Make some substantial charitable contributions? You’ll need to show the IRS some receipts. The good news is that in many cases the IRS accepts electronic records.

What Happens Next?

There is no typical length of time for an IRS audit, but if you have your records handy and cooperate fully and quickly, you increase your chances that it will be as brief and painless as possible. Ultimately, the IRS may determine that you owe more money. At this point, you can pay it or you can appeal. The audit doesn’t have to be the end of the road. There is a substantial appeal process and a long and expensive court trial may not even be necessary.

The important thing to remember is that you don’t have to go it alone! Our CPA firm can work with you throughout the audit process, including any appeals. The key factor is to call us as soon as you receive the notification about your audit. We’re ready to work through the details and help you gather any records you may need.