Tag: small business

A Closer Look at Healthcare Reform Guidance for Small Businesses

Over the past two weeks, we have been taking a look at an overview of the ever-developing new health care laws and how they impact small businesses. We looked at past guidelines, upcoming deadlines, and options small business employers have when it comes to providing health care coverage. We also examined three reimbursement methods for small business employers that give them choices in terms of how they will provide their employees with coverage options. For more information, visit here.

There is so much background knowledge needed to understand all of this that we thought it would be beneficial to dig a little deeper into healthcare reform regulations for small businesses. Let’s take a closer look.

Background into Healthcare Reform Decisions

Back in 2013, the Internal Revenue Service (IRS) issued Notice 2013-54. This notice defined that an employer had created an “Employer Payment Plan” considered to be a group health plan under the Affordable Care Act (ACA) when the employer reimburses an employee for individual health insurance premiums or directly pays the insurance company for this employee’s individual policy. Even still, the Employer Payment Plans will fail to comply with two aspects of the ACA—the prohibition of annual limits on an individual’s benefits and the preventive health service requirements. If these were not complied with, employers would be subject to an excise tax, according to Section 4980D, of $100 per day for each individual that doesn’t meet compliance.

On February 18, 2015, the IRS issued new guidance. Through this, transitional relief was offered to employers that reimburse their employees for the cost of premiums for individual health coverage. This also allowed for arrangements to increase employees’ compensation to help pay for the cost of these individual policies.

Caveats to the Excise Tax—Transitional Relief for Small Businesses

As defined by the IRS as employers that employed an average of less than 50 full-time (and full-time equivalent) employees on business days during the preceding calendar year, small employers were offered limited relief from the Section 4980D excise tax. For these employers only, the excise tax would not be asserted on them for failure to comply with the Market Reforms by Employer Payment Plans that we discussed above. This is applicable through June 30, 2015. In addition to being exempt from the excise tax during this period, small employers are not required to file Form 8928 solely because of the Employer Payment Plan for timeframe during which the employer qualifies for the relief. But, it is important to note that after the June 30th deadline, small employers may be liable for the excise tax, but this does not apply to reimbursement arrangements (health reimbursement arrangements and others) for medical expenses other than insurance premiums.

How Small Employers are Responding

Because of Notice 2013-54, employers don’t want to risk the excise tax by sponsoring Employer Payment Plans. Instead, many have chosen to increase after-tax compensation for employees who can then purchase their own coverage. This practice is only exempt from the ACA and is not considered a group health plan if the compensation is increased and the employer does NOT require that the compensation be used to fund health insurance. It is important to understand that employers that require the extra compensation to be used for health coverage will be considered part of an Employer Payment Plan that IS subject to the 4980D excise tax. Please note that whether an Employer Payment Plan is offered on an after-tax basis will still be subject to treatment as a group health plan.

What to do for the Future

If you, as a small employer, have Employer Payment Plans in place, you’ll want to modify them before June 30th to avoid the Section 4980D excise tax. As Beck and Company’s Certified Public Accountants and Business Advisors, we understand that you, as small business owners, want to do what you can for your employees and hope the information has helped you understand the regulations more thoroughly. To learn more about our accounting services to help you navigate through these tricky processes, visit here.

Contact us here at Beck and Company CPAs so we can help you with your unique needs as small business owners navigating the new healthcare reform regulations.

Health Insurance Options for Small Business Employees

Keeping up with the ever-evolving world of health insurance rules and regulations has probably never been quite as difficult or confusing as it is currently. It is essential to understand current policies, future deadlines, and available options to help your small business be informed and make the best choices for your employees and their health insurance while remaining compliant with government rules. To learn more, visit here. Let’s take a closer and more in-depth look at methods the Internal Revenue Service (IRS) permits employers of small businesses to reimburse employees for the cost of health insurance premiums in three ways. If the regulations were not followed for reimbursement, please note that these reimbursements would then be considered taxable income for the employee.

Reimbursement Method #1: Reimbursements that are administered by the Employer

A payment may be issued to the employee by the employer to reimburse them for a portion or for their full health insurance premiums. If this payment is received, it is the responsibility of the employee to provide proof of both payment and coverage for the times in which they received reimbursement. If the employer does obtain proof from the employee that the funds received from the employer were used by the employee to purchase health insurance, the payments are not taxable income. Instead of paying just the employee, the employer has the option to give a check that is made payable to the employee’s insurance company that must be remitted to the insurance provider. The most important factor of this method is sufficient proof obtained by the employer from the employee that the reimbursement is being used for health insurance and that there was coverage throughout the course of time in which there was reimbursement.

Reimbursement Method #2: HSA- Health Savings Account

Employers are allowed to contribute towards the amount of the premiums of an employee’s health savings account, but the combined amount maximum contributed between employers and employees has limits established by the IRS. Employer contributions do not count as taxable income on the part of the employee, but this is only the case if the funds are used to pay medical expenses and premiums. If they are not expenses that would be deductible, the employee must then report this and pay tax on this amount.

Reimbursement Method #3: HRA- Health Reimbursement Arrangement

With a health reimbursement arrangement (HRA), an employer may establish one for employees that can stand alone or be offered alongside other plans (flexible spending, cafeteria plan, etc.). HRAs can only be contributed to by the employer, and contributions are not included as part of the employee’s taxable income. The IRS does not put limitations on HRAs so there are not limits on the deductible or the employee expenses, and the employer has flexibility in how the plan terms are established.

Policies that are not eligible for reimbursement by employers

The three methods above are acceptable forms of reimbursements for employee health coverage, but there are policies and plans that do not meet IRS regulations. This means these would not qualify for a medical expense deduction cannot be tax-exempt reimbursements. These include hospitalization plans and policies that pay a flat amount for hospitalization or falling ill. Life insurance is not included either. Finally, policies that pay wages of employees while they are ill or disabled are also not included.

As Beck and Company’s Certified Public Accountants and Business Advisors, we understand that you, as small business owners, want to do what you can for your employees and hope the information has helped you understand what you can and cannot do in terms of health coverage reimbursement. Our client accounting services are designed with you and your business in mind to help with the complexities and changes of health insurance and taxation policies. We want to help you understand and navigate through confusing rules and regulations so you can protect your business and still care for your employees and their health insurance needs. To learn more about our accounting services to help you in this process and many others, visit here.

Contact Beck and Company CPAs for further assistance and for us to help you answer any personalized or specific questions you have related to these health insurance reimbursement guidelines.

Small Businesses and Individual Health Insurance: What you Need to Know

It is unbelievable and hard to comprehend just how much has changed in the world of health insurance in the United States in such a short period of time. So much has transformed in just the last few months to a year alone, and keeping up with all of the changes and regulations can be daunting to say the least. As a small business, it is important to stay up-to-date on the latest regulations and policies to avoid penalties and stay compliant. At the same time, following it all can be confusing. Do you know and also truly understand the latest information and its implications for your business? Let’s take a closer look at current policies, future deadlines, and available options to help your small business be informed and make the best choices for your employees and their health insurance while remaining compliant with government rules.

Past Rules and Regulations, Upcoming Deadlines

On September 30, 2013, the Internal Revenue Service (IRS) issued rules prohibiting employers from paying for or reimbursing employee insurance premiums when they enroll in an individual health insurance plan. The fines for not being in compliance are steep. Employers who continue to pay for or reimburse insurance premiums face fines as great as $100 per employee per day. This adds up quickly!

There is good news, though, for those in small businesses of fewer than 50 employees. For these businesses, the IRS has provided a special transitional relief period by waiving penalties for this practice.  Unfortunately, the good news of this relief is followed by bad news related to a deadline for when this transitional relief period will run out. This deadline is coming up on July 1, 2015. After this date, there will no longer be a transitional relief for small employers seeking to provide reimbursement to employees for their personal health insurance plans.

Exploring Alternative Options that still Assist your Employees with Coverage

So, how do you, as small business owners, remedy the situation? There are other options besides reimbursement or paying for health insurance policies. One of these would be to increase employees’ pay overall and not connect this pay in any way to pay for health insurance. Another option, now that small businesses cannot be penalized for adverse medical history with higher premiums, is to establish a group health insurance plan instead of having employees find their own policy. With the new laws since 2014, a wider spectrum of products with more benefits and tax advantages are now available with group plans.

As Beck and Company’s Certified Public Accountants and Business Advisors, we realize just how much heart and effort goes into striving to do what you can for employees as a small business. We understand that this is true in terms of wanting to assist them with health insurance as well. It is important to know the regulations and abide by them while simultaneously doing what you can for your employees.  That is why we are here to help. Our client accounting services are designed with you and your business in mind. We want to help you understand and navigate through confusing rules and regulations so you can protect your business and still care for your employees and their health insurance needs. To learn more about our accounting services to help you in this process and many others, visit here.

Contact Beck and Company CPAs for further assistance to find out more about employee health insurance rules, regulations, and options for your specific business and its needs. Then, stay tuned next week as we explore your options for health insurance coverage for employees even further.

 

Achieving Your Small Business Budget Goals- Part 2: Setting Profit Goals

Last week, we took a look at why any small business needs a budget and how to create one. Whether your company has just put a budget in place for the first time or is just in need of an overall budget revamp based on lacking profits, the following guiding questions are for you. They will help you set and achieve those goals so you can get to a place of maintenance and revision for your important financial decisions. Once these goals are set in motion, you can focus on revising and responding to ever-changing financial happenings as they occur with the peace of mind knowing you have a budget and profit goals to keep you on track. Beck and Company Certified Public Accountants and Business Advisors have been helping small business owners just like you with this process for years. We want to help you set and achieve business goals, too. Please contact us for a free accounting consultation.

Now that you have a working budget with clear figures to work with, ask yourself some important questions that will help guide you as you make initial revisions. These will assist you with further decision-making conversations as a team to set goals.

Here are some example questions to get you started:

What is the desired overall profit? What sales will be needed to achieve these desired returns?

After an initial budgetary plan is in place and all of the financial figures are together in one spot, an increase in profit should be the first consideration you make when you think about the prospects for your small business and make tweaks. The first draft of a budget often uncovers problems and suggests choices that will need to be made. Working up additional budgets after the initial one using the answers to your guiding questions will help you determine a workable plan with future goals in sight. Think of it as a map that helps you stay on the right path. To truly achieve profit, be sure this map leads you to returns on your services/products AND a return on your investments while also factoring in expenses and taxes.

What fixed expenses will be necessary to support these sales?

Once you have decided on your targeted profit, you’ll need to make sure it can actually be achieved. To do this, you must project your fixed expenses. Regardless of sales, fixed expenses stay the same. These could include insurance, rent, property tax, wages paid to salaried employees, depreciation of equipment, interest on borrowed money, maintenance costs, and office expenses among other factors.

What variable expenses will be incurred in producing these sales?

Again, profit goals are not realistic without factoring in projected expenses including variable expenses. Unlike fixed expenses, variable expenses do vary with sales. These could include but are not limited to cost of labor, sales commissions, payroll taxes, insurance, advertising, marketing, and delivery expenses.

How do taxes factor into our overall budget?

Keep in mind that taxes have to be included to have a realistic outlook on expenses versus profits. As you set profit goals for upcoming years, keep in mind that the larger your goal means the larger the amount of funds needed to account for taxes. We can help you determine the tax amount to account for regarding taxes.

Now that you have considered all of these questions and the factors that figure into your overall small business budget, determine if you have a workable budget. Your overall expected income will tell you if you are able to achieve your profit goals. This is done by calculating the difference between sales and the total of fixed and variable expenses in addition to taxes. For further assistance with the many components that go into determining a budget that is realistic and allowing you to achieve your profit goals, contact Beck and Company CPAs.

Achieving Your Small Business Budget Goals- Part 1: Budget Creation

As we previously discussed, having an effective and yearlong budget that is consistently being reviewed and updated is essential for your small business. If your business is not at a maintenance stage in budgeting because you lack a budget, the following recommendations will help you get started. They will offer insight into understanding the rationale behind the process/need and will help with initial action steps in creating such documents. Beck and Company Certified Public Accountants and Business Advisors have extensive experience in helping small business owners just like you with these essential tasks. We offer free consultations to help you achieve your financial goals.

Budget: What is it and why do it?

Definition: Before getting started with the action steps, it is important to know why what you are about to do is important. A budget is a tool that helps you deal with the future and turn expectations into reality. It allows you to set goals and list the necessary steps to reach those. It helps you think about what you really want from your business in the future.

Purpose: By planning, your business is in a much better position to act in prevention of possible crises instead of react to actual crises that may have already done damage. Having a detailed plan with listed future receipts and expenditures creates a guiding framework of projected profit and loss. This can then be used after a designated period of time to compare actual results with anticipated goals. The resulting decisions from this data can lead your business to greater success. For example, if some of your expenses were higher than expected, look for ways to cut them. If you’ve fallen short of goals, you will need to look for ways to increase income.

Action Step #1: Start by Creating a Budget

If you have not already done so, starting with the creation of a budget is a vital first action step. Now that you know more about what it is and why your business needs one, working up this document will help you clearly determine whether or not your profit goals are within reach. It should be written down with a focus on determining what is essential and non-essential to your business. Be sure to set realistic parameters.

Not sure where to begin? There are two common methods you can choose from. You can start with a forecast of sales and work down. Conversely, you can start with a forecast of profits and work up. The latter is more common. In this method, you should decide what profit you want to make and then list the expenses that will be incurred to reach that predetermined profit. For more tips and further details from Beck and Company CPAs on this initial process, visit here.

Action Step #2: Determine if Your Present Profit is Sufficient

Before being able to truly use your newly created budget effectively, you have to be sure that your current profit is what it should be. At the end of the year, it should be large enough to make a return on your investment and a return on your own work (pay you a salary). Do you actually make the same, if not more, than you could working for someone else doing the same thing? In addition, does this profit include a return on your investment into the company? That investment includes the money you put into the firm when you started it and the profit of prior years which you left in the firm (otherwise known as retained earnings). Don’t neglect the importance that taxes play into your overall totals so that you truly are making a profit.

Now that you know what you made last year through your newly created budget, you are ready to set goals for the future of your company. Stay tuned next week for a further look at setting and achieving these goals. Need more assistance before moving on to future profit goals? Beck and Company CPAs would be happy to help you. Please contact us.

Effective and Yearlong Small Business Budgeting

By this point in the year, it is likely that your small business budget for the year has been set and is simply filed away for now. Although it is often the case that budgets are not reviewed until the process of creating the one for next year begins, this can cause problems because businesses are not static so their budgets should not be either. Unexpected situations and cash flow issues can derail even the best of well-planned budgets. Instead of thinking about your budget as a task to complete before the start of each year, think of it as an ever-changing and dynamic document that carries serious weight for your business all the time. If your small business is not only in need of more consistent budget revisions but needs a budget overhaul, here are some suggestions for understanding what constitutes an effective business budget.

Do you need assistance in addressing and optimizing your specific business processes including budgeting? Beck and Company Certified Public Accountants and Business Advisors can help through our Client Accounting Services. In addition to the personalized consulting we provide, the following are some recommendations that can keep you on the track financially all year long.

Make Monthly Updates and Changes to your Budget

Are your expenses in line with projections or are there line items that need cut backs to stay on track financially? If you have trouble answering questions like this, it is probable that you need to review the budget more often. A monthly review and update of your budget allows unexpected situations to be resolved in a timely matter and will help you focus on real-time data not projected financials. Through a monthly review, you can make changes to your budget and see the impacts these have on income and profits. These changes can have a positive impact in a timelier manner. Use current business performance and expense information to inform immediate and future planning decisions. This does not mean that an annual budget review isn’t important, but it does mean that these monthly reviews can offer more insight into an annual review.

Expect the Unexpected- and Respond!

As changes are made within your own company, be in tune to what impacts these have overall. Be prepared to make adjustments especially when unexpected circumstances surface. Just as your company goes through various ebbs and flows, it is important to remember that your clients experience the same. Adjustments made to a client’s budget can impact yours and vice versa. Be prepared for reductions in revenue and reductions in how much a company does business with you. Be strategic in finding new business to make up for these losses while still considering how this could cost you in terms of marketing and hiring costs.

Consider Linking Incentives to Budget Performance

Are you having trouble or do you anticipate having trouble getting everyone on-board with a more active budget? In the process of concentrating on and interacting with the budget more often, consider tying incentives to this new practice. Set parameters when you plan annually for how performance and lowering/maintaining expenses will be tied to profit and how this impacts bonuses.

If these tips leave you with more questions than answers, it may be that you’re not quite in a place as a business to be developing techniques for maintaining and updating a financial plan. You may be more in need of creating a budget or transforming it to truly reach your profit increase goals. If this is you, be sure to stay tuned over the next couple of weeks as we dive in deeper to budgeting, increasing profits, and reaching financial goals for small businesses. In the meantime, contact us here at Beck and Company CPAs for assistance with your overall business process optimization.

Mid-Year Checklist for Small Business Financial Planning

Running a small business requires a lot of planning and effort. While many small businesses focus their attention on the year-end, it is just as important to revisit your company’s financial plan mid-year. Financial planning is an ongoing process for small business owners and taking action now can help you prepare for future success.

Keep the following checklist in mind as you prepare to go over your company’s financial plans this summer:

1. Meet with a tax consultant.

Many small businesses make the mistake of waiting until tax time to begin thinking about their taxes. By then, it is too late to take action and reduce your tax payments. By meeting with a tax consultant earlier in the year, you will have plenty of time to go over your company’s financials and discuss your best options. More importantly, you will still have time to act on your tax consultant’s suggestions for the year.

2. Assess your estimated tax payments for the year prior.

Now that you’ve hit the mid-way point for the year, it is time to assess your estimated tax payments for the rest of the year. Review your business’ year to date financial earnings and forecast your earnings for the rest of the year. Once you have totaled your small business’ estimated earnings for the year, assess your estimated tax payments to avoid any underpayment penalties. Make sure you adjust your final two estimated tax payments as needed.

3. Re-evaluate your business entity.

Mid-year is the perfect time to re-evaluate your small business entity. Many small businesses start out as partnerships or sole proprietorships only to transition to another entity further down the road. If your small business is not incorporated, you may want to consider incorporating it (as a C Corp, S Corp, or LLC) to possibly save money on taxes and protect your company from some financial risk. Some companies are formed with one entity target in mind and may need to reassess the entity for a different revenue level. Whatever your situation, make sure that you adjust your entity before it’s too late. Failure to adjust your entity due to revenue can be a costly error.

Make sure you discuss your situation with your tax consultant prior to making any decisions. He or she will guide you through the process, determine the right entity for your situation, and let you know when to change it.

4. Assess your company’s recordkeeping process.

In order to run effectively and efficiently, your business needs to keep up accurate records. If your business could use some help in the recordkeeping department, mid-year is the perfect time to assess your current processes and procedures. If you have not been keeping track of your business expenses, now is the perfect time to catch up. If your employees are struggling to accomplish certain administrative tasks, look for an alternative solution (such as outsourcing, investing in a technology solution to accomplish the job more effectively, or dedicating a set amount of time each week to that specific task).

It may seem like a lot of work now, but you will be grateful for the updated books come tax-time.

As you can see, there are plenty of tasks your small business can perform mid-year to get ready for tax-time. Plan for any equipment maintenance that needs to be done on equipment still under warranty. Re-evaluate your small business budget for the year and redistribute expenses as needed. Do everything you can to ensure that your company’s financials are in tip-top shape come tax-time. While it may seem like you just filed your return for this year,  it is never too early to start preparing for the next tax year.