Are You Ready? EMV Liability Shift Deadline Approaching

Are You Ready?

EMV Liability Shift Deadline is October 1, 2015

What does the EMV liability shift mean to your business?

A customer places an order or makes a purchase and pays you by credit card. You followed your current security procedures and ensured the card has been signed. Once you verified the signature was present you go ahead and swipe the card, get a signed receipt and wish the customer a good day. 

Uh oh, that card was stolen or counterfeit! Good thing the bank will accept the loss, and not your business. Right?

Wrong! As of October 1, 2015 your business could be held liable, and forced to assume the loss. 

How can you protect your business?

It is strongly advised that you contact your credit card processing merchant and work with them to develop an in depth plan for proper equipment, software, and  procedures. Below is only a short list of what you need to know. 

Card present transactions:

• Obtain a dual-interface terminal. Although a magnetic strip terminal will still be able to read these cards they do not offer the same level of security.
• Obtain verification for every transaction 
• Signature
• Online PIN
• Offline PIN 
• CVM (No signature required, for low risk and low value transactions)

Card not present transactions:

• Use software to verify the cardholders billing address
• Ask for the CVV2 code, a three digit number found on the back of the card
• Obtain an authorization 
• Use postal address validation services to verify identity

For more information visit the links below:

global-visa-card-not-present-merchant-guide-to-greater-fraud-control.pdf

visa-merchant-chip-acceptance-readiness-guide.pdf

mastercard.us/en-us/merchants/safety-security/security-recommendations.html

How I Used Riddles to Increase Moral and Promote Teamwork

Take a look around....

Is everyone working together?

Do they enjoy each others company?

Value the insights of their peers?

Do you see genuine smiles, and hear occasional laughter?

Here's a little story....

I was working at a designer bath/plumbing company as a receptionist. Yes I was the little guy on the totem pole, but I was also the person who had a front row seat to every thing. 

It was a busy company and every one was constantly on the go, especially the sales associates. At times things got intense in all departments, which were segregated. The complaints I heard over and over from all departments was "they just don't get it", "I wish they understood" and other various versions of that. Now "they" didn't mean the owner or manager necessarily, but more their actual co-workers from other departments. Everything one department did had a direct effect on the others. 

Being in the front row seat I was able to see that their co-workers did understand, but felt the same way themselves. As you can imagine this caused some friction, though everyone gave a fake smile through their own frustration. I saw the smile disappear, and the roll of the eyes after they turned away from each other. So that was problem 1 I'll call it. 

Problem 2 was I had no idea who the people upstairs in the office were. Okay I knew their names, job role, and who I was supposed to email with what. I didn't know anything about them though. Did we have shared interest, hobbies, etc? I'm a social butterfly, I like to know people. 

My simple solution.... Riddle of the Day!

That was it! I downloaded an app and sent a company wide e-mail every morning, including their other location. It wasn't the cure all to end all by any means, but I instantly saw my co-workers interacting more. They would team up with each other to brainstorm the answer, laugh at how annoyed they would get if they couldn't figure it out. Even the customers, and contractors got into it. They would stay and hang out a little longer brainstorming with our "team". My e-mail was constantly popping up with their guesses, and other little tidbits about them. People sharing, and laughing. Everyone was talking about the Riddle of the Day, even if they weren't into riddles! 

It was common ground, something everyone could share, from the owner to the guys hidden outback in the warehouse. There was no higher authority, no totem pole when it came to the riddle. Just a "team" collaborating together to reach the same goal. 

Obviously these riddles had nothing to do with the work we were doing, but it was a small escape on those busy stressful days. Solving the riddle very discreetly promoted teamwork, they didn't realize they were learning a lot about how each other thinks and approaches a problem. Sneaky sneaky!

Only now will my past co-workers know why I started the Riddle of the Day, and how much I enjoyed watching them come together to solve it. 

Your Top 4 Recordkeeping Questions Answered

1. Why Do I Need to Keep Records?

Record keeping is a must do for all businesses. Though some might find the process of recording, filing, and analyzing a bit tedious, I can assure you it is actually an imperative part of your business success. Keeping good records will allow you to do the following:

• Prepare accurate financial statements. Such as an Income Statement, and Balance Sheet. 
• Those statements allow you to analyse, and compare, how your business is doing, helping you make educated decisions. See "Financial Reports... Why You Need Them" for more information on what your financial statements can tell you.  
• Know the source(s) of your income (taxable and nontaxable), and your deductible expenses. 
• Track the basis of your assets for tax purposes. The basis is used to calculate your loss or gain, as well as calculate your deductions for depreciation, amortization, depletion, or casualty loss. 
• Prepare and file your tax return. You'll need the information contained in your records in order to accurately have your tax return prepared, and avoid fines and penalties. 
• Be prepared for an IRS inspection. At any time the IRS may ask you to explain any number of this reported on your tax return. By having the appropriate supporting records you will greatly speed up the exam process, and again avoid penalties and fines. 

    2. What Kinds of Records Do I Need to keep?

Though you may choose to keep your records the "old-fashion" way, I would advise using electronic accounting software. There are many options you can choose from, including cloud-based. Cloud-based software allows you to access your records from anywhere with an internet connection. Whichever system you use you will be required to keep records for:

• Gross receipts - or income received from your business. 
• These receipts need to show the amount and source received. 
• Purchases - items you buy for the purposes of reselling. 
• Think about what your business sells, and what you need to buy (purchase) in order to provide your customers with an item to buy. 
• Just like with your Gross receipts you are required to have records showing the amount and who you made these purchases from. 
• Expenses - Your expenses are different from purchases as they do not relate to your items. These documents are for costs associated with running your business, aside from purchases. For example: Utilities, Licensing, Legal Fees, etc.
• Travel, Meals and Entertainment, Gift Expenses - The documentation required for these expenses require you to prove why these expenses were incurred. For specific information please see IRS Publication 463.
• Assets - This includes fixtures, equipment, furniture, vehicles, computers, etc. that you own and are used within the your business. 
• The documentation for your assets must include:
• when and how you gained the asset 
• what you paid for the asset 
• any costs associated with improving the asset 
• any deductions you are taking for the asset 
• how the asset is used 
• and any information pertaining to the sale or loss of the asset 
•    Employment taxes - all employee records must be kept for a minimum of 4 years. For specific information please see IRS Publication 15, Circular E.

 3. How Long Do I Need to Keep Records For?

It is recommended that you keep copies of all tax returns you file throughout your life. They can help aid in the preparation of future returns and the information contained on them can be invaluable in certain situations. 

The IRS period of limitations that apply to income tax returns is as follows:

 4. What is the Burden of Proof?

The Burden of Proof is the responsibility you have to prove any information on your tax return. To successfully meet this burden you must keep the documents previously discussed in this post. 

Chances are you are not a bookkeeper, accountant, or tax expert, therefor if you wish to keep your records solely on your own you will need to do further reading, and keep current on your tax laws and requirements. Falling behind on your record keeping should be considered unacceptable, as good record keeping can increases the chances of business success. 

For more information see IRS Publication 583 Starting a Business and Keeping Records.

Understanding Entity Types

There are five different entity types a company can choose from. Each entity type has its own rules and regulations that must be followed. 

The information contained in this post is only an overview, to determine what type is best for your business you should consult your CPA. 

      Sole Proprietorship

The IRS defines a Sole Proprietorship as - A sole proprietor is someone who owns an unincorporated business by himself or herself. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation.

This means:

• You will report your income, and expenses on your individual tax return.
• You will be responsible for Self-employment Tax.
• I recommend making quarterly estimated tax payments. 

Partnership

The IRS defines a Partnership as - A 

partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.

A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.

Partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions.

This means:

• Each partner must report their share of the businesses income on his/her Income Tax Return. 
• Again making estimated tax payments is recommended. 

Corporation

In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.

The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.

This means:

• As said by choosing a Corporation structure you are opening yourself to a double tax. 

S Corp

S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

To qualify for S corporation status, the corporation must meet the following requirements:

• Be a domestic corporation
• Have only allowable shareholders
• including individuals, certain trusts, and estates and
• may not include partnerships, corporations or non-resident alien shareholders
• Have no more than 100 shareholders
• Have only one class of stock

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, and you should check with your state if you are interested in starting a Limited Liability Company.

Owners of an LLC are called members. Most states do not restrict ownership, and so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs, those having only one owner.

A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information. There are special rules for foreign LLCs.

Classifications

Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return (a “disregarded entity”). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. And an LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes), unless it files Form 8832 and affirmatively elects to be treated as a corporation.

Effective Date of Election

An LLC that does not want to accept its default federal tax classification, or that wishes to change its classification, uses Form 8832, Entity Classification Election, to elect how it will be classified for federal tax purposes. Generally, an election specifying an LLC’s classification cannot take effect more than 75 days prior to the date the election is filed, nor can it take effect later than 12 months after the date the election is filed. An LLC may be eligible for late election relief in certain circumstances. See Form 8832 General Instructions for more information.

Tax Time Doesn't Have To Be Stressful

How did Tax Time Go For You?

Now that April 15th has come and gone, ask yourself

"Could my return have gone better?"

If you can answer that question with an honest "NO", good for you! Unfortunately most, I fear, will answer "Yes". For those who are wishing their return had a different result, or was a much easier process, I invite you to ask yourself why you feel that way?

1) Did you prepare your return yourself?

2) Did your CPA, or tax professional have a difficult time with your tax records? Did those difficulties result in you filing an extension? Or paying a higher rate for your return?

3) Did you end up owing? Unexpectedly?

The most important question, WHAT ARE YOU GOING TO DO DIFFERENTLY FOR NEXT YEARS RETURN? Whether you are a business or an individual there are things you can do to make tax time less stressful, and limit surprises. 

1) Keep accurate, GAAP compliant records.

2) Know what your tax obligations are, throughout the year.

3) Ensure your with-holdings, or estimated payments are correct. 

That's a very basic list of what you need. 

Let's be honest, chances are you don't have the time or the knowledge to keep current with all that. Don't feel bad, of course you don't! You are busy running a business, or living your life. Focusing on the things you should be focused on! However, now you must take the time to think about, complete, or even learn these tasks. Boooo! I know. 

The most effective, simple, and yes cost effective solution is to hire someone to think about these things for you. Did you know having a year round professional could save you thousands! Yikes!

Don't run away now! Hiring a professional will benefit you, or your business in ways above and beyond tax season. A professional will be looking at your financials year round:

1) Helping you stay on track of financial obligations. Have you ever had a poor credit score, or know someone who has? It's not      pretty!

2) Keeps you current with tax obligations, so there is no surprises!

3) Increases your borrowing potential, due to accurate numbers that can be trusted. 

4) Can help you implement strategies to reach your goals. 

Now ask yourself "Do I want to deal with surprises, or be stressed again next year?". 

Financial Reports... Why you need them?

Your financial statements are a lot more than just another report.

 Let's look at what your Balance Sheet, and Income Statements can tell you!

First, you need to understand the difference

Both the Balance Sheet and Income Statements are vital reports for understanding your business. However, they each play a different role in that process.

Now, we'll get into more detail about what they can tell us

Take a look at this Balance Sheet

• The financial reports below are fictitious and do not represent any real company. 

And this Income Statement

Okay, so now what do we know?

Current Ratio = 2.5

This means that this company has enough Current Assets to pay off its Current Liabilities, in full, at least twice. This company has a good current ratio.  

Quick Ratio = 0.63

With this calculation we know that this company could NOT pay off its Current Liabilities using only the current cash and accounts receivables. This company will need to turn other Current Assets into cash before it can pay off all Current Liabilities at the time this report was run. 

Asset to Equity Ratio = 58%

This number tells us that 58% of this companies equity is from the owner, and 42% of the equity is from liabilities (debts). The health value of this number varies by industry, and is most helpful when used to compare to other points in time or to other businesses in the same industry. 

 Productivity Ratio = 18%

This is the rate of return on the total assets, or the return on the overall investment made in the business. This number is most useful when used to compare with previous statements. 

The same formula can also be used to find the effectiveness of each individual asset. 

Operations Ratio = 10%

The rule of the thumb is to have a percentage above 7%. 

This ratio defines a companies profit margin before interest and taxes are taken out. 

Expense Ratio (salaries expense) = 41%

This formula can be used on any expense item. It tells you what percent of sales any expense item is. I chose to demonstrate with the salaries expense and learned that 41% of  sales revenues was used to pay salaries. 

Inventory Turnover = 2 times per year 

This number defines the number of times inventory has been purchased and sold for the time period of this Income Statement. Generally inventory should turn over around 3 times per year at minimum. 

Average Age of Accounts Receivable = 266 Days 

Tells a business how many days, on average, their accounts receivable remains uncollected. Typically the accounts receivable should fall within 30 to 90 days, depending on your companies payment terms. 

As you can see this business should evaluate which customers are typically paying late. 

Do you know this much about your business? You should!

1099's... What are they? Who Needs Them?

Chances are you will be required to report payments on a 1099-MISC.

What you may not know is the who, what, when, where, and why? 

       The Who and What...

A form 1099-MISC must be given to any person you paid a minimum of $600 to for rent, services, prizes, awards, medical or health care payments, etc. This does not include employees whose reporting's appear on form W-2. 

For example: You pay a cleaning company to perform weekly cleaning task on company property. You must report all payments made to that company, during the given year, on a Form 1099-MISC.  

You must also report the following:

* A minimum of $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.

* Any fishing boat proceeds.

* Gross proceeds of $600 or more paid to an attorney.

The When and Why....

1099-MISC forms must be sent out around the same time you send out W-2 forms. The reason for this is, individuals and companies will need this documentation in order to properly file their Income Tax Returns. You will also need this information for your own tax records. 

It is extremely important to make sure this can properly be done. In order to do that, I would advise you submit, and demand the return of Form W-9, Request for Taxpayer Identification Number, before making any payments.  

Failure to obtain this request may result in you being held liable for applicable taxes. 

The Where...

Form 1099-MISC is structured similar to form W-2. Sections are clearly labeled/numbered, indicating what types of payments should be reported in each box. There is also boxes for any state taxes that may have been withheld. You will want to set up your accounting software to appropriately track these vendors, and amounts. 

For complete instructions please visit IRS.gov.