There are a lot of misunderstandings surrounding the availability and desirability of the cash receipts and disbursements method of accounting, typically referred to as the cash method. Though the accrual method is more commonly used, there are many benefits to the cash method that are well worth considering for small businesses.

Cash vs. Accrual Accounting

The primary difference between the cash method and accrual-based accounting lies in the timing of when sales and purchases are recorded in your accounts.  
  • Cash: revenues are recognized when cash is received and expenses when they are paid.
  • Accrual: revenues are recognized when they are earned and expenses when they are credited, regardless of when the money is actually received or paid.

Availability of the Cash Method

There are some instances, outlined in Sec. 448 and Sec. 1.446-1, which prohibit taxpayers from using the cash method or require them to use the accrual method. However, contrary to common misconceptions, the availability of the cash method is not limited by the presence of GAAP reporting requirements.

Advantages of the Cash Method for Small Businesses

  • The cash method is simple to implement and maintain, as there is no need to track receivables or payables. This cuts the amount of accounting expertise needed and can translate into administrative savings.
  • The cash method makes it easy for a business to see exactly how much money is actually at their disposal at any given time. Since transactions aren’t recorded until cash is received or paid, the business’s income isn’t taxed until it’s in the bank, ensuring that funds will be available for income tax payments.
  • The cash method can create long-term, permanent benefits by deferring income to a later period, which allows taxpayers to receive the time value of money for deferred tax payments.
To learn more about what accounting options would work best for your business, give us a call at (845) 342-5818.

It’s always a good idea to save for retirement, regardless of your taxpayer profile. How you save, however, is a bit more complicated. There’s no one-size-fits-all answer to the question: should you roll over to a Roth IRA? Whether or not you will benefit from such a conversion is dependent on a whole lot of factors. You’ll most likely benefit from converting to a Roth IRA if:
  • You won’t need to make withdrawals from the Roth IRA for 15-20 years
  • Your tax rates when you withdraw are no less than they were when the conversion happened
  • You can pay the tax due on the rollover with funds outside the IRA or qualified plan
  A conversion may have a negative effect on your taxes if:
  • You are receiving (or expect to receive) Social Security benefits, the taxability of which might change after a rollover (for better or worse)
  • Your income raises above a certain threshold after the rollover, thus limiting your eligibility for certain benefits such as child credits or the deduction for interest expenses on a loan for higher education
  • You are a higher-earning senior, for whom a Roth conversion may increase the monthly Medicare Part B and Part D premiums
  That being said, every situation is different. Someone in the first set of bullet points may be better off refraining from a rollover, while members of the second list might actually benefit. To get a better understanding of where you stand, give us a call at (845) 342-5818.  
Today, entrepreneurs have a lot on their plate, from managing employees, tracking inventory and cash flow, to let’s not forget — marketing. The last thing you need is a bump in the road to stop you in your tracks. A little pre-planning is just the trick to keep things moving along; and, most importantly, keep your employees and customers happy. Here are 4 must-know tips:
  • Get a SIMPLE Retirement Plan – If you have fewer than 100 employees and don’t have a qualified plan, set up a Saving Incentive Match Plan for Employees.
  • Set Up a Succession Plan – Don’t wait until it becomes too costly. Designate who you would want to take responsibility of management and ownership in the event of an illness.
  • Deduct Health Insurance Premiums – Self-employed? You may be eligible to deduct 100% of your medical insurance premiums for you and your family.
  • Compensation Subject to Self-Employment Taxes – Partners, sole proprietors, or managers in an LLC may be subject to self-employment taxes, so make sure you pay to avoid penalties.
Don’t go about managing your business finances alone. Give us a ring at (845) 342-5818 and we’ll be happy to answer any questions you may have so your business can keep on sailing.

They’re the dreaded words that no one wants to hear: “You owe on your taxes.” Not only can this derail your plans, but you may also be unprepared to pay. While you can’t escape forking over your hard earned cash to the IRS, there are steps you can take to avoid paying in the future. Here’s how to keep more money in your pocket and avoid a surprise tax bill.
  • Make sure that enough is being withheld from your paycheck and submit an updated W-4 if changes need to be made.
  • Check your deductibles. Claiming too much, or too little could be the culprit.
  • File on time to avoid late penalties. If you can’t get your taxes done on time, request an extension.
  • Double check your taxes and ensure everything is correct before submitting. A slight mistake will end up costing you money.
  • Kids move out, make upgrades to your home, or have extra income coming your way from stock sales? These small changes can add up.
Carefully managing your estimated tax payments can help you avoid having a hefty tax bill. We can take a look at your previous year’s taxes to see if more deductibles can be taken out, so you break even. Give us a call at (845) 342-5818 to schedule an appointment.
Anxiously awaiting your tax refund from Uncle Sam? We know how you feel. Receiving that check in the mail is like opening a gift on your birthday. Before you splurge on that new laptop or flat screen TV, hit pause and be practical. Make the most out of your hard earned refund with these helpful tips.  
  1. Pay off Debt – Credit cards, student loans, and mortgages – oh my! Why not reduce your monthly stress and catch up on bills that carry a high interest rate. Not only will it give you breathing room, but it will also prevent further damage to your credit report.
 
  1. Build an Emergency Fund – Life is unpredictable. That’s why it’s best to be prepared. One of the smartest financial decisions you can make is to save money for that unexpected rainy day. Having the ability to pay 3-6 months worth of living expenses is best.
 
  1. Save for Retirement – Contributing to your 401(K), IRA or purchasing a mutual fund are ways you can extend your net worth. Even though it may not be as fun as taking a vacation now, you’ll be glad you did, especially when you’re relaxing one day on that white sandy beach.
  Ready to put your refund to work? Make a list of what you plan to do with each dollar. Remember, the key is to save first, then only buy things that you truly need. Be smart about managing your money, and the return will be worth the wait.  

As a business owner, you’re subject to some taxes that are not withheld automatically through payroll deductions. In order to meet the IRS’s standards when the new tax year rolls around, you’ll need to calculate estimated business income taxes as well as self-employment tax. There are a few different ways you can do this. What You Should Know Before you begin, there are a few things you’ll need to figure out:
  • Your estimated business income for the tax year
  • Your estimated business expenses for the tax year
  • Your personal tax situation (income, deductions, credits, exemptions, etc.)
These can be determined based on income and expenses from the previous year, or by projecting current year-to-date income and expenses for the rest of the year. What You Can Do There are a few different options for calculating your estimated taxes based on this information:
  • Ask your tax preparer to run an estimate
  • Use the IRS estimated tax calculation worksheet on Form 1040-ES
  • To calculate self-employment taxes, use Schedule SE
Stay on top of your business taxes and you’ll save yourself and your business a lot of stress down the road! Remember, you can always talk to your tax preparer if you have questions or need more help calculating your estimated taxes for your business.
It’s generally understood that to have and invest in an IRA account is advantageous in more ways than one. Tax benefits are a major incentive; but what exactly do those benefits entail? Even if you’re already on an employee-sponsored retirement plan, setting up a self-directed IRA account provides a significant array of investment opportunities. Depending on your income, your annual contribution to your IRA can be as high as $5,500, or $6,500 if you’re aged 50 or older. Those annual contributions will continue to grow in investment income until you can begin withdrawing money from your IRA at the age of 59½.  
  • Immediate Effect: Annual Contribution Tax Deduction In some cases, these contributions can be tax-deductible, saving you hundreds of dollars on your federal income tax return. Plus, those IRA contributions also lower your adjusted gross income (AGI), which can consequently alter which tax bracket you fall into.
  • Over Time: Investment Earnings Tax Deferral Even if your income exceeds the contribution limits and your contribution is not tax-deductible in the year it’s made, you can still accumulate tax-deferred growth from it. Over time, this can significantly improve your return on investment.
  • Additional Savings: 401(k)s and Employer-Sponsored Plans If you have an employer-sponsored plan, you can still contribute that $5,500-$6,500 annually in addition to the funds you’re putting into your 401(k). On top of that, when you leave an employer, you can use your self-directed IRA account to roll your employer-sponsored plan into.
  • Withdrawal: Investment Income Up to Age 70½ When retirement comes around the corner, you still have some time left to milk your IRA for all it’s worth. Though you can make withdrawals as early as 59½, you have the option of waiting until the age of 70½ and continue to allow tax-deferred investment income to accumulate in your IRA.
  So regardless of your age or income, the tax benefits of opening an IRA account are yours for the taking.

Although dreaded at times, audits can be beneficial. An audit provides assurance that management has presented a ‘true and fair’ view of a company’s financial performance and position.   Being prepared for the annual audit will not only assist the auditors, but it will also give you insight on some areas where management may improve their processes. By working together, you and the auditors are more likely to discover ways to improve efficiency and minimize errors.  

What information will an auditor ask for?

  The owner or financial officer of the company should establish a list of agreed-upon items with the auditor, while ensuring the time frame is fair to the staff. Here are some things to think about ahead of time.  
  • Needs and audit procedures to be performed should be discussed with management.
  • Determine contact people for specific areas under audit and avoid any potential scheduling conflicts, such as vacations and holidays.
  • Establish an “auditor” file for agency correspondence and for copies of new or changed documents about fixed asset additions and disposals, debt agreements, leasing arrangements, lawsuits, complex transactions, technology modifications, and major customers and vendors.
  • Reconcile detail to general ledger account totals. For example,
    • reconcile all bank accounts
    • accounts receivable
    • accounts payable
    • equipment lists.
  • Request templates, copies of prior working papers, and clarification so you can prepare information in a format acceptable to the auditor.
  Deadlines should be set to discuss significant estimates used in the financial statements, such as allowance for uncollectible accounts, warranty reserves, and percentage of completion.  

What information will an auditor ask for?

The auditor may ask you to explain significant actual-to-budget and prior-year variances. Be prepared to discuss the results of the year based on your expectations going into the year.  

How should you communicate with the auditor during the audit?

Be open and honest. You may be asked about questionable accounting practices, fraud risk factors, and known deficiencies in accounting systems.   Alert the auditor to any outside consultants, regulatory agency inquiries, or future plans, and provide related reports and correspondence. These communications add value to the company and enhance the overall quality of business processes.  
Worried about saving the tens of thousands of dollars it takes to put a child through college? Consider these suggestions…
  1. Savings and 529 plans.
The single best way for you, the parent, to help pay for your child’s college is to simply save and pay for it directly. Parents who start a college fund when their children are infants are in a better position to pay for school. Start saving today and make it easier on your budget! You can start by setting up a 529 College Savings Plan. When saving in a 529 plan, the money inside will grow tax free, and can be withdrawn tax free for educational purposes.
  1. New benefits for veterans’ dependents.
If you are a veteran, spouse, or dependent of a veteran, a federal law that went into effect July 1, 2015, makes you eligible for in-state tuition everywhere in the country! According to the College Board, the average in-state tuition and fees in 2013-14 at public colleges was $8,893, compared with $22,203 for out-of-state tuition and fees. These are two very different sums of money, and everyone loves to save! See if you qualify for this benefit as soon as you can.
  1. Always fill out a FAFSA.
A FAFSA, or Free Application for Federal Student Aid, determines your family’s eligibility for federal grants and loans and also alerts you to benefits from state government, college financial aid offices, and many private scholarships. It is important for you and your child to sit and apply for as many grants and scholarships as possible.
  1. Apply for merit-based aid and scholarships.
If your child has the grades to support an application for merit-based aid, you should apply. It costs nothing but the time to write a short essay. Apply for as many scholarships as possible – even those that are small can add up to cover books or travel costs. Every penny counts when it comes to paying for a college education, and scholarships are a great source of funds.
  • Visit websites like Scholarships.com to help your student find
  1. Compare loans.
When looking at a possible loan, there are two very important aspects to ask about:
  • Interest rate
  • Repayment terms
Government-backed loans generally have lower interest rates and allow you to reduce your payments or stop paying for a little while, if necessary. If you have questions on 529 plans or financial planning for college expenses, give us a call. We’d be happy to sit with you to discuss your best options.
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Every person or business who sells taxable tangible personal property or taxable services (even if you make sales from your home) must register with the Tax Department before beginning business in New York.

Sales tax applies to retail sales of certain tangible personal property and services. Use tax applies if you buy tangible personal property and services outside the state and use it within New York State.

Once you are registered for sales and use tax purposes, you must file Sales and Use Tax Returns. Let’s discuss the varying sales tax filing requirements.

Your sales and use tax return

Your Sales and Use Tax Return is a financial summary of your business activity. The following is a list of information you will be required to have handy In order to complete the form:

  • Gross sales
  • Nontaxable and exempt sales
  • Sales subject to tax (taxable sales)
  • Purchases or uses on which you are required to pay use tax
  • Credits you are claiming on the return

The form will help you calculate the amount of sales and use tax you should have collected and are required to pay.

How frequently you must file sales tax returns depends on the amount of your taxable sales (and purchases subject to use tax), or the amount of tax due. Even if your business did not make any taxable sales or purchases during the reporting period, you must file your sales and use tax return by the due date. 

Annual Returns

If your businesses will owe $3,000 or less in tax during an annual filing period, you can file on an annual basis. If you prefer to pay quarterly, however, you also have that option. Some small businesses prefer to make quarterly payments, as they find it easier to budget.

Annual Filing period: March 1 through February 28 (29 in a leap year).

Quarterly Returns

If you have not been notified that you are an annual filer, and your taxable receipts, purchases subject to use tax, rents, and amusement charges are less than $300,000 during the previous quarter, you should file quarterly returns.

Most businesses file quarterly when they first register to collect sales tax, since their typical annual sales and use tax payable has not yet been established.

Quarterly Filing periods: March 1 through May 31; June 1 through August 31; September 1 through November 30; and December 1 through February 28 (29 in a leap year).

Part-Quarterly Returns (monthly)

File a monthly return if the following totals $300,000 or more in a quarter, , or you are a distributor as defined under Article 12-A of the Tax Law and you have sold a total of 100,000 gallons or more of petroleum products (taxable or nontaxable):

  • taxable receipts
  • purchases subject to tax
  • rents
  • amusement charges
  • $300,000 or more in a quarter

When you make this switch, you should begin with the first month of the next sales tax period.

Prompt Tax

Generally, you will need to pay Prompt Tax if your annual sales and use tax liabilities are greater than $500,000. The tax due date is always three business days following the period end date for which you are reporting. The period end date is always day 22 of the current month.

E-file mandate

This Tax Department Mandate requires tax filers who have broadband internet access, can use a computer to prepare returns, and who don’t use a tax preparer, to:

  • File their sales tax returns via the web, and
  • Make the payments associated with those returns by electronic withdrawal from their bank accounts.

Please reach out to us if you need assistance with registering for Sales & Use Tax, or filing. We also have Quickbooks specialists who can assist you in inputting information properly and calculating your taxes each period.