Posts Tagged "Amortization"

Your new life as a pass-through entity owner

Posted on Feb 7, 2018

If you are a small business owner, your planning probably got a lot trickier after the passage of the Tax Cuts and Jobs Act (TCJA). That’s because most small businesses have legal structures that are treated as pass-through entities for tax purposes, meaning they “pass-through” income to the owners or investors, which they record on their Form 1040 individual tax returns. These entities include S corporations, partnerships and sole proprietorships. On one hand, these kinds of businesses will benefit from the TCJA’s 20 percent reduction to the taxation of business income. On the other, the rules used to determine how much of that reduction each business gets are complex. Here are some tips to help find out where your business falls in the new structure: Know your business’s QBI QBI stands for “qualified business income,” which is generally your business net income other than income in the way of compensation. QBI is the basic figure you need to determine how much of the 20 percent reduction you get. It excludes business losses, as well as factoring in amortization and capitalized expenditures. QBI is determined separately for each business activity, not per taxpayer. The first simple threshold rule is: If your taxable income is less than $157,500 as an individual filer, or $315,000 as a married couple filing jointly, you can take the full 20 percent deduction from your QBI. If your taxable income is higher than those levels, several other factors come into play. Buckle up and hold on, here is where it gets complex: Know whether your profession matters Several “specified service professions” are treated differently under the new rules. The list includes health, law consulting, athletics, financial services, brokerage services, accounting firms or “any trade or business where the principal asset … is the reputation or skill of one or more of its employees or owners.” If your business is in one of these professional areas, the 20 percent reduction to your QBI starts to phase out to zero once your taxable income passes $157,500 as an individual filer or $315,000 as a married joint filer. The phaseout range before the reduction reaches zero is $50,000 for individual filers and $100,000 for married filers. The phaseout range also determines how much of the next factor matters: Know whether wage and capital limits matter Once you go above the threshold, special wage and capital limits start to reduce your deduction. The formula for calculating the wage and capital limits is based on the greater of 50 percent of the W-2 wages paid by your business, OR 25 percent of the W-2 wages, plus 2.5 percent of the unadjusted basis of all qualified property acquired by your business over the year. These wage and capital limits are phased in over the threshold and apply in full after passing the $50,000 range for individual filers or $100,000 for married filers. Bottom line: Get help As you can see, the 20 percent pass-through reduction can be a great benefit, but taking it can get complex very quickly. If you are a small business owner, don’t try to do it yourself. The new rules apply for the 2018 tax year, so after you’ve wrapped up 2017 taxes under the old rules, contact us for a consultation to determine how to position your business under the new laws. In the meantime, please be patient. The IRS has yet to publish guidance on the new rules. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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How to get slow-paying customers to pay up

Posted on Jul 27, 2012

You’ve done your part. The job is complete, your customer is satisfied — but a month has gone by, and your invoice is still outstanding. You’d like to work with the customer in the future. So how do you get your money without losing the customer? Here are two strategies that may help. 1. Communicate promptly. On the day after the due date, send an e-mail with your original invoice attached, or fax a copy. Then call to make sure the duplicate was received. While you’re talking, ask whether the customer has all necessary documentation, and find out why payment is delayed. If the customer is happy with your performance, mention that you won’t be able to complete new contracts until past invoices are cleared up. Request payment on a specific date. What if that date arrives but the money doesn’t? Drop by your customer’s business. Take a copy of the invoice and notes of previous conversations. Offer to wait while a check is processed. 2. Be willing to negotiate. When customers fall on hard times, you may still be able to find a solution that will work for both of you. Some options: * Ask for a portion of the outstanding balance. * Request that a specific invoice be paid immediately, with the remainder due at staggered intervals. * Establish a short-term payment schedule for a series of smaller checks. * Offer to convert the receivable into a formal note, with an amortization schedule and interest rate. Setting credit terms, limiting the amount of credit you’ll extend, checking ratings, and requiring down payments can prevent collection difficulties. If you’d like help establishing procedures for receivables management in your business, give us a...

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