What we’re working on…

I was recently speaking with someone who was referred to our firm and he asked "what projects are you currently working on." Wow! What a great question. There's no better way to judge whether someone is what they say they are than to look at their actions. In our case we often say that we're different from the average accounting firm, but it is sometimes hard for clients to understand how anyone can put a different twist on CPA work. So here's a list of projects we have on the table this week.

• Land developer business plan: a client came to us several months ago with an idea to improve access to rental property investment. This week I have been working with him to layout the entity structure and key provisions that should be written into partnership operating agreements. We are also providing support and materials that will help the new venture explain the benefits of their program to potential partners, investors, land developers and builders.


• Controllership support: each month I sit down with the controller of one of our clients and we discuss broad financial issues that are affecting the business as well as specific balance sheet and income statement line items. As we tackle one area and get it under control we focus on the next major project. This month we added the development of a comprehensive income and balance sheet budget to the list of things we will work on in coming months.


• New owner consulting and support: we work with a lot of startup businesses as well as businesses that have just changed hands. In this case the owners purchased the business in late 2006 and there are a number of accounting and reporting issues that need to be cleaned up. Currently we are working with Paychex to departmentalize the payroll costs and get a better idea of how labor expenses impact revenue generating activities vs. overhead expenses. We have also been helping them understand monthly breakeven sales requirements and how to forecast seasonal trends.


• Lender liason: One of our clients has experienced tremendous growth after purchasing an existing business and needs to re-examine some of their loans. This week I spent some time on the phone with one lender explaining the intricacies of this client's business and reporting practices and outlining the exact improvements we've seen since addressing several distinct areas.


• Act as a referral source: Nothing makes us happier than being able to help a client get new business. Last night I had the pleasure of relating the experience I've had as a customer of one of our clients. The conversation went well and I hope they get the business.


• Tax prep:We continue to get the information in that allows us to complete 2006 tax returns currently on extension. At the same time we are using the information to update CRM databases with critical client numbers such as annual revenues, gross and net profit, etc. We also use this information to build tax provisions and estimates for the 2007 year so clients do not run into surprises in the last quarter.


• Cash forecasting: several clients use us to help them forecast cash positions for the upcoming year on a monthly basis. This work is a natural extension of our operations consulting since the obvious question is always "but how do I improve these numbers?"


• Accountability: tomorrow I will sit down with one of our business owners for a weekly meeting to discuss measures she is taking to turn the business around. These are intense engagements but they're also a lot of fun because you get to accomplish a lot in a short amount of time.
  

That's my list and some of our staff have been working on these items with me. Additionally, they are engaged in quickbooks training, monthly tax compliance and researching various tax and accounting matters at client's request. They do such a fantastic job that we sent them to the spa this morning for some pampering and then got together for a great lunch on the firm. Who says accountants don't have fun?

New Tax Laws for Small Business

Last week the President signed the Small Business and Work Opportunity Tax Act. Part of a package that provides money for troops and an increase in the minimum wage this law contains some provisions of interest to small business owners.

• Rise in the federal minimum wage to $7.25 per hour (up from 5.15).


• An increase in the 179 deduction for expensing business equipment purchases from $112,000 to $125,000. Additionally, businesses may purchase up to $500,000 of equipment and still qualify for the deduction (up from $450k).


• Married couples operating a jointly owned business previously had to file on Form 1065 as a partnership. The new law allows them to file as sole proprietors.


• The kiddie tax was expanded to include anyone under 19. They just can't leave this one alone. Last year it was raised from 14 to 18. Now, another increase. What's worse is that the new law allows the kiddie tax to be imposed on full time students until they reach age 24. This means that the child's unearned income (interest, dividends, etc) must be taxed at the parent's rate.

IMPORTANT! Corporate annual reports due May 1st

Corporate entities in Florida (corporations, LLC's, P.A.'s, PLLC's, etc) are required to file an annual report with the Florida Secretary of State to keep the entity active. This is a legal issue rather than a tax one but we like to remind our clients of the filing deadline because penalties for late filing are high. The entire filing can be handled online in a matter of minutes. You may wish to check with your attorney or registered agent as they often complete the filing as part of their annual fee.

To check to see if you or your attorney has already completed the filing visit the department of state's web site at http://www.sunbiz.org. Click on the "Online Searches and Document Images" link.

Next click on the "Corporations, Trademarks, Limited Partnerships, & Limited Liability Companies" link on the left side of the page.

Next click the "Name List" link at left and type in the name of your company. Select your company from the list. Scroll to the bottom of the page to the "Document Images" section and locate the most recent "ANNUAL REPORT" filed for the entity. If the annual report date is not in 2007 you most likely have not filed yet. To be sure you can look at the last annual report. If it doesn't read "2007" you need to file. If no annual report is listed under the document images section you need to file.

To file you need to scroll back up the page and locate your Document Number. It should be located beneath and to the left of the corporation's mailing address. Write this number down and go back to http://www.sunbiz.org.

Click on the button that says "Click here to file the 2007 Annual Report or Amended Annual Report!" Type in the document number of your corporation. Fill in the required fields and follow the instructions to file your report and pay the required fee.

IRS has lackluster return on investment when auditing corporations

Rick Telberg covers a recently released TRAC (Transactional Records Access Clearinghouse) report in his blog. Apparently IRS is spending more and more time on corporate audits that produce no tax changes. You can read Telberg's take here, or get the information straight from TRAC.

Qualified Dividends and Foreign Corporations

For the last several years shareholders of corporations have enjoyed reduced tax rates on dividends. Since May of 2003 dividends have been taxed at a maximum rate of 15% where they were formerly taxed at rates up to 38%. However, dividends must be 'qualified' in order to get the more favorable tax treatment. One area that often causes problems involves closely held foreign corporations owned by US residents. "Qualified" dividend status may not be conferred on distributions from these companies to their owners. Among the criteria for qualified status is the requirement that the dividends be paid from a US company or a qualified foreign corporation. A qualified foreign corporation is one that meets any of the following tests (from IRS Pub 550):

1. Incorporated in the US


2. Corporation is eligible for benefits of comprehensive income tax treaty


3. Corporation's stock is readily tradable on an established securities market in the US

The second qualification is the one most often used in the case of closely held foreign corporations. However, there are many countries with which the US does not have an income tax treaty satisfying these requirements. For instance, there is no South American country with an eligible treaty. Brazil is currently a very attractive market for agricultural expansion but investors should be aware of the fact that their cash distributions will in most cases be subject to ordinary income tax rates.