Small Business Information For Your Review

When business is running normal, or in an upswing, it seems that "Sales Can Cure Everything". Well known Multi-Millionaire, Mark Cuban, is one of the strongest advocates of this philosophy.

However, this concept may be true for businesses that sell a product, or provide software on the internet; it has limited value in a small service businesses. Of course it is true, that sales will bring in more revenue, but it is not like just cranking up the manufacturing levels to meet the demand will help getting the employees to get the jobs done faster, or supplies needed to the job quicker. In fact at times the increase of Sales Revenue may just temporarily cover up the flaws that your business is having. Operating a service business is much more complex, and if there are factors in place limiting the revenue such as fewer accidents due to lock downs, the effect can be devastating to the cash flow of the business.

The richest man in the world currently is Jeff Bezos, founder and CEO of Amazon. He has made it very clear what is critical in keeping your business successful.

Most small business owners are good at the service they perform, but they simply often do not understand their financial statements, or take the time to really digest them to a level that allows them to navigate in both the good times as well as the not so good times.

This can be from just not taking the time to learn about how their financials work, but also is often because they do not have systems setup to provide them with timely, accurate information in a format that focuses on how the business is performing, rather than just for tax purposes.

In 99 out of 100 clients we have, and do work for, if the CPA or accountant has set up their "books", it will have almost zero value in analyzing your business performance, or provide the level of detail to determine where your business is doing well, or not. This is simply because their focus is on taxes, and they do not know your business key indicators.

In many industries there are third party management systems which assist in operating the business and they can also be setup to provide valuable financial insights in the Gross Profit areas of your business. Gross Profit Dollars for any small service related business is the key number to set companywide expectations for. Without enough Gross Profit Dollars, the business cannot survive.

Special Note: I did not say, Gross Profit Percentage. You cannot deposit a percentage into a bank, and you can't pay expenses with them either. Yes, you can use the percentage to monitor certain aspects, but the key is what they translate into cold hard cash.

Profit First is Critical

To get this type of real value with your financials, you must have them setup correctly in your management system as well as your accounting system. This is where we find many clients have missed the mark. The accounting setup does not provide the detail needed to see your business performance. This is where we have specialized for many years now.

Once this is done correctly, it is a matter of practice to perform the processes correctly to give you the detail and information necessary to run your business in a timely manner. Your financial reporting should be finalized by the first few days, no later than the 5th of the following month. Remember financial reports are history, so being able to get this information as close to the time it occurred is extremely important. Stale information is not what good business decisions are made with.

So to improve your business outlook for 2021 and beyond, get to know the details of your business better in a timely manner ... make a commitment to put Profit First and plan to make good business decisions on timely and solid information about your business.

Let us know if we can help you in any way to get this a priority for 2021...

Deducting Medical Insurance

Health insurance premiums, especially in the wake of the Affordable Care Act, have risen dramatically and are one of the greatest expenses that most individuals pay.

Although the cost of health insurance is allowed as part of an individual's medical deductions when itemizing deductions, only the amount of total medical expenses that exceeds 7.5% of the taxpayer's adjusted gross income (AGI) is deductible. The 7.5% limitation is increased to 10% for years after 2020.

The purpose of this article is twofold: first, to remind you what insurance can be included as a medical deduction; and second, to inform you of an alternate means of deducting health insurance for certain self-employed individuals-a means that avoids the AGI limitation and allows for deduction without itemizing.

Let's start by looking at what is treated as deductible health insurance. It includes the premiums you pay for coverage for yourself, your dependents, and your spouse, if applicable, for the following types of plans:

• Health care and hospitalization insurance
• Long-term care insurance (limited based on age)
• Medicare A in some circumstances*
• Medicare B
• Medicare C (aka Medicare Advantage plans)
• Medicare D
• Dental insurance
• Vision insurance
• Premiums paid through a healthcare marketplace net of the Premium Tax Credit

* Most workers, and any government employees who pay Medicare tax, have a portion of their wages deducted for contributions to Medicare A. This payroll tax isn't a deductible medical expense. However, those not covered under Social Security, and government employees who didn't pay Medicare tax, can voluntarily enroll in Medicare A. In that case, the Medicare A premiums are a medical expense.

Premiums paid on your or your family's behalf by your employer aren't deductible because their cost is not included in your wage income. Or, if you pay premiums for coverage under your employer's insurance plan through a "cafeteria" plan, those premiums aren't deductible either because they are paid with pre-tax dollars.

Special Rules - Self-Employed, Partnerships, and S-Corp Stockholders
If you are a self-employed individual, you can deduct 100% (no AGI reduction) of the premiums paid on behalf of yourself, your spouse, your dependents, and your children who were under age 27 at the end of the year without itemizing your deductions.

This above-the-line deduction is limited to your net profits from self-employment, less the deductible part of your SE tax and contributions to SEP, SIMPLE and qualified retirement plans.

No above-the-line deduction is permitted for any month when the self-employed individual is eligible to participate in a subsidized health plan maintained by an employer of the taxpayer, the taxpayer's spouse, any dependent, or any child of the taxpayer who has not attained age 27 as of the end of the tax year. The plan is considered to be subsidized when 50% or more of the premium is paid by the employer. This rule is applied separately to plans that provide coverage for long-term care services. Thus, if you are a self-employed individual eligible for employer subsidized health insurance, you may still be able to deduct long-term care insurance premiums as long as you aren't eligible for employer-subsidized long-term care insurance.

Partnerships:
If you are a partner who performs services in the capacity of a partner and the partnership pays health insurance premiums on your behalf, those premiums are treated as guaranteed payments that are deductible by the partnership and are includible in your gross income. In turn, you may deduct the cost of the premiums as an above-the-line deduction under the rules discussed in this article.

S-Corp Stockholders:
This above-the-line deduction is also available to more-than-2% S corporation shareholders. For purposes of income limitation, the shareholder's wages from the S corporation are treated as his or her earned income. This requires the medical insurance and other listed insurances included on the stockholder's W-2 forms. This is commonly done incorrectly by many of our clients, but can be setup automatically in QuickBooks Payroll as well as 3rd party payroll programs. If you have any questions related to setting this up properly or deducting health insurance premiums, whether as an itemized deduction or an above-the-line deduction for the listed other entities, please give this office a call.

We are almost at the end of the year, and the accelerated depreciation after this year may be a thing of the past ... so now would be a good time to look at what there is available to upgrade your systems.

The first big mistake many business owners make is to go with laptops instead of desktop computers for their normal daily operations. Yes, there are some situations to be mobile which may consider being a laptop, but this still is often a mistake.

Laptops are inherently more expensive than desktops, and native they have slower speeds, smaller memory, and small screens. Even with an additional monitor and/or docking station (more money) they are not a quick.

Another mistake made is the usage of wireless internet over wired ethernet. Wired ethernet can be 10 - 20 times faster than wireless, especially in an office environment. Some programs used on wireless can actually corrupt your data to the point it can not be used.

Again yes, there is a place for wireless, but not if wired is available.

Workstations Don't Have to Break the Bank

We have been putting together a fantastic deal on super compact, fast Dell Workstations. These units boot to login in less that 20 seconds, and are super fast quad core Intel processors with extra memory.

Better Viewing = Better Work Environment = Better Efficiency

We also have been putting in great dual monitors that make all the difference in the world when doing multiple tasks at once.

Don't Risk a Cataphoric Loss of Your Data
Today your data is almost priceless ... and many cloud based programs help with this by maintaining good backup protections.

However, you also probably have a combination of local software such as QuickBooks, images, and important documents that if they are not protected, they could be lost forever in the advent of a system crash, or worse ... be held for ransom but some security breach and the Ransomware Virus Attack.

For a number of years now, we have provided a Critical Backup Service that automatically backs up your critical data, images, and documents for protection and security. We use encrypted transfer to a highly secure Google Cloud Server, and store 7 days of file copies to stop Ransomware attacks in their tracks.

What is unique about this backup is that it is a full service. In other words, if you have an issue or need a file you have accidently lost, you just notify us and we will do the restoration for you at no additional charge.