The New Tax Law: A Guide for Small Businesses

new tax law

The Tax Cuts and Job Act of 2017 is hotly contested for its drastic tax breaks for corporations and the top one percent of households. But it does offer small businesses a significant breather — at least until 2025. Here are a few things to ask your accountant as tax season approaches:

1. As a small-business owner, what is the most important tax cut I should know about in the new tax law?

The largest cut is a 20-percent deduction for pass-through income. This refers to business income that is reported as personal income by the small-business owner, rather than being taxed through a corporate tax structure.

new tax law If you’re a sole proprietor or an independent contractor providing labor services — such as a self-employed IT specialist, a pizza-shop owner, or a real estate investor — you are most likely eligible for this tax break, which means that you shave 20 percent off your earnings before paying taxes on the rest.

But there are limits on who can claim the pass-through deduction. If you’re an individual earning more than $157,500 or from a household that earns less than $315,000, the deduction is capped at either 50 percent of wages or 25 percent of wages, plus 2.5 percent of capital assets — whichever is greater.

2. How do I know if my business’s earnings qualify as pass-through income?

If your business is a partnership, an S corporation, or a limited liability company, you generally qualify for this deduction. Pass-through income simply means that company revenue passes to the owner, who is taxed at the appropriate individual tax rate. If you’re a company founder or partner, this perk should apply to you. Also note that categorizing your income as pass-through income allows you to pay a generally lower tax rate (29.6 percent) than on personal income tax, depending on your income bracket.

3. Should I consider incorporating to benefit from further tax breaks?

Some pass-through businesses might decide to become corporations to reduce their tax burden.

In a bid to increase global competitiveness, the new tax law slashes corporate taxes from 35 percent (one of the highest rates in the world) to 21 percent.

But unlike the other provisions for personal income taxes and pass-through income, which phase out on December 31, 2025, this provision is permanent.

That said, before you incorporate, consider issues like financial liability and changes to accounting methods. As a corporation, you’ll be required to use accrual accounting methods. With this process, expenses are recorded at the time they are incurred, rather than when they’re paid. This can complicate the process of tracking real cash flow because there is often a delay between when a business processes an order and when it receives payment. Unincorporated small businesses, on the other hand, tend to rely on cash accounting. With this method, outlays and earnings are recorded and taxed in the period they are collected or paid.

4. Are there any other tax breaks I should consider in the new tax law?

Yes — but only if you qualify. Does your small business export goods or services? Or does it conduct significant research and development to actively develop new products or processes? If you run a pharmaceutical company or are an education entrepreneur or a tech disruptor with the potential to become the next Uber, this could be your godsend. The new R&D tax credit, introduced in 2017, allows you to claim up to $250,000 per fiscal year.

First things first: You should work with an accountant to conduct an audit of your business’s R&D expenses. Your accountant will then file Form 6765, Credit for Increasing Research Activities, with your business’s annual income taxes. If eligible, you can expect a hefty credit. You can use this to reduce taxes on taxable income or payroll depending on your company’s profit or loss situation.

5. I conduct business overseas as well as domestically. How can I max out my tax breaks?

If you export goods or services or produce a widget that is included in a larger item that is exported (such as a component part for an electronic device sold overseas), know that foreign profits will be taxed at a lower rate. While this might galvanize multinationals to offshore their operations and headquarters, it’s an incentive to small businesses to expand internationally. Small and medium-size enterprises, or SMEs, accounted for 98 percent of U.S. exporters in 2013 and continue to be a linchpin of economic growth.

Still have questions about the new tax law? You can schedule an appointment with a financial expert at Fibrick today!

If you want a comprehensive list of revisions in the new tax law, Bloomberg has an excellent article.

 

This article was originally published on Centsai.com, a publication devoted to explain finance, accounting, taxes and more through storytelling and media. You can view the original piece here.

February 14th, 2018|Tax|0 Comments

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Realizing My American Dream: It’s Amazing What CPAs Can Do

By Ramona Cedeno, founder of Fibrick Financial Services 

I will forever say that accounting is the best profession in the world and I am grateful to be a part of it. Some will think I’m exaggerating, but I get up every morning looking forward to the next accounting puzzle I will solve that day.

Growing Up

I was born in what was at the time a lightly populated area of the Dominican Republic called Veron (although for many years I thought it was called Beron), a small community in the resort town of Punta Cana. We had no roads and few neighbors, so my childhood was full of pretend games with my three sisters; our favorite was “grocery shopping.” One of us owned the grocery store and the others played housewives who had to do the shopping. By the time I was 7 years old, other people had moved to the area, roads had been built, and the first resort had opened at the nearest beach. We still had no local electricity (the resort had its own generator), but we had a battery-operated, stick antenna television, which allowed us to watch the soap operas and cartoons from the Puerto Rican network.

Veron didn’t have a school either; I believe I attended school for the first time when I was almost 8, when the first single-room elementary school was opened. We all started in the first grade; luckily, I was able to move up to the second grade the next year. All through elementary school, I sat in the same classroom as kids from every other grade below me, hearing the lessons from grades I had completed previously.

Once I completed elementary school, I had to commute every day to the nearest town, La Otra Banda, to attend middle school. At the time, this seemed like going from New York City to Pennsylvania today. It was a big deal for a 14-year-old. When the time came to attend high school, I had to move out of my house to live with my aunt in the nearest city, Higuey. Although my parents would have been fine if I stopped at the fifth grade, I was determined to go all the way. While in high school, I also worked half days drafting property titles at the city hall.

After graduating high school, I moved to Santo Domingo, the capital of the Dominican Republic, to find a job. I found a woman who was looking to share her studio apartment with a roommate, then found a job within my first week in the city. Only then did I start looking at colleges; that’s a far cry from how it usually goes in the United States! Without even thinking about my future career, I asked my roommate what she did for a living and her answer was “I’m an accountant.” As she told me more about her profession, I felt that accounting was something I’d be good at; after all, my mom always told me I was good with money.

Coming to America and Becoming a CPA

Before I could sign up for college in Santo Domingo, my mom, my sisters, and I moved to New York City, thanks to my grandparents who had immigrated several years earlier. I attended Bronx Community College, where I first earned my associate’s degree, and then Baruch College, where I received a bachelor’s of science in accounting. After Baruch, I enrolled in a master’s program at Fairleigh Dickinson University; I thought it was time to mix it up a little, so I got my master’s in finance. I was also working full time (first as a billing clerk at Gensler architects, then as a finance manager at People en Español). During the last year of my MBA program, I joined Geller & Company and held different positions on their controllership team for one of their largest clients.

I had decided while attending Baruch that I did not want to work for one of the Big Four due to the very long hours required and the fact that I was expecting my first child. The birth of my son not long after I finished my bachelor’s put getting my CPA license on hold. After many years at Geller and having my second son, I felt something was missing from my career. I was not a CPA, and whenever I was around CPAs, I felt out of place. It had been almost 10 years since I graduated from Baruch, but I studied day and night with only one objective: to pass the exam. And I did.

Now that I had my CPA license, I wanted more. Geller is a great company, and I could have easily stayed there longer, but I was looking for that next move up the ladder. I decided to join a startup, and became the director of accounting and financial operations at Handy HQ, an online marketplace for home services (i.e., cleaning, repair, electrical, plumbing). The position only lasted a little over a year; I really admired the founders, but the work-life balance was off. I left Handy officially, but remained as a consultant for a short period. That gave me the idea for the next step in my career: starting my own business.

Starting My Own Company

With the encouragement and help of friends and family, I began brainstorming how to go into business for myself. “This won’t be hard for me,” I’d say, noting what a good CPA I was and how good I am with people and networking. It may sound cocky, but when I believe something, I believe it wholeheartedly.

During this time, I got a call from David Smooha of Business Solution Partners, who was the NetSuite implementation partner at Handy. He had heard about a CFO position that he thought would be a good fit for me. The company was looking for a NetSuite expert with an accounting background, which described me perfectly. I said I would speak with them, but only as a consultant—and just like that, I had my first client.

My company is FiBrick Financial Services, an accounting firm that provides consulting and outsourced accounting and finance services to startups and mid-size firms. For startups, we serve as their home-away-from-home controllership function. We run their full financial reporting processes, implement accounting systems and applications, and provide business coaching. I meet and speak with the founders of my startup clients on a regular basis, just to say hello or to follow up on a personal issue they were concerned about the last time we spoke. I like them to feel like they have a friend in me, someone who understands what they are going through. For midsize firms, we fill the need for expert input on complex transactions if they don’t have an in-house CPA, and we also provide temporary resources for special projects or during high–employee turnover phases.

I enjoy being a partner to my amazing startup clients, building accounting processes, and implementing accounting systems for them. I love technology and automation, and it’s fun to be able to speak about the systems side of accounting to tech startup founders and get their input. I also enjoy staying connected to mature midsize and large corporations in order to stay current on some of the complex accounting transactions that startups might not experience for a while.

Doing What I Love

Becoming a CPA gave me a sense of assurance that I don’t think I would have had otherwise. It still makes a difference in my career. I believe that a big part of being good at what you do is not only knowing how to do it, but also having the confidence that you can do it. That confidence sometimes comes with experience and education, but in the case of accounting, earning a CPA is like having a passport to confidence.

Running my own business while having a family has made my life busy, but I’m doing what I love to do and helping clients who love the fact that I love doing something they don’t. What better combination can I ask for?

This article was originally published in The CPA Journal.

February 12th, 2018|General|0 Comments

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Quick Tax Tips to Make the Best of the Tax Season

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Tax season is here again! For tax professionals like me, this is a happy season. For almost everyone else, it’s a time of year they wish should they could skip.  However, since no one has come up with a way to avoid life’s inevitabilities – taxes are one of them- let’s at least try to make the best of it. Here are my quick tips to take advantage of some of the tax perks available to you and to make the process of filing your tax return as painless as possible.

  • Don’t miss important deadlines: Individual and C Corporation income tax returns are due April 17th. Other entity tax structures have a deadline of March 15th, and if your company is incorporated in Delaware, you must file the Delaware franchise tax return by March 1st.

 

  • Get organized: There is still time to get your finances in order in time for your income tax return due date. If you didn’t use a software application to track your finances and receipts, you can still log those financial transaction that will impact your income tax return using Excel and scan your receipts to a cloud-based storage application for easy sharing with your tax professional. Don’t forget to include your charitable contributions!

 

  • List important live events: Believe it or not, more life-changing events impact our taxes than we think. Marriage, divorce, legal separations and having a baby are just a few on the list.  However, think about the not-so-obvious ones, like caring for your elderly parent, the death of a spouse or parent, relocating for work and buying or selling a home. Be sure to make your tax professional aware of these changes so that he or she can assess their impact on your taxes.

 

  • Schedule a call or meeting with your tax professional: This is especially important if you are using a new tax professional for your 2017 taxes.  The earlier he or she gets to know you, the more time you have to get to know each other and to exchange important information about your tax situation. Make sure to have with you a list of questions and other information you want to discuss during this meeting.

 

  • Set up a retirement plan: Subject to some limitations, you might qualify for a Roth or Traditional IRA retirement account and the good news is that you have until April 17th to open a new account and make contributions for the previous year. If you own a small business, you have until the filing of the business returns (including extensions) to set up and contribute to a SEP IRA.

 

  • Don’t forget to deduct: Your health insurance premiums if you are self-employed, and job searching expenses (subject to some limitations) if you were searching for a job in your field.

 

  • Don’t forget to claim: The lifetime learning credit if you took any courses to improve your post-secondary education.

As always, happy tax filing season!

February 4th, 2018|Tax|0 Comments

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“Entrepreneur Spotlight: Ramona Cedeno”

This month I had the pleasure of being featured in Baruch College’s Entrepreneur spotlight, speaking about my transition from the corporate world to the start up world. As a fellow alumni (go Bearcats!), I’m happy to share my story so far and hopefully inspire others to pursue their dreams.

Check out the article here.

November 19th, 2017|General|0 Comments

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Helpful Tips For The Upcoming Tax Season

tax season tips

Most of us approach taxes as something to put off thinking about until absolutely necessary. Most people want to lock up the part of their brain that deals with taxes until it needs to be brought out again next year. However, with a bit of forethought and preparation, you can make next year’s taxes go much more smoothly.

Fibrick Financial Services in NYC will work with you to guide you through with proper tax season tips to make the upcoming tax season as smooth as possible. They will also advise you on key accounting processes to complement their strategic financial and operational objectives.

October 27th, 2017|Uncategorized|0 Comments

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Webinar: What to Do When You Outgrow Your Accounting Software

If your business is experiencing rapid growth then you likely have been considering buying new accounting software. But where do you start? What are the best applications in the market for your business? Should you go cloud-based or on-premise? How can you get the best deal on the price? How long does it take to implement a new system? How can you make sure you don’t select the wrong application? What do you need to do after the new system is implemented to ensure it is used effectively?

Successfully navigating these questions is not easy but doing so is vital to the success of your business.

Please REGISTER HERE for an online ticket to receive a link to the webinar!

About ERP Advisors Group:

Based in Denver, ERP Advisors Group is an independent technology advisory firm. We help clients navigate the confusions of Accounting, Enterprise Resource Planning, and all other major enterprise software selections and implementations. We don’t get paid by vendors, our 100% focus is on ensuring your success with your enterprise software project.

About Shawn Windle:

Shawn is the Founder and Managing Principal of ERP Advisors Group based in Denver, Colorado. ERP Advisors Group (EAG) is one of the country’s top independent enterprise software advisory firms. Shawn advises mid to large size businesses on selecting and implementing business applications from Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Human Capital Management (HCM), Business Intelligence and other enterprise applications which equate to millions of dollars in software deals each year across many industries.

Prior to ERP Advisors, Shawn helped establish a successful technology practice with a top-50 accounting firm. There are only a few people in the world with the practical experience that Shawn has gained with helping hundreds of clients across many industries with selecting and implementing a wide variety of enterprise solutions.

About FiBrick Financial Services:

FiBrick is an accounting consulting practice based in New York. We provide accounting support in connection with accounting system implementations, monthly financial close, due diligence and contract-based accounting staffing.

August 2nd, 2017|Accounting|0 Comments

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Five Simple Steps to Creating a Personal Income Statement

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Don’t you love the idea of being able to go to a single document to quickly see where your money is going? I know you are probably thinking, “There’s no way I want to see how much money I’m spending, let alone see that my income does not cover my expenses!”  But trust me, preparing and analyzing your personal income statement at least once a month will give you visibility into expenses that are more wants than needs. It will also open your eyes to the fact that maybe this is not the right time to lease that nice car on your wish-list.

I began preparing my personal income statement when I was 19. Since then, I have played with multiple versions and although I’m not sure I have mastered the skill of staying within my personal budget, I sure know where my money goes and where it should not.

Here are my 5 quick and easy steps to preparing a personal income statement and use it effectively.

July 5th, 2017|General, Personal Finance|0 Comments

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What I Learned This Tax Season

thinking woman in glasses looking up with light idea bulb above head

As another tax season has come and gone, I thought it would be a good opportunity to pass along some general takeaways which may make next year’s tax experience more seamless, informative and less taxing (pardon the pun). Well, here it goes …

May 17th, 2017|Personal Finance, Tax|0 Comments

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8 Things Entrepreneurs Should Keep in Mind for Tax Season

Most entrepreneurs clinch at the sound of the word “taxes.” And it’s not simply out of a fear of paying large sums of money to Uncle Sam. It’s more because of the complexity – the multiple layers and branches of compliance associated with taxes. This is not true for everyone, but there might be some who would rather pay a little more in taxes in exchange for some relief from the burden of the paperwork, research, and unknown final results of filing tax reports.

But entrepreneurs need to come to grips with the fact that taxes are an inevitable part of being in business. The best antidote for the fear and dread associated with taxes is preparation. Planning, knowledge, and information help to reduce the anxiety about dealing with the mean IRS.

Of course, no one will ever know everything about taxes – industry trends, compliance issues, and even simple changes in government all lead to regular changes in the tax code. But knowing some basics about your tax situation and knowing where to turn to when your situation changes can help you confront the fear of what will happen if you receive bad news from the IRS.

Entrepreneurs can confront their fears and address their tax obligations through planning and preparation. Here are the basic steps every entrepreneur should consider:

April 5th, 2017|Tax|0 Comments

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Is Networking Dead?! – How to Hack the Process of Building Meaningful Connections

Is Networking Dead?! – How to Hack the Process of Building Meaningful Connections

“I hate networking… It’s so exhausting and generates no results.”

“I feel awkward talking to people I don’t even know how they can help me.”

“I can’t stand being at networking events where everyone is trying to sell me something.”

“I can’t help but think how fake & unauthentic the world of networking is.”

Have you ever felt like this before about networking? Do you want to steal the secrets from insanely successful master networkers? Then you are at the right place. Come & join us for our FREE panel discussion event at WeWork Grand Central location, focusing on the topics around effectively building a strong & meaningful network.

March 5th, 2017|Uncategorized|0 Comments

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