Contractor Corner

It was a hot summer day in Florida and our A/C broke. While I have my favourite A/C guy – let’s call him Kevin – and two of his cell phone numbers plugged in my phone, I did not expect him to pick up. At the same time as I was speed-dialing his number, I was already impatiently googling “broken A/C tampa, FL” on my computer. I was also already preparing excuses as to why it was OK for me to abandon this guy who always did great work for me – just because I was sweating and wanted this problem to go away.

Whoever will answer the phone first and get to my house wins… right? In todays world where patience is measured by the speed of the internet – I am entitled to get things right away; or at least know when my A/C will be fixed. When you ask for answers these days, what you will usually get from the A/C guy will be, “Well, I just have to clone myself.”

It today’s ever-changing technology, the keys to making automation work for your business are to select suitable devices and software for your industry; while also seeing the opportunities that already exist and using them in new ways. Technology must help you get the job done efficiently. The bottom line is that technology has to work for you – not the other way around.

You are used to performing office-related tasks in the field on your mobile devices without going to your office. You are able to schedule the supply deliveries, equipment and contractors without ever setting a foot on the job site. The challenge is quickly finding “what is next.” What else can you automate and make work faster? What will give you that edge as the market is flooded with super expensive equipment… that you don’t have the money in the budget or storage space for. The answer: look back to your customer to find out what really matters to your business, solving the problems of ordinary people with a broken A/C.

I just want somebody to pick up the phone and tell me it will be OK and my A/C will be fixed tomorrow, and it will not cost me my arm and leg.

Kevin picked up on the first ring, and to my surprise just as my google search results were loading. He asked me if the second A/C was working, and if we were ok to sleep downstairs for one night. He explained that he would be over first thing in the morning. It felt as if about a thousand pounds was lifted off my shoulders, I closed my browser and the house suddenly also felt “cooler” just because I knew Kevin will take care of it. I felt special that Kevin picked up on a first ring. He is my superstar! Until the next A/C problem, that is.

No, he did not clone himself.

Kevin is in high demand, usually with a three week wait for installation, and he has his hands full all the time. So you are probably wondering, “How did he respond so quickly?” So did I. When Kevin arrived the next day, the answer was obvious right away. Kevin had a smart watch. Unlike most people who just get smartwatch to check Facebook and to look cool, he was able to see the true potential of this wonderful technology. He is a clever guy, and he also knows that not picking up the phone will make a difference whether or not he will get the job, and hiring an additional “receptionist/organizer” is not in his budget. Now no matter where he is he can simply answer his phone through a voice command on his smart watch and talk to an irritable, sweaty, impatient, and entitled person like me. When the phone rang he was actually in a dark and hot crawlspace pulling ductwork under a house.

Kevin was able to solve a problem with existing technology solutions, and that is making a whole lot of difference to his customers.

One of the most important questions you face when changing job is what to do with the money in your 401(k). Making the wrong move could cost you thousands of dollars or more in taxes and lower returns.

Let’s say you put in five years at your current job. For most of those years, you’ve had the company take a set percentage of your pre-tax salary and put it into your 401(k) plan.

Now that you’re leaving, what should you do? The first rule of thumb is to leave it alone because you have 60 days to decide whether to roll it over or leave it in the account.

Resist the temptation to cash out. The worst thing an employee can do when leaving a job is to withdraw the money from their 401(k) plans and put it in his or her bank account. Here’s why:

If you decide to have your distribution paid to you, the plan administrator will withhold 20 percent of your total for federal income taxes, so if you had $100,000 in your account and you wanted to cash it out, you’re already down to $80,000.

Furthermore, if you’re younger than 59 1/2, you’ll face a 10 percent penalty for early withdrawal come tax time. Now you’re down another 10 percent from the original amount of $100,000 to $70,000.

Also, because distributions are taxed as ordinary income, at the end of the year, you’ll have to pay the difference between your tax bracket and the 20 percent already taken out. For example, if you’re in the 33 percent tax bracket, you’ll still owe 13 percent, or $13,000. This lowers the amount of your cash distribution to $57,000.

But that’s not all. You might also have to pay state and local taxes. Between taxes and penalties, you could end up with little over half of what you had saved up, short-changing your retirement savings significantly.

What are the Alternatives?

If your new job offers a retirement plan, then the easiest course of action is to roll your account into the new plan before the 60-day period ends. Referred to as a “rollover” it is relatively painless to do. The 401(k) plan administrator at your previous job should have all of the forms you need.

A word of caution: Many employers require that you work a minimum period of time (e.g. three months) before you can participate in a 401(k). If that is the case, one solution is to keep your money in your former employer’s 401(k) plan until the new one is available. Then you can roll it over into the new plan. Most plans let former employees leave their assets in the old plan for several months.

The best way to roll funds over from an old 401(k) plan to a new one is to use a direct transfer. With the direct transfer, you never receive a check, and you avoid all of the taxes and penalties mentioned above, and your savings will continue to grow tax-deferred until you retire.

60-Day Rollover Period

If you have your former employer make the distribution check out to you, the Internal Revenue Service considers this a cash distribution. The check you get will have 20 percent taken out automatically from your vested amount for federal income tax.

But don’t panic. You have 60 days to roll over the lump sum (including the 20 percent) to your new employer’s plan or into a rollover individual retirement account (IRA). Then you won’t owe the additional taxes or the 10 percent early withdrawal penalty.

Note: If you’re not happy with the fund choices your new employer offers, you might opt for a rollover IRA instead of your company’s plan. You can then choose from hundreds of funds and have more control over your money. But again, to avoid the withholding hassle, use direct rollovers.

Note: Prior to 2015, the IRS allowed a one-per-year limit on rollovers on an IRA-by-IRA basis; however, starting in 2015, the limit will apply to aggregating all of an individual’s IRAs, effectively treating them as if they were a single IRA for the purposes of applying the limit.

Leave It Alone

If your vested account balance in your 401(k) is more than $5,000, you can usually leave it with your former employer’s retirement plan. Your lump sum will keep growing tax-deferred until you retire.

However, if you can’t leave the money in your former employer’s 401(k) and your new job doesn’t have a 401(k), your best bet is a direct rollover into an IRA. The same applies if you’ve decided to go into business for yourself.

Once you turn 59 1/2, you can begin withdrawals from your 401(k) plan or IRA without penalty and your withdrawals are taxed as ordinary income.

You don’t have to start taking withdrawals from your 401(k) unless you retire after age 70 1/2. With an IRA you must begin a schedule of taxable withdrawals based on your life expectancy when you reach 70 1/2, whether you’re working or not.

Don’t hesitate to call if you have any questions about IRA rollovers.

I recently clicked on a great link to a blog post by Reid Hoffman, Ben Casnocha, and Chris Yen. The blog was titled “Your Company is Not Family.” The title was intriguing since you always hear from CEO’s, company owners and managers that their companies are “just like family.” The article makes some really good points about the difference between “family” and “team.”

  • In a real family, parents don’t fire their children for poor performance. Be careful, if you need to let someone go or institute layoffs. If you are telling your employees they are just like family, the emotional impact is hurt and betrayal.
  • In contrast to a family, teams have specific missions and goals. A sports team is a far better analogy to a company’s employees and management team.
  • Sport teams have a process of consistent identity to their teams and system of replacing poor performers with good performers.
  • Lastly, high performers of competitive teams are highly sought after by other teams.   As well, relationships are maintained with past team members to establish loyalty and trust for the long haul.

Original Blog Post by Reid Hoffman, Ben Casnocha and Chris Yeh 

When CEO’s describe their company as being “like family,” we think they mean well. They’re searching for a model that represents the kind of relationships they want to have with their employees—a lifetime relationship with a sense of belonging. But using the term family makes it easy for misunderstandings to arise.

In a real family, parents can’t fire their children. Try to imagine disowning your child for poor performance: “We’re sorry Susie, but your mom and I have decided you’re just not a good fit. Your table-setting effort has been deteriorating for the past 6 months, and your obsession with ponies just isn’t adding any value. We’re going to have to let you go. But don’t take it the wrong way; it’s just family.”

Unthinkable, right? But that’s essentially what happens when a CEO describes the company as a family, then institutes layoffs. Regardless of what the law says about at-will employment, those employees will feel hurt and betrayed—with real justification.

Consider another metaphor—one that Reed Hastings, the CEO of Netflix, introduced in a famous presentation on his company’s culture. Hastings stated, “We’re a team, not a family.” He went on to advise managers to ask themselves, “Which of my people, if they told me they were leaving for a similar job at a peer company, would I fight hard to keep at Netflix? The other people should get a generous severance now so we can open a slot to try to find a star for that role.

In contrast to a family, a professional sports team has a specific mission (to win games and championships), and its members come together to accomplish that mission. The composition of the team changes over time, either because a team member chooses to go to another team, or because the team’s management decides to cut or trade a team member. In this sense, a business is far more like a sports team than a family.

Consider what we can learn from the example of America’s winningest professional sports teams. In the National Football League, the New England Patriots have won three Superbowls since the turn of the century. Over the same time period, the San Antonio Spurs of the National Basketball Association have won three NBA championships (and a fourth in 1999), and the Boston Red Sox have won the World Series three times as well.

Each of these winning franchises has been able to build a consistent identity and a long-term relationship with its players—even though many of those players change from year to year.

An NFL team has 53 players on its roster. The only member of the current New England Patriots team that played on their first championship team is quarterback Tom Brady.

A Major League Baseball team has 25 players on its roster. The only member of the current Boston Red Sox team that played on the 2004 World Series champions is designated hitter David Ortiz.

The Spurs stand out for the stability and longevity of their player relationships, yet even their current 13-man roster only includes one player from their first championship in 1999: power forward Tim Duncan.

The reason these teams have been able to remain consistent winners despite high personnel turnover is that they have been able to combine a realistic view of the often-temporary nature of the employment relationship with a focus on shared goals and long-term personal relationships.

While a professional sports team doesn’t guarantee lifetime employment for its players—far from it–the employer-employee relationship still benefits when it follows the principles of trust, mutual investment, and mutual benefit. Teams win when their individual members trust each other enough to prioritize team success over individual glory. It is no coincidence that these teams are known for “The Patriot Way” or “The Spurs Way,” and that television broadcasters often praise them for “unselfish” play.

And paradoxically, winning as a team is the best way for individual team members to achieve success. The members of a winning team are highly sought after by other teams, both for the skills they demonstrate and for their ability to help a new team develop a winning culture. Both the Patriots and Spurs have supplied numerous other teams with veteran leaders and coaches. For example, five of the other 29 NBA teams have a former Spurs assistant as their head coach. Meanwhile, the New York Yankees’ habit of signing former Red Sox as free agents is so well known that it is now a common punchline among baseball writers.

Great sports teams also find ways to maintain their relationships with former players, even long after their departure or retirement. For example, Spurs alumni who are now working as television broadcasters still regularly have dinner with the team and its coaches, even though they might not have played with the team for over a decade. Do you think that current players, seeing that kind of loyalty, might want to play for the Spurs?

Of course, a professional sports team isn’t a perfect analogy to your business. It’s doubtful, for example, that you obtain the bulk of your employees by taking turns with your competitors as part of an organized talent draft. But a great sports franchise consistently brings together a disparate team to achieve a common goal despite the reality of staff turnover. That’s something all businesses should strive for.

https://blogs.hbr.org/2014/06/your-company-is-not-a-family/

In conclusion, the article made an owner or CEO of a company think about how they communicate and build relationships with their employees.

 

Tax planning is the process of looking at various tax options to determine when, whether, and how to conduct business and personal transactions to reduce or eliminate tax liability.

Many small business owners ignore tax planning. They don’t even think about their taxes until it’s time to meet with their accountants, but tax planning is an ongoing process and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses monthly and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you.

Although tax avoidance planning is legal, tax evasion – the reduction of tax through deceit, subterfuge, or concealment – is not. Frequently what sets tax evasion apart from tax avoidance is the IRS’s finding that there was fraudulent intent on the part of the business owner. The following are four of the areas the IRS examiners commonly focus on as pointing to possible fraud:

  1. Failure to report substantial amounts of income such as a shareholder’s failure to report dividends or a store owner’s failure to report a portion of the daily business receipts.
  2. Claims for fictitious or improper deductions on a return such as a sales representative’s substantial overstatement of travel expenses or a taxpayer’s claim of a large deduction for charitable contributions when no verification exists.
  3. Accounting irregularities such as a business’s failure to keep adequate records or a discrepancy between amounts reported on a corporation’s return and amounts reported on its financial statements.
  4. Improper allocation of income to a related taxpayer who is in a lower tax bracket such as where a corporation makes distributions to the controlling shareholder’s children.

Tax Planning Strategies

Countless tax planning strategies are available to small business owners. Some are aimed at the owner’s individual tax situation and some at the business itself, but regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:

  • Reducing the amount of taxable income
  • Lowering your tax rate
  • Controlling the time when the tax must be paid
  • Claiming any available tax credits
  • Controlling the effects of the Alternative Minimum Tax
  • Avoiding the most common tax planning mistakes

In order to plan effectively, you’ll need to estimate your personal and business income for the next few years. This is necessary because many tax planning strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels. You will want to avoid having the “right” tax plan made “wrong” by erroneous income projections. Once you know what your approximate income will be, you can take the next step: estimating your tax bracket.

The effort to come up with crystal-ball estimates may be difficult and by its very nature will be inexact. On the other hand, you should already be projecting your sales revenues, income, and cash flow for general business planning purposes. The better your estimates are, the better the odds that your tax planning efforts will succeed.

Maximizing Business Entertainment Expenses

Entertainment expenses are legitimate deductions that can lower your tax bill and save you money, provided you follow certain guidelines.

In order to qualify as a deduction, business must be discussed before, during, or after the meal and the surroundings must be conducive to a business discussion. For instance, a small, quiet restaurant would be an ideal location for a business dinner. A nightclub would not. Be careful of locations that include ongoing floor shows or other distracting events that inhibit business discussions. Prime distractions are theater locations, ski trips, golf courses, sports events, and hunting trips.

The IRS allows up to a 50 percent deduction on entertainment expenses, but you must keep good records and the business meal must be arranged with the purpose of conducting specific business. Bon appetite!

Important Business Automobile Deductions

If you use your car for business such as visiting clients or going to business meetings away from your regular workplace you may be able to take certain deductions for the cost of operating and maintaining your vehicle. You can deduct car expenses by taking either the standard mileage rate or using actual expenses.

The mileage reimbursement rates for 2015 are 57.5 cents per business mile (56 cents per mile in 2014), 14 cents per charitable mile (unchanged from 2014) and 23 cents for moving and medical miles (down from 23.5 cents per mile in 2014).

If you own two cars, another way to increase deductions is to include both cars in your deductions. This works because business miles driven is determined by business use. To figure business use, divide the business miles driven by the total miles driven. This strategy can result in significant deductions.

Whichever method you decide to use to take the deduction, always be sure to keep accurate records such as a mileage log and receipts. If you need assistance figuring out which method is best for your business, don’t hesitate to contact the office.

Increase Your Bottom Line When You Work At Home

The home office deduction is quite possibly one of the most difficult deductions ever to come around the block. Yet, there are so many tax advantages it becomes worth the navigational trouble. Here are a few common tips for home office deductions that can make tax season significantly less traumatic for those of you with a home office.

Try prominently displaying your home business phone number and address on business cards, have business guests sign a guest log book when they visit your office, deduct long-distance phone charges, keep a time and work activity log, retain receipts and paid invoices. Keeping these receipts makes it so much easier to determine percentages of deductions later on in the year.

Section 179 expensing for tax year 2015 allows you to immediately deduct, rather than depreciate over time, up to $25,000, with a cap of $200,000 (down from $500,000 and $2,000,000, respectively, in 2014) worth of qualified business property that you purchase during the year. The key word is “purchase”. Equipment can be new or used and includes certain software. All home office depreciable equipment meets the qualification.

Some deductions can be taken whether or not you qualify for the home office deduction itself. It’s never too early to meet with a tax professional to learn more about home office deductions. Call today to schedule a consultation.

The Customer Experience is the most critical process and strategy a contractor can implement in their business. Incorporating simple procedures, policies, and training will set your company apart. The Customer Experience Process starts with the owner of the company and becomes a culture that every employee embraces to make your customers Lifetime RAVING Fans!

The following steps are an example of how a Contractor Company could implement a process in their business to establish themselves as a Customer Focused company. There are many variations and we encourage to add your own company personality and special flair to set up company apart.

  1. Customer Calls a Company with a Request for an Estimate or Information– A courteous, confident, and informed person answers the company phone. A company representative is scheduled to visit the customer within 48 hours or based on customer’s schedule. If the request is for more information, capture the caller’s information for a callback the same day or immediately.
  2. Scheduled Estimate – Notify the customer via email/text the day before the confirmed appointment. Call two hours before the appointment. Include a picture of the person who will be arriving on the job in the email or the text.
  3. Job Assessment/Company Education – The company representative must have a professional appearance and arrive on time. They need to be trained with to ask the customer prepared questions. A package is delivered and reviewed with the potential customers with brochures focusing on unique sales proposition, testimonials and references, prepared document of how you work with the client to accomplish their goals.
  4. Presentation of Process – The representative should be trained on the company sales process and be able to show a graphic brochure to the potential customer on the project process.
  5. Presentation of Estimate – The key here is to supply the customer with Detail Detail Detail! – It is recommended that a company present an estimate on the visit… use an approach that allows for a range of pricing.
  6. Accept the Estimate – Be able to present the new customer a clear understanding of your payment schedule, change orders, exceptions, etc. Once the proposal is accepted, send a follow- up letter/card and email to thank the customer of the business and next steps. Include links to your website, Facebook, Google plus, Linked in, email, phone numbers, etc in the note. Ask the customer to join all social media sites and post a “Welcome” when they like or join your sites! Engage them early!
  7. Does Not Accept the Estimate – Move the Prospect to the Company Customer Email List

Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. It presents challenges to individuals, businesses, organizations and government agencies, including the IRS.

Learning that you are a victim of identity theft can be a stressful event and you may not be aware that someone has stolen your identity. In many cases, the IRS may be the first to let you know you’re a victim of ID theft after you try to file your taxes.

The IRS combats tax-related identity theft with a strategy of prevention, detection, and victim assistance. The IRS is making progress against this crime and it remains one of the agency’s highest priorities.

Here’s what you should know about identity theft:

1. Protect your Records. Do not carry your Social Security card or other documents with your SSN on them. Only provide your SSN if it’s necessary and you know the person requesting it. Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for Internet accounts.

2. Don’t Fall for Scams. The IRS will not call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Beware of threatening phone calls from someone claiming to be from the IRS. If you have no reason to believe you owe taxes, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484.

3. Report ID Theft to Law Enforcement. If your SSN was compromised and you think you may be the victim of tax-related ID theft, file a police report. You can also file a report with the Federal Trade Commission using the FTC Complaint Assistant. It’s also important to contact one of the three credit bureaus so they can place a freeze on your account.

4. Complete an IRS Form 14039 Identity Theft Affidavit. Once you’ve filed a police report, file an IRS Form 14039 Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by filing on paper.

5. Understand IRS Notices. Once the IRS verifies a taxpayer’s identity, the agency will mail a particular letter to the taxpayer. The notice says that the IRS is monitoring the taxpayer’s account. Some notices may contain a unique Identity Protection Personal Identification Number (IP PIN) for tax filing purposes.

6. IP PINs. If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, they will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. In 2014, the IRS launched an IP PIN Pilot program. The program offers residents of Florida, Georgia and Washington, D.C., the opportunity to apply for an IP PIN, due to high levels of tax-related identity theft there.

7. Data Breaches. If you learn about a data breach that may have compromised your personal information, keep in mind not every data breach results in identity theft. Further, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.

8. Report Suspicious Activity. If you suspect or know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.

9. Combating ID Theft. Over the past few years, nearly 2,000 people were convicted in connection with refund fraud related to identity theft. The average prison sentence for identity theft-related tax refund fraud grew to 43 months in 2014 from 38 months in 2013, with the longest sentence being 27 years. During 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft. Additionally, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed. So far this year, new fraud filters stopped about 3 million suspicious returns for review, an increase of more than 700,000 from the year before.

10. Service Options. Information about tax-related identity theft is available online. The IRS has a special section on IRS.gov devoted to identity theft and a phone number available for victims to obtain assistance.

In addition, if you have any questions about identity theft and your taxes, you can always call the office. Help is just a phone call away.