Tuesday, August 28, 2012
Tuesday, August 28, 2012
There are new options for businesses looking to get start up funding. Most people are familiar with traditional funding methods. The owner commonly uses their own capital or perhaps mortgages their home to come up with the start up money. With the decline in home values and the more strict lending policies have made this more difficult.
Another method is to take out a small business loan. This is also more difficult in today's funding environment. Most banks have slowed down their lending to small businesses and start-ups. So banks are also a poor option for many small business owners.
For some start ups there is angel investors or venture capital firms. These provide funding for many technology start-ups. They provide the capital to get the business going in exchange for an equity stake in the company. Many offer management help to the company and its founders. This type of funding is popular with companies expecting rapid growth and have an exit strategy for the investors.
But there is another emerging funding option called crowdfunding. It is using the internet to garner a large number of small amounts. It may be as little as a few dollars. Websites like kickstarter will allow companies to offer products for pre-sale. They then use the money to develop and manufacture the product.
This new funding is allowed in the 2012 JOBS Act. The SEC allows portals to collect the funding with the exception of equity businesses. It is not entirely clear what record keeping or auditing will be required of the business's accountant. More will be determined after the SEC finishes offer requirements.
Thursday, August 23, 2012
Gerald M. Appeal CPA, of Cleveland, Ohio, has agreed to merge with Skoda Minotti, of Cleveland Ohio. They will join the tax planning and preparation department at Skoda Minotti to boost their tax business. Skoda Minotti had a revenue of $20.3 million last ear while Appel had revenues of under $1 million. Financial terms of the deal were not reached. Three of the five member will join the Skoda Minotti staff.
Skoda Minotti has acquired several firms this year including Core Information Management, Quantam Network Services, and PBnJ Solutions. They are also part of the BDO Seidman Alliance. Along with accounting and tax preparation they offer IT services from their Cleveland and Akron offices.
The acquisition market for accounting firms looks to be heating up as we head into the fall. There are also larger firms that have been getting together via mergers and acquisitions.
Thursday, August 16, 2012
House Republicans would like to look at tax reform if they maintain a majority in Congress. The goal is to create a simpler flatter tax code. They see the first step as setting up a simpler system for making reforms. They have introduced the idea in a bill titled the Pathway to Job Creation through a Simpler, Fairer Tax Code Act. The bill has been introduced by House Rules Committee Chairman David Dreier and House Ways and Means Committee Chairman Dave Camp. If passed the bill allows tax changes to be sped up. It also removes technical challenges that have delayed or killed many tax reform attempts.
If passed the Republicans would like to move on to their priorities of shrinking the number of tax brackets and the removal of the alternative means tax (AMT). They think they can have this done by the end of next summer according to their timeline.
Whatever your political persuasion it is hard to find someone who doesn't think there need to be tax reform. The exception might be us in the tax preparation community who always benefit from the complexity. The real question is what change is needed. Most economists agree that many of the deductions and credits that are in the tax code make very little sense. But it is political folly to suggest the removal of any of them.
It is my desire that this election season we can have honest debate on how we can move to manage the national debt. If the solution was easy it would already be solved. Both parties will need to rise up and work for a solution. In the end they are likely just going to kick the can down the road for another year waiting for the numbers to miraculously change.
Tuesday, August 14, 2012
The Wall Street Journal is reporting that there is an increased level of write offs for goodwill this year. There has already been multi-billion dollar write offs at Microsoft, Hewlett-Packard, and Boston Scientific. Other companies that might be facing a write down are Frontier Communications and Republic Services.
Goodwill is added to a companies books when the cost paid for an acquisition exceeds its book value. The is supposed to represent the value of the brands and trademarks of the company. If the acquisition is successful and the joint operations are successful this percentage drops. However, in most cases, the acquisition fails to meet the expectations and the goodwill is overvalued.
Accounting rules require a public company to review their goodwill account at least annually. In the case like Frontier Communications, Republic Services, NASDAQ, and Level 3 Communications where goodwill exceeds market value it is almost certain that write downs are forthcoming.
The write downs to goodwill show up as expenses on the companies P/L. Since it does not impact the cash flow of the company it is not significant to many investors. However, it does indicate that management has made some mistakes in respect to company acquisitions.
If you are thinking about an acquisition it is a good time to consult your CPA. They can perform an independent review of the target company and prevent overpaying. An independent review without the emotions involved with mergers and acquisitions is invaluable. This is even more so for business owners that might only do this one or two times in their career.
Thursday, August 9, 2012
Veerappa Moily, the Indian Minster for Corporate Affairs and Power, has announced that the country will adopt the International Financial Reporting Standards (IFRS). He said the standards will go into effect on April 1st, 2013. This change coincides with the plan to move to a direct tax code.
Originally the country had planned to move to IFRS in April of last year. So they are just two years past the original plan. The business community is happy with the announcement. They say that the standards are still in doubt since the US has not signed on yet.
It is unclear whether the US will make any announcement on the IFRS before the election. The SEC seem to want to leave the decision to the next administration. Along with the US, Japan has not announced a move to IFRS. Europe, along with Russia and Brazil have already moved to IFRS.
This might not have immediate impact on many small business accountants it might have an impact on the SEC. It gets harder to hold onto an accounting standard when you are the only one left doing so.
Tuesday, August 7, 2012
The Tax Adviser has an interesting article by Michael F. Lynch, David B. Casten, and David Beausejour about the tax consequences of moving from a C corporation. They propose many business look at converting this year for several tax reasons.
Small businesses have shied away from C corporations to avoid double taxation to the owners. In a nutshell; the company had to pay taxes on the revenue of the company. Then when the owners took salary or dividends they needed to pay taxes on their personal income. There are methods to reduce this though compensation packages but that does have its limits.
The most straight forward approach is to move to an S corporation. This only requires the company to elect to move to an S status. This only works for small and medium businesses as there is a limit of 100 shareholders for S corporations. There must also only be one class or shareholder. But if done this eliminates the problem of double taxation for the shareholders.
A more difficult option is to move from a c corporation to an LLC (limited liability corporation). The same size limits and class of stack apply as with an S corporation. An LLC is a popular election to provide the liability protections that come with a corporation but without the problems of double taxation. The problem with moving from a c corporation to an LLC requires that the company be liquidated to the shareholders. The shareholders then transfer the assets back to the LLC. This is taxable event when the company is liquidated.
So why do the authors think that 2012 is a good time? Two reasons might make this a good year. The first is that real estate values are still low to the taxes on the liquidation will be lower. The second is that tax rates are still at low levels that are likely to rise as congress tries to reduce the debt.
In the end the calculation is always the amount of taxes that shareholders will have to pay less the the taxes they anticipate saving over a chosen time period. A good small business accountant can guide you through what type of company will save the owners on taxes.
Thursday, August 2, 2012
If you have an airplane at your business then the IRS has issued a ruling that you may be interested in. The ruling covers the deduction of expenses for business aircraft used for entertainment. This clarifies the 2004 law that limited deductions for executives who used their company jets for entertaining over the business's cost. The final ruling follows the proposed ruling REG-147171-05 that came out in 2007.
The ruling now defines what is covered as “travel aboard a taxpayer-provided aircraft for entertainment purposes.” This does not cover travel about the aircraft for business purposes, attending charity events, or medical reasons.
Costs that can no longer be deducted are depreciation, hanger costs, pilots wages, and anything else not tied to a particular event. The direct costs of the flight are also not allowed. These are the fuel, landing fees, temporary storage, or travel costs for the pilots and flight crew.
The ruling defines two methods for allocating the costs to a flight. The first is a flight-by-flight method. To use this take the total costs for the year and then divide by the flight miles or flight hours for any individual flight. The costs can then be divided by the passengers. The second option is to use an occupied seat method. Multiply the seats filled by the flight hours and then divide in the total costs for the year.
Those covered by the ruling are officers and executives of the company. That is defined as managing partners, members of the partnership, of those with over 10% ownership or equity of the company.
If you need a business account to help you navigate the rulings and how they apply to your company then Accounting Aisle can connect with experts near you.
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