Receive Payments the Right Way in QuickBooks: Your Options

One of the reasons we like QuickBooks is because it uses language and processes that are familiar to small businesspeople. Instead of using the term “accounts receivable,” it has a menu label that says Customers and menu items that use phrases like Create Invoices and Receive Payments. You would have to go into the Chart of Accounts to find standard accounting terminology – and we do not recommend that you do that without consulting with us first.

Yet when you’re doing customer-related tasks, you’re following a traditional accounts receivable workflow, a series of steps that completes a sales cycle, like Estimate | Invoice | Payment | Deposit. QuickBooks keeps it simple for you and doesn’t often force you into unfamiliar territory.

One of the more pleasant elements of accounts receivable is the process of receiving customer payments. There’s more than one way to do this, and it’s very important that you use the correct way in each situation.

Payment Methods 

Before you record your first payment, you’ll need to make sure that QuickBooks is set up to accommodate its Payment Method. QuickBooks comes with some standard types, but you can add, edit, and delete your own options (though not those that are built in to the software). Open the Lists menu and click Customer & Vendor Profile Lists, then Payment Method List. This window will open:

You can work with Payment Method options in this window.

To use any of the commands in the Payment Method drop-down list, you’d highlight the method by clicking on it and opening the options list by clicking the down arrow in that field.

Note: When you add or change an existing entry, the window that opens contains fields for both Payment Method and Payment Type. They should be identical or at least very similar.

Settling an Invoice

If your company sends invoices, you’ll need to record their matching payments in the Customer Payment window. Click Customer | Receive Payments or the Receive Payments icon on the home page. There’s also a button for this in the toolbar in an open invoice. However you get there, here’s what it looks like:

You’ll record payments that customers send in response to invoices in this window.

Select a customer in the RECEIVED FROM field, and any outstanding invoices will appear in the table below. The CUSTOMER BALANCE appears in the upper right corner. Enter the PAYMENT AMOUNT and verify the date.

Click in the box for the correct payment method to the right. If it’s a check, enter the number in the CHECK # field. If you choose CREDIT DEBIT, you can enter the card details in the small window that opens. If you provided this information in the customer’s record and chose that as the PREFERRED PAYMENT METHOD, it should fill it in automatically.

Note: To set a PREFERRED PAYMENT METHOD, which will save time, open the customer record and click the small pencil icon in the upper right. Click Payment Settings and complete the fields in that window.

If the customer has paid less than the balance due, you can either LEAVE THIS AS AN UNDERPAYMENT or WRITE OFF THE EXTRA AMOUNT. Select one of those two options in the lower left and save your work when you’re done.

Instant Payments

You’ll use a different form when a customer gives you a payment in exchange for the goods or services you provided, without receiving an invoice. Click Customers | Enter Sales Receipts to open a window like this:

If a customer gives you a payment without receiving an invoice, you’ll provide them with a Sales Receipt.

You’ll complete this form much like you did the CUSTOMER PAYMENT window, except you won’t be applying the payment to an existing invoice.

Tip: If you have a merchant account or are willing to get one, you can record payments and email sales receipts at remote locations on your mobile device. We can walk you through the setup.

Receiving payments from customers is one of the easier tasks you’ll do as a QuickBooks user, but if you don’t use the software’s tools correctly, your books will be difficult to untangle. We can help ensure that you’re doing this element of your work right from the start; please contact us to schedule a consultation.

What Are the Differences Between an IRS Tax Lien and a Tax Levy?

If you’re reading this, the chances are high that you’re one of the many, many people who have received a notice from the Internal Revenue Service. Some level of correspondence with the IRS is natural ‒ particularly leading up to and in the immediate aftermath of tax season. But if you’ve received notification that the government is about to file a tax lien or tax levy against you, suddenly you’re talking about an entirely different ballgame.

But the most important thing you can do at this point is stay calm. Yes, both of these notices mean that your financial situation has just gotten significantly more complicated. But you do have rights in each scenario that you would do well to protect at all costs.

What Is an IRS Tax Lien?

An IRS tax lien is a very specific type of claim that the government (in this case, the Internal Revenue Service) makes on your property. That property can include but is not limited to real estate and other types of assets. Typically, this is something that occurs when you’re past due on your income taxes and you’ve failed to make proper arrangements to get yourself back up-to-date again.

A tax lien can affect you in a number of different ways, all of which are less than ideal. Even though tax liens no longer appear on your credit report, your credit rating will still suffer ‒ thus harming your ability to get a loan or secure new credit for your business. Tax liens also usually appear during title searches, which can impact your ability to sell your house or refinance the mortgage you already have.

What Is an IRS Tax Levy?

A tax lien is essentially the first part in a two-step process. That second step takes the form of a tax levy, which involves the actual seizure of the property in question in an effort to pay the tax money you owe. Via a tax levy, the IRS can do everything from garnish your wages, seize assets like real estate or even take control of your bank accounts to get their money.

At the very least, you’re likely to go through wage garnishment ‒ meaning that you’ll be taking home far less money at the end of the week in your paycheck. A 21-day hold might be placed on your bank account in an effort to encourage you to “work things out,” and if you don’t, they may even try to seize your home as a last resort.

Luckily, there are a few things that the IRS CAN’T seize even by way of a tax levy. These include things like unemployment benefits, certain pension benefits, disability payments, workers’ compensation and others.

What Can I Do About Them?

Thankfully, even in the unfortunate event of a lien or levy, you do still have some options available to you.

More than anything, if you CAN pay your tax bill, you SHOULD pay your tax bill. If necessary, get on an IRS payment plan to help you get back up-to-date. Yes, your past due balance will continue to accrue both interest and penalties until you’ve paid it off. But the choice between paying interest and losing your house isn’t really a choice at all.

It’s also important for you to actively work to protect your rights if you feel it necessary to do so. After receiving either a lien or a levy notice, you can always file an appeal with the IRS Office of Appeals if you feel you’re being treated unfairly. It is within your right to ask for a conference with the IRS agent’s manager so that your case can be reviewed by a fresh set of eyes. If nothing else, this is a great way to make sure that your side of the story is known.

You can also apply for a Withdrawal of the Notice of Federal Tax Lien, which will remove the public notice of a tax lien filing. If the IRS has notified you that any of your property is about to be seized, you can file something called a Certificate of Discharge. This will remove the property in question from the effects of the tax lien, allowing you to sell something like your home (or another asset) without worrying.

A seasoned Tarlow tax professional can assist with these challenges. Please call us with any questions and for assistance.

Tax Tips for IRA Owners

Article Highlights:

  • Early Withdrawals
  • Excess Contributions
  • Multiple Rollovers
  • No Traditional IRA Contributions in the Year Reaching age 70½
  • Failing to Take a Required Minimum Distribution (RMD)
  • Late Contributions
  • Switch the Type of IRA
  • Backdoor Roth IRA
  • Alimony as Compensation
  • Spousal IRA
  • Saver’s Credit
  • IRA-to-Charity Direct Transfers

There are both opportunities and pitfalls for IRA owners, and while you definitely don’t want to get caught up in a pitfall, you may want to take advantage of the opportunities. IRAs come in two varieties: the traditional and the Roth. The traditional generally provides a tax deduction for a contribution and tax-deferred accumulation, with distributions being taxable. On the other hand, there is no tax deduction for making a Roth contribution, but the distributions are tax-free.

It leaves taxpayers with a significant decision, with long-term consequences of whether to contribute to traditional or Roth IRA. If you can afford to make the contributions without a tax deduction, then the Roth IRA is probably the better choice in most circumstances. However, some high-income restrictions limit the deductibility of a traditional IRA and the ability to contribute to a Roth IRA.

Pitfalls – Here are some of the pitfalls that can be encountered with IRAs:

  • Early withdrawals – IRAs were designed by the government to be retirement resources, and to deter individuals from tapping these accounts before retirement they added what is called an early withdrawal penalty of 10% of the taxable amount of the IRA distribution. The penalty generally applies for distributions made before reaching age 59-½, but there are some exceptions to the penalty.
  • Excess contributions – The tax code sets the maximum amount that can be contributed to an IRA annually. Contributions in excess of those limits are subject to a nondeductible 6% excise tax penalty, and this penalty continues to apply each year until the over-contribution is corrected.
  • Multiple rollovers – A rollover is where you take possession of the IRA funds for a period of time (up to 60 days) and then redeposit the funds into the same or another IRA. Only one IRA rollover is allowed in a 12-month period and all IRAs are treated as one for purposes of this rule. If more than one rollover is made in a 12-month period, the additional distributions are treated as taxable distributions and the rollover is treated as an excess contribution, with both causing significant tax and penalties. Rollovers can be avoided by directly transferring assets between IRA trustees.
  • No Traditional IRA contributions in year reaching age 70½ – Individuals cannot make a Traditional IRA contribution in the year they reach the age 70½ or any year thereafter. This rule doesn’t apply to Roth IRAs. Contributions to a traditional IRA made in the year you turn 70½ (and for subsequent years) are treated as excess contributions and are subject to the nondeductible 6% excise tax penalty until corrected.
  • Failing to take a required minimum distribution (RMD) – Individuals who have traditional IRA accounts must begin taking RMDs in the year they turn 70½ and in each year thereafter. However, the distribution for the year when an individual reaches age 70½ can be delayed to the next year without penalty if the distribution is made by April 1 of the next year. Failing to take a distribution is subject to a penalty equal to 50% of the RMD. The IRS will generally waive the penalty for non-willful failures to take the RMD, provided the individual has a valid excuse and the under-distribution is corrected. The RMD rules don’t apply to Roth IRAs while the owner is alive.

Opportunities – Here are some of the opportunities that can be encountered with IRAs:

Late contributions – If you forgot to make an IRA contribution or just decided to do so for the prior year, the tax law allows you to make a retroactive contribution in the subsequent year, provided you do so before the unextended April filing due date. As an example, you can make an IRA contribution for 2018 through April 15, 2019. This is also a benefit for taxpayers who were not previously sure they could afford to make a contribution.

Switch the type of IRA – If you make an IRA contribution for a year, tax law allows you to switch the designation of that contribution from a traditional IRA to a Roth IRA, or vice versa, provided you do so before the unextended April filing due date.

Backdoor Roth IRA – Contributing to a Roth IRA is not allowed if the individual’s modified adjusted gross income (AGI) exceeds a specified amount based on filing status. For example, the limits for 2019 are $203,000 if filing a joint return, $10,000 if filing married separate, or $137,000 for all others. If a high-income taxpayer would like to contribute to a Roth IRA but cannot because of the income limitation, there is a work-around that will allow the high-income individual to fund a Roth IRA. Here is how that backdoor Roth IRA works:

  1. First, a contribution is made to a traditional IRA. For higher-income taxpayers who participate in an employer-sponsored retirement plan, a traditional IRA is allowed but is not deductible. Even if all or some portion is deductible, the contribution can be designated as not deductible.
  2. Then, since the law allows an individual to convert a traditional IRA to a Roth IRA without any income limitations, the non-deductible traditional IRA can be converted to a Roth IRA. Since the traditional IRA was non-deductible, the only tax related to the conversion would be on any appreciation in value of the traditional IRA before the conversion is completed.One potential pitfall to the backdoor Roth IRA is often overlooked by investment counselors and taxpayers alike that could result in an unexpected taxable event upon conversion. For distribution or conversion purposes, all of your IRAs (except Roth IRAs) are considered one account, and any distribution or converted amounts are deemed taken ratably from the deductible and non-deductible portions of the traditional IRA, and the portion that comes from the deductible contributions would be taxable. So, the conversion tax implications should be considered before employing the backdoor Roth strategy.

Alimony as compensation – In order to contribute to an IRA, an individual must receive “compensation.” For IRA purposes, compensation includes taxable alimony received. Thus, for purposes of determining IRA contribution and deduction limits, individuals who receive taxable alimony and separate maintenance payments may treat the alimony as compensation, for purposes of making either a traditional or a Roth contribution, allowing alimony recipients to save for their retirement.

Spousal IRA – One frequently overlooked tax benefit is the “spousal IRA.” Generally, IRA contributions are only allowed for taxpayers who have compensation (the term “compensation” includes wages, tips, bonuses, professional fees, commissions, taxable alimony received, and net income from self-employment). Spousal IRAs are the exception to that rule and allow a non-working or low-earning spouse to contribute to his or her own IRA, otherwise known as a spousal IRA, based upon his or her spouse’s compensation (as long as it is enough to support the contribution).

Saver’s credit – The saver’s credit, for low- to moderate-income taxpayers, helps offset part of the first $2,000 an individual voluntarily contributes to an IRA or other retirement plans. The saver’s credit is available in addition to any other tax savings resulting from contributing to an IRA or retirement plans. Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. The maximum saver’s credit is $1,000 ($2,000 for married couples if both spouses contribute to a plan). The application of this credit is very limited. Please call for additional details.

IRA-to-charity direct transfers – Individuals age 70½ or over must withdraw annual RMDs from their IRAs. These folks can take advantage of a tax provision allowing taxpayers to transfer up to $100,000 annually from their IRAs to qualified charities. This provision may provide significant tax benefits, especially if you would be making a large donation (although it also works for small amounts) to a charity anyway.

Here is how this provision, if utilized, plays out on a tax return:

(1) The IRA distribution is excluded from income;
(2) The distribution counts toward the taxpayer’s RMD for the year; and
(3) The distribution does NOT count as a charitable contribution.

At first glance, this may not appear to provide a tax benefit. However, by excluding the distribution, a taxpayer with itemized deductions will lower his or her AGI, which will help with other tax breaks (or punishments) that are pegged at AGI levels, such as medical expenses, passive losses, and taxable Social Security income. In addition, non-itemizers essentially receive the benefit of a charitable contribution to offset the IRA distribution.

Please call us for further details or to schedule an appointment to discuss IRA planning strategies that are customized to your unique circumstances.

Defer Gains with Qualified Opportunity Funds

If you have a large capital gain from the sale of a stock, asset, or business and would like to defer that gain with the possibility of excluding some of it from taxation, you may want to check out the new investment vehicle created by tax reform, called a qualified opportunity fund (QOF).

Congress, as a means of helping communities that have not recovered from the past decade’s economic downturn, included a provision in the Tax Cuts and Jobs Act intended to promote investments in certain economically distressed communities through QOFs. Investments in QOFs provide unique tax incentives that lawmakers designed to encourage taxpayers to participate in these funds.

Reinvesting Gains – Taxpayers who have a capital gain from selling or exchanging any non-QOF property to an unrelated party may elect to defer that gain if it is reinvested in a QOF within 180 days of the sale or exchange. Only one election may be made with respect to a given sale or exchange. If the taxpayer reinvests less than the full amount of the gain in the QOF, the remainder is taxable in the sale year, as usual. Only the gain need be reinvested in a QOF, not the entire proceeds from the sale. This is in sharp contrast to a 1031 exchange where the entire proceeds must be reinvested to defer the gain.

The gain income is deferred until the date when the QOF investment is sold or December 31, 2026, whichever is earlier. At that time, the taxpayer includes the lesser of the following amounts as taxable income:

a. The deferred gain or
b. The fair market value of the investment, as determined at the end of the deferral period, reduced by the taxpayer’s basis in the property. (Basis is explained below.)

A taxpayer who holds a QOF investment for 10 years or more before selling it can elect to permanently exclude the gain from the sale that is in excess of the originally deferred gain (i.e., the appreciation).

Qualified Opportunity Fund Basis – The basis of a QOF that is purchased with a deferred gain is $0 unless either of the following increases apply:

(a) If the investment is held for 5 years, the QOF’s basis increases from $0 to 10% of the deferred gain.

(b) If the investment is held for 7 years, the QOF’s basis increases from $0 to 15% of the deferred gain.

If, on December 31, 2026, a taxpayer holds a QOF that was purchased with deferred gains, the original deferred gain, or if less, the difference between the fair market value of the QOF reduced by the basis, must be included as gross income on that taxpayer’s 2026 return; the basis of the investment will then be increased by the amount of this included gain.

If the QOF investment is held for at least 10 years before being sold, the taxpayer can elect to increase the basis to the property’s fair market value. This adjustment means that the QOF’s appreciation is not taxable when it is sold.

Example 1: On June 30, 2018, Phil sold a rental apartment building for $3 million, resulting in a gain of $1 million. Within the statutory 180-day window, he invested that $1 million into a QOF and elected to defer the gain from the building’s sale. On July 1, 2026, he then sold the QOF for $1.5 million. Because Phil held the investment for over 7 years, its basis is enhanced by $150,000 (15% of $1 million). Because the investment’s fair market value is greater than the original deferred gain, he must include a taxable gain of $1.35 million ($1.5 million – $150,000) in his 2026 gross income. 

Example 2: The facts here are the same as in Example 1, except Phil waited to sell the QOF until 2030, meaning that he held it for nearly 12 years. On December 31, 2026, the fair market value of the QOF was $1 million. Because he had the investment on December 31, 2026, he was required to include $850,000 ($1 million – $150,000) of deferred gain on his 2026 return, the lesser of the $1 million gain he deferred or the FMV less his basis. He then increases his basis in the QOF from $0 to $850,000. After selling the QOF for $1.5 million in 2030, Phil elected to permanently exclude the gain by increasing his basis to $1.5 million (the fair market value on the date of the sale). Thus, he has no gain ($1.5 million – $1.5 million) in 2030.

Mixed Investments – If a taxpayer’s investment in a QOF consists of both deferred gains and additional investment funds, it is treated as two investments; this provides the tax benefits of both types: the temporary gain deferral and the permanent gain exclusion (which applies only to the deferred gain).

Qualified Opportunity Funds – To defer capital gains-related taxes through the recently enacted opportunity-zone program, taxpayers must invest in a QOF – an investment vehicle that is organized as a corporation or a partnership for the purpose of investing in properties within qualified opportunity zones. These investments cannot be in another QOF, and the properties must have been acquired after December 31, 2017. The fund must hold at least 90% of its assets in the qualified-opportunity-zone property, as determined by averaging the percentage held in the fund on the last days of the two 6-month periods of the fund’s tax year. Taxpayers may not invest directly in qualified opportunity zone property.

Partnerships – Because a QOF that is purchased with deferred capital gains has a basis of zero, taxpayers who invest in QOFs that are organized as partnerships may be limited to deducting the losses that these partnerships generate.

Qualified Opportunity Zones – A low-income census tract can be specifically designated as a qualified opportunity zone after a nomination from the governor of that community’s state or territory. Once the qualified opportunity zone nomination is received in writing, the U.S. Treasury Secretary can certify the community as a qualified opportunity zone. Once certified, zones retain this designation for 10 years.

If you have a capital gain or potential gain and would like to explore the tax ramifications for your particular situation of deferring the gain into a QOF, please call us.

How to Pay Your Federal Taxes

If you aren’t one of those lucky Americans who gets a tax refund from the IRS, you might be wondering how you go about paying your balance due. Here are some electronic and manual payment options that you can use to pay your federal income tax:

  • Electronic Funds Withdrawal – You can pay using funds from your bank account when your tax return is e-filed. There is no charge by the IRS for using this payment method, and payment can be arranged by your tax return preparer, allowing for e-filing of your return and submitting an electronic funds withdrawal request at the same time.
  • Direct Pay – You can schedule and make a payment directly from your checking or savings account using IRS Direct Pay. There is no fee for this service, and you will receive an e-mail notification when the funds have been withdrawn. Payments, including estimated tax payments, can be scheduled up to 30 days in advance. You can change or cancel the payment up to two business days before the scheduled payment date.
  • Electronic Federal Tax Payment System – This is a more sophisticated version of the IRS’s Direct Pay that allows not only federal income tax but also employment, estimated and excise tax payments to be made over the Internet or by phone from your bank account, with a robust authentication process to ensure the security of the site and your private information. This is a free service. Payments, which can be scheduled up to 365 days in advance, can be changed or cancelled up to two days prior to the scheduled payment date. You can use IRS Form 9783 to enroll in the system or enroll at EFTPS.gov – but do so well in advance of the date when a payment is due because the government will use U.S. mail to send you a personal identification number (PIN), which you will need to access your EFTPS account.
  • Send a Check – You can also pay the old-fashioned way by sending in a check along with a payment voucher. The payment voucher – IRS Form 1040-V – includes the information needed to associate your payment with your IRS account. IRS addresses for where to send the payment and your check are included with Form 1040-V.
  • Pay with Cash – Taxpayers without bank accounts or those who would just prefer to pay in cash can do so by making a cash payment at a participating 7-Eleven store. Taxpayers can do this at more than 7,000 locations nationwide. Taxpayers can visit IRS.gov/paywithcash for instructions on how to pay with cash. There is a very small charge for making a cash payment, and the maximum amount is $1,000 per payment. But don’t wait until the last minute, as it will take up to a week for the IRS to receive the cash payment.

The IRS also has a mobile app that allows taxpayers to pay with their mobile device. Anyone wishing to use a mobile device can access the IRS2Go app to pay with either Direct Pay or by debit or credit card. IRS2Go is the official mobile app of the IRS and is available for download from Google Play, the Apple App Store or the Amazon App Store.

If you are unable to pay the taxes that you owe, it is generally in your best interest to make other arrangements to obtain the funds needed to fully pay your taxes, so that you are not subjected to the government’s penalties and interest. Here are a few options to consider when you don’t have the funds to pay all of your tax liability.

  • Credit Card – Another option is to pay by credit card by using one of the service providers that works with the IRS. However, as the IRS will not pay the credit card discount fee, you will have to pay that fee. You will also have to pay the credit card interest on the payment.
  • Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement that will allow you to make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. In addition, interest will also be charged at the current rate, and you will have to pay a user fee to set up the payment plan. By signing up for this arrangement, you agree to keep all future years’ tax obligations current. If you do not make payments on time or if you have an outstanding past-due amount in a future year, you will be in default of the agreement, and the IRS will then have the option of taking enforcement actions to collect the entire amount you owe. If you are seeking an installment agreement exceeding $50,000, the IRS will need to validate your financial condition and your need for an installment agreement through the information you provide in the Collection Information Statement (in which you list your financial information). You may also pay down your balance to $50,000 or less to take advantage of the streamlined option.
  • Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because it jeopardizes your retirement and the distributions are generally taxable at the highest bracket, which adds more taxes to the existing problem. In addition, if you are under age 59.5, such a withdrawal is also subject to a 10% early-withdrawal penalty, which will compound the problem even further.
  • Family Loan – Although it may be uncomfortable to ask, obtaining a loan from a relative or friend is an option because this type of loan is generally the least costly, in terms of interest.

Whatever you decide, don’t just ignore your tax liability, as that is the worst thing you can do, and it can only make matters worse. Please call to discuss your payment options.

Checking the Status of Your Federal Tax Refund Is Easy

If your 2018 federal return has already been filed and you are due a refund, you can check the status of your refund online.

Where’s My Refund?” is an interactive tool on the IRS website at IRS.gov. Whether you have opted for direct deposit into one account, split your refund among several accounts, or asked the IRS to mail you a check, “Where’s My Refund?” will give you online access to your refund information nearly 24 hours a day, 7 days a week.

If you e-file, you can get refund information within 24 hours after the IRS has acknowledged receipt of your return. Generally, refunds for e-filed returns are issued within 21 days. If you file a paper return, your refund information will be available within four weeks. When checking the status of your refund, have your federal tax return handy. To access your personalized refund information, you must enter:

  • Your Social Security number (or Individual Taxpayer Identification Number);
  • Your filing status (single, married filing joint return, married filing separate return, head of household, or qualifying widow(er)); and
  • The exact refund amount shown on your tax return.

Once you have entered your personal information, one of several responses may come up, including the following:

  • Acknowledgement that your return has been received and is in processing.
  • The mailing date or direct-deposit date of your refund.
  • Notice that the IRS has been unable to deliver your refund because of an incorrect address. You can update your address online using the feature on “Where’s My Refund?”

The quickest refunds are via direct deposit. Allow additional time for checks to be processed through the mail.

When should you call the IRS if you don’t receive your refund? You should only call if it has been:

  • 21 days or more since your return was e-filed,
  • 6 weeks or more since you mailed your return, or
  • When “Where’s My Refund” tells you to contact the IRS

“Where’s My Refund?” also includes links to customized information based on your specific situation. The links will guide you through the steps to resolve any issues affecting your refund. If you have questions related to your refund, please call us.

The Major Reasons a Virtual CFO Can Help Your Business Thrive

On a basic level, a virtual CFO (or vCFO for short) is exactly what it sounds like. This is someone who performs all of the services normally associated with a chief financial officer, only in a third-party capacity. Instead of going to the trouble (and expense) of hiring, training and bringing someone with these qualifications into your organization, you’re getting access to someone who can handle all of this remotely on a schedule that works best for all involved.

This is a job that didn’t even exist as recently as a decade ago, but technology has advanced to the point where not only is it possible, but more businesses than ever are using on demand or part time CFOs to help their organizations soar in increasingly competitive marketplaces. This is true for a huge variety of different reasons, all of which are certainly worth exploring.

The Power of a Virtual CFO
The major reason why smaller organizations in particular are finding vCFOs so helpful is that they’re a viable way to control costs almost immediately. Rather than paying the salary to hire your own CFO in a full-time capacity (which can easily balloon into the hundreds of thousands of dollars per year once experience and benefits are accounted for), you get the services you need, in an on-demand way, for a fraction of the cost. To that end, a vCFO is really no different than managed services or similar options you may already be using.

This bleeds directly into the next major reason why vCFOs can be so beneficial: They can customize their own skills and services to better meet the needs of your unique organization. Rather than paying someone for a lifetime’s worth of education, you’re only paying for the skills needed to perform the tasks at hand. But even better, the services being offered can also be adjusted on a regular basis as your business continues to grow and evolve. All of this provides you with almost unprecedented access to a wealth of knowledge that used to be out of your budget.

Leveraging Someone Else’s Experience to Your Advantage
That expertise also creates a ripple effect across your enterprise in the best possible way. You’re bringing in someone who naturally has involvement in many different companies similar to your own. This means that you’re in a unique position to avoid making the same mistakes that they’ve previously made.

But maybe the biggest advantage that a virtual or gig-based CFO brings to a company has to do with the quality of the advice being offered. This is more than just an accounting setup. The focus goes beyond simply setting up a financial structure and putting a framework in place for you to effectively manage your books.

Consider the types of challenges that you’re likely to experience over the course of just five years. Your business will naturally get more complex as you add not only more employees but also suppliers, vendors and all the contracts that come with them. If you go through a period of rapid growth, it can quickly cause your financials to grow out of control … unless you’re prepared for it.

A straightforward accounting setup isn’t necessarily enough to offer that much-needed level of preparation, but a vCFO is. This is a professional who has arrived with the express purpose of putting the systems in place to not only better support the current phase of your business, but the next one as well.

Being Better Prepared for What Comes Next
In the end, a vCFO won’t just explain the finer details of your business’ financial situation. They’ll work with you to make sure you’re better informed about not only your current status, but the pros and cons of the options that are available to you in the future. That level of strategic advice — and the advanced decision-making made possible because of it — would be difficult to replicate through nearly any other means.

Armed with more actionable knowledge than ever, you’ll quickly find yourself in a better position to always make the right choice at exactly the right time moving forward. This, in turn, ensures that your business can maximize profitability as much as possible over the next few years, thus allowing you to run the type of organization you always dreamed you’d one day be a part of.

If you’re a large, national organization that can afford to bring on a full-time CFO, there really isn’t any reason NOT to do so. But for most other companies, using a vCFO isn’t just an effective way to fill the types of gaps that naturally exist in your skill set — it’s a way to help your business thrive for the next five, 10 or even 20 years in the most efficient and cost-effective way possible.

Start Off on the Right Foot for the 2019 Tax Year

Individuals and small businesses should consider various ways of starting off on the right foot for the 2019 tax year.

W-4 Updates – If you are employed, then your employer takes the information from your Internal Revenue Service (IRS) Form W-4 and applies it to the IRS’s withholding tables to determine the amount of income tax to withhold from your wages in each payroll period. This process did not work all that well in 2018 because, in the wake of the tax reform, the IRS did not have time to properly redesign Form W-4 and adjust its withholding tables. In fact, the IRS has announced that this task will not be completed until it issues the 2020 versions of Form W-4 and the withholding tables.

Thus, the problem from 2018 continues into 2019; if your 2018 refund or balance due was not the desired amount, then please consider adjusting your withholding based on your projected tax for 2019. If you need assistance, please call this office.

W-9 Collection – If you are operating a business, then you are required to issue a Form 1099-MISC to each service provider to which you have paid at least $600 during a given year. It is a good practice to collect a completed W-9 form from every service provider (even if you are paying less than $600), as you may use that provider again later in the year and may have difficulty getting a W-9 after the fact—especially from providers that do not plan to report all of their income for the year.

Estimated Tax Payments – If you are self-employed, then you prepay each year’s taxes in quarterly estimated payments by sending 1040-ES payment vouchers or making electronic payments. For the 2019 tax year, the first three payments are due on April 15, June 17, and September 16, 2019, and the final payment is due on January 15, 2020. Generally, these payments are based on the prior year’s taxable income; if you expect any significant changes in either income or deductions relative to the previous year, please contact this office for help in adjusting your payments accordingly.

Charitable Contributions – If you marginally itemize your deductions, then you can employ the bunching strategy, which involves taking the standard deduction one year but itemizing your deductions in the next. However, you must make this decision early in the year so that you can make two years’ worth of charitable contributions in the bunching year.

Required Minimum Distributions – Each year, if you are 70.5 or older, you must take a required minimum distribution from each of your retirement accounts or face a substantial penalty. By taking this distribution early in the year, you can ensure that you do not forget and accidentally subject yourself to penalties.

Gifting – If you are looking to reduce your estate-tax exposure or if you just want to give some money to family members, know that, each year, you can gift up to $15,000 to each of an unlimited number of beneficiaries without affecting the lifetime estate-tax exclusion amount or paying a gift tax.

Retirement-Plan Contributions – Review your retirement-plan contributions to determine whether you can afford to increase your contribution amounts and to make sure that you are taking full advantage of your employer’s contributions to the plan.

Beneficiaries – Marriages, divorces, births, deaths, and even family clashes all affect whom you include as a beneficiary. It is good practice to periodically review not just your will or trust but also your retirement plans, insurance policies, property holdings, and other investments to be sure that your beneficiary designations are up to date.

Reasonable Compensation – With the advent of the 20% pass-through deduction, which is available to most businesses other than C-corporations, the issue of reasonable compensation takes on a whole new meaning, particularly for S-corporations’ shareholders. This has been a contentious issue in the past, as it has allowed shareholders who are not just investors but who are actually working in the business to take a minimum salary (or no salary at all) so that all their income passes through the K-1 as investment income. This strategy allows such shareholders to avoid payroll taxes on income that should be treated as W-2 compensation. A number of issues factor into a discussion of reasonable compensation, including comparisons to others in similar businesses and to employees within the same business, as well as the cost of living in the business’s locale. This is a subjective amount, and it generally must be determined by a firm that specializes in making such determinations.

Business-Vehicle Mileage – Generally, vehicles with business use also have some amount of nondeductible personal use in a given year. It is always a good practice to record a vehicle’s mileage at the beginning and at the end of each year so as to determine its total mileage for that year. The total mileage figure is then used when prorating the personal- and business-use expenses related to that vehicle.

College-Tuition Plans – Contribute to your child’s Section 529 plan as soon as possible; the funds begin accumulating earnings as soon as they are in the account, which is important because the student will likely begin using that money at age 18 or 19.

Only a few of the tax-related actions that you take during a year will benefit yourself or others. The most important of these actions is keeping timely and accurate tax records; for businesses in particular, this is of the utmost importance. Those who have well-documented income and expense records generally come out on top when the IRS challenges them.

Please call us if you have any questions related to your taxes or if would like an appointment for tax projections or tax planning.

The Tax Filing Deadline Is Around the Corner

As a reminder to those who have not yet filed their 2018 tax returns, April 15 is the due date to either file a return (and pay the taxes owed) or file for an automatic six-month extension (and pay the an estimate of the taxes owed). Caution should be exercised when preparing the extension application, which is IRS Form 4868. Even though this form is described as “automatic,” the extension is automatically granted only if it includes a reasonable estimate of the 2018 tax liability and only if that anticipated liability is paid along with the extension voucher. It is not uncommon for taxpayers to enter zero as the estimated tax liability without figuring the actual estimated amount. These taxpayers risk the IRS classifying their forms as having been improperly completed, which in turn makes the extensions invalid. If you need an extension, please contact us so that we can prepare a valid extension for you.

The extension must be filed in a timely manner and we can file your extension electronically before the due date. If you are mailing an extension, be advised that the envelope with the extension form must only be postmarked on or before the April 15 due date. However, there are inherent risks associated with dropping an extension form in a mailbox; for instance, the envelope might not be postmarked in a timely fashion. Thus, those who have estimated tax due should mail their extension forms using registered or certified mail so as not to risk late-filing penalties.

In addition, the April 15 deadline also applies to the following:

  • Balance-Due Payments for the 2018 Tax Year – Be aware that Form 4868 is an extension to file, NOT an extension to pay. The IRS will assess late-payment penalties (with interest) on any balance due, even when the extension has been granted. Taxpayers who anticipate having a balance due need to estimate this amount and include payment for that balance, either along with the extension request (as indicated above) or electronically (through the IRS website).
  • Contributions to a Roth or Traditional IRA for the 2018 Tax Year – April 15 is the last day for 2018 contributions to either a Roth or a traditional IRA. Form 4868 does not provide an extension for making IRA contributions.
  • Individual Estimated Tax Payments for the First Quarter of 2019 – Taxpayers – especially those who have filed for extension – should be aware that the first installment of estimated taxes for the 2019 tax year is due on April 15. Taxpayers who fail to prepay the minimum (“safe-harbor”) amount can be subject to a penalty for the underpayment of the estimated tax. This penalty is based on the interest on the underpayment, which is calculated using the short-term federal rate plus 3 percentage points. The penalty is computed on a quarter-by-quarter basis, so even people who have prepaid the correct overall amount for the year may be subject to the penalty if the amounts are not paid proportionally or in a timely way. Federal tax law does provide ways to avoid the underpayment penalty. For instance, if the underpayment is less than $1,000 (referred to as the de minimis amount), no penalty is assessed. In addition, there are two safe-harbor prepayments:1. The first safe-harbor prepayment is based on the tax owed on the current year’s return. There is no penalty when the prepayments (including both withholding and estimated payments) equal or exceed 90% the owed amount.
    2. The second safe-harbor prepayment is based on the total tax amount (not including credits for prepayments) on the return for the immediately preceding tax year. This is generally set at 100% of the prior year’s tax liability. However, taxpayers with adjusted gross income exceeding $150,000 (or $75,000 for married taxpayers filing separately) must pay 110% of the prior year’s tax liability.
  • Individual Refund Claims for the 2015 Tax Year – The regular three-year statute of limitations expires for the 2015 tax return on April 15 of this year. Thus, no refund will be granted for a 2015 return (original or amended) that is filed after April 15. Taxpayers could risk missing out on the refundable Earned Income Tax Credit, the refundable American Opportunity Tax Credit for college tuition, and the refundable child credit for the 2015 tax year if they do not file before the statute of limitations ends. Caution: The statute does not apply to balances due for unfiled 2015 returns.

If your return is still pending because of missing information, please forward that information to us as quickly as possible so that we can ensure that your return meets the April 15 deadline. Keep in mind that the last week of tax season is very hectic, and your returns may not be completed in time if you wait until the last minute. If you know that the missing information will not be available before the April 15 deadline, then please let us know right away so that we can prepare an extension request (and 2019 estimated-tax vouchers, if needed).

If you have not yet completed your returns, please call us right away so that we can schedule an appointment and/or file an extension.