Business Tips

Many small businesses open business credit cards to help meet their capital needs. Roughly 67% of business owners have business credit cards, but less than half of them use them as their primary spending source. As a flexible line of credit, they’re easier to open than a line of credit and great to have “just in case.” Others may use them to consolidate debt.

But, as a business tool, they must be used effectively and responsibly.

Picking the Best Business Credit Card by Intended Use

The best business credit card for your business will depend both on how you intend to use it. 

One of the most common reasons small business owners apply for credit cards is to help with cash flow management. Even if your business is doing well it can be difficult to align cash flows. A bill comes due before a major customer has paid their invoice.

Access to revolving capital allows business owners to cover hiccups like these without impairing key business relationships. You’ll want a card with a decent grace period and perhaps no annual fee.

Another use is to help seasonal businesses manage seasonality better. If you own a business which needs to stock up for the holidays you’ll have to purchase inventory before you’ve made any sales. A lower interest rate, as you plan on carrying a balance, will be more important to you than perks.

Think about how you plan on using your card before applying for one.

Picking the Best Business Credit Card by Type of Business

Your industry and business type could steer you towards the type of card you need. While you should take into account interest rate and grace period, which is the amount of time you have to pay off a charge before it incurs interest, there is more to consider when you plan on using the card for business.

For example, if you owned a local boutique and needed to travel to industry trade shows on purchasing trips, a business credit card with travel rewards might be your best choice. You could purchase next season’s inventory on the card, thus earning points, and use those points for airline tickets to the next trade show.

Another business owner might never need to travel for business reasons and would find a travel rewards card to be worthless. If you owned a restaurant and your intent was to use the card to pay food vendors on Friday, then pay off those balances Monday with the weekend’s receipts, perhaps a cashback card could be good. The cashback you earned would essentially be a discount on inventory.

There is more to picking a business credit card than its interest rate. How it’s used, and the perks it offers, can positively impact your business.

Picking a Perks Program

If you do want a card with a perks program, plan on paying an annual fee. Credit card companies charge this fee to cover the costs of administering the program. Fees are typically around $100 but can go up to several hundred dollars if it’s a robust program.

Make sure that whatever perks you receive from the card will more than offset the fee before signing up. If you take out a Delta Amex, the fee is currently $95 a year. However, you’ll get one free checked bag on every Delta flight. If you travel a lot for work and Delta is the carrier you use the fee will be paid for in two flights. Plus, you’ll earn miles.

The perks should align with your business. Available programs will give you hotel points, airline miles, and cash back on purchases. Some offer discounts at associated retailers, too, and double points spending periods. Take some time to research the different options and find one that will give you the most bang for your swipe.

Using a Business Credit Card Properly

The interest on business credit cards ranges from 13.12% to 15.37%. If you have an excellent credit score, typically above 750, you could qualify for a lower interest rate. But, because of these interest rates, you want to carefully manage your card.

It would be a mistake to view a business credit card as permission to stop tracking cash flow and trying to match inflows with outflows. While you can charge an expense before money has come in, make sure that you use the associated revenues to immediately pay off the card. Whenever possible, try not to carry a balance.

If it does become necessary to carry a balance for a few months, make a plan to pay it off. Put extra payments into your budget. Make sure that expense is really affordable and you won’t have to pay it off for long.

Monitor the spending on your business credit card, and set up text alerts if balances go above a certain limit. As late fees can be quite expensive, set up automatic payments of your minimums. Paying late could also cause your interest rate to rise.

Check your monthly statements as part of monitoring your spending. While not incredibly common, people make mistakes. Perhaps a vendor double-charged a shipment or had agreed to a discount that they didn’t apply. You’ll want to dispute any inaccurate charges immediately.

Lastly, make sure that all spending on the business credit card is for business purposes. If you don’t keep good records, and if you mingle your spending, you could be disqualified from deducting the interest. And it will muddle the accounting of your business’s results.

Accounting for Credit Card Interest

Interest on business-related debt is tax deductible, which is a big perk of having a card dedicated to the business. But every expense on the card must be for a business purpose. If you charge something for personal use, the interest on that charge isn’t deductible.

Obviously, going through each statement line by line and pulling out personal charges would be a waste of time. Plus, if you were ever to be audited the IRS may try to disqualify some of the interest you deducted if there is any question about your card usage. 

Talk with your accounting and tax professional before claiming deductions, as not all expenses will be allowable business expenses. But if you follow the simple rule of keeping things separate, the interest on your business credit card should be allowable.

A business credit card can be a great asset to your business but perform due diligence before applying with the first offer that shows up in the mail.

Don’t Mix the Personal and the Business; Keeping Finances Separate

When you launched your business you might not have paid much attention to keeping your personal and business finances separate. If a vendor needed to be paid you grabbed the closest checkbook and wrote out a check, even if it was a personal account. It’s not a big deal since it’s all yours, right?

Wrong. Keeping personal and business finances separate is actually quite important. Here are the reasons why it matters, tips on keeping finances separate, and what to do if you’ve comingled funds in the past.   

Be Ready for Tax Season

If you use the same checking account to pay both personal bills, such as your mortgage, and business expenses such as rent, you’re making it harder on yourself come tax season. If your expenses are combined, you would have to go through each bank or credit card statement line by line to identify which expenses can be deducted and which were personal.

This also could raise some confusion about whether or not you’re operating a separate business which allows you to take deductions. The IRS will only let you claim a business loss for three years before classifying it as a hobby. If you’ve yet to break even and aren’t keeping separate accounts and records you’ll have a harder time arguing for business status with the IRS.

Keeping finances separate ensures that you don’t miss out on any tax deductions.

Saves you Time

Keeping your finances separate not only helps you be prepared for tax season, it saves you time. It will be easier to match receipts to bank statements to have support for your accountant, and preparing your taxes will take them less time.

Entering transactions into whatever accounting system you use and reconciling your bank accounts will also be a quick process. You won’t have to take the time to exclude certain charges or classify them as personal. If you use a business credit card, the interest is tax deductible. But if you’ve charged personal expenses to the card you’ll have to break out the interest.  

Builds Business Credit

One of the ways to build a business’s credit is to have business checking and savings accounts. There are many benefits to building business credit separate from your personal credit, particularly if you have poor personal credit.

The three main credit bureaus track a business’s credit based on your credit obligations, legal filings, and details on your company’s background. Similar to a personal score, details such as your credit utilization ratio, late payments, and balances are used to calculate your score. But because it’s separate from your personal information you could build a business credit score that’s higher than your own score.

Keeping accounts dedicated solely to your business, paying bills on time, and avoiding overdrafts, builds your business’s credit. A high business credit score can help you access capital when you might need it to grow your business and receive better interest rates on loans.

Track your Profitability

When you mix your finances it can become hard to track your business’ profitability. Just because there’s money left in the bank account at the end of month doesn’t mean that you’re making money, especially if you’re mixing finances. A side job, or a spouse’s job, could be keeping your business afloat. Or, cash flow timing could obscure business losses.

If you keep your finances separate, you’ll have a better grasp on your business’s profitability. Negative balances or overdrafts in the business account can help you identify cash flow issues. Preparing a profit and loss statement will take less time, or your accounting software could generate it automatically, if all the information needed is in the same place. 

If you pay yourself a salary from your business account, rather than just lump all income into one account and pay all expenses out of it, you’ll have a clearer picture of your business’s ability to support you as an employee. And it’ll force you to stick to a personal budget rather than just pulling cash from the business when needed.

Tips on How to Keep Finances Separate

The easiest way to keep finances separate is to have separate banking accounts and credit cards. Always use your business checking account to pay business-related expenses. Leave the checkbook at your office or in your desk so you’re not tempted to use it for personal expenses when out and about.  

When depositing payments from customers, always use your business checking account. This makes bookkeeping easier but also avoids giving the appearance to the IRS that you’re trying to hide funds. If you do need to withdraw funds for personal use, keep clear records of any transfers within accounts.

Should any employees have business credit cards or access to business accounts make sure that they, too, are educated on using them properly. Stress the importance of keeping receipts and, should they accidentally use the account for a personal use, of letting your bookkeeper know immediately. You could try supplying them with prepaid business debit cards, instead, but they will still need to keep receipts.

If it does become necessary to inject your business with personal funds, treat the deposit as a loan. Set up a payment plan to pay the money back to your personal account, and record it on the books as a business loan. Alternately, you can call it an owner’s equity investment. Try to avoid depositing personal funds into the business randomly.

Setting up a budget for your business will help you avoid needing to make random deposits into the business. Sticking to it aids with tracking income and expenses and avoids blurring the lines between the personal and professional. It also helps you track your net profits.

Taking the time to separate out your finances saves you from hassles down the road. Establishing clear bookkeeping practices and standards supports your business’s legitimacy in case of audit.

Fixing Past Mistakes

What if you haven’t been great about not mixing your personal and business finances? Plan on taking some time to clean things up.

Print out all bank and credit card statements and comb through them. Identify each transaction as either personal or business-related. Be careful around expenses that the IRS are known to scrutinize, such as; dining out, hotels and travel, entertainment, clothes and cosmetics, and any personal rent or car payments.

Classify all transactions correctly and break them out for your accountant. There are numerous ways to handle the personal expenses you put through the business. You can take them as a fringe benefit in addition to payroll or you can rebook them as a loan to shareholder. If you have any questions about what’s an allowable deduction or the best way to book expenses, consult with your tax professional.

In conclusion, taking the time to avoid comingling funds will help you run your business more efficiently and successfully, saving you time and headaches in the future.

Does your company have problems getting paid on time? Certain industries are more vulnerable to this than others, but every business owner has experienced it at least once. There are effective strategies for always getting paid on time that really work. If you put these into place in your company, you may find that you have fewer and fewer overdue payment issues as time goes on.

Don’t Let Receivables Age Too Long

The older your receivables are, the less likely they’ll ever be paid. People have a tendency to “forget” old debts. Older A/Rs also have a tendency to fall off the books, either on your end or your client’s end. Then, when you do get around to calling your client about an old receivable, they might even be annoyed with you about having to go back so far to look up whether or not they ever paid you.

To avoid this scenario in the future, run receivables reports once a week, not once a month. Even if nothing’s due right away, you’ll be able to keep a closer eye on receivables that are nearing the 30-day mark. Don’t allow receivables to go past the 35-day mark without following up with an email or phone call. Some clients will wait the full 30 days before submitting payment. The extra five days allows for a check to arrive in the mail or an ACH transfer to come through. Lastly, a phone call or email works better than a statement notice. Statements are easy to ignore; calls and emails are less so.

Maintain Relationships With Clients

Often, a client is contacted only when a payment is overdue. This can result in a relationship that is distant at best and strained at worst. It also doesn’t create a relationship where the client feels any sort of personal responsibility to your company.

Nurture your client relationships, and you’ll find that you have fewer problems with late payments. Clients who have more frequent interactions with your company will feel like they have a personal obligation to uphold, lest they endanger the relationship. You don’t have to call your clients every week to ask about the family; but holiday cards and an occasional phone call confirming that they’re happy with your services will do wonders for the relationship and your cash flow.

Allow Multiple Payment Methods

Sometimes clients don’t pay bills on time because they’re having cash flow problems. That’s understandable, but that doesn’t help your cash flow, either. When you limit your client to one or two payment methods, you’re inadvertently constraining their ability to pay you on time. They may be too embarrassed to admit to your bookkeeper that they don’t have the cash to pay right now.

If this is a frequent situation, consider offering multiple payment methods on your invoices. This gives clients a way out of your debt while allowing them to save face. In the long run, offering multiple payment methods will bolster a healthy and long-lasting relationship with your client. Some payment options to consider include:

• credit cards (include Amex, Diners Club, Discover)
• in-house financing with nominal interest
• installment payments option
• automatic debits on an agreed-upon schedule

Don’t make clients have to ask for special payment options, either. That would defeat the purpose of getting them to pay on time. Print your payment alternatives on the invoices so all your clients are always aware of their options.

Publish Your Overdue Payment Policy

When you omit your overdue payment policy on your invoices, you give your clients leeway to pay your bills late. If there are no consequences, a client may decide to pay you now or whenever they feel like it. It makes no difference to them as long as there are no penalties attached to late payments.

Publish your overdue payment policy on the front of all your invoices, near the total balance due. Make sure there is a reasonable penalty on late payments. For better results, make the interest on overdue payments increase over time. For instance, overdue invoices start accruing interest of 1% at 45 days past due. At 60 days past due, the interest increases to 1.5%, etc.

Run Background Checks on New Credit Clients

Many companies extend credit to new clients in an effort to increase sales and attract new clients. This can be sound business practice, but credit should be extended prudently. Otherwise, you could find yourself in a situation where clients have racked up thousands of dollars or more in debt, and now you have cash flow problems because they aren’t honoring their credit terms.

Before offering to extend credit to a new client, have them fill out a standard application for credit. Get their FEIN and run a credit check on the company and/or its principals. Run a Dunn & Bradstreet report if applicable. This will help to ensure that you extend credit to worthy clients only, who will be more likely to pay on time in order to protect their strong credit history.

Extend Credit Judiciously

Another potential problem when extending credit is to have too lax policies. When your credit policies are too loose, ambiguous or generous, some clients may take undue advantage of your credit program, resulting in severely late or non-payments.

Your credit program should have very clear parameters, with limits in place that protect your interests, not your clients’ interests. If a client has a proven track record of on-time payments, you can decide later on if you want to offer them more generous terms. In the meantime, your standard credit terms should:

• have reasonable lines of credit (using a percentage of past sales is common)
• accrue interest on credit line draws
• include credit background checks
• allow prepayments without penalty (this helps your cash flow)
• outline clear invoice aging policies with reduction of credit line penalties

Chronically overdue invoice payments have serious consequences on the health of your business. Ramifications can include negative cash flow, inability to purchase needed inventory, low employee morale and can even lead to the need for temporary or permanent layoffs. It’s essential to identify issues with getting paid on time as soon as possible so you can take steps to rectify the situation. The tips above will help to ensure the problem doesn’t crop up again.

Small business owners quickly learn the importance of monitoring their cash flow. The flow of money in and out of your business can impact everything from the stock you have to sell to keeping the lights on. In a perfect world, your cash flows would align.

All of our customers would pay their bills before your invoices came due. Or you’d pay the food vendor after a busy weekend of full tables in your restaurant. But this isn’t always the case.

Even successful business owners can encounter cash flow problems. You may not have control over when bills must be paid versus when your customers pay. Or unexpected repairs or broken machinery could throw a wrench in your budget. Small business owners quickly learn that having access to capital for emergencies can help them survive and stay in business.

But how do you plan for a future event when you don’t know when it will occur? And which loan products would suit your needs?

Business Line of Credit

A business line of credit is an open account which you can draw on at any time. Your banker might have suggested one to you when you opened your accounts with them, and it’s not uncommon for business owners to have a line of credit in addition to their checking and savings accounts.

A business line of credit will have a limit, like a credit card, but lines of credit typically offer much lower interest rates than credit cards. While some banks charge an annual fee to keep the line open for you, no payment is due and you don’t have to pay interest until you draw on the line.

To facilitate this, your bank will give you a debit card or checks to write on the line of credit. It can be linked to your checking account so that, if you overdraft your checking account, money pulls from the line of credit to cover it.

A line of credit is excellent for cash flow management if you can stay on top of it. Let’s say you own a restaurant and have to pay your food and liquor vendors on Friday night, before the weekend rush. Write checks from the line of credit on Friday, then after your weekend receipts have been collected, pay it off. Properly managed, you might never have to pay interest on your line of credit.

Getting approved for a business line of credit can be easy if you have an existing relationship with the lender. They’ll be able to check your cash flow and revenues by looking at your bank accounts. However, sometimes they’ll also request two years of taxes, financial statements that have been prepared by an accountant, and a business plan. What a bank requests will depend upon your risk profile.

Some lenders refuse to work with borrowers in high-risk industries. These industries include gambling, cannabis, and restaurants. While you will likely be able to find funding, it will be with an industry-specific or alternative lender.

Another plus to a line of credit is that, when you pay off a balance, you can borrow that money again. Term loans aren’t great for cash flow management because when you pay down the principal you’ve borrowed you can’t access any more funds. Lines of credit are one of the most-used cash flow management tools because of their flexibility, ease of use, and renewing nature.

Business Credit Card

Business credit cards are a popular form of capital for many new businesses. In one survey, 7% of start-ups said that they funded their new venture with a credit card. Credit cards offer access to quick capital, and are an easy way to cover your business’ cash flow problems, but are they right for you?

It’s easier to get approved for a business credit card than a line of credit, but this ease is reflected in the higher interest rate you’ll pay. If you’ve only been in a business a short time, and because credit card applications require less documentation, there is more risk when lending to you. Lenders cover this risk by charging higher rates.

Credit cards are easy to use if you need to cover some business expenses, but not all vendors accept credit cards. You won’t be able to write a check against a credit card the way that you can against a line of credit. This may not matter to your business, however.

Another downside to a business credit card is their rates. Their rates can start at 12% and go up to almost 30%. Read the terms carefully, as many companies will raise your rates if you miss or make a late payment. You will also likely incur a fee for a late payment. With a business line of credit, you can set up automatic payments from a linked checking account to avoid this.  

Business lines of credit cards can charge annual fees, similar to a line of credit, but will often offer benefits for those fees. Use a business credit card to earn miles for a free plane ticket to a major trade show. Or apply for a cashback card and have a percentage of each transaction returned to you. If the card’s rewards align with your business and could save you money in another area, consider opening a credit card instead of a line of credit.

Tax Implications of a Business Line of Credit vs. a Business Credit Card

The interest on a business line of credit is deductible providing that you can prove the funds were used for a business purpose. If your bank extended a personal line of credit, keep careful documentation and receipts of how you used the funds for business purposes.

The same caveats apply to a business credit card. The interest is also tax deductible, though you should keep receipts and avoid using it for personal reasons. While you can use a personal credit card for business use and still write off the expense, co-mingling funds and their uses complicates taxes and makes your deductions murkier. To avoid having them challenged, try to run business expenses exclusively through a business credit card or line of credit.

Making a Budget

You may have started your business with a dream and deep knowledge of a specific industry, but along the way, you will have to gain some financial management skills. To manage cash flow issues, create a daily, weekly, or monthly budget.

A budget simply lays out the cash you expect to come into your business and the bills you expect to pay, along with when they’re due. If you’ve never prepared a budget before, enlist the help of your finance or tax professional.

While you should have done this when you launched your business, the reality is that many small businesses who start off with strong cash flow are too wrapped up in other aspects of managing their business to get around to it until cash flow becomes a problem. If this is you, go through several of the past month’s bank statements to get a handle on your typical cash flow cycle. This will help you manage your cash flow, identify where you might need to fill in gaps, and decide the best product for your business’ needs.

If you’ve been struggling to align cash flow and simply can’t qualify for a business line of credit or credit card yet, try taking advantage of terms. Many invoices will have language such as “2%, 10, Net 30.” This means that if you pay within ten days, you’ll receive a 2% discount. But you can take up to 30 days to pay without incurring a late fee or interest payments. Work with your budget to delay paying on invoices that don’t require immediate payment and using your cash flow for those vendors that won’t wait to be paid.

Learning to analyze, predict and manage cash flow is a skill. Consider enrolling in an online finance class, or paying a professional to help you at the beginning, when first starting to gain this skill. While you may have set out to fulfill a dream through your small business, dreams are fulfilled in the world of budgets and spreadsheets. Getting comfortable with them helps those dreams come true.

When most of us think about running our business, we think about the fun things like product development, marketing and customer outreach.  For most business owners, the idea of accounting is, to say the least, not exciting.  We know we need it, and moreover, we love to do everything ourselves. But at the end of the day. We need to look at the cost effectiveness of having our hands in everything versus hiring someone with the knowledge and skill to do it for us.  Bookkeeping is a very important part of your business.  It is what helps you determine areas of growth, where you need to trim back, how you market, how you staff, what taxes need to be filed, and will in general be part of every informed decision you make about your business. 

The actual act of preparing the books is not something that makes us want to jump up and down with excitement.  At the same time, many business owners put off hiring a bookkeeper, choosing instead to do it themselves.  Sometimes this is because the thought is why pay someone to do it, when you can do it yourself.  But can you?  Do you have the knowledge?  And what will it cost you in time, effort and daily impact?  The reality is that even though you may want to run every aspect of your business, you simply won’t have time to do everything.  And some things are better left to the people that do it day in and day out.  Startups and even well-established businesses need the attention of their owner.  You are the heart and soul of the business.  You are the one that will determine new directions, new product and guide customers to your wares.  This means that you need to be focused on the business, marketing, strategy, funding and growth.  If you are bogged down in the administrative areas of the business, your focus is split.  Many owners do not have the financial background or working knowledge of recording and categorizing transactions, creating and tracking accounts payable and receivable, moving inventory through the system from purchase to cost of goods sold.  And while you certainly could learn it, but why?  If a number is entered wrong, it could significantly impact your business down the road.  If vendor bills aren’t entered or paid, or a customer hasn’t paid for their service, or even if a figure is transposed, the mistakes and unwinding can be costly.  Imagine spending three hours completing a credit card reconciliation, an action that may take a good bookkeeper thirty minutes.  What more could you have done with that time?  What is getting back three hours worth to you?

A bookkeeper provides not only a professional that actually likes working with the numbers, but also a second pair of eyes.  They will make sure that 1 isn’t really a 7, or that the budget is being met.  They can provide you with reports that will help you assess the impact of a certain product line, a new office location, or the overall health of the business.  At times, they will see something that you miss, having a different perspective on the data and its meaning.  Having someone else working on these items in the background will provide you with more time to devote to the business and yourself.  This will help create work-life balance, which is a key to preventing burn out.  Additionally, bookkeepers know where to put each transaction and how to track them. They can make sure that your taxes will be correctly filed because you know you have the right gross and net income.  They will ensure that business and personal expenses aren’t mixed together; make sure bills are paid on time which will prevent late fees; and guarantee that customer are invoiced, and funds are received timely which will assist in cashflow.

A bookkeeper is used to looking at figures and knowing how they go together and what they mean for the health of the business.  They can assist you in learning what to look for, clarifying any confusion you may have, and identify irregularities.  They can also assist in providing financial statements for investors, Boards, business partners and potential buyers.  They become essentially a third-party gatekeeper of the numbers which helps you create a positive feel for other parties.

It is a bookkeeper’s job to keep the numbers up to date.  Often owners don’t have time to make daily entries because they are focused on the business, and books are often woefully behind and out of date.  When it comes to needing financial statements, waiting for a month or more worth of entries to be made just isn’t possible.  When you fall behind in your books, it makes it nearly impossible to figure out where your company stands and what you need to do to get where you want to be.  Many businesses wait until year-end to contract their tax preparer to complete their books.  Not only is this a stressful time for tax preparers but entering your books at year-end can mean missed chanced at deductions throughout the year.  Many accounting firms have a bookkeeper on staff that can assist you during the year and work alongside your preparer to ensure that you are taking advantage of as many opportunities as possible for tax savings.

While keeping your books yourself sounds like a good idea, and is even maintainable for the initial period, a professional bookkeeper can save you more time and money in the long run.  There is a greater reduction of error with someone that has the knowledge, and time to devote to your books.  They understand the financial side of your business and what it takes to keep it in good reporting form.  The biggest issue is that your time is money and having the time to put towards the growth and development of your business is crucial to maintaining and increasing your product.  From the perspective of time, money savings, and focused expertise, a bookkeeper makes good business sense for your startup or established business.

With the passing of the Tax Cuts and Jobs Act (TCJA), tax professionals and businesses are beginning to absorb the massive changes and find some key twists in the new tax reform laws. The following information on these twists will help you navigate the new terrain.

Don’t Be GILTI

TCJA has some signficant international implications that companies should not overlook. One of the biggest is a completely new category of income called Global Intangible Low-Tax Income (GILTI). This new category reflects the TCJA’s overall mission to bring resources back to the US so that companies are keeping more onshore than offshore. GILTI

National Law Review notes the following about GILTI:

Following tax reform, domestic corporate taxpayers are required to include in gross income the amount of a CFC’s income in excess of its Subpart F income and 10 percent of depreciable tangible property (referred to as GILTI). The corporate taxpayer generally can deduct 50 percent of the amount of GILTI (10.5 percent US tax rate), and claim a foreign tax credit for 80 percent of foreign taxes paid or accrued on the GILTI (subject to limitation). The Conference Report states: “At foreign tax rates greater than or equal to 13.125 percent, there is no residual US tax owed on GILTI, so that the combined foreign and US tax rate on GILTI equals the foreign tax rate.”

In anticipation of all this, companies should take a look at their current foreign structures. They need to take into account the GILTI provisions in every aspect of their tax planning.

Conformity Rules

If states refuse or neglect to conform to new federal reforms, it could make things difficult for companies that have operations across state lines. The headaches come when you look at how different reactions from each state to TCJA could produce different scenarios.

Tax Policy Center lays it out this way:

The issues are bigger in some states than others. Nearly all states with an income tax start their calculations with federal adjusted gross income, which the TCJA did not change much. However, it did significantly increase the standard deduction, eliminate personal exemptions, and change some itemized deductions. States that use these federal provisions (see table 3 from the report) are facing big conformity questions.

For example, if these states adopt the new standard deduction amount and end personal exemptions, they’d be cutting taxes for childless households but increasing taxes on larger families. States could resolve the problem in one of three ways: They could also adopt the TCJA’s new larger child tax credit (CTC) and new non-CTC dependent credit, decouple from the federal standard deductions and personal exemptions and create their own rules, or completely overhaul their state income taxes. But each option creates new winners and losers and could affect state tax revenue.

The question boils down to this: what will my company’s relevant states decide to do? It will be imperative that your business researches each state’s actions in regards to TCJA.

Section 163(j)

Another big change is by how much can net business interest expense be deducted. TCJA rules, from a general standpoint, will limit this deduction to 30 percent of a company’s adjusted taxable income.

National Law Review makes these observations about the changes:

Section 163(j), as recently amended, may limit a taxpayer’s interest expense deduction. Notice 2018-28, in very general terms, provides interim guidance on the application of Section 163(j). Importantly, the Notice confirms that (1) a taxpayer with disallowed interest expense from taxable years prior to January 1, 2018 may carry forward such interest expense to the taxpayer’s first taxable year after December 31, 2017; (2) Section 163(j) applies at the consolidated group level; (3) Section 163(j) will not impact whether or when business interest expense reduces a corporation’s earnings and profits; and (4) taxpayers cannot “double count” business interest income earned through a partnership or S Corporation.

There will be no grandfathering for any loans issued before the TCJA’s tax reform, thus any interest on previous loans will fall into this new 30 percent limitation, which is something that businesses need to be ready for.

In conclusion, it’s important to remember the wide-sweeping implications of TCJA. This article only highlights some key points about this massive topic and pin-points some especially important twists in tax reform. It does not constitute comprehensive or actionable advice. It is imperitive that you consult with your own legal and tax professionals before forming your strategy for the TCJA.

The new lease accounting standards will require some extra time and work for many companies as they race to satisfy the new requirements.

In these new rules, two leases (finance and operating) will be required on the balance sheets.

CFO sums it up this way:

Under the new guidance, an arrangement contains a lease only when the arrangement conveys the right to control the use of an identified asset. That’s a change from legacy guidance, under which an arrangement can contain a lease even without such a right if the customer takes substantially all of the output from the lease over the term of the arrangement.

In addition to the lack of bright lines used under legacy guidance, FASB added a new criterion that focuses on assets that have a specialized nature with no alternative use at the expiration of a lease. That’s important, as it may modify the lease’s legacy classification.

As 2018 progresses, your business will want to develop procedures for gathering and documenting the wide array of leases kept by your company. These procesures will need to be efficient, as technologically advanced as possible, and centralized in order to be sustainable and accurate.

The benefits of tackling these new standards in an effective way are many:

• Your company will have better insight into your lease spending
• You will be able to use the newly acquired data to negotiate new leases that are more beneficial
• In theory, your implementation of the new standards (if done effectively) will make your lease management more streamlined and less burdensome and draining on company time and resources
• It will give those invested in the company a clearer picture of the company’s financial situation

Some of the key steps, as confirmed by CFO (linked above), include the following:

• Find the right person: Assign an employee to lead the initiative, and make sure this person has an incredibly in-depth familiarity with the company’s lease information. This person is usually working in the controller’s office. They will need to understand exactly how the implementation of the new standards will affect balance sheet ratios, and this will need to be communicated effectively to those invested in the company.
• Establish good communication: To accomplish this, set up a steering committee who oversees spreading the appropriate information about the new implementation across the company. Members of the committee should be a part of at least one important stage of the lease process.
• Dig deep for lease information: Everyone involved should be prepared for a challenging, time-consuming journey to implementation. CFO makes these observations about what the project leader and committee should be looking for:

  Collected lease data should include the types and numbers of property, plant, and equipment leases, availability of digital lease data, and gaps in lease data.

  There may be dozens of discrete pieces of data requiring two to four hours of review. In our experience, businesses often overlook embedded leases, which may be included as part of a larger service agreement. Embedded leases are often complex arrangements that require closer scrutiny and advanced technical accounting skills.

• Get internal auditors involved early: This should be done as early as possible so that policy decisions can be shaped into a compliance-friendly standard from the beginning.
• Get the tech experts closely involved: The project leader will need to recruit technology experts who have thorough, reliable mastery of financial reporting. They will be the key to successful evaluation and implementation.

The CFO report mentioned above goes on to describe further detailed steps, but in summary they follow a pattern of 1) Discovery (gathering all lease data and pinpointing which ones need updating to new standards); 2) Evaluation (working with cross-functional team members and internal auditors to design policies to govern the implemenation); 3) Implementation (which should involve continuous dialogue with internal auditors and intensive training of company employees to learn the new protocols); 4) Sustain the process (i.e. maintain the data in a centralized system and develop a sustainable routine for successful and consistent execution long-term).

CoStar recommends that you plan to consolidate the data from the outset as you work through the steps of discovery, evaluation, and implementation:

Make a plan to consolidate all organizational lease data into one department and one system. The accounting group is the logical departmental choice due to the technical nature of lease reporting requirements. And while other departments may retain responsibility for engaging new leases, the ideal technology solution will manage input from multiple sources and provide administrative insight to key organizational stakeholders.

The new standards will affect companies of every size and in every industry and will come into play for public companies starting Dec. 15, 2018. For nonpublic companies, it’s a year later, Dec. 15, 2019.

The preparatory steps for these new standards should begin much earlier, however. Keep in mind that this article only highlights some key points about this topic. It does not constitute comprehensive or actionable advice. It is imperitive that you consult with your own legal and tax professionals before engaging in a definitive strategy for tackling the new lease accounting standards for your company.

The relationship between accountant and client is a relationship based on open communication and the exchange of relevant ideas, and this serves as the basis for decision making. Without the exchange of ideas between client and accountant there is no value added to the decision making process. Key to the relationship between both client and accountant is what can be viewed as an exchange of “relevant ideas.” For there to be an exchange of relevant ideas both parties need to establish what information the other party would likely need in the near-term and the long-term.

This article provides examples of information that the client and accountant will likely need for their decision making processes based on possible transactions contemplated over the near-term and long-term.

Timing for this communication is key, as this white paper notes. The start of a new year is the perfect time to touch base with your clients or reach out to new ones. Take the time to ask existing and prospective clients about their business plans overall. This is a good opener to uncover any activities they may have in the works that could impact them financially.

The following key business issues, as pointed out by Avalara, are examples of issues that should be a part of the presentation.

1. Company growth: If your clients are planning any major changes to their business, it could affect their valuation—and their taxability. Counsel your clients of any liabilities or changes in status that could affect them.
2. Financial planning. Budget tops the agenda for most companies going into a new year. But what about other financial issues that could impact the business? Now is a great time to do a portfolio review and talk to your clients about their financial future.
3. Risk Management. Close to 75% of small businesses don’t have a plan in place to protect their business from operational disruptions—either planned or unplanned.1 Broach the topic with your clients to ensure they understand the importance of continuity planning and how to mitigate risk in their business.
4. Inventory: For businesses that deal in the sale or resale of goods, keeping on top of sales tax rules and regulations is critical—and challenging. Many states now have nexus rules related to where businesses warehouse inventory or fulfill orders. Advise your clients to do a thorough assessment of their order process.
5. Tax compliance. State-imposed taxes can be just as onerous on your clients’ time as federal taxes. Ask them if they feel confident that they have adequate processes in place to comply with regulations. Discuss any new tax laws with your clients that could affect their business and how to implement changes to address them.

Furthermore, Entrepreneur magazine has identified the following additional questions to ask before hiring a tax accountant.

1. What’s the best way to contact you and how often should we be in touch?

This might seem like too simple a question, but clear, effective and frequent communication is the key to a healthy, beneficial relationship with your accountant. Establish early on how often you’ll connect, either in person, on the phone or online (via a video chat app like Skype, Google Hangouts or Facetime). Decide together if you’ll meet weekly, monthly or bimonthly.

2. What are some considerations I should consult with you about on an ongoing basis?

According to FF Venture Capital Chief Financial Officer Alex Katz, a skilled accountant should get to know you and your business well enough to regularly keep you aware of -- and swiftly and appropriately reacting to -- an array of factors that could effect your bottom line, for better or for worse. He or she should also be open to assisting you in weighing the financial ramifications of certain decisions, like whether or not to hire an independent contractor or a full-time employee, buy or rent an office space, or rent or lease a company car and much more. Your accountant should also work collaboratively with you in a way that makes it easy for you to consider and understand which actions you need to take now and in the future.

3. How can you help me grow my business?

A qualified accountant absolutely can help small-business owners expand over time, that is if have the right groundwork in place with you, Katz says.

4. How can you help me clamp down on my cash flow?

Your accountant should be able to help you develop an organized, effective cash flow model that allows you to adjust your operations in ways that help you survive shortfalls, as well as improve receivables and manage payables.

5. Can you assess the overall value of my business?

Your accountant should be up to the task of estimating your company’s fair market value in excess of your tangible assets. He or she should start by examining your financial plan and then execute a discounted cash flow (DCF) analysis, a common but effective valuation method. 

6. What are some special considerations for my particular industry?

Businesses in different industries come with their own unique accounting issues. Your accountant should be knowledgeable about the various ones that specifically apply to yours.

7.What are some common mistakes that I should avoid when working with you?

Not being 100 percent honest with your accountant is the worst mistake you could make, Katz says. “The truth will come out, either in the planning stage or in front of the IRS auditor.”

In conclusion, when engaging the services of a reputable accountant, it’s important to know what to ask and when. Timing and thoroughness are crucial to the process.

As noted in recent reports, current US Generally Accepted Accounting Principles (GAAP) as prescribed by Accounting Standards Codification (ASC 840) focuses on whether the lease transfers substantially all of the risks and rewards of ownership. The new guidance, codified as ASC Topic 842, Leases, introduces a right-of-use model, which shifts from the risks and rewards approach to a control-based approach.

In short, ASC Topic 842 requires the need to capitalize all leases or have a plan to do so before 2019 (public companies) 2020 for all other non-public companies.

The following information provided by BMO Harris provides some insight into the impact from the new rules for accounting for leases. (ASU 2016-02 Leases (Topic 842):

“Under the new FASB rules, there will be a balance sheet requirement for operating leases. They will be considered a “right-of-use” asset that incurs a liability. However, the entire cost of the asset will not be required to be on the balance sheet—only the present value of your obligated payments.

In most cases, the asset amount of an operating lease will be lower than the cost of an outright equipment purchase, which means companies will still realize benefits in terms of lower capitalization than a finance lease or traditional loan structure.

There is no change to the way finance leases (previously known as capital leases) will be accounted for. Under FASB rules, these leases are treated as debt, like a traditional bank loan. The entire liability must be recognized on your balance sheet.”

For accounting purposes, there are two types of leases: finance leases and operating leases. The major change relates to operating leases, which has been a key financial instrument for many companies. These leases used to be entirely off-balance sheet.

Impacted companies should consider taking the following initial steps toward adoption of the new lease accounting standard:

• Understand the accounting requirements
• Understand the lease population (e.g., by type, system, and location)
• Assess capabilities of existing technology
• Perform a lease data gap analysis
• Develop an implementation roadmap that includes all impacted areas

In conclusion, we highly recommend that if you already have, or are considering to acquire any leases, that you engage the services of a finance expert with an expertise in accounting for leases. A huge amount of time will need to be invested in the adoption project process and it only makes sense to engage the best possible resources available for your project.

What is a foreclosure?

A foreclosure occurs when a property owner cannot service their mortgage (i.e. make principal and/or interest payments), usually leading to the property (distressed property) being seized and sold (foreclosure sale). Typically, the property in foreclosure is available for investors to purchase.

Buying a foreclosed home is different from buying a typical resale. In many cases the following applies:

• Only one real estate agent is involved.
• The seller wants a pre-approval letter from a lender before accepting an offer.
• There is little, if any, room for negotiation.
• The home comes as-is, and it's up to the buyer to pay for repairs.

The Upside to Foreclosures

 As noted here, Purchasing foreclosed (distressed) properties can be a terrific real estate deal. The hope is that both parties to the transaction win by profiting from a timely transfer of title -- which produces a good investment for the investor and divestment for the home owner -- and it might spare the home owner's credit rating before things get any worse.

The Downside to Foreclosures

Unfortunately, as this report notes, profiting from foreclosures isn't the no-brainer many assume it to be -- for each success story there are likely five horror stories. While investors with the very best of intentions can help to reduce their risk, they cannot completely eliminate it.

Distressed properties, as Bigger Pocket observes, are homes that are for sale not because the owner wants to sell, but because of pre-foreclosure, foreclosure, or repossession. These homes are usually offered up through an auction in which the highest bidder gets the property. If the auction is not successful, then the lending party, usually a bank or financial institution, will have to assume ownership of the property.

The Three Types of Foreclosure

There are three ways to acquire distressed property, based on where the property lies in the foreclosure process. The three stages are as follows, as explained by The Balance: pre-foreclosure, foreclosure and post-foreclosure.

1. Pre-Foreclosures

In the pre-foreclosure stage, investors will likely be able to do the most good for the distressed homeowner and for themselves. Pre-foreclosure is where further damage to the home owner’s credit rating can be forestalled and the home may be transferred at a mutually-agreed-upon price before it is necessary to get the lender involved. The best potential leads to locate a property at this stage may come from attorneys, accountants, real estate agents, or through business associates and friends.

2. Foreclosure Stage

In the next phase, when a property is at the foreclosure stage, the best way to identify a potential property is through the County Clerk's office. You may also be able to request that your address or e-mail address be placed on an advance notice list or a list of pending defaults. Title insurance companies may also be of assistance in this area by providing recorded information in exchange for the expectation of future business.

• The foreclosure process itself will vary from one state to the next, depending on whether it is a title or lien state, which determines whether a judicial or non-judicial form of foreclosure is involved. Judicial foreclosures pertain to mortgages, rather than deeds of trusts, and take significantly longer to complete.
• Non-judicial foreclosures pertain to deeds of trust where a third party, called a trustee, handles the entire process in a matter of two to four months after a borrower has defaulted and stopped making payments. Once the property passes through either the judicial or non-judicial phase, it is then ready to be sold at auction to the highest bidder.

3. Post-Foreclosure

And last, at the post-foreclosure stage, the lender has already taken control of the property. The home is then in the possession of the lender's REO (Real Estate Owned) department, or in the hands of a new owner or investor who purchased the property at auction.

Refer to the foreclosure notice to determine the name of the lender as well as the balance owed on the mortgage. Lenders are typically extremely willing sellers, because an REO on the books is an obvious sign of having made a poor lending decision. Both the overhead and losses involved with an REO -- reflected in both the added reserves a lender must maintain as well as any potential property management fees incurred -- means the bank is likely a willing negotiator.

If the property ends up in the hands of a private investor, rather than with the lender, you may still be able to make an offer either on your own or with the help of a real estate agent.

In conclusion, a key investment decision to make is where to enter into the foreclosure process. It is critical that you identify one of the three aforementioned stages and become an expert in that particular process, which will help you to achieve the most success at becoming a long-term investor of distressed properties.