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STAFFING AGENCIES

Choice of Business Entity

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When you start a business, there are endless decisions to make. Among the most important is how to structure your business. Why is it so significant? Because the structure you choose will affect how your business is taxed and the degree to which you (and other owners) can be held personally liable. Here’s an overview of the various structures.

Sole Proprietorship

This is a popular structure for single-owner businesses. No separate business entity is formed, although the business may have a name (often referred to as a DBA, short for “doing business as”). A sole proprietorship does not limit liability, but insurance may be purchased. You report your business income and expenses on Schedule C, an attachment to your personal income tax return (Form 1040). Net earnings the business generates are subject to both self-employment taxes and income taxes. Sole proprietors may have employees but don’t take paychecks themselves.

Limited Liability Company

If you want protection for your personal assets in the event your business is sued, you might prefer a limited liability company (LLC). An LLC is a separate legal entity that can have one or more owners (called “members”). A one-member LLC is considered to be a “disregarded entity” by the IRS. Usually, income is taxed to the owners individually on Form Schedule C- Business Income (part of Form 1040), and earnings are subject to self-employment taxes. Note: It’s not unusual for lenders to require a small LLC’s owners to personally guarantee any business loans.

An LLC can make an election to be taxed as a corporation or a partnership by filing IRS Form 8832- Entity Classification Election.

Corporation

A corporation is a separate legal entity that can transact business in its own name and files corporate income tax returns. Like an LLC, a corporation can have one or more owners (shareholders). Shareholders generally are protected from personal liability but can be held responsible for repaying any business debts they’ve personally guaranteed. If you make a “Subchapter S” election, shareholders will be taxed individually on their share of corporate income. This structure generally avoids federal income taxes at the corporate level.

Partnership

In certain respects, a partnership is similar to an LLC or an S corporation. However, partnerships must have at least one general partner who is personally liable for the partnership’s debts and obligations. Profits and losses are divided among the partners and taxed to them individually.

Summary

There is no right or wrong entity. The question is which one is correct for your company, needs and circumstances. Call us for a consultation to help you select the appropriate entity form for your business and family.

Do a Financial Review Mid-Year

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Before you get involved with other things this late summer, schedule a mid-year checkup. No, we’re not talking about the height/weight/blood pressure kind of checkup, we’re talking about the income statement/balance sheet/cash flow kind of checkup — a review of your business’s financial operating fundamentals.

If you review your vital financial information only when year-end rolls around, you may not know there’s a problem until it’s too late. The more often you take your company’s “pulse,” the sooner you’ll be able to notice — and react to — changes in your business situation.

Check Your Vital Signs

What should you be looking at? Start with the operating fundamentals. For example, what’s the status of accounts payable? When’s the last time you ran an aging report for accounts receivable? How long are your A/R outstanding? How quickly is your inventory turning? What is your profit margin?

These numbers are critical to running your business. You can’t make accurate decisions if your figures are old. And, by keeping track of key financial ratios, you can more readily spot trends that should be addressed sooner rather than later. Your A/R should be reviewed by an appropriate attorney to verify that the language of your agreements and invoices covers you in case of slow or non-payers.

Monitor Your Budget

Next, check your spending. If overspending is a problem, creating a comprehensive budget that establishes realistic guidelines is an effective remedy. Make sure you have a budgeted amount for every line item expense on your operating statement. Then track and compare actual spending to budgeted amounts on a regular basis.

Certain expenses should be reviewed by a specialist to reduce expenses and verify adequate services. For example, business insurance should be reviewed with an insurance agent, bank and credit card charges with your banker, telephone expense with a communications expert.

Reduce Your Debt

Avoid the temptation to take out all your profits in good years. Instead, consider reinvesting some of those earnings in the business. Using retained earnings instead of debt to capitalize your business saves money — and provides a safety net that will be there to help you through periods of lackluster sales or unexpected expenses. Review your cash flow and investments with your investment adviser. A healthy debt-to-equity ratio will also look great when it’s time to borrow money or sell your business.

See a Specialist

Helping owners build and maintain healthy businesses is our specialty. Let’s schedule that mid-year review of your company’s finances soon.

To learn more about financial reviews give us a call today. In addition, we work with many competent insurance agents, investment advisers and collection attorneys who can review your operations.

Stiffing on Employee Overtime can Cost Companies Big Time!

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The State and US Dept. of Labor (DOL)are increasingly paying attention to wage-and-hour calculations and thus launching more wage and hour exams. 

The Plot Unintentionally or otherwise, a NJ landscaper cut some corners, and recently got raked over by the DOL. Fullerton Grounds Maintenance, a Kenvil-based landscaping service, failed to pay more than $500,000 in OT to its employees, per the NJ Dept. of Labor & Workforce Development’s  Division of Wage & Hour Compliance.

The DOL Harvest A 6-month investigation revealed that workers had not been paid $529,898, collectively, in OT for time worked over 40 hours a week. The employer cooperated with the investigation, according to the State, “and agreed to perform a self-audit to calculate the amounts owed to the 362 employees who were paid improperly.”

The NJ DOL investigation also determined that the landscaping company took illegal deductions for uniforms and other items not permitted by the NJ Wage Payment Law. 

Another DOL Shopping Spree An employee-generated 2019 NJ DOL audit recovered $133,490 for nine underpaid supermarket workers. A US DOL exam of R&J Supermarket Corp. in Jersey City, revealed OT, minimum wage and recordkeeping violations. For deficient employee records, the employer paid $49,349 in penalties.

A Growing Concern The pace of wage-hour investigations — many of which are triggered by employee complaints, is on the rise. In 2018, the US DOL’s Wage and Hour Division (WHD) recovered $304 million in back wages. As these NJ audits reflect, once an agency begins to investigate your firm, there’s no telling what it’ll turn up.

 More Concern US and State agencies aren’t the only ones chasing after companies.

Employers will confront more wage-hour class action suits as more plaintiff-lawyers take up the charge. There’s been “an on-going migration of skilled plaintiffs’ class action lawyers into the wage and hour litigation space for close to a decade,” according to the Annual Workplace Class Action Report  by the Chicago law firm Seyfarth Shaw LLP,

An Ounce of Prevention… firms should keep up with the latest developments in State and US wage and hour regulations. They should consult with their legal and accounting advisor regarding any employee classification, overtime or other questions. At Urbach & Avraham, CPAs, we work with many experienced employment attorneys.

New Tax Deduction for Owners of Qualified Businesses

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Good news for partnerships, S corporations, sole proprietorships, and estates and trusts

(pass-throughs) which can deduct  up to 20% of their Qualified Business Income (QBI) under new IRS Section 199(A).

What is Qualified Business Income? Qualified Business Income is net income that is received from a Qualified Trade or Business. Capital gains, and dividend and interest income are not considered business income. Guaranteed payments or wages paid to owners are excluded.
What is a Qualified Trade or Business? A Qualified Trade or Business is any trade or business that is not a “Specified Service Trade or Business” defined by the IRS as the following:
• businesses in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services,
• any banking, insurance, financing, leasing, investing, or similar business,
• operating a hotel, motel, restaurant, or similar business, and
• businesses involved in investing and investment management, trading, or dealing in securities

Income Limitation for Specified Service Trade or Businesses Owners of a Specified Service Trade or Business may take the QBI Deduction if their taxable income for 2018 is below $157,500 for single filers ($315,000 for Married Filing Joint) to be eligible for the full deduction. For 2019 these limits are $160,700 for single filers and $321,400 for Married Filing Joint to be eligible for the full deduction.

How is the QBI Deduction Calculated? The QBI Deduction usually is the smaller of 20% of the Qualified Business Income or 20% of taxable income. For example, a single self-employed lawyer has $150,000 of QBI. His taxable income is $138,000(below the income limitation). Therefore, his QBI deduction is $27,600, which is 20% of his taxable income.

Good news for staffing firms, and the real estate industry! The IRS proposed regulations clarify that the following businesses qualify for the QBI deduction with  no income limitation: staffing firms, real estate agents and the rental of tangible or intangible property to a related business. Other rental real estate properties may qualify if the activity rises to the level of a business.

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Limitations for Qualified Businesses – these businesses have no income limitations but may be limited based on the business’s W-2 wages and unadjusted basis in qualified property. The amount of the tax deduction will vary depending on the specific taxpayer circumstances.
Want to maximize your deduction? Whether your business is a Qualified Business or a Specified Service Trade or Business and regardless of your income level, there are numerous tax moves one can do to maximize this new Sec 199(A) deduction- even for 2018! Please consult with us about your situation.

NJ Tax Amnesty Program -Running Now!

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The Clock is Ticking…NJ Tax Amnesty Program Runs Through Jan. 15, 2019  

Gift from State of NJ

Businesses and individuals with unpaid NJ tax liabilities may be able to get a break on penalties under the Amnesty Program  which is in effect from November 15, 2018 through  January 15, 2019.  The measure applies to all state taxes including  gross income,   corporate business tax and sales and use tax.  However, it does not apply to unemployment  type taxes administered by the Department of Labor.   

 Why should I do this now? Because under this limited-time offer the Division of Taxation will forgive all penalties, and one-half of the accrued interest due at Nov. 1, 2018. 

 Here are some of the details 

  • NJ Amnesty will provide relief for 2008 – 2016 delinquent individual or business tax return filers. 
  • Requests for amnesty must be filed electronically 
  • The Division of Taxation recently mailed a letter to all taxpayers who are known to have amnesty-eligible deficient and/or delinquent accounts 
  • If you didn’t receive a letter and you want to participate, you will need to register or self-report through the Non-Outreach Portal 
  • Federal tax liabilities are not included under the program 

 Is there a hitch? Sort of. The bad news is that if a taxpayer is eligible for amnesty and does not take advantage of it, an additional 5% penalty will be added to the already imposed penalties and interest on the original tax liability.   

To see if this program might be right for you, please contact our Tax Manager, Steven Citron.   

 

 

NJ Employers- August Deadline to Reduce Unemployment Rates

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Did you check your NJ SUI rates?

On July 28, 2018, the annual Notice of Employer Contribution Rates were mailed to all New Jersey employers.

NJ Unemployment Tax Savings

This is not a bill, but rather a summary of the way the NJ Department of Labor calculates the employer contribution rate for unemployment and disability. This form enables you to determine whether a voluntary contribution would save you money in the subsequent year.

Can I reduce the NJ SUI rate?

A voluntary contribution increases your reserve balance and may reduce your contribution rate. Each employer should calculate the amount of the voluntary contribution required to reduce the rate. The required voluntary payment should be compared to the savings realized from a lower rate.

The unemployment expense is a substantial component of your labor cost. Business owners should give it careful attention. If you wish to make a voluntary contribution to your reserve balance you only have 30 days from the notification date to do so. We recommend that you verify all the NJ DOL calculations including the amount of the employer contributions and the benefits charged to your account. Report any discrepancies to the NJ Dept. of Labor. 

Checked your TWES Account?

Good news…if you didn’t receive the Notice and have a Tax Web Enabled System (TWES) account online – you can find your contribution rates there as well. The TWES system provides a wealth of information allowing employers to review their account status, open balance, payment history, employer and worker contribution rates, credit balance and any delinquency.   You can log on to the TWES website at https://my.state.nj.us/

Remember – doing your summer homework now may save you money down the road!

If you would like assistance in determining if a voluntary contribution will save you money, please do not hesitate to contact us immediately.