Accounting & Finance

Business Owner's Guide to Profit Planning

Owner's Guide to Profit Planning

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Key financial factors you must understand if you are going to be a successful entrepreneur. Today on Business Next!

Segment one: Chris Moersch, one of the owners of The Round Barn Winery, Brewery & Distillery, talks about the small business promotional aspects of the June 16 Lake Michigan Shore Wine Festival in Bridgeman.

Segment two: Retired CPA and long time small business advocate Paul Hense discusses key financial factors you must understand if you are going to be a successful entrepreneur. On this segment, cash flow versus profits.

Segment three: Retired CPA Paul Hense talks  about assets on your balance sheet.

Segment four: Retired CPA Paul Hense discusses the liability and equity portions of your balance sheet.

Segment five: Retired CPA Paul Hense talks about the importance of evaluating your financial situation in a cool and non-emotional manner.

Segment six: Retired CPA talks about whether or not this a good time to start a small business.


Listen Wednesday at 10 a.m., 3 p.m. and 8 p.m. on the 
Michigan Business NetworkSBAM members can log in and listen to archived programs anytime on a PC or mobile device by going to the Business Next show page.   

Merchants allowed to set credit card minimum

Article courtesy of SBAM Approved Partner Midwest Transaction Group (MTG)

The Federal Government is giving merchants the green-light on a way to potentially control some of their processing expenses by allowing them to set a minimum on credit card purchases. A minimum amount of up to $10 may be required from customers on credit card purchases.

Keep in mind, this new rule applies only to credit cards and does not include debit cards. And, while merchants are not allowed to choose a payment option for customers, discounts or incentives may be offered for payment by a particular method (including cash) provided there is no distinction made on the basis of the issuer of any check, debit or credit card.

As this new practice is approved, please review this following list of practices that are NOT allowed to ensure you are operating within the structure of acceptability for merchants when processing transactions.

Advance deposit: If a customer is billed for an advance deposit, that amount must be applied toward the balance of the purchase. The merchant cannot charge the deposit plus the full purchase price.

Blank sales drafts: Merchants cannot have cardholders sign a blank sales draft before the final transaction amount is known.

Cash: Cash disbursement from credit cards is prohibited by merchants and should only be handled by financial institutions.

Cash-only refunds: If refunds are accepted, they must be made to the card used for the original purchase or, if posted, as an in-store credit or exchange. Merchants doing otherwise are in violation. Also, return policies must be disclosed to the cardholder at the time of the transaction on the printed card receipt, near the signature line and in print at least ¼ of an inch in size. The card brands will not acknowledge signs or posters near the check out area as proper disclosure in the event of a chargeback or dispute.

Delinquency: The merchant cannot bill the cardholder's credit card account for a delinquent account or for the collection of a dishonored check.

Discrimination: If a merchant accepts a card, that merchant cannot discriminate from whom it accepts the card - when properly presented - as payment.

ID: Merchants may ask for additional ID, but this cannot be a condition of acceptance.

Personal ID: Several states prohibit merchants writing cardholder personal information on a sales receipt.

Surcharges: Merchants are prohibited from adding fees on to credit card purchases.

Taxes: Merchants cannot collect sales tax separately as cash; it must be included in the purchase price.

Zero-percent tip: Merchants are not allowed to include an estimated tip in the authorization amount secured from the merchant bank. Taxicabs, limousines, bars taverns, beauty salons, barbershops, health and beauty spas, and restaurant authorizations are automatically assessed a 20 percent additional authorization amount to cover the expected tip.

If you have any questions on the new minimum or any of the listed practices, don’t hesitate to call MTG at 1.888.599.2209.

Tax and financial benefits of hiring your child to fill a summer job

Article courtesy of SBAM Approved Partner AdvanceHR

Here's a common situation for the family of a small business owner: The family's teenage child is looking for a job for the summer and in the afternoons after school starts in the fall. The owner needs help around the workplace during the upcoming busy season. Isn't the solution fairly obvious? By hiring the child to work for the business, it's a win-win for the family.

But putting a child on the payroll isn't just a smart move from an employment standpoint. It can also result in several other tax and financial benefits. Here are six potential perks.

1. Income tax savings. Say that you reduce your compensation by the amount of salary you pay your child. Instead of being taxed to you at rates reaching up to 35 percent this year, the income is taxable to your child. For 2012, your child can earn up to the standard deduction amount of $5,950 without paying any federal income tax. Any excess is taxed at a low 10 percent rate.  

    Example:

You pay your child $5,000 to work during the summer before she heads off to college. The entire $5,000 in wages is covered by the standard deduction. In contrast, in your 33 percent bracket, $5,000 in wages would cost you $1,650 in tax. Your adjusted gross income (AGI) is also lowered, which means there is less chance that you'll be subject to unfavorable AGI-based phase-out rules.

2. Kiddie tax avoidance. Generally, the unearned income of a child under age 19, or a full-time student under age 24, is taxed at the parents' tax rate to the extent it exceeds an annual threshold ($1,900 in 2012). But this rule doesn't apply to "earned income" that your child is paid in wages.

3. Business tax deduction. You get a business deduction for money that, as a parent, you might have given your child anyway.

The wages you pay the child are deductible by the business just like the wages paid to any other employee of the company. However, when a family member is employed, you must take care to ensure that the wages are reasonable in amount for the services actually provided (see right-hand box).

4. Payroll tax savings. If a child under age 18 is employed by his or her parent in an unincorporated business, the earnings are exempt from FICA tax. This exemption also applies to FUTA tax up until the age of 21. These payroll tax breaks can provide significant tax savings for a parent who is self-employed or a partner in a partnership.

An unincorporated business includes a sole proprietorship; husband-and-wife partnership (owned only by you and your spouse); a husband-and-wife limited liability company (LLC); or a single-member LLC, which is treated as a sole proprietorship for federal tax purposes.

What if your business operates as another type of entity, such as a C or S corporation? Your child's wages are subject to Social Security, Medicare, and FUTA taxes, regardless of age. That's the bad news.

The good news: The $5,950 standard deduction for 2012 still provides a great shelter against the federal income tax. And your business can deduct your child's wages and the employer's share of employment taxes on those wages. So this is still a tax-effective strategy for both the child and your business.

Children Age 18 and Older: After your children reach age 18, the tax advantages decrease, because their wages are then subject to Social Security and Medicare taxes (however no FUTA tax is due until age 21).

As the employer, your business must pay its share of the Social Security and Medicare taxes. The employee's share is withheld from your child's paychecks. However, again, the child's standard deduction still shelters up to $5,950 from the federal income tax. And you still collect a nice business write-off that cuts your income tax and self-employment tax bills.

MEDC's Mike Finney and a culture change of supporting small business. Wednesday on the Business Next program!

There’s a new state culture that supports small business growth and entrepreneurship. Michael Rogers talks with MEDC President and CEO Mike Finney about how the culture change came about. Also on Wednesday's program, Dave Haviland of Phimation Strategy Group in Ann Arbor talks about the important it is that fast growing small businesses have accurate job descriptions; business consultant Tom Borg discusses his three tips for business success; and U.S. SBA National Small Business Financial Champion Dave Adams, CEO of the Michigan Credit Union League, talks about the role of credit unions in meeting the needs of small business owners and how to boost your chances of getting a business loan at your credit union.

Listen Wednesday at 10 a.m., 3 p.m. and 8 p.m. on the 
Michigan Business NetworkSBAM members can log in and listen to archived programs anytime on a PC or mobile device by going to the Business Next show page.    

Health insurance cost problems are not going away

Health insurance cost problems are not going away
(by Scott Lyon, SBAM health insurance expert)

The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23 by President Obama. Today, the question turns to will the U.S. Supreme Court decide to allow the PPACA to stand or rule the law as unconstitutional? Regardless, this is shaping up to be a landmark Supreme Court decision that will impact the provision of health care and health insurance in America for decades to come whether its upheld, struck down, or parts are maintained while others are not. The key elements in question include:

  • The Individual Mandate and its related provisions including the requirement for individuals to maintain a minimum level of health insurance coverage, the design of insurance exchanges, insurance market reforms (guarantee issue and renew, no pre-existing conditions exclusions, covering children on their parent health insurance until the age of 26, among others), etc.
  • The Expansion of Medicaid, essentially who is eligible for this program and how is it funded.

People who follow the Supreme Court have indicated that the conventional wisdom is that the justices will release a decision at the very end of this session – either June 25h or June 28. This makes some sense for a couple of reasons. First, the Supreme Court issues decisions on Mondays and Thursdays and the 25th and 28th are the last Monday and Thursday of the Court’s year. Second, regardless of how they rule, it will be the beginning of a media and political feeding frenzy and why do this before the Justices head out of Washington for the summer?

Either way, Michigan and for that matter the rest of the country, still will have a health insurance cost problem. The cost of U.S. healthcare services is expected to rise 7.5 percent in 2013, more than three times the projected rates for U.S. inflation and economic growth, according to an industry research report released by PricewaterhouseCoopers on May 31. 

According to the report, premiums for large employer health plans could increase by only 5.5 percent as a result of company wellness programs and a growing trend toward plans that impose higher insurance costs on workers. The projected growth rate of 7.5 percent for overall healthcare costs contrasts with expectations for growth of 2.4 percent in U.S. gross domestic product and a 2 percent rise in consumer prices during 2013, according to the latest Reuters economic survey.

That said, why is health insurance so expensive and what are some big picture things that might help reduce costs?

One of the reasons health insurance costs so much is due to the federal programs of Medicare and Medicaid. A couple of years ago, the actuarial firm Milliman estimated that for a family of four, there is a cost shift of $1,788 (15 percent of premium) because these programs do not pay providers at a fair rate. Ending this cost shift would help small businesses and their employees afford coverage. While paying providers at a “fair or fairer rate” may sound easy enough, the big question that needs to be resolved is, of course, where does that money come from? 

A second reason health insurance costs as much as it does is due to the cost shift from the uninsured to the insured, which is estimated at $922 for a family of four. No one on either side of the political aisle denies the uninsured and the cost shift; this is the problem that the Democrats and the Affordable Care Act are trying to resolve with the individual mandate and employer “play of pay provision.” Keep in mind that before the rules changed as a result of the PAACA - of the 47 million uninsured: 4.7 million (10 percent) were college students, 10 million (21.28 percent) are non-citizens, 11 million (23.40 percent) are eligible for, but not enrolled in public programs like CHIP and Medicaid and another 9 mil
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