Detail –

IRS Notice 2018-99 provides guidance for determining the nondeductible amount of parking expense, if your organization is a for-profit company, as well as the amount that would increase Unrelated Business Taxable Income (UBTI), if your organization if a non-profit. The appropriate method depends on whether the organization pays a third party for employee parking or if the organization owns or leases a parking facility where its employees park. If an organization pays a third party for employee parking in the third party’s parking lot or garage, the Section 274(a)(4) disallowance (foregone tax deduction for a for-profit company or amount required to be
added to Form 990T as UBTI for a non-profit) generally is calculated as the organization’s total annual cost of the employee parking paid to the third party up to $265 ($260 for 2018) per month per employee. If parking expenses amount to more than $265 per month per employee ($260 for 2018), the excess needs to be included in the employees’ income and would deductible as wages if a for-profit organization. If an organization is a nonprofit organization, then excess would be added to employees’ wages but would not be added to Form 990-T as UBTI. If an organization owns or leases all or a portion of a parking facility for its employees, IRS Notice 2018- 99 proposes a four-step method to determine the amount of UBTI. This may be used as a safe harbor until final guidance is issued.

There have been so far unsuccessful efforts to repeal this. We are following the IRS updates very closely and will keep you posted with more information as it becomes available. Please reach out to us with any questions you may have.

NOTE: Every situation is different and federal and state tax laws are subject to change.  This article is presented exclusively for informational purposes and is not intended to substitute for obtaining tax or financial advice from a tax or other business professional. Names may have been changed for illustration purposes.

Q: How do we take distributions from our S-Corp?
–Sol Sagan, Billions and Billions of Stars, Inc, Scituate
A: Structured properly, distributions from an S-Corp can save the owners thousands of dollars annually in payroll taxes. How? Distributions are profits remitted directly from the company to the owners without going through payroll, therefore not subject to either social security and medicare withholding OR the matching contribution required by the company — together, 15.3% of an employee’s wages. So if Sol takes $10,000 in distributions from B and B in February that he otherwise would have taken in salary, he is saving himself $1,530. Quite simply, he just writes a check from B and B to himself. (The profits are still subject to income tax.)

Of course, it’s not that easy.

First, you must have profits and be taking salaries in equal or (preferably) greater sums than you are distributing to yourselves. Otherwise you may be nabbed for evading those federal (and if applicable, state) payroll taxes. Generally, a good rule of thumb is minimum 60% salary, 40% distributions. So if Sol takes $10,000 in distributions he would be wise to take at least $15,000 in salary over the same time period.

Q: Can I take these distributions at the speed of light?
–Sagan
A: Distributions do not need to be taken on a regular basis, they can be irregular, and the amounts can vary. The important thing is that by the end of the year they not represent more than (using the rule of thumb) 40% of your total monies received by the corporation.

Q: Will I fall into a black tax hole?
–Sagan, again
A: Your distributions are not subject to payroll tax, but they are part of the net income that will accrue to you as a shareholder and be reflected on your personal income tax return. I recommend you either increase your withholding on the salary portion, or make estimated tax payments to cover the liability. Consult a tax adviser?

Q: I have a co-owner in a parallel universe. Advise.
–Carl, Sagacity
A: Distributions must be made by percentage of ownership. But you must simultaneously insure that the total salary of each owner exceeds his or her distributions, as per the first “rule of thumb.” More complicated. Consult a tax adviser who can set up an S-Corp and also knows math?

Upcoming Events

UNDERSTANDING SOCIAL SECURITY: Rhode Island Mediators Association, Warwick, RI February 10, 5:30 PM. On panel hosted by estate Attorney Jeremy Howe. Open to attorneys/mediators as well as therapists, accountants and other professionals in supporting fields.  Information/registration here.

MONEY MATTERS FOR ARTISTS: RISD Museum, Providence, RI

Saturday afternoon, February 27. With attorney Steve McDonald on contracts and copyrights! Information/registration.

The beginning of the year is a good time to check your withholding allowances. Are you perpetually behind, or need more money in your paycheck? Remember that you can claim any filing status and number of exemptions on the W-4 for your regular withholding during the year. Read my article.

Don’t rely on 1099’s to tabulate your income, free-lancers. You are responsible for reporting your income accurately, whether or not you receive a 1099. Business owners, make sure your contractors fill out IRS Form W-9 before you hire them, so you can issue them a 1099 if needed. (Doing someone a “favor” by not issuing them a 1099 means that we’re all paying their taxes.)

Reprinted with permission of AppZen

Insurance: Businesses, do you have a “fidelity bond” or employee dishonesty insurance”?  On my first non-profit audit we discovered embezzlement. One of my first business engagements was investigating fraud at a large medical practice. Appropriate controls are important to reduce the threat of fraud; appropriate insurance is necessary to help you recover in case it does happen.

Elder care planning:  Another relaxing subject! Nevertheless, a necessity for kids and parents to start discussing. Contact me to discuss further and to be directed to appropriate resources.

IRS Letters! Don’t panic if you get them, but don’t sit on them either. Because of the IRS’ woeful budget, errors are plentiful and corrections are slow —  you may be getting bills for $12,000 when I sent in the correction making it a refund months ago, but they have not processed it yet.  But don’t be like the non-profit that passed the envelope around like a hot potato for a year without opening it; as a result they missed deadlines and had to appeal to have several thousands of dollars in penalties waived.

UPCOMING EVENTS

I will be back at the fabulous Artisan’s Asylum makerspace in Somerville, MA on Thursday night January 21, 2016 to discuss Tax and Incorporation issues. Join me at 7pm for a short talk, gathering, and refreshments. Free, register here.

NEW BUSINESS CHECKLIST!

Thinking about establishing a small business in Rhode Island? Check please read this article for a list of essential steps, from deciding on your legal structure to staying in good standing on an annual basis.

Here are the steps and links to forming a new (for-profit) business. We strongly advise you contact an advisor (an accountant or lawyer) to help you with the decisions and implementation.

1. 1. Decide on your legal structure – Corporation? LLC? Partnership?

1. 1. Decide on your tax structure – S Corporation? LLC taxed as a partnership? As a corporation?  (Many options – can be confusing.)

1. 1. Execute a partners or shareholders’ agreement if it is a multi-owner enterprise.

1. 1. Choose a name and see if it is available.

1. 1. File either Articles of Organization or Incorporation and pay the requisite fee.  

1. 1. Optional: File a Fictitious Name Statement if you wish to use a D/B/A.

1. 1. Obtain your EIN – Employer Identification Number.

1. 1. If you qualify and are choosing to be an S-Corp, file IRS Form 2553.

1. 1. Open a bank account for the business.

1. 1. If you are going to have employees, arrange with a payroll service or qualified bookkeeper to pay employees and pay and file payroll taxes.

1. 1. If you make sales at retail, register for sales tax – even if your sales may be exempt.

1. 1. Arrange for a bookkeeper or bookkeeping system.

1. 1. Obtain necessary insurance coverage.

1. 1. Obtain on-line credentials so you can file your annual report on-line, as well as other forms.

1. Annually file your annual report with the Secretary of State and pay the $50 fee – failure to do so can result in revocation of your charter; annually file your state tax return with the requisite minimum tax of $500 ($450 effective for tax years beginning 1/1/16).

Small businesses are a lot like countries; they both need ambassadors. Did you think you’re too small for that? Not so fast. Even if business is booming why wouldn’t you want people looking out for you and spreading the word? After all, that’s what ambassadors do and if you don’t already have them it’s not so tough to find them.

Here are a few steps to get you started on the way to raising your visibility without leaving the office:

Identify Your Expectations

You need to determine just what you want your ambassadors to do for you. Are they looking for suitable prospects? Are they delivering a product or a service message? Before you can engage a prospective ambassador you must know just what you are asking them to do for you.

It’s About Them, Not You

In the long run an ambassador can and will do good things for you but remember, they are the ones doing the work. Your goal is to make it as easy and as seamless as possible for them to meet your goals.

I ask my ambassadors to identify prospective clients in this way: if you meet a small business owner who is expressing angst about unresolved challenges, suggest they may want to speak to me. Such business owners are good prospects; not only do they have issues I can assist them with but they know they have a problem and they aren’t afraid to admit it (a necessary prerequisite to the coaching relationship).

Provide the Script

Whether you are asking folks to address others face to face or virtually, provide the script so that they don’t have to do the work. If you’re asking that an event be shared through social media provide a link that goes directly to the action and sign up location. Don’t ask your ambassadors to come up with a catchy introduction- provide it for them. If it’s a face to face encounter you envision make it easy for them to deliver the goods (see It’s About Them, Not You).

Choose Carefully

True ambassadors are not people you meet on the street. A true ambassador is a trusted individual who knows you and what you do. When you ask someone to be your ambassador, remember they’ll be serving as an extension of yourself and your business. The decision to take on this role belongs to them. If a person agrees to be an ambassador under duress neither you nor they will be well served.

Pay Me Now Or Pay Me Later

Whether or not to compensate an ambassador for their efforts is a matter of personal preference. In my experience, financial compensation does not generally lead to a good outcome; in fact I don’t go there at all (anymore). There is another means of demonstrating appreciation and that is to offer your services in return. I use this technique I’ve found that it further strengthens the bond and commitment between my ambassadors and myself.

If you are currently surrounded by ambassadors, congratulations. If not, you can see it’s not a tough thing to do. The rewards are worth the effort.

Ed Drozda, The Small Business Doctor– helping you to build a healthy business because a healthy business is a successful business.

Being creative.
This is my favorite state of mind, and probably one of the bigger reasons I have my own business. As a creative person working for myself, I’ve experienced more than a few moments when stuff gets… chaotic. Can you relate?

“I’m an entrepreneur, I’m wearing many hats!”

“I’m sleeping less than a mom to a colicky baby!”  

“I’m living in constant chaos!” (sometimes followed by a defensive  “and loving every moment!.  But I’ve yet to meet a person who enjoys living in constant chaos.)

At a certain point you realize that in order to survive, a.k.a. keep both your business and your sanity, you have to outsource and to automate.  Outsourcing is a huge topic for another time. Let’s talk about automation: what, why and how.

There are a myriad of different aspects you could automate in your business. What should you focus on first and why? Here are three absolute essentials to put on autopilot AS SOON AS YOU CAN. Preferably, before the next client comes in the door.

Money and everything related to it: every order, every invoice, every, even the tiniest, expense. Pricing estimates, quotes, EVERYTHING you possibly can.
When it comes to money, “human error” mistakes are frequent and costly. Forgetting to invoice a client is no fun. Forgetting to pay a vendor could result in a late fee.

On the other hand, an automated system that lets you plug in your prices, and number of clients, then spits out your profits and your hours is invaluable. It helps your decide how much to charge, how many clients you can take on, how many hours to invest in where, and so on. Without doing complex math every time.  

There are countless tools for automating your finances – I like Excel for flexibility and infinite possibilities for customization. Mint.com or DaveRamsey.com provide good online budgeting tools.

Whatever you choose, make sure you’re comfortable with the interface..

Otherwise you’ll start hating the tool and the money-managing process very soon. Instead of saving you time, headache and mistakes, the “automation” will make you procrastinate to the point of avoidance. You don’t want to avoid dealing with money. So choose the tool you like, even if it takes some trial and error.

Email: the amount of time it saves is just mind-boggling.

Then Inbox bloats to a 3-digit number (or 4 or 5, but shhhh…), the consequences are painful. We are getting distracted from our core work. We miss truly important information in the bottomless “Unreads.” We waste hours and hours checking email instead of prioritizing what to check when. Our focus slips, and the quality of our work suffers.

Folders and labels are great, scheduling emails in and out is awesome, but the key? Make sure only the email that requires action on your part inhabits your Inbox.  Messages containing client requests, invoices, interview offerings, and “I’m in labor!” cries from your significant other – stuff like that.  Not a newsletter from Carnival Cruises – that can skip your Inbox and go straight to the “one day maybe” folder

Only email that requires action on your part should inhabit your Inbox.

All the other messages should skip your Inbox and go directly into their designated folder, to be checked at a designated time (or never), without grabbing your attention.

How to make sure that you’d actually check these non-urgent emails? Simple: put reminders. There are two ways to do it:

1. Designate 30 minutes a couple of times a week for “non-urgent” email-checking, put it on your calendar and let the calendar remind you to do it. It works especially well with the electronic kind – Google, iCal, Outlook, and the like.

1. “Snooze” the emails you don’t want to deal with immediately:  the message will re-appear in your Inbox when you can do something about it. Later today, or next week, or in a month – you decide. Some email software has this feature built-in, but frankly, it’s easier to install an app that works with your email to do that. Some of my favorites: RiteInbox or Boomerang, if you use Gmail, Mailbox to connect Gmail with iPhone (my personal life-saver) and SaneBox for anything and everything.

Another important rule – once you’re done with a message, archive it. Don’t leave it to sit and pollute your Inbox. Bottom line: Inbox with 4576 emails is a black hole. Inbox with 8 emails is a to-do list.

Delegation Whether you’re a solo-preneur, or a part of a team and therefore consider yourself at the bottom of the food chain, you can’t do everything that life throws at you. Some stuff has to be done by other people whether they report to you, collaborate with you on a task, supply your raw materials, or write your copy.

So … “Autopilot your delegation?” You mean “sending soulless robotic instructions to your team at pre-set intervals”?  Nope. I mean setting clear expectations, especially for stuff that has to happen every day/week/month.  “Automated delegation” means having a feedback loop, with clear checklists that address the big three: what’s done, what’s wrong, what’s next. Surprisingly, it also means greater respect from your staff, or your co-workers, or your contractors.

Time and a small amount of money you invest in automation will pay for itself very, VERY quickly. You’ll have more time to create money, and you’ll plug the leaks in your business that are costing you money now. This is obviously great. What I find even greater is the mental space, the inspired energy that is suddenly freed up when the overwhelm subsides, stuff gets done, and I am free to create.

Marina Darlow is the founder of VisionFramework a company that builds small, purpose-driven businesses and non-profits from the inside, helping entrepreneurs run their companies with ease, putting effective, easy-to-use, and fun (yep!) systems in place.

Q: “Why did the State revoke my charter? #$???!!
–Cursed in Cranston (Rhode Island)
A: Incorporation and organization (the rough equivalent of incorporation for LLC’s)  are established under the auspices of state government.

As such, your entities must generally file reports and pay fees, usually annually and to the Secretary of (your) State, to remain in “good standing.” The renewal forms are generally easy — we are not talking a tax return here — and the fees can be less than $100. Often you can do the transaction on-line.

Failure to renew can result in the revocation of your corporate charter — in other words, your entity is no longer legit in the eyes of the law and you have forfeited your legal shield.

(Yes, my firm can help you incorporate. And  to make sure you “incorporate right”, click here. )

Q: They didn’t tell me!
–Furious in Philly
A: I’m skeptical.  States are required to notify you. (Renewal dates vary — in Rhode Island for instance,  non-profits  renew in June, LLC’s in September and October, and corporations in January and February.)

Notifications are sent to whomever you designated as the “resident agent” (or equivalent title) when you first registered. That could be your lawyer if your lawyer is handling the renewals, or it could be you.  Did you move and not notify the state? (There are appropriate forms.) Or was it the original founder, who long ago sped away? Or are you a non-profit and the original board resigned in a food fight two years ago and no one remembers?

Doesn’t matter! It’s your responsibility — as the executive director or board chair. And it’s easy to check — most states have a “corporate database” that is online and publicly available. You can find out the current status and view current filings. Sometimes I am the one to tell the client — “you’ve been revoked!” Why don’t you check right now? Click here for Rhode Island and here for Mass.

Q: I can always reinstate — right?
–Ridiculous in Revere
A: Oftentimes yes,  but this is not a great way to operate. (I have one client for whom this is an annual exercise.) For one thing, you lose the corporate legal protections in the interim. And then there is the time and the expense — you are at the whim of the state, which then also has the right to demand that all your obligations be made current before they reinstate you — so if you are behind on corporate tax returns or even sales tax returns — watch out.

COMING EVENT!

Eager to set your business up right? Come to my free presentation, “Structuring Your Self-Employment for Success”, at Rochambeau Library in Providence on September 16. Details here. Open to (members and) non-members of the Providence Entrepreneurs Meetup Group, the kind sponsor.

BECAUSE YOU ASKED

Back in 1975 I  co-authored a “landmark tenant research report” about a notorious Boston landlord, Maurice Gordon. It was a muckraking adventure and ran nearly 180 pages. Gordon was most infamous for a 1971 fire in Boston’s Fenway district.  Eight people died in a building lacking fire extinguishers and with bags of rubbish in the hall. Maurice, alas, was Jewish and there were protests at his synagogue.

The accompanying cartoon, from the Boston Phoenix, part of a collage in the book, is a commentary on Gordon’s close  ties to then Boston Mayor Kevin White, in the top hat.

My elaborately detailed report, with news clippings and flowcharts of connections, was summarized and reprinted in a series in a local newspaper. See below.

I totally loved the project, which I also managed to use as credit for two college courses at Boston University.

Because you asked. And by all means, keep asking.

From a presentation at Social Enterprise Greenhouse