Tag: small business

New Rules for Deducting Business Meals and Entertainment Under Tax Reform

New Rules for Deducting Business Meals and Entertainment Under Tax Reform

Prior to the Tax Cuts and Job Acts, a business owner generally could deduct 50% of business related meals and entertainment expenses. Meals provided to an employee on the business premises for the convenience of the employer were generally 100% deductible.

These expenses are treated differently under the new tax law.

How will meals and entertainment expenses be affected?

Entertainment expenses are now completely nondeductible, regardless of whether they are directly related to, or associated with, the taxpayer’s business, unless an exception applies. One of those exceptions is for “expenses for recreation, social, or similar activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees.”

Under the new tax law:

  • Office holiday parties remains fully deductible.
  • Expenses for entertaining clients (including tickets for sporting, concert, and other events) were 50% deductible. The 50% deduction included the event tickets up to face value. Beginning January 1, 2018, these expenses are nondeductible.
  • Business meals and employee travel meal expenses remain 50% deductible.
  • Expenses for meals provided for the convenience of the employer generally were 100% deductible. Beginning 1/1/2018, they are 50% deductible. After 2025, they are nondeductible.

What should a business owner do to prepare for this change?

Update your general ledger to segregate expenses into accounts earmarked as 100%, 50%, or nondeductible. Having the expenses categorized at the time they are incurred will save a lot of effort come tax time. This practice will also allow your tax preparer to clearly identify which expenses are deductible and avoid errors in your tax filing.

We’ve got your back

At KRS, we’ve been tracking tax reform legislation closely and are ready to assist you in your tax planning and preparation so that you’re in compliance under the reformed tax law. Don’t lose sleep wondering what impact the new tax rules will have on you, your family, or your business. Contact me at 201.655.7411 or [email protected].

Food Industry Trends and More: Notes from the Summer Fancy Food Show

Maria Rollins at the Summer Fancy Food ShowWhenever a local industry trade show aligns with a KRS service offering or niche I look forward to an opportunity to get out and network with its exhibitors. I also find that the breakout education sessions are extremely relevant and offer insight to the business challenges faced by industry members. Recently I had the opportunity to attend the Specialty Food Associations’ Summer Fancy Food Show in New York City.

I was drawn to this particular show because we have many clients who are in the food and beverage industry. In addition, I am a “foodie” and was enticed by the thought of spending a day in New York City networking while sampling the latest in specialty foods and beverages.

The show lasted for four days and although I only attended the last day (usually the day with the most giveaways) I was able to get a flavor for many product and business trends. Here’s just a sampling of what I learned.

Hot product trends and business challenges

In light of the shift in consumer demand from processed foods to healthier options, I wasn’t surprised to see gluten-free, vegan, raw and “sugar conscious” products as the hot items on exhibit. Many of the dessert and snack items I sampled were marketed as gluten-free and many amount were also dairy-free and vegan.

As the gluten-free trend continues, manufacturers will face challenges in production when gluten-free and gluten products are manufactured in the same facility. The gluten-free trend will also continue to boost the need for gluten-free flour substitutes such as coconut, corn and rice flours, in addition to other ingredients needed to improve texture and consistency.

Shelf-life of gluten-free products can also be a business challenge. Many exhibitors stressed the shelf-life of their products since many of the ingredients in these gluten-free alternatives result in a shorter shelf-life compared to full gluten products.

Many of the beverage samples offered by exhibitors continued the “healthier” option theme and were low sugar alternatives to traditional sodas. Flavored waters and spritzers containing organic juices, apple cider vinegar or Acai berries were positioned as healthier alternatives to sugar-laden sodas.

I also saw many dairy-free and vegan products exhibited by small businesses and start-ups. Many of the small business exhibitors I spoke with are challenged with expanding their distribution beyond their local geographical region. Attending such premier show was an important way for these companies to get their products in front of the many distributors and buyers attending.

All the small businesses and start-ups I spoke to have e-commerce sites and will ship their products to consumers. We talked about how important e-commerce is to their growth and how it requires that they invest in technology. I also listened to panelist Monica Schechter, specialty and international food category manager at Jet.com and Walmart.com, who cited technology as a catalyst to finding new products and assisting with the discovery experience through online searching and shopping.

Turning a food idea into a successful business

My favorite experience at any trade show is talking to the exhibitors and learning the story behind their product or brand. Many are family businesses or friends who came up with an idea. They are passionate about their ingredients and the quality of the product they deliver to their consumers. As an accountant working with many start-ups and “well-seasoned” businesses, I find these stories are refreshing and often heart-warming. Common for start-ups, these stories usually include a business mistake or two they encountered along the way. After all, having a great idea is only the first step. A successful food manufacturer must build their brand, secure efficient manufacturing, seek distribution channels, set pricing, manage inventory, finance the business and market their product. The most successful businesses deliver their product more efficiently than their competitors.

My advice to small businesses and start-ups is to seek out help from professionals and mentors. I recently spoke to one food manufacturer who has grown a significant business and now offers advice to those entering the market. They are willing to share their challenges and how they overcame obstacles in growing their business.

Moving Up from the Food Truck? Here Are Some Tax Topics to Consider

Useful Tax Tips for Expanding Your Fledgling Food Business

Tax considerations for food businessesCongratulations! You started a food service business in a food truck or completed a proof of concept on wheels or in temporary space. Now you have made a business decision to expand and operate a brick-and-mortar location.

Here are some tax considerations you should consider as you move forward with your business venture:

Choice of Business Entity

If you are creating a new legal entity for the brick-and-mortar location or never formally created one for the prior business, it is essential to consider a legal form that protects you from personal liability, such as a limited liability company (LLC) or corporation.

Unlike other industries, most successful restaurants have a substantial amount of daily foot traffic along with employees engaged in physical activities. These activities increase the likelihood a person could be injured on the premises. For instances where there are potential claims, an owner would want the business, not him personally to be responsible for any liability.

Along with the limited liability aspect of entity choice are income tax considerations. Every entity is different and you should meet with your tax professional to discuss the entity choice. Discuss the advantages and disadvantage of Corporations, S Corporations and Limited Liability Companies all of which provide legal liability protection, but have differing tax consequences. Tax issues that should be considered include:

  • Sale of the business
  • Use of losses
  • State tax issues
  • Compensation package
  • Complexity of organization structure

Tax Credits for Restaurants

There are several tax credits available to small business employers including restaurants, which may qualify for one or more of the following tax credits:

Cost Segregation Studies for Accelerated Depreciation Recovery

A cost segregation study is an in-depth analysis of fixed asset expenditures that identifies proper cost recovery periods for tax deprecation purposes.

Typically, restaurant building components are classified with longer depreciation recovery periods of 15 to 39 years. Utilizing a cost segregation study, certain items may be identified as having shorter recovery periods of 5 or 7 years. A shorter recovery period would accelerate depreciation expense and result in reduced current income tax liabilities.

Income from Gift Cards

The purchase and use of gift cards has significantly increased in popularity, as a result the IRS has focused more on compliance.

Amounts received for the sale of gift cards generally are included in income in the year of receipt, which may not be the same year the gift card is redeemed. However, taxpayers have the ability to elect a one-year income deferral method. Under this method, revenue from unredeemed gift cards can be deferred to the first taxable year following the year of receipt. As a restaurant owner, be sure to pay special attention to the tax treatment of gift cards to ensure compliance, and take advantage of income tax deferral opportunities.

Have you recently opened or are you in the process of establishing your new food service business? If you’d like to speak to us about tax considerations please contact me at [email protected] or 201.655.7411.

Choosing The Right Accounting Software

Get the Accounting Software Your Small Business Needs to Succeed

If you are looking for an accounting system for a small business you may want to start by reviewing the features included in prepackaged solutions such as QuickBooks or Xero. These are relatively inexpensive and can be set up and functioning quickly with some user training.

Businesswoman working on laptop.Depending upon the version purchased, these packages will offer the user the ability to perform basic bookkeeping functions such as

  • Creating estimates and invoices
  • Syncing bank or credit card accounts
  • Printing checks
  • Reconciling bank accounts
  • Exporting data to Excel
  • Maintaining a General Ledger
  • Providing basic financial reports such as Balance Sheet and Profit & Loss statements.

If not offered in the basic versions, more advanced features may include preparation and printing of 1099’s, payroll, inventory tracking, time & billing, budgets, and enhanced financial reporting. In addition to the pre-packaged accounting software, there are many add-on applications that can automate many business processes.  For example, applications are available to provide point of sale solutions, enhanced inventory management, paperless bill-pay processes, employee expense/reimbursement processing and sales tax automation. There are even CRM and document management add-on applications available to help manage and grow your business.

Do your homework before buying accounting software

Not every app will integrate with every software package or version so it is important to do your homework. And if remote access is important to you, many packages offer both cloud-based and desktop versions of their software. Be sure to compare the features offered in each since certain functionality may be available in one and not the other.

It is also important that the system you use for your business provide an audit trail and the ability to lock down closed accounting periods. These functions will protect the integrity of the data and limit unauthorized posting or deletion of data.

Accounting software for a growing business

So what do you do when you believe you have outgrown the small business packaged software solutions such as QuickBooks or Xero?

First, be certain that it is the accounting software that you have outgrown and not your operational software. For example, a large volume distributor may have intricate inventory management, markup and costing operational needs that are best managed through industry-specific operational software. If this is your dilemma, then it is not only necessary to evaluate the accounting functions of the software; most often, the operational functionality will take the lead in the selection process.

Although they are getting better, we often see excellent industry-specific operational systems that lack functionality and integrity on the accounting and financial reporting side. In these circumstances, it is important to determine if the benefits of operational reporting outweigh the accounting functionality. If so, some customized software enhancements may be needed at additional cost. These operational and accounting software packages will be much more costly than packaged software and require significant training for all users. Most often it is recommended to run a new system simultaneously with the prior system until the integrity of the data can be tested and trusted.

In either scenario your accountant should be able to help you in the software selection process. He or she should understand your business operations, user needs and reporting requirements and be able to offer valuable insight in your selection process. Your accounting software should allow you to process transactions efficiently and provide financial reporting that will help your business be more profitable.

If you have questions about choosing the right accounting software for your small business, KRS CPAs can help. Give me a call at 201.655.7411 or email me at [email protected]