The Entrepreneurial Operating System: Six Steps to Success

How working with a business advisor who lives by the EOS can benefit your business

Running a business has ups and downs, wins and losses, good days, and, well, terrible days. You may often wonder why you started your own business, and sometimes why you didn’t do it sooner. These are all normal swings that entrepreneurs across all industries face because, frankly, it’s hard work.

Wouldn’t it be nice if there was a system—a proven guide—that provides the tools and solutions you need to smooth out the wrinkles in your business plan and facilitate growth?

The Entrepreneurial Operating System (EOS) may be that solution. The EOS is comprised of tools and concepts that achieve clarity, improve ROI, and help you see the results you want from your efforts.

What is the EOS, and why should you work with an advisor who lives by it?

Breaking down the EOS model

The EOS isn’t like an “operating system” on your computer or smartphone in that you install it, forget about it, and it functions. Think of it as a blank canvas that you work on, building a model around your products and services. It’s made up of tools, software, and concepts that change the way your organization operates and approaches its vision and goals.

As the EOS website puts it, the system “combines timeless business principles with a set of simple, practical, real-world tools to help entrepreneurs get what they want from their businesses.”

The EOS focuses on six key components of any business:

  1. Vision. A business can’t fully succeed unless everyone across the business is on the same page—aligned on the organization’s mission, goals, and vision.
  2. People. It’s a requirement to hire and surround yourself with exceptional people if you want your business to be exceptional. Your success will ultimately depend on the people you work with and trust with your business goals.
  3. Data. Numbers matter for business growth. Often, you have to put emotions aside and look at the facts to know what’s working and what isn’t. This means sometimes going beyond your gut instincts and actually analyzing data.
  4. Issues. Problem-solving as a team should be a huge priority for your organization. Once you have your vision, people, and data going strong, you can collectively and successfully approach and manage issues.
  5. Process. Your business is run by processes. Identifying and documenting your processes will help you figure out what defines your business and how you can nail down which procedures and steps are essential and which aren’t. Then, you can communicate what you learned across the organization so that everyone knows the drill.
  6. Traction. This point is about making sure that everyone in the organization actually carries out practices that help the business reach its vision. This requires team-wide focus, discipline, and accountability.

Based on these key areas of business, an EOS advisor can provide training and support so you can easily implement the tools into your workflow.

The EOS has certified Implementers who guide you and your leadership team through the EOS implementation process. This starts with a 90-minute meeting, during which you get an overview of the tools and how the EOS can help your business.

Your team then takes part in focus days and value-building days and then sets up quarterly and annual sessions. These regular sessions help the team measure success and stay aligned on goals and outcomes.

Another feature of the EOS is the Level 10 Meeting, which is a weekly hour-long phone call with a partner. This tracks the health of your business and allows you to touch on goals and issues.

Why work with a business advisor who lives by and helps you implement the EOS?

No matter the type of business you run, the EOS is a secret weapon to help you reach your goals and define and achieve your vision. One of the model’s best qualities is that it applies to small, medium, and large businesses.

Working with a business advisor who uses the EOS model is a smart step forward. The six key components outlined above give you and your team more transparency into what’s going on across the organization, better alignment on goals and processes, the use of data to make fact-based decisions, improved problem-solving skills, and the ability to actualize—and measure progress toward—the vision you’ve worked hard to create.

At Provident CPA & Business Advisors, we help you implement the EOS so that you can continue moving forward and align your team. You’ve spent a lot of time, money, and energy building up your business, and these tools and concepts can keep the momentum going—or pull your organization out of a stall. We provide proactive management solutions and growth and profit improvement services, in addition to our CPA services. We help you create a well-rounded and effective business plan, along with the strategic tax advice that enables your business to grow even faster.

Schedule a complimentary 90-minute meeting today, which starts the alignment process and introduces you to the EOS. Or just contact the team at Provident to learn more about all the services we offer for entrepreneurs.

A Basic Tax Guide for Nonprofit Organizations

Nonprofits, while tax exempt, still have to file all the proper information with the IRS to clearly highlight their finances and programs

It’s well-known that many nonprofit organizations are exempt from paying various federal income taxes under the IRS tax code section 501(c). However, this doesn’t mean that they have no responsibilities when tax time comes around.

In fact, nonprofits are tasked with providing many details about their organization’s activities each year, including finances and program information—even if they don’t actually pay taxes.

Here is a guide to nonprofit tax reporting, including an overview of tax exemption, form 990, and the information the IRS needs from nonprofits.

Tax-exempt status

So, what does being tax exempt really mean for both state and federal taxes? If an organization has a nonprofit status, they may be exempt from state sales, property, and income tax but, according to the IRS, that status alone doesn’t automatically make them exempt from federal income tax. For federal tax exemption, nonprofits must apply for recognition from the IRS and receive a letter that states they are tax exempt.

Exempt organization types include those that operate solely for religious, charitable, scientific, or public-safety purposes, as well as literary, educational, or similar services. Some political organizations may also be eligible for an exemption.

To maintain their tax-exempt status, nonprofits cannot turn over any of their earnings to any private shareholder or individual. In addition, the nonprofit cannot “attempt to influence legislation as a substantial part of its activities” or participate in political campaigns, which is called an “action organization” (lobbying).

Form 990

Form 990 is the IRS reporting document that all tax-exempt organizations must use each year when filing their tax return. This form is then available to both the IRS and the general public, so that the nonprofit’s activities can be viewed and accessed, in addition to its mission and finances.

There are a few different types of form 990, including:

Form 990

Form 990-EZ

Form 990-N

Form 990-PF

Typically, larger nonprofits that have more than $50,000 in gross receipts file either the form 990 or the 990-EZ. Smaller nonprofits with gross receipts of $50,000 or less can file form 990-N. Private foundations file form 990-PF.

Do all nonprofits have to file a form 990?

Though most nonprofits must file an annual return, there are some types of nonprofits that are not required to file a form 990 at all. These include organizations like religious organizations, some state institutions, and some governmental units. A full list can be found on the IRS website.

If a nonprofit organization fails to file a form 990 when it is required to do so, penalties will be imposed from the IRS. And, the IRS states that if filings for three consecutive tax years are missed by an organization, its tax-exempt status is automatically revoked. The IRS cannot undo a proper automatic revocation by law—and to get tax-exempt status again, the organization has to reapply.

Information nonprofits must provide to the IRS

Form 990 includes information about a nonprofit’s operations, including its mission, programming, finances, and other details about the way the organization is run. This document is intended for both the IRS and the public to view. The community can fully observe the nonprofit’s impact and their sustainability, and this transparency drives decisions from both individual and organizational donors.

The 990 summarizes the activities of the previous year, essentially making the organization’s case to continue operating and maintaining its tax-exempt status. Donors can view these forms online if they’re interested in providing support to a nonprofit, and it allows them to see where the organization gets its revenue, what its expenses are, and if it has any cash reserves.

In addition, details like what nonprofit employees are paid and a list of board members are also included in the reporting, which further opens up the nonprofit for public scrutiny.

Nonprofits have a big advantage come tax time in that many are exempt from paying federal income taxes and state taxes. This is intended to help these organizations continue to be sustainable as well as support the charities and causes that need their help.

However, it’s important to remember that there are still tax responsibilities for nonprofits, including filing the 990 form each year and maintaining the tax-exempt status.

If you have questions about your tax responsibilities, the experts at Provident CPA & Business Advisors can help. In addition to tax services, we also provide services that can improve the way you run your business including proactive management systems, the Entrepreneurial Operating System (EOS), and growth and profit improvement strategies. Get in touch with us today to learn more about our services.

What Businesses Should Know About Charitable Contributions

In a perfect world, all charitable donations by businesses would be tax deductible. Unfortunately, there are caveats that entrepreneurs must know

It seems like tax law is always changing. As an entrepreneur, you’re tasked with keeping up so that your business follows all regulations while making sure you understand all of the tax breaks available to you.

The treatment of charitable contributions is an area of tax law that can be particularly complex and hard to understand. While tax benefits aren’t always reasons to start giving to charity, deductions have existed for many years for some charitable contributions.

What are the caveats, and what contributions are deductible? Here’s an overview of what the IRS has to say, as well as recent changes implemented in 2019.

Itemizing to deduct

Perhaps the first thing you should know is that charitable donation deductions are only applicable if you decide to itemize your deductions on your tax return. Many taxpayers take the standard deduction, as it’s often higher than a potential itemized deduction. However, charitable contributions can only be deducted if the taxpayer decides to itemize instead of taking that standard deduction (a figure which was raised by the Tax Cuts and Jobs Act).

If you’re itemizing and made charitable contributions, you can deduct up to 50 percent of your adjusted gross income (AGI)—but in some cases, limitations apply to the tune of 20 and 30 percent. If property is donated, the full fair market value may be deducted, thought adjustments may apply if the property’s value has appreciated.

Types of applicable donations

Qualifying contributions by either corporations or individuals can be cash, financial assets, or property, such as real estate.

The IRS lists the following types of organizations as qualifiable to be considered charitable contributions:

  • A donation made for public purposes to the U.S., a state, or U.S. possession or political subdivision thereof
  • An organization (community chest, corporation, trust, fund, or foundation) that operates exclusively for charitable, religious, educational, scientific, or literary purposes, prevents cruelty to children or animals, and is organized or created in the U.S.
  • A religious organization such as a church or synagogue
  • An organization for war veterans
  • A nonprofit volunteer fire company
  • A federal, state, or local civil defense organization
  • A domestic fraternal society, if the contribution is used only for charitable purposes
  • A nonprofit cemetery company, if the contribution is used for the care of the cemetery as a whole

These contributions have to be made before the end of the tax year.

New 2019 regulations

Earlier this year, the IRS and the U.S. Department of Treasury issued final regulations that impact charitable contributions. Taxpayers must now lower their deductions by the amount of state or local tax credits they get or expect to get in return. Taxpayers must also treat their payments in exchange for these credits as state or local tax payments.

The IRS is also offering a safe harbor to allow a taxpayer who itemizes their deductions to treat payments that are charitable contribution deductions as state or local taxes for the purposes of federal income tax on their tax return.

These final regulations went into effect on August 12, 2019, and apply to applicable contributions made following August 27, 2018.

Business expense for C corporations

The above guidelines apply to individuals and if you run a small business that is a pass-through entity (a qualifying sole proprietorship, partnership, LLC, or S corporation). If your business is a C corporation, meaning it is not a pass-through entity, it is considered separate from the business owner come tax time. Income is thus taxed at the corporate level as well, creating a potential double-taxation situation.

But one benefit of this business structure is that C corporations can actually write off charitable contributions as business expenses. And donations that are above the limit can be carried over into subsequent tax years.

Making charitable contributions is a worthy move. And while tax benefits may not always apply—especially if it’s more worth it to you to take that standard deduction—you could end up seeing benefits if you decide to itemize and have made the qualifying donations under tax law.

It’s always important to stay up to date with the latest tax changes. At Provident CPA & Business Advisors, we work with entrepreneurs like you, helping you pay the least amount of tax legally possible. We can help you understand the ins and outs of regulations and which approach will get you the most benefit when April rolls around.

Contact the team at Provident today to learn more about our tax and business services.

How the Tax Cuts and Jobs Act (TCJA) Impacts Small Businesses

Operating a small business is a challenge, and under-the radar tax changes can make things all the more complex. Here’s what entrepreneurs should know to avoid any costly mistakes

In 2017, the Tax Cuts and Jobs Act (TCJA) was enacted, bringing changes for both businesses and individuals in the 2018 tax year and beyond. As a small business owner, how does the TCJA directly impact you? What are the most important changes to be aware of and how can you avoid making mistakes come tax time?

Here are some key things you need to know about the TCJA changes and impacts.

Qualified business income deduction

For the first time, a qualified business income deduction provision was introduced under the TCJA. This means that if you run a pass-through entity—a business that operates as a sole proprietorship, partnership, S corporation, and some trusts and estates—you can now deduct a maximum of 20 percent of business income.

This deduction was available beginning with 2018 tax returns, and there are limits that may apply depending on the type of business you run and your income.

Corporate income tax rate

The TCJA also made a substantial change to the corporate tax rate. The top tier was 35 percent prior to the TCJA, and it is now 21 percent. C corporations previously had tax rates ranging from 15 to 35 percent, and personal service corporations (PSCs) had a flat 35 percent tax rate. PSCs can now take advantage of the 21 percent rate as well.

Entertainment expense deductions

Before the TCJA, businesses could deduct half of entertainment expenses that were directly related to business conduct. Those deductions are now eliminated for any activities that are considered entertainment or recreation, but you can still deduct 50 percent of meals related to business, as long as they aren’t considered “lavish or extravagant.” This only applies to food and drinks, and so these costs would have to be separate from any entertainment expenses if the two were combined in a business-related activity.

Depreciable business assets

Changes were also made to the maximum deduction related to qualified business assets for your business, which can include equipment, machinery, software, and the like. The deduction previously capped out at $500,000, with a phaseout threshold of $2 million, but the TCJA raised the maximum to $1 million and the phaseout threshold to $2.5 million.

The new law also added certain nonresidential real property improvements to what qualifies as an asset under this section.

Bonus depreciation

The TCJA implemented a temporary bonus depreciation percentage that is 100 percent for qualified property acquired after September 27, 2017 and before January 1, 2023. This means you can write off the full cost of qualifying depreciable property in the first year that you use it in your business.

Property that falls under this category has a “recovery period” of 20 years or less, and could be machinery, equipment, computers, appliances, etc. Some film, television, and live-theatrical productions could also qualify.

Corporate AMT repealed

The TCJA repealed the corporate alternative minimum tax (AMT), which was previously 20 percent. This applied to corporations with more than $7.5 million in annual gross receipts. While this didn’t apply to many small businesses, it still impacted some medium-sized organizations and is thus a win for many business owners.

Employer credit for paid family and medical leave

If you have employees, you may now be able to claim a credit for paid family and medical leave, depending on qualifying conditions. This is a new provision added by the TCJA, and applies to wages paid after December 31, 2017 and before January 1, 2020.

The credit is a percentage of employee wages that were paid while he or she was on family or medical leave for up to 12 weeks per applicable tax year. This percentage ranges from 12.5 percent to 25 percent, and is determined based on the percentage of wages that were paid during the employee’s qualifying leave.

Opportunity zones

Another new provision that the TCJA added was for opportunity zone investments. Tax benefits for these investments are meant to help improve economic conditions and the creation of jobs in distressed U.S. communities.

Under the new law, investors may defer capital gains tax temporarily on gains that are reinvested into Qualified Opportunity Funds (QOFs). The deferment can last until the earlier of the selling or exchanging of the QOF or December 31, 2026.

If the investment is kept in the QOF for at least ten years, a permanent exclusion of capital gains from selling or exchanging may apply. Participants can be either individuals or businesses.

Any time the tax law changes, small businesses will likely see some kind of impact, whether positive or negative. The most important thing you can do is to understand the revisions so you don’t make any mistakes when filing your tax returns—or leave money on the table because you weren’t aware of deductions or credits you qualify for.

The professionals at Provident CPA & Business Advisors are ready to meet with you so that you don’t miss any changes or opportunities. Contact the team today to get started, and learn why we specialize in helping business owners like you minimize their taxes.