The 2 Faces of KPIs: People and Organizational Performance

KPI can refer to key performance indicator or key person identification. Both of them are important for business growth and performance

The success of a business depends on a multitude of factors, from marketing to growth strategy to operational efficiency. But people really drive performance, and learning how to identify and measure weak links is a crucial step in the path to growth.

The term KPI is largely used in two different business contexts. Key performance indicator is a well-known term in the marketing world, as well as within operations management and analytical decision-making. And key person identification is also vital for many business strategies.

Though these definitions of KPI represent different concepts, they’re related. Knowing how to capitalize on both of them can make all the difference to performance.

Key performance indicator

Key performance indicators (KPIs) help a business track its progress toward specific goals and growth. A KPI is some kind of measure that tracks performance, allowing businesses to understand whether or not goals are being reached. KPIs help team members focus on a specific part of the business to measure success and help them create and evolve strategies and tactics based on data.

These kinds of KPIs require target setting and progress tracking, as well as indicator improvements and updates throughout the process. KPIs that improve business performance must show evidence of progress, must accurately measure the targets that have been set, and must be able to track important factors of operations including quality, timeliness, and efficiency.

KPIs can be related to varying aspects of the business including:

  • Financials
  • Customer metrics
  • People or employee metrics
  • Process and operations
  • Strategic measures
  • Project tracking

Key person identification

Now let’s look at the other definition of KPI: key person identification. This concept involves identifying who should be considered key personnel within the organization—those who perform essential functions for the business. Because the most important business operations and decisions are made by individuals, this knowledge is a crucial part of establishing a high-performing organization.

In the event of a disaster, for instance, you must know what tasks must be completed and by whom. This version of KPI asks: Who is performing vital functions?

Identifying these individuals first requires businesses to create a list of vital functions, and then recognize the personnel who perform them. It’s an important part of any company’s emergency preparedness plan. The contact information of these people should be saved with the plan, as well as a second list of individuals who could perform these functions if the key personnel aren’t available for some reason.

This is not limited to having redundant skills or retaining individuals to deal with emergencies, however. Placing the right key individuals in the proper roles—and, ideally, duplicating their skills in others—is vital to both consistent operation and scalable growth. Many businesses are limited by the centralized talents of certain employees or the fact that they put the wrong individuals in the wrong positions.

Key personnel have usually been with the organization for a long period, they have performed well in their role, they are trustworthy, they know where important business information resides, and they have a lot of knowledge about their given department and the business as a whole.

KPI helps businesses avoid the risks of key-person dependency (KPD), which include losing valuable knowledge and even revenue if a key person is lost. KPD risk occurs when a business could see losses in productivity, profits, or even reputation if a key person leaves.

These risks can be combated with back-up plans, having multiple key people learn and do the same tasks, and instituting a succession plan. Another strategy is purchasing key person insurance, which helps a business pay its bills and function while it finds a replacement after the loss of a vital employee.

The 2 faces of KPI are related

Business performance depends on both types of KPI. If measures can be identified and used for decision making, and if a plan for key personnel is put into place, your business can see big impacts on performance and steady growth. Tracking key performance indicators helps you to identify key personnel, so one informs the other.

The EOS (Entrepreneurial Operating System) is a solution that helps your business identify key people and key performance indicators.

You can create and share your vision so that everyone is aligned across teams, ensure that the vision is being executed, and help leaders become and stay effective. Quarterly rocks, annual goals, and three-year goals, as well as many other benchmarks, are assessed, in part, by defining key performance indicators.

The People Component of the EOS focuses on the individuals who drive performance. It provides an accountability chart that delineates the structure, roles, and responsibilities of employees to help keep you on track to growth. Also included is the People Analyzer, which helps you identify whether or not your people are right for the business, a specific role, and your vision. It evaluates an employee’s GWC: whether a person Gets it, Wants it, and has the Capacity to do the job.

Provident CPA & Business Advisors helps entrepreneurs utilize the EOS to get the most out of their business, helping them evaluate their people and performance components to ensure they have the tools for success. Contact us today to learn more.

Why the Wayfair Ruling Matters for Sales Tax

Physical presence in a state no longer determines the sales tax that’s due. What does this mean for retail businesses?

Sales tax is not always a straightforward topic for today’s retailers, especially with online retail booming and all of the uncertainties in the market due to differing state economic nexus laws.

According to a Deloitte poll, 75 percent of retailers said that their business isn’t or is only somewhat prepared to adequately calculate, collect, and remit sales tax after the South Dakota v. Wayfair case last year. This ruling overturned the precedent that physical presence is required in a state for a retailer to collect sales tax from that state’s purchasers. A third of respondents in the survey said that decisions regarding taxability would be their biggest compliance challenge after Wayfair.

The Wayfair ruling definitively removed the physical presence requirement for state sales tax to be imposed and there are other important compliance considerations for retailers moving forward. Let’s take a look at what the Wayfair case was all about and how it will continue impacting retail businesses in the future.

What happened in the Wayfair case?

In June 2018, South Dakota won a suit brought against the e-commerce giant Wayfair that had escalated to the Supreme Court. The case was centered around the argument of whether or not businesses have to be physically present in a state in order to collect and remit state sales tax.

The court’s ruling overturned a 1992 Supreme Court decision that had interpreted the language “substantial nexus” as a physical presence requirement for a state to impose sales tax on retailers. The new Wayfair ruling determined that an economic” presence in a state creates sales tax nexus, not just a physical presence.

The outcome essentially eliminated physical presence as a requirement for sales tax in South Dakota, as long as the seller meets the following economic criteria:

  • Gross revenue from tangible personal property sales, products transferred electronically, or services delivered into the state is more than $100,000.
  • Tangible personal property was sold, any product was transferred electronically, or services were delivered into the state in 200 or more separate transactions.

In short, as long as these revenue and transaction thresholds are met, retailers are obligated to collect and remit state sales tax if they do not have a physical presence in South Dakota.

This is a significant ruling, as there are a massive number of internet retailers that sell within states where they have no physical locations. The court found that the law in South Dakota “minimizes the burden on interstate commerce,” according to the Tax Foundation, and other states will likely follow suit, or the broader economic nexus laws they already have in place will stay standing.

How does this impact retailers?

Because of Wayfair, online retailers will likely be required to collect and remit sales tax in more states than they did before the ruling. More careful attention will need to be paid moving forward to ensure that these businesses are collecting and remitting all necessary sales tax on these transactions, which can become complicated.

Deloitte outlines actions that retailers can take to ensure they’re aligned with the changes brought by Wayfair. Key among these are:

  • Identifying and prioritizing all of the jurisdictions where the retailer’s business takes place
  • Making sure that practices are aligned with the statutory regimes within those jurisdictions
  • Updating policies to align with any new tax-filing procedures and requirements
  • Coming up with strategies to become and continue to be compliant
  • Considering other indirect tax impacts that may arise because of these changes

Other steps you can take include educating stakeholders, identifying any new technology and IT system requirements, and developing a plan to deal with any gaps and increased exposures in the business.

It’s also important to continue to monitor any changes in state regulations to ensure that you’re not putting your business at risk for liabilities related to uncollected or unreported tax. While economic nexus laws haven’t been applied retroactively to online retailers, it’s time to ensure you’re compliant moving forward.

Your best bet? Talk to a tax professional to come up with the right action plan. This will ensure that you’re not missing anything crucial for your tax liability as state sales tax laws may continue to change.  Get in touch with the team at Provident CPA & Business Advisors to discuss your options and your plan for the future.

How Business Partnerships Are Taxed

Working with a partner brings its own particular set of tax rules. Entrepreneurs should be aware of them to avoid penalties and risks

A partnership is a particular type of business structure that has its own set of tax requirements. There are several benefits to forming partnerships, including the combined skills, knowledge, and resources of the co-owners. And understanding how they operate is key to understanding each year’s tax responsibilities.

The IRS classifies partnerships as pass-through entities, meaning that they are not separate entities from their owners. Each partner contributes something to the business, whether it’s property, labor, or money, and then receives a share of the income or loss.

Instead of partners receiving a regular salary, as they would as an employee, they get a certain amount of money each year based on their share of the partnership, which is usually outlined in a partnership agreement.

Tax reporting requirements

Come tax time, partnerships don’t have to pay income tax themselves. All income and losses are passed through to the partners, who then report that income or loss on their personal income tax returns, Form 1040, Schedule E.

Even though partnerships don’t pay federal income tax, an annual information return must still be filed with the IRS which reports the business’s income, deductions, gains, losses, and more. The forms that partnerships are required to submit are Form 1065, an informational return, and Schedule K-1, which delineates the partners’ shares of the business’s income and losses. Schedule K-1 is then filed with each partner’s personal tax return.

Partnerships also may need to file a state tax return and pay excise, franchise, or sales taxes. Since each state has different requirements, it’s important to work with a tax professional to ensure that you’re covering all aspects of your responsibilities.

Estimated taxes for partners

Because partners don’t have an employer taking out income taxes throughout the year, they must pay estimated quarterly taxes to the IRS on their share of profits. This amount is known as a partner’s distributive share, which is outlined in the partnership agreement. It’s important to note that even if this amount doesn’t match what a partner actually withdrew from the business, that is still the estimated amount on which taxes are owed.

These estimated self-employment taxes consist of Social Security and Medicare contributions that would normally be taken out by an employer. The bad news is that partners could end up paying twice as much in taxes than they would if they were a regular employee since the contributions made by employees are usually matched by the employer. The good news is that half of a partner’s self-employment tax contribution is deductible, helping lower the tax burden.

Pass-through and other deductions

As a partner, you may be able to deduct 20 percent of business income with the pass-through deduction that was introduced by the Tax Cuts and Jobs Act, known as the qualified business income (QBI) deduction. Owners of sole proprietorships, partnerships, S corporations, and some trusts and estates that meet certain qualifications can deduct up to 20 percent of their QBI, plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.

For 2019, $321,400 is the income threshold if a taxpayer is married and filing jointly, and $160,700 if they are single. As long as income is under this threshold, the pass-through deduction is 20 percent of QBI.

Other applicable deductions are the costs of the partnership operations, including travel expenses, start-up costs, and other small business tax deductions. These deductions lower your tax burden by lowering the profit you report to the IRS.

Working with a tax professional

Knowing the basics of how partnerships are taxed is important, but it’s a good idea to meet with a tax professional to ensure that you do everything correctly. Paying estimated self-employment taxes and claiming deductions are complicated for partnerships, so you never want to risk making a mistake or overlooking a tax break. This is especially crucial if you’ve just formed a partnership and are filing the informational tax return or are paying estimated self-employment taxes for the first time.

For strategic tax guidance, get in touch with Provident CPA & Business Advisors. We help clients pay the least amount of tax legally possible, help you get the most out of your chosen business structure, and work with entrepreneurs to maximize growth and profit.

Retirement Planning Tax Tips for Entrepreneurs

It’s never too soon to start planning for retirement. Tax minimization can be especially hard for entrepreneurs, who have to keep up with tax law and investment strategies while managing a business

Even if you’ve been doing everything you can to plan for retirement, expenses can add up fast if you’re not prepared in every area. Unfortunately, taxes can be one of the biggest unexpected expenses for retirees.

Retirement planning can be especially challenging for small business owners. It’s easy to focus on growing your business in the present and deprioritize saving for the future. Even more challenging is saving the same amount each month when you’re not sure if you’ll be making the same kind of money from one month to the next.

Keep these considerations in mind when planning for taxes in retirement:

Retirement accounts: Better to pay taxes now or later?

First of all, understand the types of retirement accounts available to you and their advantages. A big benefit of a 401(k), 403(b), or IRA is that you can avoid paying income tax on contributions now. For the self-employed, who may not have access to an employer-sponsored, traditional 401(k), a Solo 401(k) provides similar benefits. These solo accounts are often used by those who run a business with no employee program, and they can cover you and your spouse.

Of course, the above examples are tax-deferred accounts—avoiding income tax now but paying taxes on that income later, when you’re in retirement and receiving distributions.

This is how a Roth IRA can provide big benefits once you’re in retirement. You pay taxes on this money now, so the income you’re receiving in retirement is tax-free. Roth IRAs can be a good option for the newly self-employed or those with new businesses, because they take advantage of the tax bracket you’re in now when you’re starting out, versus when you’re in retirement.

That said, many people start saving for retirement assuming that they’ll be in a lower tax bracket when that time comes. However, that may not always be the case. Required minimum distributions on your tax-deferred accounts require that you start withdrawing money when you’re 70 ½, even if you don’t want to—so this added income can push you into the next bracket if you have significant income from other sources.

A Simplified Employee Pension Plan (SEP-IRA) is another option to consider if you’re an entrepreneur. This account is an IRA that gives business owners a simpler way to contribute to both their own retirement savings and their employees’ retirement savings. You can contribute up to 25 percent of your annual compensation, with a cap of $56,000 in 2019. That’s almost 10 times the amount you can put away with a traditional IRA ($6,000 if you’re under 50, and $7,000 if you’re 50 or older).

However, these accounts are generally better for the self-employed or those with few or no employees, since the percentage of your compensation that you contribute to your plan has to be the same percentage you contribute to your employees’ plan.

Banking on yourself with life insurance

Life insurance isn’t just protection for your loved ones after you’re gone. There are certain benefits that you can take advantage of along the way, including avoiding taxes on investment income. One strategy to help you build your retirement savings but avoid a big tax burden is to use tax-free loans from life insurance earnings. You are essentially borrowing money from yourself instead of a lending institution, and then paying yourself the interest plus repaying the loan to your life insurance policy.

This benefit is possible because your life insurance policy has been financed with money that’s been taxed, meaning its growth and your access to the funds are tax-free. Another benefit is that this money doesn’t have the required minimum distribution requirements that other retirement accounts impose.

Defined benefit plans, cash balance plans, and more considerations

Defined benefits and cash balance plans differ from IRAs and 401(k)s in that they allow you to make larger contributions for retirement. Those contributions lower your income and thus lower your current tax burden.

There are of course many considerations for retirement planning outside of tax obligations, such as creating a will and a healthcare directive and assigning a financial power of attorney. But tax minimization is key, allowing you to realize huge savings that can be used for things like housing, travel, and healthcare in retirement.

Provident CPA & Business Advisors is committed to helping you plan for your future. We help with tax minimization, growth and profit improvement, and succession planning. If you’re a small business owner who needs to develop a smart tax strategy, get in touch with us today to create a plan that’s best for you.

How Technology Is Changing Professional Tax Preparation

Technology is altering every sector, and taxes are no exception. Big strides are being made to revolutionize the field, and more changes are on the horizon

Tax professionals are tasked with updating their practices to meet changing technologies. As a taxpayer, what does this mean for your taxes? What’s already changed, and what can you expect soon?

Here are some of the ways that technology is impacting the tax industry right now, and a look at what might be on the horizon:

Everything paperless

Digitization has drastically changed both business and accounting. A McKinsey Global Survey revealed that more than 8 in 10 respondents said their organizations have made large-scale efforts to take advantage of digital technologies over the last five years.

Offices around the world are committing to a paperless workplace and processes, with almost all documents being stored, created, and transferred online. Tax professionals are also making the move to paperless. What does this mean for taxpayers?

  • Access to important documents from anywhere with an internet connection
  • Ease of document sharing
  • All documents stored securely in one place
  • Tasks can be done quicker and easier

Part of going paperless is embracing cloud computing through common tools like Dropbox, Google Docs,  or iCloud. The key benefit of the cloud—beyond easier file sharing—is that vital tax information is automatically backed up.

Communication methods

Technologies are updated and introduced all the time, and taxpayers expect their accountants and tax professionals to adapt. This includes having the option to conduct video conferences and greater communication online or via text message. Features like chatbots and virtual assistants will likely make their way into common use in the tax industry as well, spurring more efficient and timely answers to key taxpayer questions.

Online dashboards are becoming more and more popular, where clients can view their data and important information in an easy-to-use format that’s created after data analysis. These data visualization tools give taxpayers transparency about their tax information and fees, as well as various compliance requirements.

Cybersecurity risks

One big factor in the changing technology used in accounting is online security and safety. Tax season continues to be a major opportunity for cybercriminals to get their hands on personal and financial information. Unfortunately, hackers are continually altering their approaches to get around new safeguards.

The IRS recommends that taxpayers employ security software on their devices, such as firewalls and anti-virus protection, ensuring that it automatically updates and is always running. It’s also smart to encrypt tax documents that are stored on computers and to use strong passwords for accounts.

The IRS also advises taxpayers not to share personal information unless it’s being sent to a trusted source, to learn how to detect “phishing” emails and scam “vishing” calls, and to avoid downloading attachments when they’re sent from an unknown source.

Artificial intelligence and data analytics

Artificial intelligence (AI) is revolutionizing all industries on a global level. In the realm of taxes, the ability to sift through big data to provide detailed reports and analytics is a potentially huge benefit for taxpayers and tax professionals alike.

AI can ensure that necessary compliance requirements and any rules and regulations are being met, plus ensure that security procedures are in place. Errors or misstatements, whether they’re related to mistakes or malicious activity, can be detected and corrected with automation.

Machine learning detects patterns in large amounts of data which can be analyzed faster and speed up informed decision-making. As with many industries, AI has the potential to make tax preparation more efficient, and substantial cost savings will be seen once certain complex processes become simpler and faster.

According to the Journal of Accountancy, organizations should implement processes that document and capture more granular data to prepare for the coming changes that AI will bring to the tax industry. This will enable the technology to quickly take over existing uniform processes that currently take quite a bit of time. The SVP & CDO for Intuit, Ashok N. Srivastava has posited that machine learning and AI will provide key information that will vastly help those on both sides of tax preparation.

You should work with tax professionals who are aware of new technologies and how they impact the tax industry. From the latest communication methods to simple, secure document sharing and data collection, digital transformation is improving tax-preparation techniques—and it will continue to do so in the future.

To discuss your options with a tax professional, contact the team at Provident CPA & Business Advisors today.

Why Mother Nature Is a Potential Tax Nightmare

Natural disasters can devastate more than the building your business operates from. They can also destroy your tax records. What recourse does your business have?

If a disaster strikes and records are destroyed and assets lost, it could mean a major tax nightmare for your business. Tax obligations, including proof of loss, filing, and payment deadlines can put a major burden on impacted businesses and individuals.

This is why the IRS promotes disaster preparedness as well as offers tax credits for those who have been impacted by a natural disaster. Here’s what you need to know.

What happens if a natural disaster hits?

If some or all of your records are destroyed in a disaster in addition to the property, the IRS suggests following certain steps to obtain the information you need to reconstruct your records.

For property damage, the IRS suggests taking photographs and videos right after the disaster to help “establish the extent of the damage” as soon as possible. Then, contact the insurance company and mortgage company, review all of your policies, and even get in touch with any contractors who may have done work and may still have records about the work they did to the property. The IRS also suggests:

  • Obtaining written accounts from those who were familiar with the property
  • Getting loan paperwork from the applicable institution

For business-record loss, you should take the following steps:

  • Make lists of inventories
  • Ask suppliers for copies of invoices
  • Obtain copies of bank statements
  • Obtain copies of all previous tax returns
  • Sketch the former business property if no photos or videos are available

Getting started on these tasks right away will help you rebuild your business quickly.

Tax credits for those impacted by natural disasters

The IRS offers some tax relief for those impacted by a natural disaster. Affected taxpayers include individuals, business entities or sole proprietors, or shareholders in an S Corporation who had records necessary to meet a tax deadline located in a disaster area.

Casualty loss deduction

The casualty loss deduction is a major tax break provided by the law and applies to casualty losses due to damage, destruction, or loss of property from any sudden, unexpected, or unusual event.

This deduction is generally claimed in the year of the disaster, but victims of natural disasters can file an amended tax return for the previous year to deduct the loss, instead of waiting until the year ends in which the disaster occurred. This helps them have a lower tax obligation for that previous year, meaning they can better afford to pay for the recovery process.

Tax extensions

Because looming deadlines can be hard for businesses to meet when they’ve just been hit by a disaster, the IRS offers tax extensions for filing and paying taxes. Also, businesses can have additional time to send in their payroll taxes and returns, and penalties and interest are waived.

If you haven’t yet experienced damage from a natural disaster, there are steps you should take now to prepare in advance.

What can you do to prepare for a disaster?

1.  Back up documents

Important documents such as bank statements, tax returns, and insurance policies, should be stored safely and securely, but also backed up regularly. Hard copies should be stored in a waterproof container and there should be another set of these documents stored in another location.

Electronic backups should also be incorporated into your disaster preparedness strategy. These documents could then be retrieved after the event. Just make sure that scans are also stored in a secure online format.

2.  Create a list of assets

Taking photographs of your property and assets can help you in the event of a disaster. Also, create lists of all of your business’s valuables and what they’re worth. Update this regularly.

3.  Update emergency plans

Your business should update its emergency plan at least once a year, and whenever there are new employees hired, a location is changed, or another company change occurs. This ensures that everything is up-to-date and ready in case disaster strikes.

You need to ensure that your business is ready for the worst. Losing important records and assets can be a big headache, especially when it comes to your tax obligations. Prepare in advance to ease your tax burden, and make sure you take advantage of applicable tax credits if something does occur.

If you have questions about your disaster recovery plan or your tax obligations after a disaster, get in touch with Provident CPA & Business Advisors.

Why Are So Many Tax Refunds Unclaimed?

More than a billion dollars is out there waiting to be claimed. Unfortunately, many businesses don’t know they may be entitled to a share of it

Each year before tax time, the IRS announces the amount of unclaimed money it’s holding due to people not properly filing their tax returns. In early 2019, the IRS said there were still unclaimed income tax refunds for the tax year 2015 to the tune of nearly $1.4 billion, and they estimate that there are 1.2 million taxpayers who still didn’t even file a tax return that year.

So, why is there so much in unclaimed funds? And what can you do to ensure you claim what you’re owed?

Where does that money come from?

If the government gets too much tax from individual paychecks or taxpayers otherwise overpay, the only way taxpayers will get those funds back is if they file a tax return at the end of the year and it has the correct information, such as address and payment details. Otherwise, they have three years from the tax return date to clear up any info or file the return and claim the refund. After that three year is up, the money becomes the property of the U.S. Treasury.

So why don’t people claim their tax refunds? There are a few answers, as two tax experts told CBS News earlier this year:

  • Some individuals simply aren’t educated about how to file a return or even the necessity of doing it.
  • Sometimes individuals believe that a smaller refund isn’t worth the fee taxpayers will have to pay a tax professional. So, they’ll avoid claiming their money even if they know they overpaid on taxes.
  • Some taxpayers may want to stay unknown to the IRS, whether due to debts they owe to the government, immigration status, or other reasons.

Another reason that the IRS is sitting on refunds could simply be that a taxpayer has forgotten about their refund and hasn’t done anything to follow up on the money they were supposed to receive. This can happen if a taxpayer provided incorrect bank account information or has a new address, for example.

When businesses can get a tax refund

It’s important to understand the different business structures and when you may be able to claim a tax refund.

A C-corporation is a type of business structure in which the owners or shareholders are taxed separately than the business income. This is the most prevalent type of corporation, and because the profits are taxed both at the corporate level and the personal level, a double tax occurs. However, there are benefits of a C corporation, one of which is the ability to reinvest any revenue back into the company at a lower tax rate.

Other business structures, such as S corporations or LLCs, separate the business’s assets from its owners, but they don’t see that double taxation since income is only taxed once.

Because profits of C corporations are taxed separately than their owners, these businesses are the only type of business that is eligible to receive a tax refund. As with an individual, if the C corporation paid more estimated tax throughout a year, it can technically get a tax refund. This would also be true if your business paid too much-estimated tax on payroll or sales taxes.

Sole proprietorships, S corporations, partnerships, and LLCs are pass-through entities because tax passes to individual tax returns. So, if you run a sole proprietorship, for example, you’ll report your business earnings on your normal individual tax return.

As an LLC business owner, the only way you’d get a tax refund is if your total payments and withholding are more than your total tax liability on your return.

Remember that as a small business owner, it’s not always positive to get a tax refund. If you get money back, that means you overpaid and could have been earning interest on those funds in the interim. This could also interrupt your cash flow.

Filing a tax return

You should never wonder whether you are owed money if you file a proper tax return—and self-employed individuals must file a return if they made over $400 that year. Not doing so comes with some stiff penalties and other consequences.

Beyond the basic legal necessity, it keeps your financial record updated and could help protect you against identity theft. When you file a return using your social security number, that prevents someone else from filing a fraudulent tax return with your number. Even if you’re only now filing for previous years, doing so could still uncover that there had been a fraudulent tax return years back.

When your tax return is past due, it’s important to file it ASAP. Otherwise, you’ll stack up interest charges and late payment penalties.

Finally, if you’re self-employed and you don’t file a federal income tax return, the income you earned won’t be reported to the Social Security Administration—and you thus won’t get the credits toward your social security or disability benefits.

Provident CPA & Business Advisors help successful professionals, entrepreneurs, and investors get more out of their business and work less. Typically, our clients reduce their taxes by 20 percent or more and create tax-free wealth for life. Contact us for expert advice on tax planning and business strategy and discover how we help businesses exceed expectations.

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.