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Simon Sinek: How great leaders inspire action

I came across Simon Sinek’s 2009 TED Talk a couple of years ago, and it’s really impacted my thinking. I’ve always loved the question, ‘why?’, and I’ve been asking it all my life. Why does a piece of technology work the way that it does? Why did a person do something instead of something else? I ask it in both controversial and non-controversial situations. I like to know why. I think this is a powerful question. It helps clarify situations, and can reset outcomes to be more successful. I think it’s a question people should be asking more.

Unfortunately, I’ve learned over the years that this question often upsets people. It isn’t often a socially acceptable question. People can feel put on the spot when asked why. Why is that? Well, the question of ‘why?’ turns out to be very personal one, since it gets to the very motivation of one’s intention, or lack thereof. People can often feel a bit foolish if they don’t have a good reason why they did or said something. In other instances, people immediately assume it’s not a question at all, but a statement of assigning blame or fault. Since the question causes misunderstanding and conflict, I asked it less.

When I heard Simon Sinek’s (now viral) 2009 TEDx Pugent Sound talk, “How great leaders inspire action”, it gave me new perspective to ask ‘why?’. Sinek says that all of the great inspiring leaders and organizations in the world, whether it’s Apple, Martin Luther King, or the Wright brothers, they all think, act, and communicate the exact same way, and it’s the complete opposite to everyone else. Sinek codified it, and named it the Golden Circle.

The Golden Circle is three co-centric circles, with the inner circle being: Why?, the middle circle: How?, and the outer circle: What?. Listen to his TEDx talk to learn how he explains his idea of why some organizations and some leaders are able to inspire, where others aren’t.

I’ve been inspired by Simon Sinek’s talks, which you can find on YouTube. I subscribe to his belief that we must start with ‘why’. And, the ‘how’ and the ‘what’ should be an extension of the ‘why’. I’ve been applying his sage words to myself and my business, asking myself, ‘why do I exist?’ and ‘why does my company exist?’.

To develop a really clear and concise ‘why’ statement  is harder than it seems.

Actually, my personal why statement was established many years ago, “To love God and others so that I’m able to make disciples”.

The business ‘why’ statement I’m finding to be a more iterative process of defining who our target market is. Currently, our ‘why’ statement is “To help entrepreneurs build great businesses so that their lives will be improved”. I like this ‘why’ statement because I see a connection between business owners whose businesses are struggling and their lives are too. I believe that I can help entrepreneurs build not just good businesses, but great businesses. I believe building a great business is much more than making a financially successful enterprise, it involves the personal growth and character development of the owner(s).

My personal why statement, and that of the business are consistent and compatible with one another…to care about and to help others. This is an important finding, because if they weren’t compatible, then there would be no harmony or lasting success. There’s a lot incompatibility between the ‘whys’ of businesses and their owners that account for troubling discord in their lives, within their families, and those that they employ.

The more clarity the ‘why’ statements contain, the easier it becomes to filter out the decisions of ‘how’ and ‘what’ that don’t fit with the ‘why’, whether in our personal lives, or that of our companies. A narrower focus produces a less complicated decision-making. I hope this inspires you to think more about your ‘why’. Watch Simon Sinek’s video below.

S Corporation Compensation and Medical Insurance Issues (Updated 8/3/16)

S Corporation Compensation and Medical Insurance Issues

When computing compensation for employees and shareholders, S corporations may run into a variety of issues. The information below may help to clarify some of these concerns.

Reasonable Compensation

S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.

The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.”

Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense which are subject to employment taxes.

Authority to Reclassify Joly vs. Commissioner, 211 F.3d 1269 (6th Cir., 2000)
Reinforced Employment Status of Shareholders Veterinary Surgical Consultants, P.C. vs. Commissioner, 117 T.C. 141 (2001)

Joseph M. Grey Public Accountant, P.C. vs. Commissioner, 119 T.C. 121 (2002)

Reasonable Reimbursement for Services Performed David E. Watson, PC vs. U.S., 668 F.3d 1008 (8th Cir. 2012)

The key to establishing reasonable compensation is determining what the shareholder-employee did for the S corporation. As such, we need to look to the source of the S corporation’s gross receipts.

The three major sources are:

  1. Services of shareholder,
  2. Services of non-shareholder employees, or
  3. Capital and equipment.

If the gross receipts and profits come from items 2 and 3, then that should not be associated with the shareholder-employee’s personal services and it is reasonable that the shareholder would receive distributions along with compensations.

On the other hand, if most of the gross receipts and profits are associated with the shareholder’s personal services, then most of the profit distribution should be allocated as compensation.

In addition to the shareholder-employee direct generation of gross receipts, the shareholder-employee should also be compensated for administrative work performed for the other income producing employees or assets. For example, a manager may not directly produce gross receipts, but he assists the other employees or assets which are producing the day-to-day gross receipts.

Some factors in determining reasonable compensation:

  • Training and experience
  • Duties and responsibilities
  • Time and effort devoted to the business
  • Dividend history
  • Payments to non-shareholder employees
  • Timing and manner of paying bonuses to key people
  • What comparable businesses pay for similar services
  • Compensation agreements
  • The use of a formula to determine compensation

Treating Medical Insurance Premiums as Wages

Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee’s Form W-2, subject to income tax withholding.

However, these additional wages are not subject to Social Security, or Medicare (FICA), or Unemployment (FUTA) taxes if the payments of premiums are made to or on behalf of an employee under a plan or system that makes provision for all or a class of employees (or employees and their dependents). Therefore, the additional compensation is included in the shareholder-employee’s Box 1 (Wages) of Form W-2, Wage and Tax Statement, but is not included in Boxes 3 and 5 of Form W-2.

A 2-percent shareholder-employee is eligible for an above-the-line deduction in arriving at Adjusted Gross Income (AGI) for amounts paid during the year for medical care premiums if the medical care coverage was established by the S corporation and the shareholder met the other self-employed medical insurance deduction requirements. If, however, the shareholder or the shareholder’s spouse was eligible to participate in any subsidized health care plan, then the shareholder is not entitled to the above-the-line deduction.  IRC § 162(l).

Health Insurance Purchased in Name of Shareholder

The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name.

The IRS issued Notice 2008-1, which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance.

Notice 2008-1 states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction.

The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2.

ACA Impact

The Affordable Care Act (ACA) did not change the above rules regarding the federal tax treatment of health and accident premiums paid for a 2% shareholder.

However, for tax years after 2013, the ACA imposes penalties on the S corporation if the S corporation offers a health plan that fails to comply with certain market reform provisions, which may include plans under which the S corporation reimburses employees for the cost of individual  health insurance premiums. The potential excise tax is $100 per day, per employee, per violation.

Among the ACA market reform provisions is a requirement that a group health plan must not impose annual limits on essential health benefits. In Notice 2013-54, the IRS indicated that a health plan under which an employer reimburses employees for the cost of individual health insurance premiums (referred to as an “employer payment plan”) will generally be treated as failing this requirement because the employer payment plan is treated as imposing a limit up to the cost of the individual policy premium.

The excise tax for failure to satisfy the ACA market reforms generally will not be imposed on an S corporation in the following two situations:

  1. The S corporation provides medical benefits under a health plan that satisfies the ACA market reform requirements(for example, a group health plan that does not provide for reimbursement of individual policy premiums); or
  2. No more than one active employee participates in the employer payment plan under which the S corporation reimburses the cost of individual policy premiums.

The ACA market reform provisions do not apply to plans that cover fewer than two participants who are active employees. IRC § 9831(a)(2).

Notice 2015-17 Transition Relief

On February 18, 2015, the IRS issued Notice 2015-17, which provides transition relief for S corporations that sponsor employer payment plans covering 2-percent shareholders.

Notice 2015-17 provides that, unless and until additional guidance provides otherwise, S corporations and shareholders may continue to rely on Notice 2008-1 with regard to the tax treatment of 2-percent shareholder-employee and their healthcare arrangements for all federal income and employment tax purposes. The Department of Labor and the IRS are contemplating publication of additional guidance on the application of the market reforms to a 2-percent shareholder-employee healthcare arrangement.

Until such guidance is issued, the excise tax under IRC § 4980D will not be asserted for any failure to satisfy the market reforms by a 2-percent shareholder-employee healthcare arrangement.

Further, unless and until additional guidance provides otherwise, an S corporation with a 2-percent shareholder-employee healthcare arrangement will not be required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans under chapter 100 of the Code, including the market reforms) solely as a result of having a 2-percent shareholder-employee healthcare arrangement.

Note: To the extent that a 2-percent shareholder is allowed both the above-the-line deduction and the premium tax credit, Rev. Proc. 2014-41 provides guidance on computing the deduction and the credit.

Fewer Than Two Participants Who Are Current Employees Exception

As discussed above, market reforms do not apply to plans that cover fewer than two active employees. Notice 2015-17 explains that if the S corporation employs more than one employee, where the additional employee is a spouse or child of the shareholder and all employees are covered under a reimbursement arrangement with family coverage under the same plan, the arrangement would be considered to only cover one employee and would not be subject to the market reforms. As such, an S corporation with only family employees covered by the same plan may continue to reimburse for a family plan and fall under the “fewer than two participants who are current employees” exception to the market reforms.

With respect to coverage of employees who are not 2-percent shareholders, Notice 2015-17 explains that if an S corporation maintains more than one reimbursement arrangement covering both 2-percent shareholder-employees and non-2-percent shareholder-employees, the arrangements would be considered a group health plan and would not be exempted under the “fewer than two participants who are current employees” exception to the market reforms. Such a plan would generally fail to satisfy the ACA market reform requirements and thus may trigger the excise tax under IRC § 4980D with respect to the non-2-percent shareholder employees.  However, Q&A-1 of Notice 2015-17 provides that no penalties under § 4980D will be assessed under such an arrangement until at least June 30, 2015.

 

Source: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues

 

QuickBooks Online Known Error – Existing Invoices with Billable Expenses

This is a known error in QuickBooks, so a fix should be out shortly, so this may or may not apply to you.

The Billable Expenses error happens when trying to add Additional Billable Expenses to an Existing Invoice. There is no problem adding to a new invoice.

Here are two work-arounds until Intuit fixes the issue.

  1. If the invoice has no existing billable expenses:  Make a copy (from the More menu at the bottom) of the original invoice, then add the billable expenses, and delete the original invoice.
  2. If the invoice has existing billable expenses: Delete one of the invoice line items that represents a billable expense, confirm the deletion and unlinking of that expense from the invoice, now all the unbilled expenses will appear in the Add to Invoice side bar for you to select and add to the invoice.

Thanks to Intuitive Accountant contributing author Liz Scott for those tips.
http://www.intuitiveaccountant.com/general-ledger/quickbooks-online-known-error-existing-invoices-with-billabl/#.V9gvWvkrKUk

QuickBooks 2017 scheduled to be released 9/19/16

QuickBooks 2017 is scheduled to be released 9/19/16. This version is mostly refinement of existing features, little things that make it more user friendly for day to day users. Depending on your usage, your mileage will vary on the enhancements.

For those that use QuickBooks in multi-user mode, you will be delighted that some functionalities that used to only be able to be performed in single user mode can now be performed in multi-user mode: Pay Bills, Creating Invoices from Estimates, Creating Bills from Purchase Orders, Printing Checks and Scanning Checks.

Switching from multi-user mode to single-user mode has been enhanced for administrators. A dialog presents displaying users currently logged in and allows the Admin to send a request to those users to log out with in a selectable duration, as well as to select time for how long the admin plans to be in single-user mode.

Enhancements to reports include filtering, such as selecting multiple GL account, and amount range, the ability to display filters applied to reports on a bar at the top of the report, missing user names (due to user deletion) now show on the Audit Trail (I think now that users cannot be deleted, instead be inactivated, but that implementation is not clear yet).

A new feature for reports is “Scheduled Reports. As the name suggests, it’s purpose is to automate the sending of reports. You have to be an Admin to set-up, and the reports will run at the scheduled date and time even if QB is closed on your computer (your computer must be on, not hibernated or asleep, and connected to the internet). There are other details about how it works such as if you do have a company file open at the time the reports are scheduled to be sent, it must be that same company file. If you have more than one company file that has scheduled reports, all companies should be closed. You cannot use the QuickBooks email service, but Outlook (must be open) or the webmail (must have password saved) does work.

There are other technical requirements. The limitation of only being able to have one 2017 edition of QuickBooks (Pro, Premier, or Enterprise) installed on your computer will make this impractical for most accountants to use.

 

What to do if your QuickBooks Online (QBO) Invoices are going to your customers’ spam folder

There’s a new option for sending an invoice within QuickBooks Online (QBO), named “Share Invoice Link“.

This function was created to help those users whose invoices ended up in their customers’ spam due to the email being sent through Intuit’s servers instead of their own.

With the “Share Invoice Link” function, you can grab a link that you can paste into your own email to send to your customer. When the customer clicks the link, the the invoice will appear the same as if it were sent through Intuit’s server.

Since this is done one at a time, it is a manual process, and you will have to type in your own subject and message, and of course paste the link into the message area.

You can use the “Share Invoice Link” function either of these two access points within QBO:

1. Viewing an Invoice: Click the down arrow on the button named either “Save and Close” or “Save and Send”, and you should see an option for  “Save and Share Link”. Then select “Copy and Close”. Finally, paste the link inside of your email.

QBO Save And Share Link

 

 

 

 

 

 

 

 

 

 

 

 

 

2. Viewing the Sales Transaction list (ie from Customers): Click the down arrow at the right of the desired transaction row. Select “Share Invoice Link” then Click Copy and Close . Paste link inside of your email.

QBO-SaveAndShareLink

 

 

 

 

 

QuickBooks Online (QBO) will be down for maintenance on 6/11/2016 between 9pm and 10pm PT

QuickBooks Online (QBO) will be down for maintenance on 6/11/2016 between 9pm and 10pm PT

 

New Overtime Rule Effective 12/1/2016

The new overtime final rule will become effective on December 1, 2016, giving employers more than six months to prepare. The final rule does not make any changes to the duties test for executive, administrative and professional employees, but does:

  • Raise the salary threshold indicating eligibility from $455/week to $913 ($47,476 per year), ensuring protections to 4.2 million workers.
  • Automatically update the salary threshold every three years, based on wage growth over time, increasing predictability.
  • Strengthen overtime protections for salaried workers already entitled to overtime.
  • Provide greater clarity for workers and employers.

Cited from: https://www.dol.gov/featured/overtime

FAQ: https://www.dol.gov/whd/overtime/final2016/faq.htm

Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA):
https://www.dol.gov/whd/overtime/fs17a_overview.pdf

2016 South Dakota State Sales and Use Tax Increase

Effective June 1, 2016 the South Dakota state sales and use tax will increase from 4.0% to 4.5%.

The new tax rate applies to the following:

  • The sale, lease, or rental of tangible personal property, products transferred              electronically, and services
  • Excise tax on the purchase of farm machinery
  • The amusement device tax

Source: http://dor.sd.gov/Taxes/Business_Taxes/HB1182.aspx

What pension plan options are available for an S corporation?

Stephen L Nelson, CPA clearly lays out what pension plan options are available for an S corporation. Read the article here..
http://www.scorporationsexplained.com/what-pension-plans-are-available-for-Scorporation.htm

What’s the perfect minimum wage? How about zero?

What’s the perfect minimum wage? Is it $10 an hour? $15? $20? How about zero? That’s right. Zero. While Congress discusses a minimum wage hike, economist DavidHenderson shows that any minimum wage makes it harder for unemployed people (particularly young people) to find work, and forces business owners to cut the hours of lower-skilled employees. Learn more, watch PragerU’s video on the effect of minimum wage https://www.youtube.com/watch?v=4j01L69eXdI