This is a little scary, but the government has rolled out a new I-9 form. The I-9 is a form you need to sign a new employee up for payroll. Or, to quote Citizenship and Immigration Services, “Form I-9 is used for verifying the identity and employment authorization of individuals hired for employment in the United States. All U.S. employers must ensure proper completion of Form I-9 for each individual they hire for employment in the United States. This includes citizens and noncitizens.”
Okay, so it’s only scary if you have a default paranoid style like mine. Which, to be fair, is not a bad style for a bookkeeper.
CKB works with some very small nonprofits. Very small as in there is one employee and Cathy. Even if—perhaps especially if—your org is super-wee, you need to have as many internal controls in place as possible to keep things from going haywire. An internal control is a process for handling money that helps protect your organization from fraud, theft, abuse, and other bad things. Blue Avocado, an excellent site for nonprofits that’s included on our Links page, offers the following thoughts on how teeny-tiny organizations can maintain basic internal controls:
- Set the control environment (make sure people know there are policies that must be followed).
- Define clearly who is responsible for what.
- Physical controls (lock it up).
- Always have two people count cash.
- Reconcile your bank statements!
Read a detailed explanation of each point, plus additional notes on payroll and checks, from Carl Ho at Blue Avocado.
UPDATE: The American Institute of CPAs has a good and related take: “4 Critical Reasons Startups and Smaller Organizations Need Internal Control.”
Worrying about 1099s already? If, like Cathy Keeps Books, you subscribe (or have been subscribed to) various accounting-related e-mails, you may have seen something like this:
This one came from Paychex. Previously, the forms were always due to recipients (your contractors) at the end of January—but the government reporting copy, the 1096, was due at the end of February, or in March if you e-filed it. Starting with tax year 2016 (that is, with the forms you file at the start of 2017), that government deadline will also be the end of January, for both paper and e-filing. By the way, the same applies to W-2s and their associated W-3.
I’ve never understood why there was a month allowed between recipient and IRS filing. For a bookkeeper, the biggest risk is screwing up on recipient forms; you can always amend your 1096, but if you get a contractor’s payment wrong on her 1099, she’ll be pissed. So this deadline change is no big deal to me.
UPDATE: The implementation of this rule has been delayed indefinitely.
If you use ADP’s payroll service, you’ve been getting a lot of updates about upcoming changes to overtime rules. Now they’re here! These rules are good news for workers, in my opinion. Briefly, where an employee previously needed to make only $455 per week to qualify for exempt status (a worker is “exempt” when they are on salary, e.g. not eligible for overtime; there are several other criteria involved as well), they now need to make $913 a week. If you are paying your exempt employees less than $913 a week, you need to check yourself! Raise their salaries or reclassify them as non-exempt. The argument that this change will have a negative impact on small businesses and/or nonprofits holds no water with Cathy Keeps Books. You knew you were on a progressive site when you got here.
Read more about the new rules here.
Edit: Additional links have come my way from CNN and the Department of Labor itself. And here’s the DOL’s detailed guidance for nonprofits.
Useful bits and bobs come to you through CPA firm e-mails sometimes. Here’s an article from Clifton Larson Allen called “Donor Acknowledgement Letters: A Guide For Charitable Organizations.” Sounds good! In tiny nonprofits such as CKB assists, a bookkeeper might very well find herself asked about these letters—or asked to write one. According to CLA, a donor acknowledgement letter must include:
- Organization’s full legal name
- Date of donation
- Amount of cash/check donation
- In the case of a noncash donation, the charity should also provide a description (but not value) of the donated item(s)
A donation acknowledgement also needs one of the following:
- Statement that no goods/services were provided in exchange for the donation and that the only benefit to donor was an intangible benefit, or
- Description and estimated value of goods/services provided in exchange for the donation, and the net resulting deductible amount.
Read the full post.
Another Sunday at the local café, another used New York Times picked up for free. Writing in Business Day, Gretchen Morgenson reports on the increasing tendency of public companies to use “fantasy math” in their financial reports:
According to a recent study in The Analyst’s Accounting Observer, 90 percent of companies in the Standard & Poor’s 500-stock index reported non-GAAP results last year, up from 72 percent in 2009.
Regulations still require corporations to report their financial results under accounting rules. But companies often steer investors instead to massaged calculations that produce a better outcome.
What are these “massaged calculations”? Morgenson explains: financial reports prepared according to GAAP—generally accepted accounting principles—must show all expenses, which of course reduce the bottom line. But financials prepared outside of GAAP can leave off any number of costs, making the company’s performance look better. In other words, non-GAAP financials can omit anything management finds it too inconvenient to include. “Thirty companies in the study generated losses under accounting rules in 2015,” Morgenson writes, “but magically produced profits when they did the math their own way.” For the 380 companies in the study, non-GAAP income was up 6.6% from 2014—but GAAP income for the same companies was down almost eleven percent.
What does this mean for small nonprofits that will never darken Wall Street’s doors? It’s just one more reminder that GAAP should be your religion. Following GAAP means that your financials will be consistent, reliable, and as accurate as possible. GAAP keeps your organization accountable and transparent. Mind the GAAP!
I worked at a client where they photocopied their cash. If a customer paid for something in cash, or if staff came back from an event where cash was collected, they fanned those bills out on the copier glass and took a picture of them as backup documentation for the deposit. I’m not recommending this method, which doesn’t make much sense because cash is fungible (those nineteen dollars could be anyone’s nineteen dollars, so you’re not really creating reliable documentation), but it actually came in handy from time to time when I was sorting through a pile of deposits and got confused.
Instead of photocopying them, I record cash deposits with an Excel spreadsheet that totals up bills and coins by denomination. This may not be any more reliable as backup, but at least it’s tidy, and you can note on the spreadsheet when and where the cash was collected. And it saves you having to arrange a bunch of twenty-dollar bills on a copier and possibly lose one of them in that little space between the hinge of the lid and the wall. You can download my template to the right.
Our previous blog entry covered freelancer tax tips, specifically the shitload of taxes you will owe in your journey as a freelancer. As we mentioned, the IRS requires that self-employed individuals pay quarterly estimated taxes to make up for the quarterly payments that are not being made by an employer. It can be very painful to discover that you have underpaid your estimated taxes, which is why we’re writing this post in the first person plural, because this definitely didn’t happen to us.
Remember that your estimated taxes cover not just your self-employment tax (i.e., twice the usual amount of FICA), but your income tax as well, and any other taxes on income that is not subject to withholding. In Cathy Keeps Books’s experience, there are two ways to figure estimated taxes. You can project your tax for the year, most likely by basing it on last year’s, and divide that into quarters. Or you can do a quarter-by-quarter calculation and remit a percentage of each quarter’s income to the feds. For instance, you already know you’ll be paying 15.3% of your income in self-employment tax (6.2% to Social Security plus 1.45% to Medicare, doubled). Add to that your best estimate of your income tax rate. If you think you’re going to be taxed at 20%, you’ll want to remit 15.3% + 20% = 35.3% of what you made in the quarter.
Once again, Cathy Keeps Books is just a regular person and this is not professional tax advice. But take it from us and estimate higher, not lower, to avoid a storm of emotion on April 14.
Kids, this comes from the New York Times so is presumably pretty legit. In “Tax Tips for Those Who Make Money in the Gig Economy,” from the March 4 Sunday Business section, Tara Siegel Bernard lays it out: self-employment taxes, expenses and deductions, estimated tax payments, health insurance. A great starting point for new freelancers.
From Cathy Keeps Books’s point of view, the most important thing to know about self-employment is you’re going to pay a lot of taxes. Or, at any rate, more than you’ll want to believe when you’re just starting out. You know how when you’re working for the man, a chunk of your paycheck is taken out for taxes? That deduction probably includes:
- FICA (Federal Insurance Contributions Act). This comprises Social Security, at 6.2% of your wages, and Medicare, at 1.45%.
- Your federal income tax.
- Your state income tax.
Meanwhile, your employer pays their share of FICA, which is usually equal to yours (barring tax-relief legislation for workers, or what not). When you’re working for yourself, what happens to that chunk of your paycheck? Well, you don’t get a paycheck, so no chunk gets taken out. That means you have to pay your own FICA, federal and state income tax out of whatever you’ve earned. Moreover, you have to pay employer’s FICA, too, because you’re your own employer. And in a special twist, because you’re not contributing taxes every time you get a check, you have to pay estimated taxes on a quarterly basis.
In short, freelancing is totally awesome, but do your tax research before you start out and avoid getting into trouble later.
I collect old bookkeeping books and related paraphernalia. (How often do you get to spell paraphernalia? Good times.) The header image on the Cathy Keeps Books home page is a snapshot of a beautiful handwritten ledger out of Niswonger and Fess’s Accounting Principles (10th ed.), published by South-Western in 1969. The book itself is very snazzy and mod. The bad picture of the bank draft on About is from Bookkeeping and Business Practice, published by the American Book Company in 1895. (Full title: Williams and Rogers Series Bookkeeping and Business Practice, Introductory Course, Rational Method of Presenting the Science of Accounts and Illustrating the Customs of Business. For Use in Business Colleges.)
Another favorite, Depreciation: History and Concepts in the Bell System (copyright American Telephone and Telegraph Company, 1957—that’s right, so long ago that Bell and AT&T were the same thing), contains this introduction:
Here is a book which it was a pleasure to read. But, you say, how can it be a pleasure to read any book about depreciation? Isn’t that a deadly subject? . . . Yes, depreciation deals with the death of machinery, electrical equipment, cables, wires and many other kinds of plant. Yet this book is not deadly. On the contrary, it is lively—perhaps it is the only lively book ever written on depreciation.
Why is this so? Because the search through old files and library catalogues, and most of the writing, were done by a man who has lived with depreciation for 30 years . . . This sort of life leads to ulcers or early retirement unless a well balanced sense of humor comes to the rescue.
Finally, a word from the authors of A Practical System of Book-Keeping By Single and Double Entry (etc.), A.S. Barnes & Co., 1852. They conclude their foreword with this bit of poetry.
With these explanatory remarks the authors cast this work into that mighty stream issuing from the press, believing that it is not so trashy as to float with its froth, nor so incomprehensibly profound as to sink into its mire.