Startup Accounting

Impact of Health Care Bill on Businesses

On May 24, 2010 in Tax Revenues

The Health care reform bill was signed by the President on 23rd March 2010 bringing into effect, The Patient protection and Affordable Care Act. The new legislation will bring about sea of changes, especially affecting the small businesses employing less than 100 employees

The new reform, presently, does not require any employer to provide insurance to its employees. However beginning 2014, some businesses (employing 50 or more workers) would have to mandatory provide insurance coverage or else pay federal fines.


Benefits to small businesses are

° Immediate benefit : New Tax credit

° Future benefit 2014 onwards: Using Small Business Health Option Program (SHOP Exchange) for insurance premiums

A. Tax credit for small business- who are not covered by mandates of providing insurance!

If an employer does provide or is providing insurance coverage to his employees, he can claim new tax credit for the premiums paid by him, upto 35 percent for year 2010 to 2013, increasing to 50% in 2014 for any two consecutive years.

The credit is specifically targeted at helping small businesses and tax-exempt organizations that primarily employ low and moderate income workers, one can claim the maximum credit if they employ fewer workers on low wages. So if you are providing or will be providing Health coverage to employees, ensure that you meet the additional requirement laid down by the IRS, they are-

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The employer should cover at least 50 percent of the cost of health care coverage for the worker
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Have less than 25 full-time equivalent employees(FTE) for the tax year and
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Pay average annual wages below $50,000 per FTE

Further the tax credit, covers only insurance provided to the employees, owners and their close relatives are not counted for meeting eligibility requirements, and their health care expenses cannot be offset by the credit.

B. Setting up of SHOP Exchange

A key provision of the reform is setting up “small-business health options program” (SHOP exchange) in 2014. These Exchanges will be established by states, the small business and individuals would be able to purchase insurance from private insurer through these Exchange which would be “one stop shop” for researching, comparing and purchasing health insurance. SHOP exchanges provides these businesses with better negotiating power and lower their expenditure on premiums.

Timeline for Other Significant Changes:

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2010 -Young adults would be able to stay on their parent’s insurance until their 26th Birthday.
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2011 – Medicare taxes increased from 1.45% to 2.35% for high earners
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2013 – Increase of income threshold from 7.5% to 10% of AGI.
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2014- Penalties on individuals and large companies for non coverage.

Changing the rules of the game —–Eventually insurers can no longer refuse to renew or sell policies because of individual’s health status or pre-existing conditions and won’t be able to charge high rates because of health, gender or other factors.

Impact of Indian 2010-11 Budget on US companies

On May 24, 2010 in F & A Outsourcing, Tax Revenues

- General Performance of India:

Year 2009 had been a global economic slowdown in most of the advanced countries except for few developing countries like India which estimates a GDP growth for the Fiscal Year 2009-10 to be 7.20%, up 50 basis points from the previous year with biggest credit going to Manufacturing sector. India was successful in retaining its Foreign Direct Investment (FDI) at the same level as in the earlier period in spite of global slowdown. India is aggressively aiming to cross the ‘double digit growth barrier’ and target for 9-10% GDP growth rate in 2010-11. Thus it becomes important for US and other global companies to know about the policies or tax changes that can affect business with India.

- Major Highlights Of India Budget That Impacts Global Stakeholders:

The new provision enables small businesses with a net operating loss in 2008 or 2009 to elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years. With the economic downturn and the new law, the IRS expects record numbers of small businesses to be eligible for the refunds. Small businesses with large losses may be able to benefit fully from those losses now, rather than waiting until claiming them on future tax returns

1. Foreign Direct Investment :

a) Complete liberalization of pricing and payment of technology transfer fee, trademark, brand name and royalty payments. These payments can now be made under the automatic route.
b) Attempt is made to consolidate all the prior regulations and guidelines into one comprehensive document. This would enhance clarity.

2. Exports and Software Export Zone (SEZ):

a) Indian Government has proposed interest subvention of 2%, where they bear a part of the interest burden, to ease the woes of the exporters on account of unanticipated and steep Indian currency appreciation against the USD..

3. Technology Sector:

a) Minimum alternative tax (MAT) has been raised from 15% to 18% for fiscal year 2010-11
b) Tax holidays for Software Technology Parks in India which is coming to an end in March 2011 is not extended in this Budget. Top Indian IT companies like Tata Consultancy Services(TCS) expects their effective tax rate to go up by 19% from current 15% due to non extension of tax holidays.
c) NASCOM lowered its forecast by 7-8% for India’s software and services exports for 2010/11 to $56-57 billion.

4. Direct Tax Reform:

a) Research and Development- Weighted deductions on approved in-house R&D facility is proposed to increase from 150% to 200% and approved contribution made to scientific research associations has increased from 125% to 175%.
b) All business with revenues exceeding $125K are required to audit their accounts. Yes, even a small business needs to get audited.
c) Converting small companies to LLP will not attract capital gain tax.
d) It is proposed that income by way of interest, royalty or fees for technical services of a non resident shall continue to be deemed to accrue or arise in India as long as the services are utilized in India even if the nonresident has not rendered services in India.

5. Service Tax:

a) Process of refund of accumulated credit to exporters of services especially in the area of Information Technology and Business Process Outsourcing made easy.

Latest and Hottest

Delhi High Court recently held that the obligation to withhold taxes on the money transferred to Non Resident arises only if the payment is taxable in India contrary to other High Court ruling which requires mandatory withholding of taxes on all foreign payments unless an exemption is received. This decision is obviously welcomed by the corporate world but we are yet to see what Supreme Court final ruling says!!!.

For more guidance or assistance with international tax strategy, please contact : neetika@accelero-corp.com..

Do not forget… especially Start Ups!!

On May 24, 2010 in Tax Revenues

- R&D Credit – Election must be made on original Timely returns

A taxpayer can have both credit and the deduction only if the 280c election is made on the original timely return. The R&D credit requires that taxpayers satisfy four requirements, or tests, to qualify. First, develop a new or improved business component (e.g. software). Second, work must be technological in nature. Third, there must be uncertainty. And, finally, you must engage in a process of experimentation for a permitted purpose.

-5 Year Carryback of Net Operating Loss

The new provision enables small businesses with a net operating loss in 2008 or 2009 to elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years. With the economic downturn and the new law, the IRS expects record numbers of small businesses to be eligible for the refunds. Small businesses with large losses may be able to benefit fully from those losses now, rather than waiting until claiming them on future tax returns

March 15, 2010 – Corporate Tax Returns for FYE Dec 31 or request for 6 month extension

Deadline for corporate tax returns (Forms 1120, 1120A, and 1120S), or to request automatic 6-month extension of time to file (Form 7004).

Other Recovery Act Credits/Benefits-

1. Work Pay Credit

Government provides a work pay credit to extent of $400 (single filers) and $800(filing jointly). This credit appears as reduced withholding of federal tax if you are a salaried employee. If you are a self employed person, then you can adjust the credit in your income tax form for 2009.

2. Sales tax deduction for new car buyers

Any purchase of a qualified new car, light vehicle, recreational vehicle or motorcycle made after February 16, 2009 till end of the year, can claim a deduction for the state, local, sales and excise taxes paid on up to $49,500 of the purchase price. Special tax break for new car purchases in States with no Sales Tax.

3. First time Home Buyers credit

First time home buyers can claim credit up to $8,000 for home bought during January 1, 2009 to May 1, 2010 if it is used for primary residence. If the buyers sellers the home within 3 years of the purchase the credit amount has to be paid back to the IRS.

4. Hope Scholarship Tax credit

It is made partially refundable — meaning that a tax filer could get money back even if it meant he or she would be getting back more from Uncle Sam than paid in federal income tax. The credit is worth up to $2,500 for higher education expenses, up from $1,800 previously.

IRS guidelines of standard mileage rate (SMR)

The standard mileage rate (SMR) is kind of depreciation method. The SMR basically computes the fixed and variable operating cost of using the vehicle for business by multiplying the number of business miles traveled during the year by the standard business mileage rate given by the IRS. For 2009, this standard business mileage rate is 55 cents per mile and for 2010 it is 50 cents per mile. If you have used any other depreciation method for your vehicle then you are not allowed to use SMR method. This method is not available for vehicle used for hire or for more than four vehicles used simultaneously.

For assistance on any of the above
requirements, please contact us.
http://accelero-corp.com/contactus.php

TRANSFER PRICING ASSESSMENTS – More than 800 COMPANIES IN INDIA ASKED TO PAY ADDITIONAL TAXES

On May 24, 2010 in Auditing, Tax Revenues

Transfer pricing revenues have seen new age in 2009- in terms of tax revenues, number of audits and quality of audits. TP tax laws have been levied to put a check on the loss of revenue to Indian Government involving cross border deals. The additional tax raised due to TP audits in year 2009 is approx. USD 2.1 Billion. Almost 60% of the cases selected for scrutiny saw adjustments as compared to 25% on an average for last 4 years. The TP laws have accumulated approx. $5Bn in revenues for Indian Govt. in last 5 years

What were critical Audit issues?

» Software/ITES companies – Authorities denied adjustments due to lack of support for profit margin. Search process itself has been rejected for lot of companies. Margins of 21% on cost for software companies and 24% of cost on ITES companies have generally been held as benchmarks.
» Complete disallowance of royalties, management fees etc. in lot of cases where the adequacy of “Benefit tests” has not been proved by the tax payer.
» Notional charges – Guarantee fee as additional revenue for Indian companies when letters of guarantee have been issued to their overseas counterparts
» Notional “marketing intangible” where marketing services are rendered by Indian companies.
» Notional Interest income -Interest levied on interest free loans or delays in receipts of trade receivables from overseas group companies.
» Benchmark of 35-40% was used for investment advisory and banking services.

In most of the cases transfer pricing rules have helped Government in unveiling the actual income which is usually hidden by artificial expenses, transactions not at arm’s length basis or by incurring losses year after year. Penalties and other repercussions can have a very detrimental effect on the entity.

How can companies avoid significant additional   taxes, interest and penalties?

The one and the only one solution is PROPER DOCUMENTATION. Needless to say Presentation of proper documentation to the Income Tax authorities is equally important.

The current regulations do provide for a comprehensive list of TP documents that need to be maintained such as board description of the industry, assumptions, commercial basis for pricing, economic and market analysis, price negotiations, in depth industry analysis, business strategies and more… Companies need to select comparables with utmost caution as income tax authorities tend to challenge comparisons and may “cherry pick” profitable companies for comparisons.

Given the widespread extent of outsourced services in India and the increasing “high value” services too, it becomes imperative to carefully structure the TP policy, retain and maintain the proper documentation on an ongoing basis where the commercial reasoning is adequately explained.

What is a good Transfer pricing documentation?

One which is maintained on an “as and when” basis- not something put in place a while back and never revised later! The risks can be huge!
A good approach to avoid the future hassles is to examine the quality and adequacy of documents at regular quarterly or semiannual intervals. An internal review can be done by in “in house” team or preferably by external consultants who have expertise and knowledge in the light of current events. A year end final review and sign off should be done by experts. Even the regulations require the documentation to be contemporaneous as this also helps tax payers to document and capture the practical business realities immediately rather than digging at a later date which can prove to be quite costly!

Future Key Transfer Pricing changes proposed by   Indian Government

The proposed changes would be effective from April 1, 2011. It’s high time companies start gearing themselves up and meet the compliances set by the authority.
Some highlights-

-Introduction of APA (Advanced Pricing Agreement). This is the agreement between tax payer and the Income Tax authority determining arm’s length pricing and basis.
-Changes to the definition on associated enterprises- Direct or indirect shareholding reducing from 26% to 10% making it stricter.
-Changes to the process of dispute resolution
-Audited report needs to be filed with Transfer Pricing Officer
-Increased penalties for non filing, non maintenance and non furnishing of information
-No tax authority would have power to waive penalties and more..
These proposed tax changes would give immense power to tax authorities. We are yet to see how ready corporate and tax administration are to accept the changes in entirety! Nevertheless, the TP policies will continue to demand increased attention! Get Ready NOW!
For TP documentation reviews, assistance, more information or specific questions, please contact
neetika@accelero-corp.com.

NEW BUZZ- BPU not BPO anymore!

On March 03, 2010 in F & A Outsourcing

As I was browsing, I came across a very interesting article headlined-

Plug N Play Model in Finance and Accounting Outsourcing

Why cannot Companies go to an accounting service provider and ask them to provide the full accounting division for them – not just people, but technology and also process! Outsourcing companies can leverage on their expertise, experience and can provide the full turnkey solution which clients would love to embrace. Again, this package called BPU (Business Process Utility) is based on Unit transaction pricing mechanism- The more resources you use, the more you pay the fees thus allowing companies to move away from “Fixed” price to “Variable” price and ensure more flexibility, predictability and scalability in the rapidly changing current economic environment!

Best Industry practices with best people, best technology and best know how!

Come in the accounting shop- Plug your laptop, feed in the standard inputs and walk away with the well defined standard outputs!!

This is indeed KOOL!

From Fixed cost to Variable cost structure

On January 19, 2010 in Cost Structure

What is this CFO talk about variable Vs Fixed cost structure model? After witnessing the glaring success of Salesforce.com, was’nt it quite obvious that variable cost structure is the way to go in coming times? This is indeed today’s cry-

more freedom meaning more cash at disposal (in other words liquidity),

more flexibility (in other words less commitment),

more dynamism (in other words scalability),

more space (in other words more time),

less responsibility (in other words more OUTSOURCING!)…..

They say Companies are considered as separate entity; sure they want their freedom, space, change and flexibility, as we humans do! And they have also realized that they can’t keep feeding their HUGE Egos which were probably the case in old Victorian days! It is the time Companies go out and shake hands with business partners, associates, work smart by delegating non core functions and FOCUS on core ones…..

This increasing charm of “Unit Transaction Pricing Mechanism” enables companies to pay on per transaction basis. If the business volume drops, the costs to account for them drop too. This model is turning out to be quite successful and there cannot be better time than recession to prove its success. Companies need complete transparency. Why pay the same fee which was paid for probably 100 invoices a month when the volumes have dropped to 50? Why spend few hundred thousand dollars or may be million on ERP installation when the outsourcing partner is providing and running ERP software for a small fee per month?

For more details visit www.accelero-corp.com

Be an Entrepreneur, not an Accountant!

On December 29, 2009 in F & A Outsourcing

Business entities need to redirect their full energy towards core competencies and strategic decisions such as business development, research, sales and marketing etc. In our opinion, the biggest advantage of outsourcing is not saving money but saving time! Lot of times, entrepreneur end up spending their valuable time in managing daily operations, accounting hassles, inquiries, compliances and even more complex functions such as FP&A, Board and management reporting, due diligence etc. which are essential functions but sadly not the revenue generators!!

The power of outsourcing, if used diligently, can lead into time and cost efficiencies, process improvements, technology optimization, scalability hiring best talents, exercising industry best practices, focusing more on strategic and high end management issues and many more value additions!

Research have showed the average cost saving from outsourcing is anywhere from 35% – 50% which can be a big number for a CFO who is dealing with budget constraints.

Document storage, filing and retrieval has never been less important and especially in the paperless environmental friendly atmosphere and this function has also been successfully handled by service providers.

It is very interesting to see how FAO has evolved in last couple years and the increasing number of companies trying to find out if the kind of solution that fits for them.

For more details visit www.accelero-corp.com

Some interesting facts on outsourcing

On December 14, 2009 in F & A Outsourcing

Outsourcing entered the business world in the 1980s and since late 1990s FA outsourcing has evolved a long way and has spread its wings on practically every aspect of a finance and accounting! Now it has become a question of “What” and “When” to outsource rather than “should we outsource?”

In today’s more mature marketplace, the customer no longer seeks only reduced costs but also more complete business solutions, including process improvements and efficiencies achieved through the expertise of the service providing partner.

Today, businesses leverage by joining hands together and by realizing that the key to success is “Specialization” and leave non core activities for other partners who are specialized too!

Some interesting facts:

-The global market for outsourcing finance and accounting functions is expected to grow at a 9.6% compounded annual growth rate (CAGR), and top $47.6 billion in 2008.

-Processing services, business advisory services, financial compliance are expected to serve as the most effective leads into FA BPO arrangements.

- Accounts payable and accounts receivable remains the most widely outsourced FA function

Accelero Thought-

Just because almost everybody and anybody is undertaking outsourcing for their business does not mean that you will also need to undergo the process. Have the outsourcing company carefully examine the various factors of your business and determine if undergoing this process will actually reap benefit in long run!

For more details visit www.accelero-corp.com

Our insights in Finance and Accounting industry!

On December 08, 2009 in F & A Outsourcing

-Neetika Maheshwari, Accelero Corporation

Is Outsourcing, a strategy only for big players?

Business, regardless of their size, need to account for every little expense or income as something which seems small right now may make a big difference in the long run. Would’nt it be great to see the accountant of the company carrying the commitment of a founder and is willing to work long passionate hours, willing to take risks, willing to even forego rewards now for the sake of long term success! I have seen outsourcing companies providing the same kind of commitment as they associate themselves right from the conception to maturity!

Ledgers, journals, reports etc. may seem quite overwhelming and intimidating tasks for a business that has just begun its operations. Outsourcing is not restricted to medium –big size companies and even small entities can benefit by delegating these grueling tasks to an outside service provider who are more specialized and experienced. This action would also take off the burden from corporate to maintain the accounts correctly as a business cannot afford to have mistakes in the financial records, no matter how small!

Thus, one of the qualities that businesses should be looking for in an outsourcing partner is the degree of flexibility. They should be open to new ideas, new processes, new technology. Their schedule should match up with company’s in terms of filings, deadlines etc. Companies should evaluate thoroughly what can be outsourced and to what extent so that company enjoy the advantage and the same time not lose the control.

Hiring professional right from the beginning helps in saving lot of future costs which could be a result of minor mistakes in record keeping. For e.g. companies can save lot of audit costs, due diligence towards loan, investment or other strategic arrangements, Government penalties and fees etc.

For more details visit www.accelero-corp.com