Music CPA Archives | Page 2 of 9

Year End Small Business Tax Tips

As Los Angeles Certified Public Accountants, we have the opportunity to work in different industries. Each industry has its own special personality, yet there are some tax breaks that many are not taking:

Healthcare credit: This credit is not only new to Certified Public Accountants, but to small business owners. If your company pays health insurance for your employees, you may be able to claim this credit. Don’t be discouraged because you, as the owner, pay for your own health insurance. That payment is not included in the computation.
Section 199 domestic production manufacturing deduction: Companies seem to ignore this gem of a deduction if their core process is not manufacturing. However, that is not the proper way to look at things. If there is ANY part of your business that you “manufacture,” then we certified public accountants are interested. Music production, magazine publishing, and metal duct fabrication are some areas that one would not think are manufacturing, but they are.
Tax withholdings: Recompute your tax withholdings for 2012. If you are overwithholding, then the IRS is using your tax dollars interest free. Any certified public accountant or bookkeeper can help you.
Moving Expenses: Times are tough and many are moving to engage new employment. Check with your certified public accountant as to whether you qualify for this deduction. Job seeking expenses also could be deducted if they qualify.
Energy Tax Credits: There still may be a chance that you can take energy credits for things like exterior doors, windows, etc. Also, you may be able to better if you acquire alternative energy equipment. Make sure you speak with your certified public accountant before making these decisions.
Section 179 Accelerated Depreciation: Many businesses know about this, but make sure there are good business decisions for making your purchase. Don’t have tax considerations guide your business decisions.
Retirement Plan: If you don’t have one, get one. With the decrease in the stock market, so many people are ill prepared for retirement. The current tax savings can take a giant chunk out of your tax bill.

As certified public accountants, we try to be proactive in advising our clients. However, you, the business or individual must not procrastinate. Listen to the certified public accountant tax specialists and retain some money in your pockets on tax day. Discuss your situation with your tax advisor before acting.

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What is the Difference Between a Business Plan and a Strategic Plan?

Business plans are very familiar to me. I receive calls from time to time to design one for individuals who have potential investors. In doing so, I try to incorporate some form of a strategic plan in the product because new entrepreneurs rarely think on that level.

Business plans and strategic plans are different though. Take Johnson and Smith’s book 60 Minute Strategic Plan for instance. They state that, “a business plan is [used] to evaluate teh viability of a business…Business plans keep the company on its rails as it relates to key tactical financial and operational ratios…In a word, a business plan explains the ‘what.’

Johnson and Smith contrast strategic plans as “requiring leadership and inventive thinking and assume higher risks, leading to higher rewards. The strategic plan is an internal leadership tool used to plan a course of action to address unanticipated problems or opportunities…” In other words, it explains the “why and how.”

Bill Birnbaum, author of Strategic Thinking distinguishes the two types as strategic thinking and tactical thinking. I would have to side with his distinction between a strategic plan and business plan. The strategic plan is used to help you decide what to do, and the business plan (or company budget forecast) is used to decide how to do it.

If you are a small business owner, or an entertainer, the concept is the same. Strategic thinking will make you focus on the needs of your customer, how your product benefits your customer, and the reason why a customer would want to buy your service. Or as Birnbaum states it, “In thinking strategically, you’ll be concerned with doing the right things, rather than doing things right.”

Let’s take an entertainer for instance. I am meeting next week with a recording artist who wants to stand out. What we will not look at in the recording industry is what is being done now. The reason why is that why duplicate things that are working in an industry that is moving a break-neck speed, or duplicate business models that are not working? No, instead, we will be exploring her talents not only in the recording industry, but other industies with the vision of producing a specific message about who she is.

The same goes for small business. If you want to be an industry leader, you must distinguish your strategic plan from your business plan. Using Jim Collin’s phrase, you will never achieve your “Big Hairy Audacious Goal” (BHAG) if you are 1) duplicating what others have done in your industry, or 2) just doing an annual budget. The annual budget is contained in the Annual Operating Plan (OAP) which must move an organization towards teh BHAG.

If you want to move your career and/or business beyond your competitors, you must start thinking strategically by implementing and executing a strategic plan. If you are one who only focuses on the future business plan or budget by looking in the past, you will be on operating on a financial treadmill. You may seem like you are moving forward, but all you will be doing is spinning your wheels.

Strategy: The Placement of Music in Film/TV(or the New is the Old)

Back in the day…music from TV crossed onto the charts. Remember Hawaii 5-0, Mannix, Peter Gunn, Mission Impossible, and Magnum PI? I don’t know if there was a strategy to cross over, but you don’t see this type of proliferation of TV music today. Instead, some of the highest rated programs are using music from the 1960s and 1970s. For example, The Who’s music on CSI: Miami.

So what kind of strategy is a musician suppose to undertake?

Cliff Goldmacher’s article, Four Things You Can Do To Improve Your Odds in Film/TV Song Placements seemed to advocate a person to be more of a business person, than musician. Cliff offers the following suggestions:

1. Make sure your song is professionally recorded and performed–Well this is hardly advice. Anytime you set out to launch a strategy, you always do your best. It may be the last chance you get. Don’t be afraid to hire outside people and take your time. To rush the implementation could blow your only chance.

2. Do your homework–This reminds me of the businesses who still send out mass mailings. Focus your strategy using all available information about the industry you are approaching. You may be able to find a new tactic on pitching someone. My favorite was when Kris Kristofferson landed a chopper on Johnny Cash’s property in order to give him tapes of his music. (Kristofferson previously flew a chopper in the army.)

4. Get Known for a Style–Now this is where the 60’s differ from today. The styles born out of the counter-culture varied from folk, to British, to rock, not to mention the jazz horizons that were crossed. If you have a unique style, use it. If not, at least be known for a certain style, so that music supervisors will know who to call for it.

In any event, strategizing a music career to TV or film is like any other business strategy. It all comes down to what makes your product different, and how does it meet the needs of the end user. This theme is repeatedly discussed in such strategy books as The Blue Ocean Strategy and Good to Great.

Even Entertainment CPAs in Los Angeles Make Odd Business Decisions

In the last few weeks I have received not one, not two, but three phone calls from actors who are looking for a Los Angeles Entertainment CPA. Two of the calls actually were the parents of child actors. The services they requested varied a little, but the one thing that they did not like was the fact that they could not find a Los Angeles Entertainment CPA who prepared tax returns. What they usually found were Entertainment Business Managers who wanted to charge 5% of their income to handle their financial affairs(including tax returns). As one mother told the business manager, “What could you possibly do to justify taking 5% of my daughter’s income? She doesn’t own a house, or require any more than a few bills to be paid a month.”

I told each of the prospects, as entertainment CPA business managers, that we have never gauged services by billing a percentage of a client’s income. Over twenty years ago, I had worked for firms that billed that way. But, I believed it to be an inaccurate way of gauging a business manager’s value of service. Sure agents, personal managers, and some attorneys who help “create” the wealth. They have a legitimate reason to charge in such a way, but not entertainment CPA business managers and accountants. It’s true at times, that I am involved with contract negotiations, but my function is not to promote the client and create the opportunities.

A year ago I heard that entertainment CPA business managers and accountants are shying away from this practice, possibly because of the economy. But these last phone calls seemed to say otherwise.

So, what’s the point? If you are reading this, you are probably not an entertainment CPA business management firm like us. The point is whatever business you are in, you must always, always , always focus on the value you are providing the client and customer. Just because you think you are worth your fees or price doesn’t mean you have convinced the client that you are.

Whenever you are fortunate to get a phone call from a prospect who tells you that your billing structure is obsolete, you should re-evaluate your business strategy and billing practices.

Now some entertainment CPA business managers and accountants may say, ” Fine, you take the little guys and we’ll concentrate on the A+ level actors and musicians.” This attitude is what drove US Steel and Bethlehem Steel out of business. Micro mills slowly chipped away from the bottom up with a better strategy starting with the lowest grade of steel. Eventually, the smaller mills moved up to take the high grade steel, too, driving the big companies out of business.

As entertainment CPA business managers, our company promotes good business strategies, not just for our CPA firm, but for our clients. The small flame client you have today could be the big shining star tomorrow. And the shining star of today may be just a little brighter than what you think.

Business Opportunities: Gas Stations Making Their Own Music

Back in the 1960s, it wasn’t unusual to find four gas stations at an intersection in Los Angeles. These were full service stations who would fill your tank, wash your windshield, and check your oil. You would also just hand them your money (not credit card) from your open window to pay. These stations would try so many ways to attract customers and build a niche market in their neighborhoods.

Union 76 (currently Unocal) distinguished itself by creating a relationship with the former Brooklyn Dodgers. Union 76 would give away many different types of Los Angeles Dodger’s baseball memorabilia when you purchased a certain amount of gas. One such item was a flexible 45 rpm record of a Dodger player interview. Vin Skully would interview a Dodger player like Sandy Kofax. Union 76 had found a niche market with Dodger fans–forget about the gasoline.

Jon Ostrow’s article, How To Conquer Your Musical Niche reminded me of Union 76’s niche serving with automobile/Dodger fans. He laid out a number of items that a band should consider:

Demographic (age, gender location)
Similar / influential artists (remember to start locally, then branch out to the regional, national and global scale)
What are the influential promotional outlets?
Where do the fans exist online?
What blogs do they read?
How do they find out about new music?
Are they into fashion? If so, what brands?
What are their favorite hobbies?

At first glance, you may think this pertains to only musicians. But, look again. Here is the list converted to a 1965 Union 76 strategy:

Demographic (age, gender location)–Are they near a freeway that can lead to Dodger Stadium? Are they male?

Similar / influential artists (remember to start locally, then branch out to the regional, national and global scale)–Unocal may have start in certain neighborhoods and branch out.
What are the influential promotional outlets? Use Dodger radio to advertise Union 76 items.
Where do the fans exist online? What radio stations do Dodger fans listen to?
What blogs do they read? Advertise in the Sports Page of the Los Angeles Herald Examiner.
How do they find out about new music? Who do auto owners learn to about gas? Mechanics? Make sure each station has one.
Are they into fashion? If so, what brands? Sell Dodger hats at the stations.
What are their favorite hobbies? Unocal hit the head of the nail with Dodger fans.

Each business or band can use similar questions in nailing their niche market. The Blue Ocean Strategy is a strategy concept that can help you in searching for it.

Where Do We Go From Here? Strategic Planning In the Fog

The yellow bus lights glowed in the dark as my only beacon. I couldn’t see 20 feet in front of me on Highway 99 in the central California valley, but we had to get to Lake Huntington. The four cars packed with my companions followed my lead. At last, I saw the exit. Moving off the highway onto a dark farm road, my concern peaked. Where were the street signs behind the foggy shrouds? At last I stopped at an intersection and was able to see a sign, but only after I stood in the middle of a dark intersection looking almost straight up.

If you have been planning for the last three years, this story should sound like your attempt to plan strategically. Hugh Courtney’s Strategy under uncertainty lends us a flare in such dismal times. He offers a four-level framework for determining the level of uncertainty surrounding strategic decisions and for tailoring strategy to the uncertainty:

Level one: A clear enough future: Courtney states that managers can use the usual strategy tools in a clearer future as this. However, I see that medium and small businesses do not know what those tools are. The biggest private producers of jobs in this country, small business, usually work in a strategy void. Thus their decisions and plans are usually uninformed and a product of crises management even in the best of times.

Level two: Alternative futures: Outcomes are clear by hard to predict. Take the Ford Edsel, for example. The car seemed like a good strategy with a ready market, but it went the way of the do-do bird. This is where probability analysis can come in according to Courtney. For small businesses, look at the downside to each alternative. Is one downside greater? You may want to go the other way.

Level three: A range of futures:Taking Courtney’s cue, small businesses must limit their strategic options. Don’t take the shotgun approach and consider ten different strategies, for example, because you can. Your brain will explode, not a pretty site. Again, focus on the downside of your options.

Level four: True ambiguity: This option happens in an economic free-fall, or at least a controlled fall. More than ever, I recommend small business to take a Blue Ocean Strategy viewpoint and focus on the needs of your clients. Eliminate those attributes that your industry is providing clients that they can live with, e.g., meals on a commuter flight. You can take this approach for any other above levels, but at this level, it is usually a matter of survival. The wrong decision could land you in bankruptcy very quickly.

If You Are Reading This, You’ve Proved My Point

Last January, I again participated on the planning committee for the 2011 Entertainment Industry Conference for CPAs and attorneys. We agreed on most of the usual topics to be presented at the conference. Then, I suggested social networking. The idea was written on the board.

Fifteen minutes later, a respectible CPA turned to me and said, “Rick, I know social networking is a sexy topic, but I doubt it is what our attendees are looking for. They won’t come away with anything.” I nodded my head and thought to myself: Thank you. You just gave me an extra 12 months to blow my competition out of the water using social networking and SEO.

Skeptical? 5 Key Social Media Findings That Affect Your Business by Glen Stansberry lists some new findings:

1. Americans spend most of their time online on social network and blogs–If you are reading this blog, you have contributed to the 23% statistic that more time is used reading blogs and social networks than checking emails. You may have also found me because of what I have been doing for over a year. Writing

2. Seventy percent of active online adult social networkers shop online–Sell where your buyers live, online. We are all going there. Have a bigger presence than your competition.

3. Fifty-three percent of active adult social networkers follow a brand(only 32 percent follow a celebrity)–Adults follow brands across social networks.

4. Sixty percent of social media users create reviews of products or services–When was the last time you reviewed a book on Amazon, or rated a restaurant on Opentable? You are contributing the movement. If your business is not on there, then you are behind the curve.

5. The number of mobile Internet users is up 47 percent from last year–I have actually trashed a rude restaurant that made us wait an hour beyond their seating estimate. We were outside with our 85 year old father-in-law on Father’s Day in the dark. My bad review went into Yelp before I reached my car in the parking lot.

If you are resisting the social network, SEO revolution, you are risking the well-being of your business. But, before you jump in, do some research and learn. There are consultants that can help you. Then, create a strategy and stick to its implimentation. Your online presence will not increase overnight, but the constant creation of content will get you noticed.

Small Business Promotion Using Social Media–How We Did It

I couldn’t believe it. Well, actually I could, but I didn’t want to. Gregg Towsley of WSI Quality Solutions sat down with me me 18 months ago and showed me that my business’s social profile was dead. In other words, if you typed in industry key words, we didn’t even show up on ANY page.

I came across What Drives Small Business Social Media Engagement? by Dan Schawbel. He cited a study by Roost which offered advice to small business owners who want to create brand awareness, customer, acquisition, and customer services.

Using only Facebook and Twitter, the study suggested the following:

Publishing photos: The study suggested photos of employees, products, and functions. I remember when I first put up our web page, our most valuable search term was my assistant Maddy Curley. She was an actress that had (and has) some success on television and film. People googled her after seeing her on a TV episode and came up with her picture on our personnel page.
Ask Questions:Start a discussion by asking questions. You see this a lot on LinkedIn. I feel that providing information along with questions is a better strategy. What do you think?
Share Quotes:There are way too many twitter sites and blogs quoting wise people. I don’t like to. I find it is far more interesting to coin my own phrases that display my expertise. You don’t convince others of you knowledge and wisdom by using someone else’s brain. (You can quote that).

The main activity that got our firm on the front Google page ahead of CPA firms much larger than us is our content and consistency. To be successful, you must give to the business community. We provide advice and steps to individual businesses that can help them in managing their finances.

2010 Small Business Tax Breaks Revisited

It’s always good to practice the basics, like a major league baseball player who may work on his swing by hitting a ball off a tee. So here I am going back to the IRS tax site to remind small business owners of the Tax Relief Act of 2010. There may be benefits that you may be missing.

Sect. 2011: Temporary exclusion of 100% of gain on certain small business stock

Expanding on the provisions of Internal Revenue Code Section 1202 and the American Recovery and Reinvestment Act, the Small Business Jobs Act provides an additional incentive for investment in qualified small businesses. Under this Act, investors in qualified small business stock can exclude up to 100% of the capital gain upon sale of the stock.

Under the SBJA, in order to claim the capital gain exclusion, the qualified small business stock must be:

Acquired after September 27, 2010, and before Jan 1, 2011, and
Held for at least five years before the stock is sold.

However, Section 760, Temporary Exclusion of 100% of Gain on Certain Small Business Stock, of the Tax Relief Act of 2010, extended the exclusion for qualified small business stock acquired before January 1, 2012.

Under current law, the earliest tax year for which this 100% capital gain exclusion can be claimed is 2015. Additional limitations, qualifications and requirements may apply. Capital Gains and Losses has information on reporting capital gains.

Sect. 2012: General business credits of eligible small businesses for 2010 carried back 5 years

The new law allows an eligible small business to carry back general business credits five years. Previously, the credits could only be carried back one year. The carryback is for credits determined in the first taxable year beginning after December 31, 2009.

An “eligible small business” in general is defined as follows:

A corporation whose stock is not publicly traded, a partnership, or a sole proprietorship, and
The taxpayer must have $50,000,000 or less in average annual gross receipts over the three preceding tax years.

This is a one year initiative applicable only to the tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning after December 31, 2009). The five-year carryback period is available only for credits carried forward to the tax year 2010 and/or earned in the tax year 2010.

Sect. 2013: General business credits of eligible small businesses in 2010 not subject to alternative minimum tax

The new law allows general business credits to offset both regular income tax and alternative minimum tax of eligible small businesses as described in Section 2012 of the Small Business Jobs Act (see above). The provision is effective for any general business credits determined in the first taxable year beginning after December 31, 2009, and to any carryback of such credits.

This is a one year initiative applicable only to the tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning after December 31, 2009).

Sect. 2014: Temporary reduction in S-Corporation built-in gain recognition period

Under the Small Business Jobs Act, if the fifth year of an S Corporation’s recognition period ends before their 2011 taxable year begins, then no entity-level tax is imposed on the net recognized built-in gain for the 2011 tax year. Sect. 2021: Increased expensing limitations for 2010 and 2011; certain real property treated as Code section 179 property.

An expense deduction is allowed for businesses which choose to treat the cost of certain qualified property, called section 179 property, as an expense rather than a capital expenditure. For qualifying property placed in service during the taxable years 2010 and 2011, the new law increases both the maximum amount of the deductible expense under IRC Section 179, as well as the statutory phase-out amount. The provision also expands the definition of IRC Section 179 property to include the following types of real property: qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.

Sect. 2022: Additional first-year depreciation for 50% of the basis of certain qualified property

Generally, businesses are allowed to recover the cost of capital expenditures over time through depreciation expense. IRC Section 168(k) allows for additional first-year depreciation, for 50% of the basis, of certain qualified property placed in service after December 31, 2009. The new law extends the additional first-year depreciation deduction to qualified property acquired and placed in service during 2010.

Section 401, Extension of Bonus Depreciation, of the Tax Relief Act of 2010, expands the additional first-year depreciation deduction (bonus depreciation) to equal 100 percent of the cost of qualified property placed in service after September 8, 2010, and before January 1, 2012. It also provides for a 50 percent first-year bonus depreciation deduction for qualified property placed in service after December 31, 2011 and before January 1, 2013.

Sect. 2031: Increase in amount allowed as deduction for start-up expenditures in 2010

For taxpayers starting an active trade or business, the new law increases the amount the taxpayer is allowed to elect as a deduction for start-up expenditures under section 195(b) for taxable years beginning after December 31, 2009. Section 2031 allows up to $10,000 as a deduction for start-up expenditures, but requires a dollar-for-dollar reduction of the $10,000 deduction if startup expenditures exceed $60,000. This expense should be claimed as an “Other Deduction” on business returns, such as the Form 1120, 1120S or 1065, or as an “Other Expense” on the Schedules C or F of the Form 1040. The remainder of any start-up expenditures, not deducted under section 195(b), can be amortized ratably over 180 months on Form 4562, Depreciation and Amortization.

Sect. 2042: Deduction for health insurance costs in computing self-employment taxes in 2010

Generally, small business owners may not deduct the cost of health insurance when calculating self-employment tax. Under the Small Business Jobs Act, and subject to specific statutory restrictions (i.e. deduction is not available if self-employed individual is eligible to participate in an employer-subsidized health plan maintained by the employer of the taxpayer or the employer of the taxpayer’s spouse), business owners can deduct the cost of health insurance for themselves and their family in the calculation of their 2010 self-employment tax.

Always consult your tax professional before making any of these decisions.

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The Tightrope of Employee Tax Classification is Getting Frayed

My grandfather was Alfano the Great. In the 1920’s he walked between 2 eight story buildings with no net. In addition, he walked on his hands, rode a bicycle and did wheelies. All for a few bucks. Obviously, he never fell, or I wouldn’t be here.

The IRS, US Labor Department, and several state labor departments are about to cut the tight rope of some employers who classify employees as independent contractors.

Michael Cohen report, IRS to Team with Labor Dept. on Employee Classification, discusses the IRS and the Labor Dept. combine efforts with seven states to tackle the problem of employee tax classification. This could be a game-changer because one of the problems in employee tax classification has been defining what an “employee” is.

This move among all of these agencies (and I can only guess that the number of states signing on will grow), will allow a sharing of information about employee tax classifications. Now, this may seem harmless, but remember when you can operate a business in Los Angeles without a business license? Ten or fifteen years ago, one of the main ways L A City found you was to look at the business marques in buildings and cross-check them to the business license lists. Now, they get their information from Sacramento and individual tax return schedule C. All they do now is match the addresses to the individual tax return and send out penalty notices.

I have been writing about this issue for a long time. Here is an article in relation to the healthcare deduction. Healthcare Reform: If It Walks Like a Duck and Quacks Like a Duck…We’ll Call it a Toad

Employee tax classification databases may change the odds for those employers who are skirting the issue. The penalties could be stiff. Discuss your tax situation with your advisor before making any decisions.

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