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Most people strive to be comfortable, in the clothes we wear, the people we associate with, in places we live or work. I have sought to be comfortable the older I got.

Then I had a shift in thinking. Comfort breeds mediocracy.

If you truly want to grow, in your relationships, your wealth, your physical health, your spiritual health, or in your intellect, you have to push yourself in each one of these areas to the point of being uncomfortable.

Now my new mantra is “I like to be uncomfortable”.

So how do you challenge yourself to be uncomfortable? There are several ways:
1. Do what you don’t want to do. Pick the path that is the hardest and take the first step.
2. Push yourself past “the wall”. When you get to the point that you can’t run another minute, or make another sales call, or study another chapter, do it, you’ll be amazed at what is on the other side. As a former college athlete and a 56-year old man I have a lot of knee and hip pain. I have found in my running that if I push myself through the pain that I feel when I start to run, I don’t die and have a great workout.
3. Go for failure. The greatest lessons learned are when you fail, If you don’t go for failure you are missing out on a lot of different experiences. Do not be afraid to fail, it is not fatal.
4. Embrace the suck. Know that the hard stuff sucks, it always will, but the reward is great. Enjoy the journey.
5. Set challenging goals. Don’t talk yourself out of them, and don’t figure out how you are going to reach them before you start down the path towards the goal. Just take the step, try something, if it doesn’t work, try something different. Then set a series of smaller goals that leads to the larger, more challenging goal with what you have learned. The processes of trying, failing and repeating shows you the way.

The W-4 form is the form you fill out when you are hired for a new job. It has changed substantially from 2019, due to the passage of the new tax law in 2018.

Why did it change? It changed due to the tax law change eliminating the deduction for dependents on the tax return this information is not relevant anymore in calculating employer withholding (the standard deduction was increased to account for the elimination of the dependent deduction).

Do I need to fill out a new W-4? The only time you need to fill out a new W-4 is if you change jobs, a change in marital status, or a change in number of dependents. Although, if you had a higher tax refund than you would like or had not enough withheld you may want to fill out a new W-4.

How do I fill it out? At a minimum you need to fill out Step 1 (personal information and marital status) and Step 5 (signature and date). Step 2 is if you have more than one job or have a spouse that works. This step is a little complicated as it involves some calculations from your 2019 tax return. I suggest if you want to complete this section to read the instructions carefully and/or consult with a tax professional. As an alternative, a safe way to fill this out is to have one spouse complete steps 1, 5 and 3 (explained next) and the other just complete Steps 1 & 5. Step 3 is where you figure the tax credits you will get for your dependents under 17 and those older than 17. These credits were expanded to more taxpayers as part of the new tax laws in 2018. Step 4 is where you calculate the extra amount of taxes you want withheld out of your paycheck. This is similar to the previous W-4 where you can just put down a “flat” amount of additional withholding per check. In step 4 you can also make adjustments for other “not from job income” and other deductions. Once again this would require some calculations involving your previous years’ tax returns.

The IRS has included a tax withholding estimator if you are interested. It can be found at: https://www.irs.gov/individuals/tax-withholding-estimator

If you or your employer have any questions, feel free to contact me at craig@maxwellcpa or at 870.364.8992.

I stole this article from David Trent from Trent Capital Management in Little Rock. He published this article as part of his weekly newsletter.

Ironically, I received this newsletter on Monday, two days after I failed on my second attempt to climb a 100′ cliff at Crowder’s Mountain in Gastonia, NC. While I didn’t reach my goal, the experience taught me a lot more about myself. This article reinforces the point.

“One of the ” First things that happened when we set any goal is it the brain seizes up and tells us why it’s a bad idea and won’t happen.”

Often, when setting a goal, we start out with a big goal and then immediately scale that goal back to make it more realistic and reasonable. We repeat this process until we end up making very little progress with any of our goals. This is the very reason why many of us shy away from goal-setting. We don’t want to be uncomfortable and ultimately disappointed, because we know we won’t follow through. However, when you start the goal with a different way of thinking about it, your brain loses its ability to “scale back to comfort.“ You already know that the goal is “impossible” and that you will fail, so, now what? What does your brain argue with now? Your brain might say, “if you know you’re going to fail, why in the world would you do it?” Because the alternative is also failing. We set a goal and then defeat ourselves before we even give it a solid effort. We think this type of failure is better because “nothing has been lost.” But that’s a lie. You are losing out on the learning, you are losing out on the knowing, and you have no idea what your last opportunity could have been. I think a lot about the goals I have accomplished. If I had decided that they were “too hard“ and failed ahead of time, it would’ve cost me my current life and the amazing clients I now have. So even though we believe that if we don’t try, we can’t fail – I think that’s a lie. Failing ahead of time is still failure, but you learned nothing and as a result, stole your evolution and growth. If you think about it, failing repeatedly is how we accomplish most great things. Instead of failing only to win, I’m also encouraging you to also fail in order to learn how to fail and as well as learning from that failure. I’m convinced that this is the most important skill I could ever teach you. You never know where your failures might lead you. But your failures ahead of time are guaranteed to lead you nowhere. They will just have you repeating the life you already have by believing your excuses, which give you evidence for why you can’t progress.

Source: Self Coaching 101

“So do not throw away your confidence; it will be richly rewarded. You need to persevere so that when you have done the will of God, you will receive what he has promised. ” – Hebrews 10:35-36

I wrote this article earlier this year, and after a year of practical application have gained a few insights. I highlighted those in italics.

The IRS released updated guidance on January 18, 2019 of one of the more complex, and possibly beneficial tax breaks for small pass-through businesses.

The first question most people ask, am I a pass-through? If you are a partnership, S-corporation, trust or estate, a single member LLC or sole proprietorship than you have pass through income.

What the IRS is allowing us to do is exclude from taxation 20% of our business income, sounds great, right? Well it gets complicated.

As long as you are not an accountant, attorney, doctor, consultant, athlete, stock broker or a member of several other specified service trade or businesses you are ok. If you are one of these unlucky professionals, you may be limited on what you can deduct based on your income, if your income exceeds $315,000 for married filing joint or $157,500 for all others.

But wait, there’s more. Even if you are not one of the unlucky professionals, your deduction could still be limited. If you have taxable income over $207,500 or $415,000 if married, the deduction is limited as well. It is limited by the sum of 25% of the W-2 wages your pass through pays to employees plus 2.5% of the property on your books that you are currently depreciating.

My analysis of this deduction is the intent of Congress was to reward those small businesses that have a large investment in employees or have recently purchased equipment; both activities that further stimulate the economy. It makes sense and it follows the logic of President Reagan’s supply side economic approach.

It also brings up a planning point for CPA’s to consider, if your client takes the section 179 deduction (immediate expensing of equipment) then the 199a deduction would not be available for those assets, hence no “double dipping”. I give a lot of credit to people writing the code, they put some thought into all the alternatives.

I was able to recently use the W-2 wage limitation to save a client an additional 10%, by paying an owner of a closely held entity a salary, you can increase the W-2 limitation that is placed on high income individuals, therefore making more of the credit available to the taxpayer. Again, I caution you, this works for some and not all, so you really need to consult with a knowledgeable tax practitioner to do a thorough analysis of your tax position.

There are other limitations with the 199a deduction and everyone’s situation is different, so it is best to consult with your tax professional to get it right.

Business structure matters. If you plan on starting a small business, you will have to choose how it will be legally organized. This decision has been made a little more complex as a result of federal tax law changes made by 2017’s Tax Cuts and Jobs Act (TCJA). In fact, even owners of companies that have been operating for some time may want to evaluate whether their existing business structure puts them in the best position to benefit from the tax law changes.

C Corporations and Lower Corporate Taxes

Traditionally, owners of small businesses organized as C corporations have faced a potential double taxation issue. The corporation pays taxes on its profits, and if those profits are distributed to the owners as dividends, the dividends are taxed to the owners individually. Because dividends are not tax deductible by the corporation, corporate profits are essentially taxed twice.

Prior to the TCJA, C corporations paid federal income taxes on a graduated scale up to 35% of taxable income. Personal service corporations paid taxes at a flat 35%. The TJCA reduced the corporate income tax rate substantially — to a flat 21%. The corporate tax rate reduction is a significant benefit for C corporations and their owners. Moreover, a C corporation can fully deduct state and local income taxes, whereas the TCJA limits an individual taxpayer’s itemized deduction for state and local taxes to $10,000 ($5,000 if married filing separately).

Pass-Through Entities

Generally, the net taxable income from pass-through entities — S corporations, partnerships, limited liability companies (LLCs) taxed as sole proprietorships or partnerships, and sole proprietorships — is taxed to the owners individually at their regular income tax rates. With limited exceptions, a corporate-level tax does not apply.

The TCJA lowered the top regular income tax rate for individual taxpayers from 39.6% to 37% through 2025. Additionally, thanks to the TCJA, individuals who own interests in pass-through business entities may be eligible to deduct up to 20% of their qualified business income. The 20% deduction is subject to significant limitations that apply to owners at higher income levels. However, for business owners who can qualify, the 20% deduction lowers the top effective tax rate on their qualified business income to 29.6%.

To Switch or Not?

The 21% corporate income tax rate may prompt small business owners to consider switching to (or starting) a C corporation. There are various factors to weigh before making a decision. For example, switching to a C corporation may make more sense for companies that expect to reinvest capital for business needs than for companies that intend to distribute profits to shareholders in the form of taxable dividends. However, should the owners contemplate a future sale of the business, double taxation would still be a potential issue were the transaction to be structured as an asset sale.

Professional Advice Is Necessary

This is a complex issue and there are numerous variables — both tax and nontax — that will come into play. Feel free to contact me at 870.364.8992 or craig@maxwellcpa.com if you have any questions.

This past weekend, my family and I toured Sun Studios in Memphis, Tennessee where Elvis got his start.  The tour guide talked about the struggles of the small studio and ultimately how it had to sell the contract of a young Elvis Presley to RCA Records for $35,000 to cover its bills.  The story has a happy ending in that the $35,000 was used to fund several other up and coming recording stars such as Johnny Cash, Roy Orbison and Jerry Lee Lewis, and that the studio made up for the seemingly bad deal several times over as a result.

So, what areas do small business’ have problems in and what are the solutions?  Here is a list to think about:

Accounts Receivable and Collections:  You’ve made the sale, great, now when do you get paid?  Remember a sale is not a sale until the money is collected.  How do you invoice your customers?  Ideally, you should invoice at the time of sale.  Some businesses bill on specified days (end of week/end of month), but whatever approach you follow, you should be consistent.  How do you follow up on invoices to make sure payment are made timely?  I recommend you track your invoices using an aging schedule and look at current, over 30, 30-60 and 90 day plus past due time horizons.  Did you know that most invoices past 90 days only statistically have a 50% chance of being collected?  What is your follow up process on past due invoices? Sometimes a simple phone call results in impressive results.

Act like a business: You should always have separate bank accounts for your business and personal needs.  Ideally you should have two business accounts if you have employees, one for payroll and one for general business needs.  Once you have these accounts established, use them!  Run all your expenses, no matter how big or small through these accounts. This can be your accounting system. Make sure to reconcile your bank statements monthly, even banks make mistakes!

Financial Reports:  Prepare at least on a quarterly basis basic financial statements which include; a profit and loss statement, a balance sheet, and a cash flow statement, and understand what each one is telling you.  Perhaps the hardest one to understand, but most informative is the cash flow statement.  If you do not know how to prepare or interpret financial statements find someone to help you.

Track your expenses:  Have a system in place to keep track of what bills you owe and when they come due.  It can be a simple as 31 file folders for each day of the month or a computerized aging schedule in a spreadsheet.

Payroll management:  Most small businesses have difficulty in this area.  Know how to calculate employee pay correctly under wage laws and be aware of payroll tax deposit laws.  Penalties are stiff and could potentially put you out of business.  This is an area to get help in if you are not comfortable.

 Other areas of concern:  Sales and use tax laws can be hard to understand and comply, as they can seem very complicated. Seek someone knowledgeable in this area, and don’t try to answer an audit without professional representation.  Same goes for workers compensation audits.

All these challenges can be easily overcome with the right help.  You can go it alone, but is that really what you got into business to do and is this your area of expertise?  If you need help, reach out to a competent professional to guide you through these challenges.  If you need help in any of these areas, Maxwell & Associates can help.  Feel free to reach out to us at www.maxwellcpa.com or call us at 870.364.8992.