Getting your Customers to Pay-Up: Part 1

Getting your Customers to Pay-Up:  Part 1
Tips for Protecting Yourself from Non-Paying Clients

by Caron Beesley

As sure as eggs are eggs every business owner can expect to deal with a non-paying or slow-paying customer at least once in their business lives. The trouble is that many of us, eager for new business and income, overlook the fact that it invariably will happen to us.

For freelancers or independent contractors, having to deal with a non-paying client can be particularly challenging. "Good faith" or loosely structured scope-of-work agreements are a common way for freelancers to engage in business.

However, these are easily subject to abuse and provide little legal recourse when your client doesn't pay-up on time. Likewise small business providers of project based services, which could include anything from accounting services to handyman services, are equally vulnerable to non-paying clients. And without the advantage of a professional in-house collections department, the cash flow implications and task of collecting debt falls squarely on the shoulders of the business owner.

So if you are starting a business or have been in business for a while and have had enough of dealing with late- and non-paying clients, here are some tips for preventing and handling this troublesome issue.

Before You Agree to any Work - Develop a Payment Policy and Discuss it with Your Client

Consider developing a part-payment policy for project-based services. A professional and serious client should not mind paying half upfront (before any work is done) and the remainder on completion of the work. If they quibble, you have room to negotiate the percentage, but try to secure 50 percent of your fee upfront if you can. Invoicing terms should also be agreed in advance. If your client is a consumer, be aggressive with your final payment terms - 7-10 days upon receipt of invoice is normal. For business clients (B2B), the industry standard these days is 30 days, but many companies can deliver within 15 days, particularly the nimbler smaller business clients, so don't be afraid to ask and negotiate.

If you are lucky enough to win a "retainer-based contract" with a customer - i.e. you set-aside an agreed upon amount of hours each month at a flat fee, usually on a use-it-or-lose-it basis you may want to offer a discount off your hourly rate. Retainers tend to be easier for freelancers and small businesses to handle and the work is often more predictable in nature than one-off jobs. In addition, the usual business admin tasks such as proposal writing are eliminated. If your client doesn't use the hours, the retainer agreement should stipulate that they still pay for those hours, although you may want to be flexible considering that the hours used often even out over time.

Consider a Late Payment Fee

If you choose to implement this "incentive" to payment, be sure to state it clearly in your contract or payment policy before doing any work (the law actually requires this in order to avoid violation of the Truth-in-Lending Act). Typically, late fees are a percentage of the total bill (usually 2 percent). If you feel the need to fall back on this when late payment occurs, let your client know that you are moving forward with this practice.

Also be aware that interest charged on late payments may be subject to state usury laws limiting the amount of interest that can be charged. If the maximum amount of interest is exceeded, the debt may be forfeited and a penalty assessed.

Check what laws apply within your state.

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Look out for part two in this series, which will outline options your small business might consider for collecting or pursuing client debt.

About the Author

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed.

This article was quoted from sba.gov.

2013 General Tax Review

2013 General Tax Review


Beau Diepold, CPA, of Diepold & Associates, LLC provides a brief overview of the "American Taxpayer Relief Act (ATRA) of 2012," the "Affordable Care Act (ACA)," and a general tax review for 2013.






Selected Items First Effective in 2013:
Selective Provisions of the “American Taxpayer Relief Act (ATRA) of 2012”

1. Top Individual Tax Rate, Effective For Tax Years Beginning After 2012: The top statutory income tax rate increased from 35% to 39.6 on taxable income exceeding:
   
   

   $450,000 for joint filers $400,000 for single filers $425,000 for head of household, and $225,000 for married individuals filing separately

   
   
2. Long-Term Capital Gain & Qualified Dividend Income Tax Rates, Effective Tax Years Beginning After 2012:
   

   	Joint Returns	Single
   	0%	Up To $72,500 $36,250
   	15%	From/To $72,501 to $450,000 $36,251 to $400,000
   	20%	More Than $450,000 $400,000

   
   
3. Itemized Deduction Phase-Outs, Effective Tax Years Beginning After 2012 – Beginning in 2013, itemized deductions (other than medical expenses, investment interest, gambling losses, casualty losses, and theft losses) will be generally reduced by 3% of adjusted gross income in excess of the following thresholds:

   $300,000 for joint filers $250,000 for single filers $275,000 for head of household, and $150,000 for married individuals filing separately

   
   
4. Personal Exemption Phase-outs, Effective Tax Years Beginning After 2012 – Each personal exemption will be reduced by 2% for each $2,500 (or part of $2,500) of AGI in excess of the thresholds:

   From $300,000 to $422,500 for joint filers From $250,000 to $372,500 for single filers From $275,000 to $397,500 for head of household, and From $150,000 to $211,250 for married individuals filing separately

   
   
5. Maximum Estate, Gift and Generation Skipping Tax Rate - For estates of decedents dying after 2012 and for gifts and generation-skipping transfers after 2012, the maximum estate and gift tax rate, and the generation skipping tax rate are increased from 35% to 40%
   

Selective Provisions of the “Affordable Care Act (ACA)”

1. 9% “Additional Medicare Tax” on W-2 Income of Higher-Income Individuals – Generally, for W-2 wages received after 2012, the ACA imposes a .9% Additional Medicare Tax on the amount by which an individual’s W-2 wages exceed: a.) $250,000 if married filing a joint return, b.) $125,000 if married filing separately, and c.) $200,000 for other individuals. Form 8959.
   
   
2. Employer Only Required to Withhold on Wages in Excess of $200,000 – For wages paid after 2012, an employer is required to withhold the .9% Additional Medicare Tax on the amount of wages an employee receives in excess of $200,000 (regardless of the employee’s filing status).
   
   
3. “3.8% Net Investment Income Tax (NIT)” Imposed on Individuals – Effective for tax years beginning after 2012, Section 1411 imposes a 3.8% NIT on the lesser of:
   
   
   1. an individual’s "net investment income" or
      
   2. the individuals modified adjusted gross income in excess of:
      
   3. $250,000 if married filing joint
      
   4. $125,000 if married filing separately, and
      
   5. $200,000 for other individuals. Form 8960.
      
      
4. Deduction Threshold for Medical Expenses Raised From 7.5% to 10% of AGI – Beginning in 2013, the deduction threshold for medical expenses on Schedule A is increased from 7.5% of AGI to 10% of AGI unless the taxpayer or the taxpayer’s spouse is age 65 or older by the end of the year.
   
   
5. Annual Contributions to Health FSAs Capped at $2,500 – Starting in 2013, the Health Care Act requires that cafeteria plans cap the annual salary reduction contribution to a health FSA at $2,500. The $2,500 cap will be adjusted for inflation after 2013.

Selected Items First Effective in 2014:
Selective Provisions of the “Affordable Care Act (ACA)”

1. Shared Responsibility Penalty (“Excise Tax”) for Individuals Failing to Carry Health Insurance (Individual Mandate) – ACA generally requires individuals to pay an excise tax for each month beginning after 2013 for which they do not have “qualified health plan” coverage for themselves and their dependents, unless they qualify for an exemption from the tax. 

For 2014 – 1/12 of Greater of:

• $95 per uninsured adult and $47.50 per uninsured person under age 18 with maximum penalty of $285, or
• 1% of taxpayer’s “household income” in excess of Form 1040 filing threshold (For 2014 - $20,000 for joint filers under age 65 and $10,000 for single filers under age 65)

For 2015 – 1/12 of Greater of:

• $325 per uninsured adult and $162.50 per uninsured person under age 18 with maximum penalty of $975, or
• 2% of taxpayer’s “household income” in excess of Form 1040 filing threshold

After 2015 – 1/12 of Greater of:

• $695 per uninsured adult and $347.50 per uninsured person under age 18 with maximum penalty of $2,085, or
• 2.5% of taxpayer’s “household income” in excess of Form 1040 filing threshold

1. Refundable “Premium Assistance Credit” (PAC) for Low and Middle Income Taxpayers – ACA provides for a refundable tax credit (the “premium assistance credit” or “PAC”) for eligible individuals who purchase health insurance through a qualified health insurance exchange.
   
   Married individuals must file a joint income tax return to be eligible for the credit.
   
   Taxpayers Must File Return and Reconcile Premium Assistance Credit – Every taxpayer who receives advance payments of the PAC generally must file an income tax return for the year for which advance payments were received by April 15th of the following year. A taxpayer will be required to reconcile a.) the amount of the PAC allowed, with b.) the “PAC advance payments” made directly to the insurance company. The reconciliation will be reflected on the taxpayer’s income tax return for the taxable year of the PAC (presumably the IRS will develop a new form for this reconciliation). If a taxpayer’s “actual PAC” for the taxable year exceeds the taxpayer’s “PAC advance payments,” the taxpayer may receive the excess as a refundable credit. On the other hand, if a taxpayer’s “PAC advance payments” for the taxable year exceed the taxpayer’s “actual PAC,” the taxpayer will owe the excess as an “additional income tax liability.”

General Tax Review for 2013:
2013 Tax Rate Tables:
Married Individuals Filing Joint Returns
If Taxable Income Is: The Tax Is:

Not over $17,85010% of the taxable income Over $17,850 but not over $72,500 $1,785 plus 15% of the excess over $17,850 Over $72,500 but not over $146,400 $9,982.50 plus 25% of the excess over $72,500 Over $146,400 but not over $223,050 $28,457.50 plus 28% of the excess over $146,400 Over $223,050 but not over $398,350 $49,919.50 plus 33% of the excess over $223,050 Over $398,350 but not over $450,000 $107,768.50 plus 35% of the excess over $398,350 Over $450,000 $125,846 plus 39.6% of the excess over $450,000

Unmarried Individuals
If Taxable Income Is: The Tax Is:

Not over $8,925 10% of the taxable income Over $8,925 but not over $36,250 $892.50 plus 15% of the excess over $8,925 Over $36,250 but not over $87,850 $4,991.25 plus 25% of the excess over $36,250 Over $87,850 but not over $183,250 $17,891.25 plus 28% of the excess over $87,850 Over $183,250 but not over $398,350 $44,603.25 plus 33% of the excess over $183,250 Over $398,350 but not over $400,000 $115,586.25 plus 35% of the excess over $398,350 Over $400,000 $116,163.75 plus 39.6% of the excess over $400,000

2013 Standard Deduction Amount:
Married Individuals Filing Joint Returns - $12,200
Unmarried Individuals - $6,100 

2013 Itemized Deduction Beginning AGI Phase-Out Threshold:
Married Individuals Filing Joint Returns - $300,000
Unmarried Individuals - $250,000  2013 Personal Exemption Amount - $3,900  2013 Personal 

Exemption Beginning AGI Phase-Out Threshold:
Married Individuals Filing Joint Returns - $300,000
Unmarried Individuals - $250,000

2013 Maximum IRA Contribution:
Maximum contribution limit for traditional & Roth IRAs - $5,500
Age 50 or older by end of year - $6,500

2013 Phase-Out Range for Roth IRAs:
Married Individuals Filing Joint Returns - $178,000 to $188,000
Unmarried Individuals - $112,000 to $127,000

2013 Maximum 401(k) Elective Deferral: 2013 Maximum SIMPLE Deferral Amount:
Under Age 50 - $17,500 Under Age 50 - $12,000
Age 50 or Older - $23,000 Age 50 or Older - $14,500

2013 Estate and Gift Tax Amounts:
Maximum Estate & Gift Tax Rate – 40%
Annual Exclusions for Gifts - $14,000
Value of Unified Credit if Used Against Estate Tax - $5,250,000
FICA Wage Base - $113,700 for 2013 and $117,000 for 2014
Section 179 Limitations - $500,000 for tax years beginning in 2013 and $25,000 for tax years beginning in 2014

2013 Optional Auto Mileage Deduction – 56.5 cents

Should you have any questions about the information contained above, please contact Beau Diepold, CPA at (410) 598-6379.

About the Author
Beau Diepold is a certified public accountant since 1998. He has been employed in the field of public accounting 1996. He lives in Abingdon with his wife, Natalie and their two sons.