Tax Tips for Small Business OwnersPosted on December 4th, 2018
Every year, investigative tax notices are mailed to small business owners. While these are not always official audits, they raise a red flag, and proprietors should know how to prevent and address these inquiries in turn.
This list addresses the best tax practices for small businesses to keep them abreast of tax changes and trends, and away from IRS scrutiny.
List of top 15 Best Tax Practice Tips for Entrepreneurs
1. Maintain thorough and separate records of employees and contractors.
2. If you set up any location-based business, even temporarily, keep records of all expenditures and educate yourself on the local tax laws.
3. Use a tax software accounting system – this can help you develop appropriate reports at tax time and can alert you of changing tax rules.
4. If you hire a tax accountant make sure they have experience with taxes as they relate to your specific business.
5. Keep records—including serial numbers and detailed receipts—for all business equipment, office machines, and vehicles.
6. Don’t use funds that are earmarked for taxes as a means to tide your business over in hard times. This will result in a worse financial crunch come tax time and if you can’t pay, you risk the loss of your tax ID.
7. Educate yourself on the correct way to estimate your taxes – This may be overwhelming and a tax professional is highly recommended for small business owners.
8. Determine an appropriate fiscal year so that you can plan better for tax time: A fiscal year refers to an accounting year that does not end on December 31.
9. Tax records should be kept for a minimum of three years – unless related to property and depreciation. In that case, tax records should be kept for three years past the time ownership ends.
10. Keep detailed records on business vehicles’ usage – both on the job and off.
11. When operating on foreign soil and dealing with other currencies and tax laws, be sure your tax professional is vigilant in obeying the new rules on foreign bank accounts enacted in the Foreign Account Tax Compliance Act, or FATCA.
12. Work with your tax professional to determine whether you should operate as a partnership, an S corporation, an LLC, or a sole proprietorship.
13. Become familiar with your requirements in regards to the Affordable Care Act.
14. If you are not able to pay taxes owed to the IRS, or another tax agency, contact your tax professional right away. There are appropriate steps that can be taken and ignoring it only makes it worse.
15. If you are paid in cash – that payment is taxable. The IRS has sophisticated technology to track spending habits and bank accounts to build their case.
Let the experts handle your taxes for you. It is usually a mistake for a business owner to complete their own taxes, and doing so can distract you from making your company a success.
Should I Choose a Roth or Traditional IRA?Posted on June 20th, 2018
Do you have questions about which type of Individual Retirement Account (IRA) is right for you? When deciding between a traditional IRA and a Roth IRA, consider factors to such as tax incentives, age restrictions, and income restrictions before making your decision.
One of the main differences between the traditional IRA and the Roth IRA is the tax incentives provided by each. When deciding which is right for you, focus on what tax bracket you plan to be in when you retire and if that bracket will be higher or lower than the one you’re in now.
- Traditional IRAs – A traditional IRA is the best choice for you if you believe your tax rate will be lower in retirement than it is right now. With traditional IRAs, you are not taxed when you contribute money to your account. Taxes are paid when you withdraw the funds.
- Roth IRAs – Roth IRAs are the best choice for you if you believe your tax rate will be higher in retirement than it is now. When you contribute to a Roth IRA, you pay taxes on the funds as you put them in. You will not have to pay taxes on funds when you’re able to withdraw.
In addition to considering tax incentives when choosing between a traditional IRA and a Roth IRA, it is important to keep in mind that with a traditional IRA, there are age restrictions for contributions.
- Traditional IRAs – Anyone younger than 70 ½ with earned income can contribute to a traditional IRA.
- Roth IRAs – Roth IRAs don’t have age restrictions.
- Traditional IRAs – You can contribute to a traditional IRA regardless of how much money you make. However, the amount of money you contribute can’t exceed the amount of income you earned that year.
- Roth IRAs – For some high-income earners, Roth IRAs are out of the question. To contribute to a Roth IRA, single tax filers must have a modified gross income of less than $135,000 (in 2018). Married couples filing jointly must have modified AGIs of less than $199,000 (in 2018) to be able to contribute to a Roth IRA. The amount you contribute to a Roth IRA can’t exceed the amount of income tax you earned that year.
Both traditional and Roth IRAs allow their owners to begin taking penalty-free distributions at age 59 ½. A major difference between traditional IRAs and Roth IRAs is when the savings must be withdrawn:
- Traditional IRAs – Traditional IRAs require you to start withdrawing funds at age 70 ½, even if you don’t need the money.
- Roth IRAs – Roth IRAs don’t require withdrawals during the owner’s lifetime, which means that you can let your Roth IRA continue to grow throughout your life (tax-free) if you don’t need the money. To avoid incurring a tax payment, Roth IRAs require that the first contribution be made at least five years before the first withdrawal.
Since Roth IRAs don’t require that you withdraw funds in your lifetime, and beneficiaries aren’t required to pay taxes on withdrawals, Roth IRAs can be a good wealth transfer strategy.
- Traditional IRAs – Contributing to a traditional IRA lowers your adjusted gross income for that year, which can help you qualify for other tax incentives such as the child tax credit or the student loan interest deduction.
With traditional IRAs, if you are under 59 ½, you can withdraw up to $10,000 from your account to pay for qualified first-time homebuyer expenses and higher education expenses, without paying the 10% early-withdrawal penalty. You are still required to pay taxes on the distribution.
- Roth IRAs – Roth contributions (but not earnings) can be withdrawn penalty and tax-free at any time. Even before age 59 ½.
If you are under age 59 ½, you can withdraw up to $10,000 of Roth earnings penalty-free to pay for qualified first-time-home-buyer expenses, if at least five tax years have passed since your first contribution.
Roth IRAs can be invested in almost anything you want: index funds, lifecycle funds, individual stocks, or other investments.
Remember, whether you choose a traditional IRA or a Roth IRA, it is important that you begin contributing as soon as possible to accrue savings, and avoid withdrawing earnings before age 59 ½ to avoid penalties.
Top Budgeting Tips for Small BusinessPosted on May 30th, 2018
Small business owners tend to manage both personal and professional finances.
When starting up a small business, it is sometimes necessary to introduce new financing to your venture to enable growth while generating enough cash flow to maintain ongoing financial stability.
To keep from joining those businesses that fail in the first five years, it is necessary to hone your budgeting skills, maximize liquidity, and stay on track.
Categorize Your Expenses into Departments – Categorizing your expenses is the first step toward tracking and reporting finances so that you can get a good understanding of your business’ financial status. Some categories might be marketing, IT, labor, and overhead.
Round Up not Down – Make a practice of rounding up when budgeting for your small business. This allows you to simplify accounting with whole numbers and creates a small cushion that can be reconciled at the end of each quarter and funneled back into your business.
Scrutinize Every Business Purchase – Small business owners tend to closely watch large purchases, but fail to analyze the small purchases. Overhead costs and petty cash expenditures add up quickly, so be sure to keep an eye on them.
Update Your Budget Monthly – The customer base, expenses, and cash flow of any business is typically ever-changing. Make sure to update you’re A/R and A/P categories and adjust your projections accordingly.
Incentivize Your Employees – Be sure to reward excellent employee performance. When someone goes above and beyond, resulting in the further success of your business, acknowledgment or celebration can go a long way in showing your appreciation. Specify a specific dollar amount for this event so you are less likely to overspend when that time comes.
Extra Fees and Late Charges – Be mindful of the costs of paying bills late. Some vendors even add additional charges for delinquent payment. If there comes a time that you have to decide which bills to pay first, this information is handy and can help you plan your accounts payable calendar.
Compare Necessary and Frivolous Expenses – Payroll, taxes, utilities, essential stock, rent, and mortgage payments are considered your necessary expenses and should be compared to additional expenditures. Be frugal when considering paying for anything that isn’t vital to your business – and compare prices make sure you’re getting the best rate.
Above all use common sense – and discipline. The future of your business depends on it.
Reducing Tax Liabilities for High Income EarnersPosted on May 2nd, 2018
Preparing for end-of-the-year taxes can be daunting, but understanding good tax-planning practices can help to increase your chances of receiving higher returns on your investments. Income from investments can be one of the best places to look when searching for places to cut costs and increase your revenue. Creating a proactive tax-plan can prevent you from paying thousands of dollars in unnecessary taxes.
While high-income taxpayers are required to pay the most income tax, there are a few practices these individuals can engage in to lower the amount they pay at the end of the year.
Purchasing stock for at least one year prevents you from paying additional costs from unnecessary taxes. Allowing your stock to become eligible for long-term treatment helps to reduce the amount you pay in taxes. Failing to hold stock for at least a year causes you to pay short-term capital gains on investments rather than just the 15 to 20 percent of normal capital gains tax, in short paying more.
Regular reviews of your taxable assets make sure you’re aware of all the areas that may be costing you extra money. Routine checks develop good practices and habits that help to reduce what you pay.
Reduce the amount of taxable interest, which means reducing the amount of money stored in low-profit areas. Banks give their clients close to nothing, while clients are still required to pay at least half of that interest in taxes. Utilizing high-profitable places to store your money will not only increase your dividends but also reduce the amount of taxes you pay.
Give away assets, that is, giving or donating assets to charities and family members using appreciated stock, may reduce the amount of taxable income you own. Neither party associated in the exchange is required to pay capital-gains taxes when the stock is transferred. Additionally, family members may qualify for a different tax bracket that is lower than your costs, in turn reducing the overall amount of gains lost through the process.
Do You Need to Fill out Schedules C & EPosted on February 2nd, 2018
Even though we are barely beginning the holiday season, it is already time to start preparing for April 15th. You most likely are focusing on filling out the 1040 and related forms, the general information the IRS asks for. However, what if you rent out a guest room to a tenant, or you make decent money through gardening work on the weekends? If so, income from these might not simply be written down on a box within the 1040. Instead, you might have to fill out a Schedule C or Schedule E.
Schedule C is a form that reports income for any self-employed individual. If you are the sole proprietor of your business (even if it is a single-member LLC) or an independent contractor, you need to fill this form out. Sadly, since you won’t have a boss that writes your own checks, you don’t have the opportunity to have taxes taken out for you; you have to pay the full taxes of your income. That being said, claiming any and all genuine business expenses on your Schedule C will reduce the amount of income that is taxable. Make sure that you gather as many receipts for your business expenses as you can.
Schedule E is the form for certain types of supplemental income: income from rental properties you own, any royalties you earn, and income reported on a Schedule K-1 (from partnerships or S corporations) are some of the more common examples. If, however, income from multiple rental properties is your primary form of income, you may have to use a Schedule C for your sole proprietorship instead. In addition to income, a Schedule E is also used to report business losses (paying for an apartment’s carpet replacement, for example) and helps prevent you from paying too much in taxes. This only applies to “at risk” situations, which is not necessarily the same thing as the total money lost.
When it comes to taxes, honesty is always the best policy; if you run your own business or rent a room to someone, and that income is at least the minimum taxable amount, you will need to fill out a Schedule C or E, respectively. Filling out these forms do not necessarily mean that you will be paying too much in taxes, nor does that mean that you won’t be able to make up for these taxes either. If you see yourself filling out either Schedule, feel free to contact your trusted tax preparer or accountant to discuss these forms. When tax day comes, being prepared for Schedules C and E can save you time and, possibly, money.
Small Business Tips: How to expand your businessPosted on December 2nd, 2017
Congratulations on successfully starting your business! If you’re ready to take the next step, but don’t know exactly how to go about that, here are some ideas for thinking about growing your business. Depending on the industry your business is in, and the type of business you own, the available resources, time, and money on hand, will determine the proper idea or ideas that is right for you and your business.
Open another location – If you’re first business location is successful and under control, consider expanding by opening a new location. Look for specific areas in which your customer demographic prevalently frequents or is well known.
Collaborate with other businesses – By opening yourself up to another business that is similar or related to your own industry, take advantage of that network relationship and collaborate on a joint event. It’s a chance to market yourself to new customers that may have not known of your business.
Diversify your product – Look into seasonal voids, is there a product similar to your own that can be introduced? Diversifying is a great way to increase sales and profit margins. Seasonal or complimentary products or services, or offer to export other colleague’s products.
Turn your business into a franchise – If your business model is easily replicated, and you want to see your business grow quickly, think about franchising. As the owner, now referred to as a franchiser, of the name or trademark sells that right to a franchisee. However, be prepared to work through various regulatory and legal rules and obstacles when it comes to franchising your business. Look into the federal government rules, as well as state requirements, in order to sell your business.
Expand to the internet – In this digital age, it’s important to have a superior online presence to maximize your exposure to new and old customers. Look into creating a website so customer can discover your business through an online search engine.
Understand your limitations, resources available, and your capacity as a business owner before looking to grow your business. However, with a successful business plan, market savviness and dedication, there is always room to grow!
Helpful Tips for Any Small Business OwnerPosted on September 2nd, 2017
People looking to start small businesses face a daunting task. With the dominance of larger companies, global competition provided by the internet, and the increasing number of competitors within other small businesses, you may feel overwhelmed. However, these simple yet effective tips should help keep you ahead of the curve and competitive in the modern market.
1) Make Yourself Known: A great way to get your name out is through community outreach efforts, or even sponsorships of local sports teams. These efforts go beyond regular marketing efforts in that they allow local communities to know you, as well as your business, and make purchasing your goods and services personal.
2) Have a Plan: Before even starting your business, have a strong business plan that acknowledges your company’s niche, market potential, and values your current assets. This can help you in deciding a direction for your venture, and can cut back on unnecessary expenditures in the future.
3) Quality over Price: With the constant presence of corporations like Walmart and Amazon, trying to price match competitors can lead to a loss of profit, as well as confidence. Instead of trying to compete fiscally, focus on honing your service in a way that these companies cannot. Not only will your product benefit from your drive for excellence, but patrons will overlook price differences for superior quality products and service.
4) Acknowledge Missteps: Nobody likes to be wrong, but being able to accept flaws in your business’ model or your product are essential in setting yourself apart from your competitor. Accept criticisms as opportunities to improve. Adaptability is essential in the modern marketplace.
5) Use Technology: With the internet and technologies focused on the management of small businesses, the barrier for marketing and sales in greater regions has more or less been lifted. Be sure to use all of the resources at your disposal, whether this means creating a web-based storefront, or managing your accounts with programs like QuickBooks.
While these strategies are just the tip of the iceberg in terms of establishing a successful business, they are helpful in getting your business a leg up over the competition.
How to make the most of your 401(k)Posted on March 6th, 2017
If investing in your future is something that rests entirely on your shoulders, know that there are options. If you have employer-sponsored plans like 401(k)s, it’s imperative to that you properly optimize that plan to its fullest. But saving for retirement is a process, and its best to understand your avenues even if you’re just starting out. So here are some tips on how to start preparing for retirement.
– Consider maximizing your contribution which is matched by your employer in the 401(k) program at your company. In some cases you could get a 50 percent return on your investment. By having the money taken directly out of your paycheck, you have an easier time saving money without really thinking about it. If you match your contribution and had a direct deposit set up to add more, you will be on a good path towards affording retirement.
– Consider opening a Roth IRA or Roth 401(k) account with an investment firm. There are tax differences between the two, so it is important to discuss the pay taxes now vs. late discussion with an advisor or tax accountant
– Look into a myRA – A singular investment option by use of U.S. Treasury retirement savings bond. This is a great option for those who do not have a 401(k) account at work, but have dispensable income. The myRA is convenient in that it accept smaller contributions, with low-balance fees and a higher interest rate than a savings account. Contribute your next tax refund, payroll deduction, or a deposit from a checking or savings account. You have options in size, just know with this plan that once you save $15,000, the money must be rolled into a private Roth IRA.
Start saving and keep saving! Whether you’re saving for retirement or for another goal – don’t give up. If you’re just starting to save, start small and try to increase the amount each month, know you’re options as you get into more opportunities to save more money for that end goal.
Year Round Tax Planning for Reduced LiabilityPosted on February 27th, 2017
April 15 is a stressful day of the year, and especially when attempting to cram in months of tax preparation in a few days. If receipts and records are not well-organized, keeping track of deductible expenses grows increasingly difficult. This limits the size your return, or can even cause you to pay taxes incorrectly, which incurs liability that the IRS can penalize. A stressful tax season is entirely avoidable, but it requires time, effort, and planning.
Keeping Records for a Successful Tax Season
Detailed records, either physical or digital, is beneficial when it comes to successfully submitting your tax payments. Invest in organization for you receipts and records, either with a physical filing cabinet, or web-based resources. Online services such as QuickBooks are available to digitize all records and to make financial transactions accessible 24/7. Records are important for they keep individuals and small businesses aware of their cash flow and tax deductible items that will save money each April.
Stay Up-to-Date on Tax Code
Tax law changes frequently enough to affect how much an individual owes the state or federal government. It’s easy to stay on top of these changes by attending free classes in your community, doing online research, or speaking to a tax professional. Keep abreast of the changes to avoid surprising bumps in taxes owed, and doing so on a regular basis will ensure year-long tax prep success. Quarterly reviews of your taxes are recommended to make sure your information is accurate.
Hire Tax Professionals
The hardest part of preparing for taxes year-round is doing so while managing other areas of your life. Taking control of tax preparation ties up your time and energy that is needed elsewhere. Our affordable services will grant peace of mind, financial stability, and precise tax preparation for year-round success. The tax code is infamous for being complex and challenging for most individuals, but professional help can untangle your tax complexities and enable you to receive the return you deserve. This will keep your finances in check and ensure that the IRS doesn’t follow up with audits or penalties.
5 Budgeting Tips to Save CashPosted on February 16th, 2017
Saving money is a difficult commitment to make, but it provides benefits in the long run. Life throws unpredictable events at us, and preparing our budgets to account for accidents or emergencies grants peace of mind. Saving is also one way to hold off on wanton spending that drains accounts rapidly. The following tips to save money can inspire balance in your daily financial habits.
Stick to a 30 Percent or Less Rule
It’s hard to save money without setting up a cap on your spending. When payday rolls around and there are new products or items grabbing our attention, it’s incredibly difficult. We recommend setting a limit of 30 percent of your paycheck to spend on entertainment and leisure. This reserves 70 percent use for essentials. Use 30 percent as a starting point and decrease the limit to save even more money as you become more confident in your saving strategy.
Establish Financial Goals
Nothing helps curtail personal spending and establish a direction more than creating a strategy. By writing down financial goals, such as paying off your car by a certain date, you lay a foundation for future success. Knowing where your money flows is liberating and strengthens resolve in saying no to frivolous purchases.
Manage Personal Cash Flow Daily
Dedicating one minute a day to looking over your bank account makes you aware of where you spend the most. This also promotes comfortability in managing one’s finances. Get cash out daily or weekly to keep to a specific spending amount, which is a research-proven technique that keeps your cash account stable. When swiping cards is the go-to, the convenience causes individuals to spend much more.
When new products appear on the market, whether a new gadget or guilty pleasure, it important to hold back the impulse to buy it. Impulsive shopping tends to influence purchasing habits and tricks us into buying items we don’t need.
Pay off Larger Debts First
When paying off credit card debt or loans, it’s beneficial to chip away at a loan with a higher interest rate. If you wait to pay, amounts owed increases exponentially. Although paying off smaller amounts of debt with smaller interest rates seems more manageable, they won’t cost as much as high interest debt. By hedging larger loans and limiting the traction their high interest gains, the debt is more manageable over time.