7 Overlooked Tax Tips That Cost Your Business Money

Entrepreneur TaxesOne of the biggest hurdles you’ll face in running your own business is staying on top of your numerous obligations to federal, state, and local tax agencies. Tax codes seem to be in a constant state of flux making the Internal Revenue Code barely understandable to most people.

The old legal saying that “ignorance of the law is no excuse” is perhaps most often applied in tax settings and it is safe to
assume that a tax auditor presenting an assessment of additional taxes, penalties, and interest will not look kindly on an “I didn’t know I was required to do that” claim. On the flip side, it is surprising how many small businesses actually overpay their taxes, neglecting to take deductions they’re legally entitled to that can help them lower their tax bill.

Preparing your taxes and strategizing as to how to keep more of your hard-earned dollars in your pocket becomes increasingly difficult with each passing year. Your best course of action to save time, frustration, money, and an auditor knocking on your door, is to have a professional accountant handle your taxes.

Tax professionals have years of experience with tax preparation, religiously attend tax seminars, read scores of journals, magazines, and monthly tax tips, among other things, to correctly interpret the changing tax code.

When it comes to tax planning for small businesses, the complexity of tax law generates a lot of folklore and misinformation that also leads to costly mistakes. With that in mind, here is a look at some of the more common small business tax misperceptions.

1. All Start-Up Costs Are Immediately Deductible

Business start-up costs refer to expenses incurred before you actually begin operating your business. Business start-up costs include both start up and organizational costs and vary depending on the type of business. Examples of these types of costs include advertising, travel, surveys, and training. These start up and organizational costs are generally called capital expenditures.

Costs for a particular asset (such as machinery or office equipment) are recovered through depreciation or Section 179 expensing. When you start a business, you can elect to deduct or amortize certain business start-up costs.

For tax years beginning in 2010, you can elect to deduct up to $10,000 of business start-up costs paid or incurred after 2009. The $10,000 deduction is reduced (but not below zero) by the amount such start-up costs exceed $60,000. Any remaining costs must be amortized.

2. Overpaying The IRS Makes You “Audit Proof”

The IRS doesn’t care if you pay the right amount of taxes or overpay your taxes. They do care if you pay less than you owe and you can’t substantiate your deductions. Even if you overpay in one area, the IRS will still hit you with interest and penalties if you underpay in another. It is never a good idea to knowingly or unknowingly overpay the IRS. The best way to “Audit Proof” yourself is to properly document your expenses and make sure you are getting good advice from your tax accountant.

3. Being incorporated enables you to take more deductions.

Self-employed individuals (sole proprietors and S Corps) qualify for many of the same deductions that incorporated businesses do, and for many small businesses, being incorporated is an unnecessary expense and burden. Start-ups can spend thousands of dollars in legal and accounting fees to set up a corporation, only to discover soon thereafter that they need to change their name or move the company in a different direction. In addition, plenty of small business owners who incorporate don’t make money for the first few years and find themselves saddled with minimum corporate tax payments and no income.

4. The home office deduction is a red flag for an audit.

While it used to be a red flag, this is no longer true–as long as you keep excellent records that satisfy IRS requirements. Because of the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. In other words, there is no need to fear an audit just because you take the home office deduction. A high deduction-to-income ratio however, may raise a red flag and lead to an audit.

5. If you don’t take the home office deduction, business expenses are not deductible.

You are still eligible to take deductions for business supplies, business-related phone bills, travel expenses, printing, wages paid to employees or contract workers, depreciation of equipment used for your business, and other expenses related to running a home-based business, whether or not you take the home office deduction.

6. Requesting an extension on your taxes is an extension to pay taxes.

Extensions enable you to extend your filing date only. Penalties and interest begin accruing from the date your taxes are due.

7. Part-time business owners cannot set up self-employed pensions.

If you start up a company while you have a salaried position complete with a 401K plan, you can still set up a SEP-IRA for your business and take the deduction.

A tax headache is only one mistake away, be it a missed payment or filing deadline, an improperly claimed deduction, or incomplete records and understanding how the tax system works is beneficial to any business owner, whether you run a small to medium sized business or are a sole proprietor.

And, even if you delegate the tax preparation to someone else, you are still liable for the accuracy of your tax returns. If you have any questions, don’t hesitate to give us a call today. We’re here to assist you.

To Your Success,

Benita

How to Set Financial Benchmarks to Achieve Long Term Success

milestone2You need a starting point to establish business benchmarks. What better place to begin than with your own financial results. If you have been in business for at least a year then you can use annual data and look for specific areas to improve. Likewise, you can benefit from this practice in a brand new business, too. Here’s how.

The first step is to bring your books up to date.

Yes, I know, bookkeeping is not the most attractive task in business but it is something that we all have to do. If you are dead set against sitting down with the numbers consider subbing it out. Whatever you have to do this year to stay on top of the finances, do it. Believe me having this part of your business in order pays off when you know exactly how things are going. Also, when it comes to building your ideal business model with bench-marking, there is no room for guesstimates. Only actual will do. 

After completing the bookkeeping, the next phase is financial reports.

In this step, you prepare an accurate Balance Sheet, Profit and Loss Statement and a Statement of Cash Flows. These are the three basic reports that managers use in business. They are the score cards that provide information such as the amount of sales made, how much profit remains and what is the balance of cash in the bank. Other financial data that you may want to use for bench-marking comes from Accounts Receivable Aging, Accounts Payable Summary, and Debt Schedules.

Now you are ready for forecasts and benchmarks.

Using the historical information from financial reports is how to jump-start the process. The reports contain key numbers that you will use to calculate figures specific to your business. So rather than creating hypothetical measures, use actual financial results. Since business conditions rarely stay the same you should expect results change in future periods.

Your company is constantly changing so be prepared to forecast changes, too. One way to do this is by establishing a multiplier for each statistic you track. A multiplier provides the amount by which forecasts will increase. For example, if sales were at $100,000 at the end of the year and you expect them to grow to $150,000 over the next period, the multiplier will be 1.5 times the historical amount. Another point to keep in mind when forecasting is attrition so that you account for both the ups and downs in your business.

Overall, having the right data from the start is key to establishing benchmarks. When you couple financial information with thorough research in competitive performance, you have the makings for solid milestones in your business plan.

Do you use benchmarks in your business? Tell us how in the comments below. Want to learn what’s working for other entrepreneurs who are raising their financial IQ? Join our Facebook community.

To your success :^)

 

7 Ways to Lead Your Business and Ensure It Succeeds

succeedIf there was ever a time to pay close attention to leaders that are blazing the business trail, it is now. Entrepreneurs who desire to create viable companies will find it easier to learn from the experience of others. Let’s take a look at seven traits of today’s top entrepreneurs inside this article.

  • Enterprising Outlook. High achieving business leaders constantly seek ways to multiply their money. They are in the field making things happen and are not afraid to share their skills with the world. In order to grow they allow themselves to be stretched to do things that are out of the ordinary. Boldness and perseverance are stamps upon their character.
  • Willing to Get Help. An important principle that they embrace early on is partnerships. Successful entrepreneurs learn to build trust and collaborate with others to achieve bigger results in less time. Once the right team is in place, they go the extra mile to foster solid relationships, supporting partner’s success along the way..
  • Delegates to the Pros. Entrepreneurs who run viable companies have the right team members in place. True leaders realize the extent of their capacity and readily release the things that do not desire to do.
  • Always Learning. They are consistently learning, changing, and growing with their company. These individuals want to know “how to” elevate their business. They know that the business world is a constantly changing environment and those that do not change with it will not survive.
  • Self-Motivated. As business leaders look within themselves and connect with their own mission and purpose. This is what causes them to excel at what they do each day. True entrepreneurs will go to their grave having said, “I gave it my all and my all was good enough.”
  • Uses Common Sense. It is often said that entrepreneurs are born, not made. You can see this in the lives of many who may have dropped out of school or never completed a college degree. What makes them successful is their application of practical business principles and life lessons that they combine and turn into financial gain.
  • Never Allow Failures to Determine Success. Instead of quitting when the going gets rough, they are able to take a step back and a break, if necessary, but they do not stay down for long. Any time that you see them reeling from having missed the mark is a period of refocusing and getting their mojo back. You can bet that they are creating a plan of action so don’t let their temporary delay fool you. Be on the lookout because nothing aside from leaving this earth will cause them to lose their way.

 

Which of these qualities do you most relate? Were there any lessons that learned that can make your company more viable? How will you put them in action today?

To get more practical tips on becoming better in business, join our learning community of entrepreneurs on Facebook.

Training Nonprofit Board Members to Read and Understand Financial Reports

Sharon-Mikrut_285571One of the items board members are responsible for is to monitor the financial situation of the organization. As such, board members should be familiar with the types of financial reports the organization uses to demonstrate its financial standing. This article identifies the types of financial reports most commonly used by nonprofits, and stresses the importance of training board members to read and understand financial reports.

Some common financial reports include:

1. Profit and loss statement – this financial statement includes all of your revenue and expenses for a specific time period. The revenue section is generally first with the expense section following. You then subtract your total expenses from your total income and this yields a net profit or loss. Generally, losses are highlighted with a minus sign (-) before the actual figure. The purpose of this report is to reflect the organization’s financial status during the indicated time period. Board members usually review a profit and loss statement on annual basis, often at their annual meeting.

2. Balance sheet – this sheet itemizes the organization’s assets and liabilities and provides a snapshot of the organization’s financial condition at a specific point in time, not time period. Board members should review the organization’s balance sheet at least once a year.

3. Cash flow statement – this statement reflects the flow of cash and cash equivalents coming in and going out of the organization. These statements are useful in determining the short-term viability of an organization, specifically its ability to pay its bills. Examining the organization’s cash flow is important at any time, but conducting a cash flow analysis for startup organizations or those that have experienced recent financial hardships is always a good idea.

4. Monthly financial report – this report indicates the organization’s monthly income (what it brought in) versus expenditures (what it spent), in relation to its projections. For example, if an organization budgets $3000 a year for office supplies, and it has already spent the entire budget halfway through the year, the board should question why this happened (e.g., weren’t sufficient funds initially allocated for this line item, wasn’t the organization monitoring expenditures in relation to this line item, did the organization incur an unexpected expenditure, etc.). If the board meets monthly, they should review the previous month’s financial report. If the board meets every other month or on a quarterly basis, they should review any financial reports since their last meeting.

Regardless of which financial reports your organization uses, board members should be trained to know how to read and understand them. Some board members may have prior knowledge of financial reports but most do not know how to read or interpret financial information. Training in this area should be a part of new board member orientation and incorporated into ongoing training. Training could be conducted by an experienced executive director or board member, or you could ask your bookkeeper or accountant to provide training to potential and current board members. Whichever method you use, make sure that your board members are equipped with the knowledge to read, understand, and monitor financial reports.

With today’s technology, you can Google terms such as profit and loss statements, balance sheets, cash flow statements, etc. and uncover a wealth of information that can help you and your board members to become proficient in reading and understanding financial reports. There are also a number of nonprofit associations (e.g., National Council of Nonprofits, Alliance of Arizona Nonprofits) that provide information and articles (and forms, in some cases) designed to help nonprofits develop and monitor financial reports.

Copyright 2010 © Sharon L. Mikrut, All rights reserved.

If you want to make positive changes in your personal and/or professional life, and create the life you desire and deserve, then working with Executive & Life Coach, Sharon L. Mikrut, is the solution. Although her specialty is in partnering with nonprofit executive directors and managers to maximize their resources in a competitive environment, she is passionate about working with all individuals committed to personal and/or professional growth. Visit her website at [http://www.createitcoaching.org] or Nonprofit Professionals blog at [http://www.createitcoaching.com] and sign up for her free monthly messages, which are designed to help you run your organization in a more effective and efficient manner.

How to Overcome Resistance to Virtual Accounting

ImageFear of the unknown is one of the biggest challenges that people have . A common source of anxiety for entrepreneurs is sending data-sensitive financial files online. This is especially true when the exchange could increase the risk of your information ending up in the wrong hands. Below are tips to introduce you to file sharing tools, help reduce risks, and increase your comfort in collaborating with your accountant online.

  1. Ask if your accountant uses a secure file exchange portal. A growing number of virtual accountants are adding this benefit for their clients. The objective is to store files online over secure internet channels. Instead of sending files by email, files are uploaded to a secure site that requires a username and password and is only accessible by you and your accountant.
  2. Create a password for documents and files that you share. If you will be sending files by email, consider password protection. Programs such as QuickBooks, for example, can be setup to require a password when you log-in. This increases security in the event that someone intercepts the your attachments.
  3. Sign up for your own secure file exchange service. Companies such as YouSendIt and LeapFile  provides the flexibility of being able to send large files and files of various types. These features are important especially when you need to send copies  of software files to your accountant.
  4. Consider remote access to your computer.  Desktop sharing is quickly becoming a favorite among people who work from home and those with a small office space. If you want a simple means of collaborating and output in real time, this may be a good solution.  Another perk of site-to-site sharing is you never have to share office space, only computers.
  5. Save to portable media such as a flash drive or CD-Rom. The drawback to using this method is it takes more time to get your file to your accountant. This could be a problem if you need updates for time sensitive projects. If you’re in no hurry then these are both safe and reliable options.
  6. With all the hype about online collaboration, onsite accounting is an alternative that many people overlook.  This remains one of the best options if none of the other choices appeal to you.  The biggest drawback you may face is finding someone local to add to your team. If your office space and equipment are limited, this may pose a challenge but you can resolve this by having a set time and a dedicated work station for your accountant to be onsite.

Is Your Bookkeeping Just a Blur?

ImageAre you having a hard time seeing why you should keep your accounting up-to-date? For many entrepreneurs, the urgency of making sure the books are always current is a to-do that often flies right out the door. “Why should I update books when I’m doing very little business?”

One reason is because when there is little activity to report, you may not do any reporting at all. This, in my opinion, is a big mistake because there is truth behind the numbers. Every line item (present or not) is telling you something about the decisions you’re making and the health of your business.

Another top concern for ignoring accounting work is not knowing how you should manage it. It is common to see a sole practitioner keeping up with their sales but when it comes down to the overall results, many are missing the mark. To me, this practice is as self-defeating as a physical exam where the physician could not get your vitals. How much can they tell about performance if pieces of the puzzle are not there?

Having a fear that it accounting help will cost too much is another big obstacle that should not run you away. At the very least reach out to an accountant or bookkeeper that offers a complimentary consultation. Most accountants will speak with you to discuss your needs before you engage with them. The get acquainted session will help you see what direction to take and from there both you and the accountant can decide on a fee.

By consulting with an accountant regularly you will benefit by having an extra pair of eyes to review the numbers. Accountants are trained to understand the financial details and give you feedback on what is really going on.  Accounting is more than adding up the numbers. It can be a powerful part of your business when you use it the right way. Managing the inflows and outflows of money has to be top priority, that is, if you have plans to see your company grow.

Get in Position:

Over the next few days consider the aspects of bookkeeping and accounting that have been neglected in your business. Decide which of these tasks would be better managed by an accounting professional.

If you are doing your own books or have a back office team that can benefit from knowing how to understand and utilize your financial information, join our learning community of entrepreneurs who are elevating their financial IQ on Facebook.

15-Year Old Starts Tech Company, He’s Now a Millionaire

Benita Tyler:

Teen entrepreneurs are such an inspiration. Seeing them blazing the trail is always a reminder that there is no age requirement to following your passion.

Originally posted on High on Science & Tech - H.O.S.T:

Jaylen Bledsoe is a one-of-kind superstar. The 15-year old sophomore started his own tech company a few years ago, and has found entrepreneurship to be his calling. As a result, he is his own man, and a millionaire because of it.

via 15-Year Old Starts Tech Company, He’s Now a Millionaire.

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