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

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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

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.

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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Dream Team Pick of the Week: Richard St. John: Secrets of Success in 8 Words

Today my top mentor of the weak analyst Richard St. John who does an awesome job during this TedTalk event. In the video, he summarizes a poll taken by participants at TedTalks where he asks, “Why do people succeed? Although the question can be applied to anyone in any field, it is also fitting in an entrepreneurial career. Here are the main points from the clip.

Passion – Do it for love.

This is a message that you may have heard before. Find a way to create a business around what you most enjoy definitely plays a role in success. The reason is because although profits is the name of the game, keeping passion in business is what drives you to reach the goal.

Work – Have fun working hard.

Janet Jackson made a song titled, “Funny how time flies when you’re having fun” and it’s true. When you have clients and projects that you can have fun with, you don’t mind the time that it takes to get it off the ground and grow it. It’s like being a kid at Disney World. You never want to leave.

Focus – Put your nose into something and don’t stop until you’re done.

There are so many aspects of business that are interesting but what matters most is niche. If you find one thing to give your undivided attention it will expand and grow. Focus is keeping your eyes on the prize instead of being taken off course by the bright shiny objects.

Persist – Stay on course in spite of failure.

If anyone ever told you that building a successful business is easy they were wrong. There will be good days and not so good days. There will be times when you are extremely confident and moments when struggle with self-doubt. So you need to be prepared by staying physically, mentally, and spiritually able to handle the inevitable bumps in the road.

Ideas – Listen and observe.

Pay attention to what goes on around you to be a catalyst for new ideas. When you keep an open mind it sparks your imagination. From there you can innovate or improve upon what already exists by acting on what you find.

Good – Get darn good at what you do!

To this statement, I totally agree. When you put in the work and practice, practice, practice, it makes you an expert at what you do. Your market values your expertise so take the time to develop it.

Push – Push yourself and have a support circle around you.

Ask yourself how will you keep going when times get hard? A mission statement and positive mental attitude helps but so does a supportive inner circle. You need people to cheer you on in times when you are dealing with what Richard calls, “Crap”.

Serve – Keep an attitude of giving others something of value.

Ivan Misner, founder of Business Network International has a motto that I like called, “Givers gain.” The  more you find ways to help others, the more valuable you become to them. Remember, people do business with people they know, like and trust. Putting others first is the most genuine way to achieve that.

So what do you think?…

Are there any other factors that contribute to success? I’d like to read about your favorite business or career strategies in the comments below.

Entrepreneurs Want to Know: Are Hourly Prices or Flat Fees the Better Way to Go?

howmuchQ: My company provides branding services to other small business owners using an hourly fee. I have heard of colleagues moving away from billing by the hour. It seems easier than creating quotes and billing for every single task. When I set hourly rates, they seem to scare away clients but I am afraid to lose money by using package prices. What should I do?

A: Most entrepreneurs (especially service providers) start out charging an hourly fee. It is the model most commonly used in new business starts. Although hourly billing can be profitable, it does limit the amount of money you can make.

An alternative pricing strategy that service providers use is flat rate packages. This option enables you to leverage your business by exchanging value instead of time for dollars. With flat rates you are packaging services that fall within a typical request. For example, you can customize a Budding Business Branding Package for start-ups. Keeping in mind the budgets that company’s in the pre-revenue have, your package may be a web marketing plan that solely identifies free and low cost advertising sources. Likewise, you could create a higher end package for established businesses with more advanced offerings and guidance.

When developing packages consider:

  • What tasks go into delivering your service?

  • How can you bundle services to meet clients needs?

  • What tools can improve work efficiency so that you do not have time and cost overruns?

  • How can you guide clients through the process in the least amount of time to achieve the best possible results?

These questions are a good starting point for moving from billable hours to flat-rate fees. As you get more familiar with typical service requests, new programs may develop. Of course, if you have a request that is totally out of the norm, you can always combine package rates with hourly fees.

A good rule of thumb is to offer packages to clients who have clear goals. When the client is not quite sure what direction to take, consider  a-la-carte services at your hourly fee.

When it comes to quoting prices each has its strengths and weakness.

That has me wondering.

Is there a pricing strategy that is winner take all?

Is It Time For a Mark Up?

penfinancialsHello enterprising women!

Today I am on the road blogging and being a wife, mom and enterprising woman, I always strive to maximize my time.  So, yes, I think about my enterprise (and you, my magnificent readers) quite a bit. This is one of those filler moments in between client appointments and picking up my daughter from school.  So I am grateful for the quiet time that I get to take in the beauty of God’s creation (and what a beautiful day it is!). I also get to share some of my thoughts on getting the most from financial reports with you.

The reason that I am highlighting this today is because I realize that a lot of you are using accounting software to produce Balance Sheets and Income Statements for your business. Many of my readers do not have a financial background and may not be working with an accountant so I want to share what to do after getting the data from bank, credit card, and loan statements. Once you record it in your accounting system the next step is to prepare financial reports. Here’s why:

  • You should be reviewing the financial statements to make sure the data is accounted for in the correct places.  Instead of having reports that stare you in the face, I actually want you to do something with them. Using the reports in front of you, take out a pen to circle any line items that stand out.
  • Look for amounts that look unusual so that you can investigate them. I like to make notes with a red pen but you can use any color you like. Using a pen instead of pencil helps to draw attention to results that appear abnormal from one period to the next. If it stands out, circle it.
  • Finally, go back for a review. Take time to ask yourself what happened during the period that caused the numbers to change. This is how you get the story behind the numbers. It is also how you learn what policies, procedures, or strategies are working and what you should revise.

Financial reports are excellent tools that aids in deciding what to do in business. That is why you need to understand what you are looking at. If you don’t understand how to use financial reports consider consulting with an accountant who can explain the numbers to you.  You can also try a community college or enroll in courses online to get familiar with accounting terms and financial reports.

And if you’d like to learn more about how to use financials to grow your business join me on Facebook for helpful financial tips and announcements on my upcoming course.

Until then…

Are you using financials reports on a regular basis?

Let me know how this practice helps you by sharing your thoughts in the comments below.

 

Why Entrepreneurs Should Build Family-Owned Businesses

familybizOne of the dreams that I have had since launching my business is creating a family-owned that includes my kids. Although countless stories of family business nightmares exist, my experience is the opposite.  I have had the pleasure of working with families that have passed on companies from one generation to the next.  Below are a few reasons why employing your children in business enhances business success.

Hiring your children is good for the bottom line. When you employ your children to work in the business you get to write off their pay. It is a great strategy for paying less taxes because they are taxed at a lower rate. It is also an excellent way to get a deduction for the money that you give for allowances,  tuition, books and clothes. Instead of gifting an allowance, give them a position in your company. It teaches them the value of working for money while developing work skills, as well.

Bringing your kids on board is a smart non-financial move, too. For example, as the parent-owner of the company, hiring your children saves time in screening and and hiring qualified personnel. Think about it. You already know what skills and interests your child has which simplifies matching to specific roles. Not only that, but you have the opportunity to groom them early on by instilling leadership and business skills that gives them a head start. I began showing my son how to help around the office when he reached the age of 9. He started by answering phones, sending faxes, and scanning paperwork to files. As he got older and developed more skills, his role in the business expanded. Today he is an integral part of my marketing team and brings valuable insights to management.

Now, I am not sure if my children will follow my entrepreneurial path. What matters most is that they discover their skills and where they fit in the workplace. As we explore possibilities together, my goal is to keep providing opportunities that help them reach their potential and find fulfilling careers. In the meantime, their interests are outside of business but I am happy to say that their childhood experience in our family business will add value in any career.