Tag Archives: journey

Small Business Tax Tips – Part 2

Yesterday I posted the first six of 12 tax tips  for small businesses. Here are 7 – 12. Please note every effort has been made to include accurate information, but further research and the advice of a certified tax professional is highly recommended before following any of the tax advice contained here.

7. Help

If you are unsure about anything related to your tax obligations under the law, you should seek professional help from a certified public accountant. Meeting with your CPA quarterly to go over your specific situation will allow him or her to best advise you on what to do to keep your tax bill, and the stress over it, as low as possible.

7a. Update Your Accounting
Spend time each year reviewing your accounting practices to ensure that your books are up-to-date and accurate. Speak with your accountant about your procedures and ask if your current computer accounting system is the right system for your business.

 8. Traps

A small business owner may do some things that are more likely to get IRS attention than others. For example, claiming deductions that exceed your income for more than one year is a definite red flag. The home-office deduction, which is allowable only under specific circumstances, may be another red flag. That’s not to say you shouldn’t claim every deduction you’re entitled to claim, only that you should be especially careful when you do so.

Avoid Common Audit Traps:

  • Classifying Employees as Independent Contractors – Independent contractors and employees are not the same and it is important to understand the difference. In the eyes of the IRS, misclassification can be seen as an attempt to avoid payroll taxes; non-compliance can bring penalties and back taxes.
  • Home Office Deduction – This deduction is very specific and not all home-based businesses qualify. Know how to determine if you are eligible to claim this deduction and what specific expenses may be deducted.
  • Large Sum Miscellaneous Deductions – If you claim a large amount of itemized deductions or miscellaneous expenses, relative to your income, the IRS could get suspicious. Be specific and label every deduction.

9. Meet Deadlines 

April 15 isn’t the only important tax date for business owners. The following dates are important to keep in mind:

  • Annual returns. Most annual returns are due April 15 for unincorporated companies and S corporations. C corporations must file annual corporate returns within two-and-a-half months after the close of their fiscal year.
  • Estimated taxes. Estimated taxes are due four times a year: April 15, June 15, September 15, and January 15.
  • Sales taxes. Sales taxes are due quarterly or monthly, depending on the rules in your state.
  • Employee taxes. Depending on the size of your payroll, employee taxes are due weekly, monthly or quarterly.

10. Keep Business and Personal Expenses Separate

The IRS scrutinizes personal expenses that may have been claimed as a business expense, such as the use of a business vehicle, for personal use. Maintain separate bank and credit card accounts for your business and personal use. Be diligent about keeping good records.

11. Contributions

Many small business owners donate goods or services to charitable organizations throughout the year. Be sure to get a valuation for any non-cash items your business donates to charity so you’ll have the records you need to support the deduction for your contributions.

12. Always Keep Your Tax Documentation for Seven Years 

Although no one is looking for an audit, it is better to have your documentation ready if it happens. Some things like copies of business tax returns, licenses, incorporation papers, and capital equipment expenses should be preserved indefinitely. Keep any tax-related documents (e.g., expense receipts, client 1099 forms, and vehicle mileage logs) for a minimum of seven years.

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For additional information on these tax tips and current year tax deductions visit the SBA Small Business Tax Guide or contact the IRS. Next time we will discuss deductions for your small business in more detail.

Small Business Tax Tips

According to the professionals at the website AllBusiness.com: “Taxes are one of the most important issues facing small and growing businesses. And like a company’s profits, its annual tax bill will in part reflect the owner’s skills and knowledge. Business owners need to be sure that they are meeting all of their responsibilities to the tax man — and also seizing every opportunity to reduce their taxes.”

Here are the first six of 12 tips I gathered from the internet in an attempt to ease the burden of tax preparation and help in preparation for the next deadline. Please note every effort has been made to include accurate information, but further research and the advice of a certified tax professional is highly recommended before following any of the tax advice contained here.

1. Keep Good Records
Proper record-keeping year-round is the first step to ensure taxes are filed accurately. Save essential paperwork that could be needed to back-up deduction claims, should there be an audit. Keep it in mind that tax credits and deductions change each year.

2. Understand Available Deductions
One of the reasons small business owners pay more taxes than necessary is that they don’t take advantage of all of the deductions they’re legally allowed. Often that happens because they can’t prove they are qualified. The most common deductions for small business owners include entertainment, travel, meals, capital assets, home office and health insurance. Travel miles, meals and entertainment deductions require that you maintain a diary with daily entries that tie into receipts and other records.

3. Employee Taxes
If a business has employees, a variety of taxes will have to be withheld from their salaries. Among them are:

  • Withholding. Social Security (FICA), Medicare and federal and state income taxes must be withheld from employees’ pay.
  • Employer matching. Businesses must match the FICA and Medicare taxes and pay them along with employees.
  • Unemployment tax. Businesses must pay federal and state unemployment taxes.

4. Check out Tax Credits 
There are a variety of valuable tax credits available that can reduce your tax liability. These tax credits include Employer Social Security Credit, Disabled Access Credit, Work Opportunity Credit, Research Credit, Investment Credit, and more. Ask your accountant what credits are available for your business.

5. Quarterly Estimated Tax
This area trips up many an entrepreneur and is especially vexing for home-based businesses. Failure to keep up with estimated tax bills can create cash flow problems as well as the potential for punishing IRS penalties. Among the issues are:

  • Who should pay? A business probably must pay quarterly estimated taxes if the total tax bill in a given year will exceed $500.
  • How much should you pay? By the end of the year, either 90% of the tax that is owed or 100 percent of last year’s tax must be paid (the figure is 110% if a business’s income exceeds $150,000). Businesses can subtract their expenses from their income each quarter and apply their income tax rate (and any self-employment tax rate) to the resulting figure (their quarterly profit).

6. Sales Taxes
Most services remain exempt from sales tax, but most products are taxable (typical exceptions are food and drugs). If a business owner sells a product or service that is subject to sales tax, he or she must register with the state’s tax department. Then taxable and nontaxable sales must be tracked and included on the company’s sales tax return.

  • Having what is considered a “presence” in a state is the criteria used by the IRS to determine whether or not you are liable for paying state sales tax.
  • If you do not have a physical presence in another state, but sell items via the Internet or by catalog in that state, you can be subject to a state’s “use tax,” but typically not to their state sales tax. A “presence” in another state does not necessarily mean that you have a retail outlet in that state. If you have an office, warehouse, or employees working for you in that state, the IRS may consider you to have a presence in that state. Make sure you are aware of your sales tax responsibilities in all states in which you are doing business.

We’ll continue with 7-12 in a couple of days.

Business Taxes

As a small business owner, you need to know your federal tax responsibilities. Understanding and complying with tax requirements is a necessary aspect of doing business.  The IRS.gov website for small businesses provides extensive tax information and online tools and resources.

For additional information refer to IRS Publication 583, Starting a Business and Keeping Records. This publication provides basic federal tax information for people who are starting a business. It also provides information on keeping records and illustrates a record-keeping system.

As we discussed previously, when starting a business you must decide what form of business entity to establish. Your form of business (e.g., sole proprietorship, partnership, LLC) determines what taxes you must pay and how you pay them.

The following are the four general types of business taxes.

  • Income Tax
  • Estimated Taxes
  • Self-Employment Tax
  • Employment Taxes

Income Tax

All businesses except partnerships must file an annual income tax return.  Partnerships file an information return.  The form you use depends on how your business is organized. Refer to Business Structures to find out which returns you must file based on the business entity established.

The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year.  An employee usually has income tax withheld from his or her pay.  If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax.  If you are not required to make estimated tax payments, you may pay any tax due when you file your return.

Estimated tax

Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. For additional information, refer to Estimated Taxes.

Self-Employment Tax

Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves.  Your payments of SE tax contribute to your coverage under the social security system.  Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.

Generally, you must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.

  • If your net earnings from self-employment were $400 or more.
  • If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108.28 or more in wages from the church or organization.

Note: There are Special Rules and Exceptions for aliens, fishing crew members, notary public, State or local government employees, foreign government or international organization employees, etc. For additional information, refer to Self-Employment Tax.

Employment Taxes

When you have employees, you as the employer have certain employment tax responsibilities that you must pay and forms you must file.  Employment taxes include the following:

  • Social security and Medicare taxes
  • Federal income tax withholding
  • Federal unemployment (FUTA) tax

For additional information, refer to Employment Taxes for Small Businesses.

This information provides a brief overview from the Internal Revenue Service of issues and decisions involved in owning a small business and avoiding common pitfalls.

Five Tips for Buying Business Insurance

To assess what types of insurance are best for your business, and how to secure coverage to provide adequate protection and minimize risks, use these five steps from the SBA.

1. Assess Your Risks. Insurance companies determine the level of risk they’ll accept when issuing policies. This is known as underwriting. The insurance company reviews your application and determines whether it will provide all or a portion of the coverage being requested. Each policy carries a premium and a deductible. Premiums vary widely and depend on a number of risk factors, including your business location, building type, local fire protection services, and the amount of insurance you purchase. Generally, the higher deductible you agree to pay, the lower your premium will be. When you agree to take on a high deductible you are taking on some financial risk. So, it’s important to assess your own risks before you go shopping.

2. Shop Around. Prices vary from company to company, so it pays to get several quotes. The  Insurance Information Institute recommends that you get the names of insurance companies or brokers who specialize in your type of business. Call several so that you can compare prices and get a feel for the types of services they would provide. It’s also important to pick a company that is financially stable. Check the financial health of insurers with rating companies such as Standard & Poor’s and consult consumer magazines.

3. Consider a Business Owner’s Policy. Insurance can be purchased separately or in a package called a business owners’ policy (BOP). A BOP combines typical coverage options into a standard package, and is offered at a premium that is less than if each type of coverage was purchased separately. Typically, BOPs consist of covering property, general liability, vehicles, business interruption and other types of coverage common to most types of businesses. BOPs simplify the insurance buying process and can save you money. However, make sure you understand the extent of coverage in any BOP you are considering. Not every type of insurance is included in a BOP. If your business has unique risks, you may require additional coverage.

4. Find a Reputable, Licensed Agent. Finding a good insurance agent is as important as finding a good lawyer or accountant. You should always look for one that has a license. State governments regulate the insurance industry and license insurance brokers. Many states provide a directory of licensed agents.

5. Assess Your Insurance Coverage on an Annual Basis. As your business grows, so do your liabilities. You don’t want to be caught underinsured should disaster strike. If you have purchased or replaced equipment or expanded operations, you should contact your insurance broker to discuss changes in your business and how they affect your coverage.

Does Your Small Business Really Need Insurance?

Today we will try to answer the question “Does Your Small Business Need Insurance?”

The short answer is YES.

If you don’t have business insurance you run the risk of losing more than your business. Without the right type of coverage, a fire, theft, accident, or lawsuit could destroy your business and may put your personal finances at risk.

Whether you are starting a business, taking on employees for the first time, or evolving your business structure, there are many variables that determine the right insurance for your small business. Insurance companies differ in the types of business operations they will cover under the various options they offer. So it’s wise to shop around for coverage options as well as price. 

Since there are such a wide variety of insurance policies available, always discuss your individual business insurance needs with an insurance agent or broker.

There are two fundamental types of insurance – commercial business insurance, which is not necessarily required by law, and employer insurance, which is. Caron Beesley, a small business owner, writer, and marketing communications consultant, complied this summary:

1. Types of Commercial Business Insurance

  • General Liability Insurance – This insurance broadly covers and provides protection against the legal hassles associated with accidents, injuries and claims of negligence.
  • Product Liability Insurance – If you manufacture, wholesale, distribute and retail a product, this insurance protects against financial loss as a result of a product defect that can cause injury.
  • Professional Liability Insurance – If you provide a service to a customer, this insurance can protect against malpractice, errors, and negligence in the provision of those services to your customers. Some state governments require certain professions (e.g. physicians) to carry such a policy.
  • Commercial Property Insurance – This covers everything related to the loss and damage of company property due to a wide variety of events such as fire, smoke, severe weather, vandalism, etc. The definition of ‘property’ is broad, and includes lost income, business interruption, buildings, computers, company papers and money. This is definitely one you should talk to an insurance expert about to understand your specific needs.

2. Insurance Requirements for Employers

If your small business hires employees, you are required by state law to pay for certain types of insurance. Here are the three key employee insurance requirements:

  • Workers Compensation Insurance – Businesses with employees are required to carry Workers’ Compensation Insurance coverage through a commercial carrier, on a self-insured basis, or through the state Workers’ Compensation Insurance program. Visit your state’s Workers’ Compensation Office for more information on your state’s program.
  • Unemployment Insurance Tax – If you have employees you are required to pay unemployment insurance taxes as determined by your state. First you’ll need to register your business with your state’s workforce agency. The State Taxes page on IRS.gov includes links to connect you with your state’s agency.
  • Disability Insurance – In the U.S., it is mandatory to purchase disability insurance only if your business is in one of six locations – California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island.

Next time we will look at “Five Tips for Buying Business Insurance” from the U.S. Small Business Administration (SBA).

Shiny Object Syndrome

I have come to the conclusion that I suffer from Shiny Object Syndrome – I often sit at my computer for hours getting nothing done. 

Internet Marketing Wiki defines Shiny Object Syndrome (SOS) as

the tendency for someone to get distracted by new thoughts and ideas, their own and others, and never focus or complete anything. In effect, the internet marketer is in such a state of constant distraction that they continually lose themselves in imagination and dreaming, instead of seeing the bigger picture and getting things done.

They go on to say that SOS “will commonly result in procrastination, even chronic procrastination and a constant sense of unease and dissatisfaction at not being able to move forward.”

Now that I have identified the problem, I am on the road to recovery. It will be an uphill battle but there is comfort in knowing that I am not alone.

“Nothing is so fatiguing as the eternal hanging on of an uncompleted task.” – William James

“Procrastination is the bad habit of putting off until the day after tomorrow what should have been done the day before yesterday.”  Napoleon Hill

Recently Mashable published a comic by Angela Liao of 20px  that identifies 12 Types of Procrastinators. I can relate to at least six but the Sidetracker and the Internet Researcher probably describe me the best. Which one (or two) are you? 

Luckily Mashable also supplied a link to a post by Sarah Ang on 7 Productivity-Boosting Tools to Fight Procrastination. I may have to start using “Strict Workflow” this week. It is a Chrome extension that helps you stay focused by blocking sites for 25 minutes then letting you browse for a 5-minute break.

I’ll be back soon with a post on business insurance, as soon as I finish researching it …

What is a molehill anyway?

I have come to the conclusion that if I spent as much time writing my business plan as I do worrying about it or researching about it, I would have finished it weeks ago. I’m pretty sure I’m making a mountain out of a molehill. So, to assist you (and me) I decided to summarize the basic requirements of a business plan. It’s a long post so get your reading glasses along with a glass of your favorite beverage and dig in!

Most business plans are organized into five major categories:

  1. Executive Summary
  2. Company Description
  3. Products & Services
  4. Marketing & Sales Plan
  5. Financial Information

Let’s discuss each category individually.

The first category is the Executive Summary. This may be the most important part of your business plan. Most experts agree, however, that this should be done last after you have completed all the other categories in your business plan. The executive summary is your chance to shine and show people that you are ready to get your business off the ground. As a summary section you will give a quick picture of your experience, training, and plans for success.

The second category is the Company Description. This is where you give a profile of your company by explaining your business and what niche you are serving. State where you are located and under what type of legal format your company operates, such a sole proprietorship, Incorporated, or LLC. You should then list details such as:

  • Size
  • Management structure
  • Number of employees
  • Your target market and unique selling position
  • Expertise level
  • Scope of work
  • Hours of operation

Next, list the duties and responsibilities of management/key staff/consultants, if any. Describe what your company does and what makes it unique. Describe your ideal target customer including:

  • Location
  • Numbers
  • Age, marital status, income, number of children, educational level
  • State whether or not their numbers are growing or declining
  • Trends affecting your customer demographic
  • What they spend on products or services similar to yours
  • Who they purchase these products or services from
  • Where and how do they buy them

Profile your main competition:

  • Who are they
  • Where they located
  • What’s their size
  • Discuss what market segments they serve
  • Give a rough estimate of their sales
  • Approximately how long have they been in business
  • Sketch out their strengths and weaknesses
  • State whether they are growing or declining
  • What is their market share
  • Where will you fit in
  • How will you overcome any competitive disadvantages

The next category is Product & Services. In this section describe your products and services. Discuss how your products and services are unique and better than your competitors. Explain how you see your products and services changing over time and your business growing. Detail the level of customer demand for your products and services now and project where demand will be over the next 2 to 5 years.

Category four is Marketing & Sales. The main purpose of this section is to discuss how you will reach customers. We will expand on who is the ideal target customer we discussed in Category two by answering questions such as:

  1. Who are my customers and potential customers?
  2. What kind of people are they?
  3. Where do they live?
  4. Can and will they buy?
  5. Am I offering the kinds of goods or services they want at the best price, at the best time, in the right amounts?
  6. Are my prices consistent with what buyers see as the product’s value?
  7. How does my business compare with my competitors?

A successful marketing strategy will typically include the four Ps – price, promotion, products, and place – to reflect the wants and desires of consumers in your target market. A product is an item that satisfies what consumer needs or wants. Price is the amount a consumer pays for the product. Promotion is all of the methods of communication and a marketer may used to provide information about the product. Place – or distribution – refers to the providing the product at a place that is convenient for consumers to access.

For sales strategy, provide a summary of the people most likely to purchase your products or services. Address the most urgent need they would be seeking to meet or which major benefits would attract them. Discuss where and how you will sell your products and services. Will you sell only online? Will you have a brick-and-mortar location?

The final category is Financial Information. This section should include financial statements and forecasts for the business. The financial structure of your business is usually described in three financial statements: the balance statement, income statement, and cash flow statement. As a new business you should include estimated start-up costs, a projected balance sheet, a projected income statement, and a projected cash flow statement for 12 months. All statements should be projected one year forward.

Please remember that I am sharing only the basics. However, I have discovered some wonderful resources that I will discuss and post next time. 

Is a Business Plan Really Necessary?

The short answer is “yes” and the long answer is “yes but, depending on the size and niche of your business, it does not always need to be a long dissertation.”

There are many articles and websites covering this topic so I am only going to try to help you navigate through the maze. Two great sources of information are SBA.gov (the official website for the U.S. Small Business Administration) and SCORE.org  (business mentoring that is free and confidential).

I have to admit that when I hear the phrase ‘business plan’ I do not get warm, fuzzy feelings. Quite the opposite, I start to get tense and a little nervous. Why? Because it sounds like punishment – you have to write a business plan.

So the first step is to realize that it is in your best interest to write a business plan. It will help you to define your goals and the steps necessary to achieve your goals. It will force you to spend time thinking about the future and how to get where you want to go!

Ken Yancey, the CEO of SCORE since 1993, wrote a blog post last December entitled “A Small Business Plan for the Future” that gives a great response to our initial question: Is a business plan really necessary?

The SBA website has a Business Plan Tool to help you get started. SCORE has a Business Plan Template for a Startup Business that I just downloaded. I want to complete the steps in the SBA’s Business Plan Tool before I start on the actual plan. I hope to do that some time over the next few days. I’ll let you know how it goes.

It’s Independence Day!

I hope you are having a happy and safe Fourth of July holiday. I’m happy because I’m working towards my own independence day. Why are you happy today?

I thought I would give you a little background information so you have a better idea where I am coming from. I have one business already. I started it in 2003. I make and sell beaded jewelry, mostly at Christmas craft shows. The name of my business is “Sweet Creations – Jewelry by Candy” and it violates many of the principles of naming a business. For example, it’s too long – sweetcreations-jewelrybycandy.com is a mouthful! Also, it’s too specific. What if I decided to create something other than jewelry?

You may be wondering why I didn’t go with just “Sweet Creations” or “Jewelry by Candy” First, I found out that “Sweet Creations” was registered to a bakery somewhere in Florida when I tried to register it on the Fictitious name website. Second, I never thought of going with “Jewelry by Candy” until a minute ago!! So, wait here while I go look to see if that’s registered to anyone else in Florida … No it isn’t but there were 21 businesses registered that started with “Jewelry by …”

I decided to use my initials in naming any new endeavors. And I came up with a logo. It stems from the way I have initialed things since I was a teenager. Here’s my logo for the consulting business I’m working on:

CandyHill_logo-centered

Next time we’ll investigate what’s the right legal structure for your new business. There are four types of business structures — sole proprietorship, partnership, limited liability company or corporation — each has its own advantages and disadvantages.

Today I Started a New Journey

For as long as I can remember I have wanted to work for myself. Instead I have spent close to 30 years working as a  Research Administrator in Psychiatric Research. The story of how I got there is for another time. Today I want to talk about the future and getting on the right path.

Starting today I am actively working towards getting my consulting business up and running. I will be blogging about the trials and tribulations of starting an online business. I have learned quite a bit over the past 6-8 months that you may need to know. I have made mistakes that I want you to avoid. But I have also not found out about many topics that are crucial – such as getting a license, registering your business, taxes, etc.

If you are interested in following along with me on my journey, please subscribe to my posts. Tomorrow we’ll talk about registering Fictitious names, which is required in the state of Florida. So start thinking about a name for your business.