Tag Archives: online business

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.

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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).

Business Licenses and Permits, Oh My!

Don’t forget that any kind of business you start needs to comply with local, state, and federal regulations related to your business. Failing to do so is one of the most common mistakes new entrepreneurs make. Some of the issues regarding licenses and permits can be handled alone, but some may require the help of a lawyer.

Federal Requirements

Most businesses do not require a federal business license or permit. However, if your business is in one of the following highly regulated areas you should contact the responsible federal agency to determine the requirements for doing business:

  • Broadcasting
  • Drug manufacturing
  • Ground transportation
  • Investment advising
  • Preparing meat products
  • Selling tobacco, alcohol, or firearms

For more information see “Federal Licenses & Permits” on sba.gov

State Requirements

Many states and local jurisdictions require you to get a business license or permit before beginning any business activities. A business that operates without the required license or permit may be subjected to fines or may be barred from further business activity. In some localities, a business operating out of a residence may require an additional permit.

While business licensing requirements vary from state-to-state, the most common types include:

1. Basic Business Operation License – a legal document issued by a local governmental authority that authorizes a person to conduct business within the boundaries of the municipality. Many states have established small business assistance agencies to help small businesses comply with state requirements.

2. Fictitious Name Certificate – a document, usually filed with a state agency, which is required to operate a business using an assumed name or trade name (essentially, any name other than the full, formal name of the individual or company).

3. Home Occupation Permit – a permit that may be required to conduct business from a residence.

4. Tax Registration – if the state has a state income tax, a business owner must usually register and obtain an employer identification number from the state Department of Revenue or Treasury Department. If the business engages in retail sales, the owner must usually obtain a sales tax license.

5. Special State-Issued Business Licenses or Permits – these permits may be required for a business that sell highly regulated products like firearms, gasoline, liquor, or lottery tickets.

6. Zoning and Land Use Permits – may be required to develop a site or property for specific purposes.

7. Employer Registrations – if the business has employees, the owner must usually make unemployment insurance contributions.

In many states, people in certain occupations must have licenses or occupational permits. Often, they have to pass state exams before they can get these permits and conduct business. States usually require licensing for auto mechanics, plumbers, electricians, building contractors, collection agents, insurance agents, real estate brokers, repossessors, and anyone who provides personal services (i.e., barbers, cosmetologists, doctors and nurses). Contact your state government offices to get a complete list of occupations that require licensing.

For more information see:
State Licenses & Permits” on sba.gov;
Starting an Online Business: Licensing Requirements” on E-CommerceLaw.com; or
Business Licenses and Permits” on Entrepreneur.com

Local Requirements

Your local licensing requirements will vary. Some examples include the following:

  • You may need a zoning compliance permit before you can open for business. Make sure the space you own or lease is properly zoned for the specific type of business you select.
  • You may need a special license if you’re conducting business out of your house, a beauty salon for example.
  • Are you planning on remodeling your space? You may need to get a permit, so you will want to check the building codes first.

Where do you go to get a license?
The best place to start is your local city hall or courthouse. See the city clerk, who should be able to direct you. You can also phone the city or county clerk’s office with questions, or look in your local phone book under municipal government offices. Run an online search on Google or Yahoo to find the Web site for your local city hall.

For more information see “Business License & Permits” on myownbusiness.org

Please Note: To help you identify the specific licenses or permits your business may need, the SBA has a tool called Permit Me. Simply enter your zip code and business type to view a list of the licenses or permits you’ll need, together with information and links to the application process.

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.