Tag Archives: small business owners

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.

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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).

Why should you keep good business records?

Keeping good records is vital to your business. Bad record-keeping can be a serious pitfall for small business owners. You can avoid headaches when you are filing your tax return by keeping track of your receipts and other records throughout the year. 

Good records will help you:

1. Monitor the progress of your business

Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success.

2. Project your tax liability (estimated tax payments)

During that first year of business you will need to project your tax liability so that you can make estimated tax payments. Estimated tax is the method used to pay tax on income that is not subject to withholding. Estimated tax is used to pay income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. 

3. Prepare your financial statements

You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business.

4. Identify source of receipts

You may receive money or property from many sources. Your records can identify the source of your receipts. You need this information to separate business from your personal receipts and taxable from nontaxable income.

5. Keep track of deductible expenses

It is very important to have a system to keep track of your deductible expenses. If you don’t keep your receipts you may forget expenses when you prepare your tax return, unless you record them when they occur.

6. Prepare your tax returns

You need business good records to prepare your tax returns. These records must support the income, expenses, and credits you report. Generally, these are the same records you use to monitor your business and prepare your financial statement.

7. Support items reported on tax returns

You must keep your business records available at all times for inspection by the IRS. If the IRS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.

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.