First-Year Start-Up Tax Issues

If creating a start-up business were an easy thing to do, then a lot more people would be doing it. For those who make the decision to fulfill their dreams and go for it, success relies on being fully prepared. Some of the most common stressors encountered by entrepreneurs involve tax liabilities, whether business is booming or they’re struggling to keep their head above water. The best way to avoid these pitfalls is to learn about them ahead of time. Here’s what every entrepreneur needs to know.

Give Careful Consideration to the Type of Business Organization You Choose
The entity that you choose for your start-up will have a big impact on how your taxes are handled, so make sure you’ve done your research to find the option that works best for your specific situation. Factors like the state where you’re doing business and the type of business you’re operating will be a consideration, and so will your ownership profile. Businesses that don’t plan on adding partners or shareholders in the future or that anticipate changing owners in the near future are probably limited to establishing as a C corporation or an S corporation, with the former offering more flexibility on ownership shifts, as well as the possibility of international investors.

Though there’s no law to prevent you from shifting to another type of entity in the future, doing so can be disruptive, so it makes sense to take your time and choose the option that fits best and makes the most sense based on your current ownership plans.

Choosing an Accounting Method
Unless you’re an accountant or have experience and significant knowledge of accounting, it’s a good idea to sit down with a professional to determine whether you’re going to use a cash accounting method, an accrual method, or a hybrid of the two. If you don’t have a background in bookkeeping and taxes, it may seem like an academic question, but it plays a big part in determining your tax liability. A lot of the determination will also depend on the type of business you run. An experienced accountant will be able to walk you through the decision that makes the most sense and that will be easiest to implement in compliance with IRS regulations.

Putting Internal Controls in Place
As a start-up, there are certain internal controls you need to put in place to ensure that your business is running smoothly and according to your stated objectives and goals. You also want to be sure that you’re set up to provide comprehensive information for external investors. Company policies need to be written and communicated with an eye to regulations. A CPA will be invaluable in helping you get these controls in place.

Paying Attention to Compliance
Every entrepreneur likes to do things their own way, but there are some issues where compliance is key. Failure to follow the rules and regulations could lead to stiff penalties and fines, or even to your business either temporarily or permanently being shut down. In addition to paying taxes on your business’s income, you also need to find out whether your locale requires a business license and what the rules are if you’re selling either a digital or physical product over state lines. Sales tax will need to be paid, workers’ compensation insurance will need to be purchased and a policy put in place if you have even a single employee, and if you’ve organized yourself as a Delaware corporation, then you’ll need to have an annual franchise tax report prepared, filed and paid, whether you generate income or not.

Creating a Way to Track Performance and Stay on Budget
One of the biggest mistakes new business owners make is failing to create a budget and stick to it. Failure to do so can easily lead to a shortfall in available funds, including those you need to pay your tax liability. Take the time to make a reasonable budget and establish what your start-up’s key performance indicators (KPIs) are for both cutting expenses and generating income. With those issues addressed, you give yourself a solid way to measure how you’re doing, and you’re likely to find both short-term and long-term tax planning easier too.

Starting a new business is a dream come true for many, but your focus has to go beyond your own area of expertise and interest. By working with a tax professional, you can be sure that you’ve addressed the tax-related problems that have tripped up many start-up organizations.

Please call us with any questions related to creating a start-up business.

Five QuickBooks Reports You Need to Run in January

Does your accounting to-do list look like a clean slate, or are critical 2017 tasks still nagging?

Getting all of your accounting tasks done in December is always a challenge. In addition to the vacation time you and your employees may have taken over the holidays, there year-end projects.

How did you do last month? Were you ready to move forward when you got back to the office in January? Or did you run out of time and have to leave some accounting chores undone?

Besides paying bills and chasing payments, submitting taxes and counting inventory in December, there’s another item that should have been on your to-do list: creating end-of-year reports. If you didn’t get this done, it’s not too late. It’s important to have this information as you begin the New Year. QuickBooks can provide it.

A Report Dashboard
You may be using the Reports menu to access the pre-built frameworks that QuickBooks offers. Have you ever explored the Report Center, though? You can get there by clicking Reports in the navigation toolbar or Reports | Report Center on the drop-down menu at the top of the screen.

QuickBooks’ Report Center introduces you to all of the software’s report templates and helps you access them quickly.

As you can see in the image above, the Report Center divides QuickBooks’ reports into categories and displays samples of each. Click on one of the tabs at the top if you want to:
  • Memorize a report using any customization you applied.
  • Designate a report as a Favorite.
  • See a list of the most Recent reports you ran.
  • Explore reports beyond those included with QuickBooks, Contributed by Intuit or other parties.

Recommended Reports
Here are the reports we think you should run as soon as possible if you didn’t have a chance to in December:

Budget vs Actual
We hope that by now you’ve at least started to create a budget for 2018. If not, the best way to begin is by looking at how close you came to your numbers in 2017. QuickBooks actually offers four budget-related reports, but Budget vs Actual is the most important; it tells you how your actual income and expenses compare to what was budgeted.

Budget Overview is just what it sounds like: a comprehensive accounting of your budget for a given period. Profit & Loss Budget Performance is similar to Budget vs Actual. It compares actual to budget amounts for the month, fiscal year-to-date, and annual. Budget vs Actual Graph provides a visual representation of your income and expenses, giving you a quick look at whether you were over or under budget during specific periods.

Income & Expense Graph
You’ve probably been watching your income and expenses all year in one way or another. But you need to look at the whole year in total to see where you stand. This graph shows you both how income compares to expenses and what the largest sources of each are. It doesn’t have the wealth of customization options that other reports due, but you can view it by date, account, customer, and class.

A/R Aging Detail

QuickBooks’ report templates offer generous customization options.

Which customers still owe you money from 2017? How much? How far past the due date are they? This is a report you should be running frequently throughout the year. Right now, though, you want to clean up all of the open invoices from 2017. A/R Aging Detail will show you who is current and who is 31-60, 61-90, and 91+ days old. You might consider sending Statements to those customers who are way past due.

A/P Aging Detail
Are you current on all of your bills? If so, this report will tell you so. If some bills slipped through the cracks in December, contact your vendors to let them know you’re on it.

Sales by Item Detail
January is a good time to take a good look at what sold and what didn’t in 2017 before you start placing orders for 2018. We hope you’re watching this closely throughout the year, but looking at monthly and annual totals will help you identify trends – as well as winners and losers.

QuickBooks offers some reports in the Company & Financial and Accountant & Taxes categories that you can create, but which really require expert analysis. These include Balance Sheet, Trial Balance, and Statement of Cash Flows. You need the insight they can offer on at least a quarterly basis, if not monthly. Connect with us, and we can set-up a schedule to look at these reports. If you have any QuickBooks questions, or would like any assistance, please contact us.

Driving For Uber Or Others? Your Tax Situation Is Unique

With tax time approaching, if you drive for Uber, Lyft or a competitor, here is some tax information related to reporting your income. You are considered self-employed and will report your income and deductible expenses on IRS Schedule C to arrive at your taxable income for income tax and self-employment tax.

Your driving income will be reported on IRS information Form 1099-K, which reflects the entire amount for your fares charged on credit cards through the Uber reporting system. So if the 1099-K includes the total charges, then it also includes the Uber fee and credit card fees, both of which are deductible by you on your Schedule C. To determine the amount of those fees, you must first add up all the direct deposits made by Uber to your bank account. Then subtract the total deposits from the amount on the 1099-K; the result will be the total of the Uber fees and credit card processing fees. If you drive for multiple services, you will have multiple 1099-Ks and deposits from multiple services. It is highly recommended that you keep copies of your bank statements for the year so you can verify deposits in case of an IRS audit.

You will also need to include in your income any cash tips you received that were not charged through Uber. You should keep a notebook in your vehicle where you can record your cash tips. Having a contemporaneously maintained tip logbook is important in case of an audit.

Your largest deduction on your Schedule C will be your vehicle expenses. The first step in determining the deduction for the business use of a vehicle is to determine the total miles the vehicle was driven, and then, of the total miles, the number of deductible business miles and non-deductible personal miles. Recording the vehicle’s odometer reading at the beginning of the year and again at year-end will give you the information needed to figure total miles driven during the year. Although the Uber reporting system provides you with the total fare miles, it does not include miles between fares, which are also deductible. Thus it is important that you maintain a daily log of the miles driven from the beginning of your driving shift to the end of the shift. The total of the shift miles driven will be your business miles for the year. If you know the business miles driven and total miles driven, you can determine the percentage of vehicle use for business, which is used to determine what portion of the vehicle expenses are deductible.

You may use the actual expense method or an optional mileage method to determine your deduction for the use of the vehicle. If you choose the actual expense method in the first year you use the vehicle for business, you cannot switch to the optional mileage method in a later year. On the other hand, if you choose the optional mileage rate in the first year, you are allowed to switch between methods in future years, but your write-off for vehicle depreciation is limited to the straight line method rather than an accelerated method. For 2017, the optional mileage rate is 53.5 cents per mile. The IRS generally only adjusts the rate annually. If using the optional mileage rate, you need not track the actual vehicle expenses (but you still need to track the mileage).

The actual expense method includes deducting the business cost of gas, oil, lubrication, maintenance and repairs, vehicle registration fees, insurance, interest on the loan used to purchase the vehicle, state and local property taxes, and depreciation (or lease payments if the vehicle is leased). The business cost is the total of all these items multiplied by the business use percentage. Since the vehicle is being used to transport persons for hire, it is not subject to rules that generally limit depreciation of business autos, allowing for substantial vehicle write-off in the first year where appropriate. However, if you converted a vehicle that was previously used only personally, the depreciation will be based upon the lower of cost or current fair market value, and no bonus depreciation will allowed unless the conversion year was the same year as the purchase year.

Other deductions would include cell phone service, liability insurance and perks for your fares, such as bottled water and snacks. Depending on your circumstances, you may qualify for a business use of the home (home office) deduction. However, to qualify, the home office must be used exclusively in a taxpayer’s trade or business on a regular, continuing basis. A taxpayer must be able to provide sufficient evidence to show that the use is regular. Exclusive use means there can be no personal use (other than de minimis) at any time during the tax year. The office must also be the driver’s principal place of business.

Uber provides its drivers with detailed accounting information, and the only significant additional record keeping required is the miles traveled between fares, which is accomplished while in the vehicle. So justifying a home office is problematic. Even a portion of the garage where the vehicle is parked could qualify, but the use must be exclusive, which means the vehicle must be used 100% for business.

As a self-employed individual, you also have the ability to contribute to a deductible self-employed retirement plan or an IRA. Also, being self-employed gives you the option to deduct your health insurance without itemizing your deductions. However, these tax benefits may be limited or not allowed if you are also employed and participate in your employer’s retirement plan or if your employer pays for 50% or more of your health insurance coverage.

If you have additional questions about reporting your income and expenses, or the vehicle deduction options, please give us a call.

Five Steps You Need to Take After Jumping Into Entrepreneurship

Congratulations! You’ve decided to dive into the exciting world of entrepreneurship and bring that great business idea to life. Whether you’re opening a local brick-and-mortar business that your community needs, looking to grow rapidly in the next few years and get an investor, or just keep things small and solo, certain steps come next that aren’t as exciting as preparing for launch, but need to be done.

Here are the five important steps to take after you’ve decided it’s time to go from idea to delivery.

1. Choose the Right Business Entity.
How you organize your business plays a major role in taxes, bookkeeping, current and potential ownership, and overall administrative burden. While all of these considerations would need to be made regardless of the current state of the tax code, it’s especially important to think about in the face of massive tax overhaul. The GOP tax reform bill has become law and many changes go into effect starting January 1, 2018.

Some owners of pass-through businesses can expect to get a bonus deduction of up to 20 percent of profits up to $157,500 for most filing statuses and $319,000 for married filing jointly. Ninety-five percent of U.S. businesses are pass-through entities, which is a sole proprietorship, partnership, S corporation, or limited liability company (LLC) using the same tax structure as one of these entities, with the maximum income tax being 29.6 percent for pass-through income. For C corporations, the maximum corporate income tax rate is dropping from 35 percent to 21 percent.

Taxes aside, each state also treats business entities differently and may present bonuses and disadvantages you weren’t aware of. For example, many small business owners reap numerous benefits from S corporations but if you’re a New York City resident, you still have to pay city income tax. New York State recognizes S status but New York City doesn’t. Sales tax nexus, risk management, and legal aspects are other considerations to make when choosing an entity.

Depending on your entrepreneurial goals as well as personal needs, you need to decide which entity makes the most sense for your operations. If you plan to change entities in the near future due to taking on a partner or investor, you should also factor in how the tax bill will affect you.

2. Register your business with the appropriate state, local, and federal agencies.
When you organize your business, you may automatically be registered into your state or local agency’s database after filing articles of incorporation or similar documents. Check with your local Division of Corporations or other authority to make sure that you’ve taken all necessary steps to register your business once you’ve decided which entity to go with.

If you’re forming an LLC, you may need to file additional paperwork such as a publication affidavit which is when the state requires you to announce your commencement in a newspaper. This can be inexpensive or present a major cost barrier. For any “DBA” claims where you’re not doing business under your actual name or business entity name, you also need to check with your county clerk regarding forms and filing fees.

For federal agencies, most of the registration has to do with hiring employees, but even if you don’t plan on hiring any in the near future or ever, you still need to get an Employer Identification Number from the IRS. If you need to obtain licenses or approvals before operations commence, you also need to prioritize contacting these agencies and getting your paperwork taken care of before working with your first client.

3. Find business advisers, mentors, and peers.
You want to work with business advisers who can teach you about not just business in general, but also about the specific type of business that you’re operating and your industry. A good business adviser is one that will tell you both what you’re excelling at and what really needs improvement and how to achieve your business goals.

You want to find an adviser who’s on the same wavelength as you, but who can also give you the benefit of their knowledge and experience for your particular industry. In seeking out mentors and professional peers, you’ll want to find spaces for your profession or business type online and in person to exchange ideas and learn from each other. They’re excellent ways to grow your business while learning the ropes and you’ll learn the dos and don’ts of pre-launch.

4. Pick the right accounting software.
Even if you plan on outsourcing your accounting and tax responsibilities to a competent professional, you still need to have an accounting solution in place for them to work with. Jotting your expenses down on an Excel sheet can be a placeholder when you don’t have that many transactions yet and haven’t formally set up an entity in the very beginning, but it’s not going to be a viable long-term solution.

Accounting software isn’t as cost-prohibitive as it once was and there are many different products on the market meant for small business owners, solopreneurs, people who travel frequently, and even programs and apps that work in the cloud designed specially for certain industries and types of businesses. Cloud accounting programs are perfect for busy people who use multiple devices, so your accounting professional can see transactions in real time and correctly adjust them as you go.

If your business has more robust accounting needs such as inventory tracking and payroll, you need to test out the program and see if it works well for you. For most people without accounting knowledge, figuring out how to get accounting software set up can be daunting, so you also want to see if your tax professional can help you with this or if there are training videos and courses for your software.

5. Get ready to launch!
Once you’ve taken care of these crucial items pre-launch, it’s time to get going! You can now focus your time and energy on building a great product, finding the best staff, and cultivating a following for your brand. It’s just part of the game when you own a business.

While your business entity and accounting needs might not be as exciting as putting together your website and initial marketing blasts, it’s extremely important to have them sorted out beforehand so you aren’t scrambling to get tax paperwork in order right when things are really taking off for you. By establishing your entity, business registration, publication affidavits, and other business-related paperwork beforehand with the help of a business adviser, you’ll also have peace of mind that these things were done right the first time and you won’t need to stop what you’re doing to keep mailing in forms.

The journey to a successful business is definitely not an easy one. But if you’ve got a pre-launch roadmap and the right professionals on your side, you’ll minimize your chances of dealing with irksome bureaucratic obstacles so you can focus on growing your business. If you have any questions about jumping into entrepreneurship, and the important steps to take afterward, please contact us.

Hobby or Business? It Makes a Difference for Taxes

Taxpayers are often confused by the differences in tax treatment between businesses that are entered into for profit and those that are not, commonly referred to as hobbies. The differences are:

Businesses Entered Into for Profit – For businesses entered into for profit, the profits are taxable, and losses are generally deductible against other income. The income and expenses are commonly reported on a Schedule C, and the profit or loss—after subtracting expenses from the business income—is carried over to the taxpayer’s 1040. (An exception to deducting the business loss may apply if the activity is considered a “passive” activity, but most Schedule C proprietors actively participate in their business, so the details of the passive loss rules aren’t included in this article.)

Hobbies – Hobbies, on the other hand, are not entered into for profit, and the government does not permit a taxpayer to deduct their hobby expenses, in excess of any hobby income, on their tax return. Thus, hobby income is reported directly on their 1040, and any expenses not exceeding the income are deductible as miscellaneous itemized deductions on their Schedule A, assuming the taxpayer is not claiming the standard deduction, in which case they would be reporting income but not deducting the expenses.

So, what distinguishes a business from a hobby? The IRS provides nine factors to consider when making the judgment. No single factor is decisive, but all must be considered together in determining whether an activity is for profit. The nine factors are:

  1. Is the activity carried out in a businesslike manner? Maintenance of complete and accurate records for the activity is a definite plus for a taxpayer, as is a business plan that formally lays out the taxpayer’s goals and describes how the taxpayer realistically expects to meet those expectations.
  2. How much time and effort does the taxpayer spend on the activity? The IRS looks favorably at substantial amounts of time spent on the activity, especially if the activity has no great recreational aspects. Full-time work in another activity is not always a detriment if a taxpayer can show that the activity is regular; time spent by a qualified person hired by the taxpayer can also count in the taxpayer’s favor.
  3. Does the taxpayer depend on the activity as a source of income? This test is easiest to meet when a taxpayer has little income or capital from other sources (i.e., the taxpayer could not afford to have this operation fail).
  4. Are losses from the activity the result of sources beyond the taxpayer’s control? Losses from unforeseen circumstances like drought, disease, and fire are legitimate reasons for not making a profit. The extent of the losses during the start-up phase of a business also needs to be looked at in the context of the kind of activity involved.
  5. Has the taxpayer changed business methods in an attempt to improve profitability? The taxpayer’s efforts to turn the activity into a profit-making venture should be documented.
  6.  What is the taxpayer’s expertise in the field? Extensive study of this field’s accepted business, economic, and scientific practices by the taxpayer before entering into the activity is a good sign that profit intent exists.
  7. What success has the taxpayer had in similar operations? Documentation on how the taxpayer turned a similar operation into a profit-making venture in the past is helpful.
  8. What is the possibility of profit? Even though losses might be shown for several years, the taxpayer should try to show that there is realistic hope of a good profit.
  9. Will there be a possibility of profit from asset appreciation? Although profit may not be derived from an activity’s current operations, asset appreciation could mean that the activity will realize a large profit when the assets are disposed of in the future. However, the appreciation argument may mean nothing without the taxpayer’s positive action to make the activity profitable in the present.
There is a presumption that a taxpayer has a profit motive if an activity shows a profit for any three or more years within a period of five consecutive years. However, the period is two out of seven consecutive years if the activity involves breeding, training, showing, or racing horses.

All of this may seem pretty complicated, so please call this office if you have any questions or need additional details for your particular circumstances.

Tax Deductions for Owner-Operator Truckers

There are certain tax deductions for owner-operator truckers that are unique. You benefit from special allowances for meals, are allowed very large write-offs for tractors and other equipment, must pay additional taxes and permit costs, and may have special reporting requirements in addition to your tax returns. The following is an overview of the tax issues that may apply to owner-operators.

  • Meals Away from Home – As an owner-operator trucker, you may deduct the actual cost of your meals; this requires you to save your receipts. Alternatively, you can deduct the IRS’ standard meal allowance for the transportation industry, using your logbooks as substantiation. For 2016 and 2017, amount for meals and incidental expenses is $63 per day. Whether you use the actual-expense method or the standard method, only 80% of the total for the year is deductible. Even though only 80% is deductible, keep track all expenses for tax purposes, as the 80% adjustment is made during the tax-return preparation process
    Meals are deductible if you need to stop for substantial rest in order to properly perform your duties while traveling on business.
  • Lodging – Lodging expenses are deductible. Unfortunately, there is no standard allowance for lodging; thus, you must keep a receipt for each lodging expense. Generally, to deduct lodging expenses, you must be away from home overnight.
    One issue that could result in the disallowance of lodging and other travel expenses is not having a regular place of business or place of residence. In this case, you would be considered an itinerant (or transient), and your home for tax purposes would be wherever you work. As an itinerant, you would not be able to claim a deduction for lodging and meals because you would never be considered to be away from home.
  • Other On-The-Road Expenses -Generally, to be deductible, items must be both ordinary and necessary to your job. For truckers, these expenses include laundry (when away overnight), gloves, logbooks, maps, cell phones, CB radios, tools, safety gear, cargo straps, and any other incurred expenses that are ordinary and necessary in the business. Generally, receipts are required, but if the business expense is less than $75, a receipt is not necessary, provided that you record all of the information in a diary in a timely manner.
  • Vehicle (Tractor) Cost Write-Offs – The current tax code provides several options for writing off the cost of a vehicle, including immediate expensing of up to $510,000 (as of 2017) during the year the property is put into service; first-year depreciation equal to 50% of the vehicle’s cost; normal deprecation; or a combination of all three. These options allow owner-operators to pick almost any amount of write-off to best suit their particular circumstances. For normal depreciation, the IRS allows a recovery period of 3 years for over-the-road tractor units and of 5 years for trailers, trailer-mounted containers and heavy-duty trucks (13,000 pounds or more).
  • Vehicle (Tractor) Operating Expenses – Of course, vehicle operating expenses – including fuel, licenses, taxes, maintenance and insurance – are deductible. Depending on the nature and cost, some expenses may have to be depreciated.
  • General Business Expenses – Owner-operators can usually deduct the following expenses: trucking-industry and business-related subscriptions, association dues, computers and software, Internet service, cleaning supplies, business interest, office supplies, DOT physicals, drug testing, sleep apnea studies, postage and other business-related expenses.
  • Heavy Highway Vehicle Use Tax – The heavy highway vehicle use tax (Form 2290) applies to highway vehicles weighing 55,000 pounds or more. The due date for this form is based on when (during the annual filing period) the vehicle is first used on a public highway. For the period of July 1, 2016, through June 30, 2017, Form 2290 is due by the end of August 2016 for vehicles first used on a public highway in July 2016. For vehicles first used on a public highway after July, the use tax is prorated, and the form is due by last day of the month following the month of first use. See when to file for more details. The use tax ranges from $100 to $550 per vehicle for a full year, depending on the vehicle’s weight. You will need to have an employer ID number to file the Form 2290; your Social Security number cannot be used as the ID number.
  • Subcontractor Payments – If you paid an individual for services during the year, that person was most likely a subcontractor. Payments of $600 or more to subcontractors must be reported to the government by filing Form 1099-MISC. This form requires the subcontractor’s name, address and tax ID number as well as the payment amount. There are penalties for failing to file this form, for filing it late and for filing it without the tax ID number. All these penalties can be avoided by (1) having contractors complete Form W-9 before you pay them and (2) filing the 1099-MISC forms by January 31 of the subsequent year.

Some expenses are not deductible; those with limited knowledge of trucker expenses may take these deductions, potentially triggering IRS inquiries and audits. One example is deducting the cost of street clothing. For clothing, only the cost of uniforms or protective clothing is allowed as a deduction.

Another example is deducting lost income:

  • For time you spend repairing or maintaining your own equipment,
  • As a result of a deadhead, or
  • Because of downtime.

Lost income is already accounted for, as you do not have to report the income on your tax return in the first place.

If you have any questions related to trucking and taxes, please call. This office is knowledgeable regarding the drivers’ and owner-operators’ tax issues, and are here to help you eliminate the stress of accounting and tax filing.

De Minimis Expense Election Required Before Year End

Small businesses can adopt an accounting procedure that allows them to expense, rather than to capitalize, the purchase (cost) of tangible business property. Generally, the maximum that can be expensed under this provision is whatever amount the business decides between $1 and $2,500 per item or per invoice. So if you have not adopted the accounting procedure, you have until December 31, 2016, to do so for 2017. (The rules require that the accounting procedure be in place as of the beginning of the business’s tax year.) In addition, and even if your business may have already adopted an accounting procedure, an annual election is required to be included with your 2017 tax return to apply the accounting procedure to 2017. This can be used for computers, printers, tools, etc., rather than the Sec 179 expense allowance, which recaptures as income if the item is disposed of early.

If you need assistance developing a de minimis expense accounting procedure and making the election to apply that procedure for 2017, please give our office a call.

9 Finance Tips All Business Owners Should Follow

Business owners are experts at their industry. You know your products and services well – better than the competition. You know how to reach those customers, too. But, managing what’s behind the scene isn’t always as easy. With the right tools and resources, including a professional by your side, you can enhance the way you do business, reduce your spend, and increase your profit margins. To get started, you need some basic information on finance.

#1: Recognize the Importance of Your Books Invoices, bank statements, and even some accounting work is commonly done through software programs today.

However, it’s more than just accounting for your revenue and losses that’s important. In other words, you need to turn this data into usable information. Your figures can help you know how to grow profits even further if you know how to read them properly.

#2: Stop Putting It Off

It is much harder to manage that stack of papers at the end of the month than it is to spend a few minutes each day entering details. Having a pro to do this for you makes it even easier. If you are procrastinating, though, you’re hurting your short-term and long-term financial goals.

#3: Know Your Risks

A Headway Capital study found that 57% of business owners planned to grow this year. Most companies set out to grow for the year, but they often lack attention spent on minimizing risks. What’s the worst-case scenario? What’s your break-even point? Addressing risks as a part of your financial strategy really can streamline your finances should the year not go as you planned.

#4: You Really Didn’t Budget, Did You?

Some small to medium businesses lack the time it takes to budget. It’s understandable, but that doesn’t make it okay. Budgeting helps address those risks, but it also helps you to make better buying decisions. And, when you have tools in place to help you monitor inventory, expenses, and other unforeseen costs, you can create better budgets that allow you to do more with your profits.

#5: Tax Mistakes Are Common

Small to medium businesses suffer from some of the most complicated taxes. Without having a professional to monitor and guide your taxes throughout the year, your business could suffer significantly. The IRS says that, in 2014, $1.2 billion in civil penalties were placed against small business income tax filers. Most small businesses need reliable support to ensure tax filing and reporting isn’t a secondary importance.

#6: Build from Your Strengths

You don’t have to build your business on new products or start from scratch each time. It’s best to simply build onto what you have. For example, you’ll want to pinpoint where your biggest profit margins come from. Once you understand who your moneymakers are, target them within your business. By identifying and focusing on these areas, you can build your revenue and profits faster, therefore giving you the room to expand in other areas later.

#7: Building a Business Is More Than Hours Worked

It’s very common for business owners to spend a lot of time and hard work building their business on their own. Are you putting in 80 hours a week? If so, you may be limiting your growth potential. Instead, empower professionals and employees to help you with delegated tasks. This can give you more time to spend on what’s really making you money and help you to sleep at night.

#8: Focus on Lean Practices Less really is more.

As a business owner, you’ll want to incorporate the lean philosophy of keeping less on hand so you reduce your overhead. You create more value for your customers with less.

#9: Access Capital When You Can, Not When You Need To

Having a steady stream of income on hand is important. Instead of waiting until you are desperate for funding, and having to show your investors that you are in that place, focus on planning ahead and minimizing the risk of a negative situation.

As a business owner, making wise financial decisions for your company is an ongoing process. But, you don’t have to do it alone. Allow professionals to help you along the way to better manage your money and you could see it grow faster than you thought possible.

Can You Deduct Employee Expenses?

If you are an employee, you may be curious about which expenses relating to your employment are deductible on your tax return. This is a complicated area of tax law, and many expenses are deductible only if the expense is a “condition of employment” or is for the “convenience of the employer,” two phrases that are effectively the same.

Deducting Employee Expenses

In addition, other factors affect an employee’s ability to deduct expenses incurred as part of employment:

  1. If an employer would have paid for or reimbursed the employee for an expense, but the employee chooses not to apply for or take advantage of that reimbursement, the employee cannot take a tax deduction for the expense.
  2. Only those employees who itemize their deductions can benefit from business expense deductions. Thus, if you are using the standard deduction, you cannot receive any tax benefit for your job-related expenses. In addition, even when itemizing, miscellaneous itemized deductions must be reduced by 2% of your adjusted gross income (AGI). Employee business expenses fall into the miscellaneous itemized deduction category. As an example: if your AGI is $80,000, the first $1,600 (2% x AGI) of your miscellaneous deductions provide no benefit.
  3. Miscellaneous deductions are not included in the itemized deductions allowed for computing the alternative minimum tax (AMT). Thus, if you are unlucky enough to be subject to the AMT, you will not benefit from your miscellaneous deductions for the extent of the AMT.

The following includes a discussion of the various expenses that an employee might feel they are entitled to deduct and the IRS’s requirements for those deductions.

  • Home Office – An employee can deduct a home office only if his or her use of the home office is for the convenience of the employer. According to the U.S. Tax Court, an employee’s use of a home office is for the convenience of his employer only if the employee must maintain the home office as a condition of employment. In an audit, the auditor will require a letter from the employer to verify that fact. Most employers are reluctant to make a home office a condition of employment due to labor laws and liability. In addition, an employee would also have to comply with the IRS’s strict usage requirements for home offices.
  • Computer – An individual’s property, such as computers, TVs, recorders, and so on, that is used in connection with his or her employment is eligible for expense or depreciation deductions only if that property is required for the convenience of the employer and as a condition of employment. Even if the condition of employment requirement is satisfied, a computer’s usage must be prorated for personal and business use.
  • Uniforms and Special Work Clothes – The cost and maintenance of clothing is allowed if:(1) The employee’s occupation is one that specifically requires special apparel or equipment as a condition of employment and(2) The special apparel or equipment isn’t adaptable to general or continued usage (so as to take the place of ordinary clothing).Generally, items such as safety shoes, helmets, fishermen’s boots, work gloves, oil clothes, and so on are deductible if required for a job. However, other work clothing and standard work shoes aren’t deductible—even if the worker’s union requires them.
  • Education – To qualify as job-related, courses must maintain or improve the skills required by the employee’s trade or business (such as by helping the employee to meet professional continuing education requirements) or be required as a condition of employment. However, these courses must not be necessary to meet the minimum requirements of the job and must not qualify the employee for a new trade or promotion. If a course meets this definition, its cost is considered deductible as an ordinary and necessary business expense, and as such, it may be excluded from an employee’s income if the employer reimburses the employee for its cost. Note: Some education expenses may qualify for more beneficial education credits or an above-the-line-deduction.
  • Impairment-Related Work Expenses – Taxpayers who have a physical or mental disability that limits their activities can deduct impairment-related work expenses. For example, an allowable expense would be the cost of attendant care at the place of the taxpayer’s work.
  • Job-Search Expenses – Expenses related to looking for a new job in the taxpayer’s current occupation are deductible even if a new job is not obtained. To be deductible, the expenses cannot be related to seeking a first job or a job in a new occupation. If there is a substantial time gap between the taxpayer’s last job and the time when he or she looks for a new job, the expenses are not deductible.

Of course, all sorts of employee situations exist, including those in which the employee works at his or her local employer’s office and those in which the employee lives and works in a remote location. The deductions available to each employee vary significantly based upon that individual’s unique situation.

For more information related to employee expenses and what might be deductible in your situation, please give this office a call.

Deducting Startup Costs for Your New Business at Tax Time

Before you earn your first dollar, before you are even open for business, your startup can incur considerable expenses. The money you spend opening your business can often be deducted; the IRS allows you to deduct many of these one-time startup costs. Speaking with an accountant in the early stages can help you decide which of these deductions to take – and may also help you discover additional ways to save money as you operate your new startup. There are several types of startup costs that may be deductible for your new business.

Preparing your business

The costs associated with training employees, hiring consultants, early advertising and marketing to generate interest, and even the costs associated with sourcing suppliers and locations can all be deducted. If you have to hire and train employees to work in your business, but are not yet open to customers, then you can usually deduct these costs at tax time. If you are researching the feasibility of a business, testing the market, creating prototypes or analyzing production costs, these expenditures are generally deductible as well for your startup. These costs count only if you actually begin a business.

If you research or dabble and then change your mind, you usually cannot deduct these costs.

Organizational costs

If you are incorporating, setting up a partnership or incurring expenses as you legally set up your new business, you can likely deduct these costs as well. Incorporation fees, legal fees, accounting fees and filing fees can often be deducted from your first year costs but may also be amortized over the lifetime of your business. An accounting professional can help you learn more about your options and discover which method is best for your particular circumstances.

What about equipment costs?

From kitchen appliances to office equipment and even machinery, you’ll likely have to spend some cash to get up and running, but your equipment purchases are not deductible as part of your startup and cannot be deducted until actually placed in business service (use). Thus the equipment you buy to use when your business becomes operational is not included in the startup costs by the IRS; these items are generally considered assets, and must be capitalized and depreciated or written off in the first year using the Sec 179 expense deduction.

How much of your startup costs can be deducted?

While the IRS does allow you to deduct some startup costs, there are limits to what you can deduct in your first year. For most entrepreneurs with startup costs of $50,000 or less, up to $5,000 in startup costs and $5,000 of organizational expenses can be deducted in the first year. Each of the $5,000 amounts is reduced by the amount by which the total start-up expense or organizational expense exceeds $50,000. Startups with more than $55,000 in costs won’t be able to claim either $5,000 deduction in the first year. Start-up and organizational expenses not deductible in the first year of the business must be amortized over 15 years.

A professional familiar with startups can help you determine which of your costs can be deducted and help you find the right path for your new business. The decisions you make as you start your business will have a long-term impact on your operating costs and bottom line for years to come; choose wisely at the outset for the best possible start for your new company.