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Do You Have What It Takes to Be an Entrepreneur?

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Do you like being in charge of your destiny and are you able to handle stress well? Do you have a great idea for a new business? You may be able to strike out on your own and become the entrepreneur you want to be. Here are some ideas that may help clarify your thinking and help you decide if you could become a successful entrepreneur.

What’s Your Personality Type?

If you like routine, stress-free days and the predictability of a regular paycheck, and you are not comfortable taking full responsibility for work-related matters, you may not have the traits necessary to become an entrepreneur. Entrepreneurs have to be highly motivated, driven individuals who can handle high levels of stress and lots of unpredictability. They know that the success or failure of their new ventures depends in large part on their own decisions and actions.

What Is Your Idea?

Is your business idea for a new product or service, or does it reimagine or improve an existing one? New ideas often come from listening to other people expressing frustration with how certain things are. For example, the founders of ride-sharing service Uber recognized that the lack of frequent, reliable taxi services was a huge frustration for them and their friends. They worked on finding a solution that was profitable and scalable.

Other entrepreneurs refine and improve existing products — the classic “building a better mousetrap” approach. You may be working in an industry where you recognize room for improvement. You may decide that items you use every day can be made better, cheaper, or with more features. Your big idea may be the one that delivers the most value to consumers while making their lives more pleasant.

Is There a Need?

Once you have decided on your entrepreneurial idea, you have to determine if there is a need for the product or service you hope to market. You can only ascertain the true extent of that need through market research. It does not have to be an expensive or complex undertaking — you could, for example, use social media to reach out to potential customers and gauge their interest. You could offer early access or future discounts to people in return for them filling out a questionnaire about your product or service.

What About Funding?

Can you fund your start-up using your own money? If not, family and friends may agree to be early investors. Crowdfunding sites, angel investors, or venture capitalists might also be other sources of start-up funding. You could also look into local, city, or state government economic development offices to see if they have any programs that offer funding to entrepreneurs like you.

Will You Go It Alone?

Having a co-founder is not always feasible, but certainly desirable for a number of reasons. Having someone at your side who brings the same passion but different skill sets to the business can be invaluable. Additionally, a co-founder can help you critically assess which parts of the business are working and which are not. Essentially, a co-founder can serve as a sounding board for your ideas as to the direction of the business. If it is not possible to have a co-founder, look into bringing trusted advisors, mentors, and other entrepreneurs into your circle.

How Will You Connect to Potential Customers?

Today’s consumers want to feel a connection to the brands they support. By using social media to reach out to your potential customers with a compelling story that humanizes you and the business you founded, you can build loyalty and help your customers feel part of your success. Just be sure that when you use social media to communicate to customers that you are being transparent and authentic. You want your customers to trust you and your business at all times.

Look for Trusted Advice

If you truly believe that you could build a good livelihood for yourself and for others around your ideas, then you should go for it. And you should absolutely consider reaching out to a financial professional for input and advice on the many financial and strategic details involved in running your own business.

Small Business Taxes: Who Pays What?

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Business people working on business contract papers at officeThere are various federal taxes that may apply to your small business. The type and form of business you operate determines what taxes you must pay and how you pay them. At the federal level, several different taxes may apply.

Excise Taxes

The IRS defines an excise tax as a tax imposed on the sale of specific goods or services, or on certain uses. Federal excise tax is typically imposed on the sale of items such as tobacco, fuel, alcohol, tires, heavy trucks and highway tractors, and airline tickets. Many excise taxes are placed in trust funds for projects related to the taxed product or service, such as highway or airport improvements.

An excise tax may be imposed at the time of import, sale by the manufacturer, sale by the retailer, or use by the manufacturer or consumer. Some excise taxes are collected by a third party, which then must remit the taxes to the IRS in a timely manner. An example of a third-party collector of an excise tax is a commercial airline, which collects the excise taxes on airline tickets that are paid by airline passengers. Businesses that are subject to federal excise taxes must generally file Form 720, Quarterly Federal Excise Tax Return. Certain excise taxes, such as those owed to the Alcohol and Tobacco Tax and Trade Bureau, are reported on different forms.

Income Taxes

Income taxes must be paid on business profits. How that tax is paid depends on how the business is structured. Most small businesses are pass-through entities, which means that the business’s profits or losses are passed through to the owners and reported on their personal income tax returns.

Partnerships and multi-member limited liability companies (LLCs) generally file a partnership business tax return for informational purposes only. The individual partners and LLC members pay income taxes for their share of the income of the business. Note, however, that some LLCs elect to be treated as a corporation for tax purposes.

An S corporation files an S corporation income tax return for the business. Like a partnership, an S corporation’s net income is divided among the owners, who pay tax on their share of that income individually.

A sole proprietor reports business profit or loss on a separate schedule filed with the sole proprietor’s individual income tax return. Unless an election to be treated as a corporation has been made, the owner of a single-member LLC also reports the company’s profit or loss directly on the owner’s return.

Social Security and Medicare Taxes

Employers must generally withhold Social Security and Medicare taxes from their employees’ wages and must pay a matching amount. Employers must also withhold the 0.9% additional Medicare tax on employee wages and compensation that exceeds a threshold amount.

Self-Employment Taxes

Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes paid for other workers.

Federal Unemployment Tax

Employers are required to report and pay the Federal Unemployment Tax Act (FUTA) tax separately from federal income taxes and Social Security and Medicare taxes. FUTA tax is not withheld from wages; employers are responsible for paying the tax.

Business owners should exercise extreme care when it comes to paying taxes since any mistakes on their part could result in significant penalties. For assistance, consult a tax professional.

Are You Tracking Absolutely All of Your Tax-Related Business Expenses?

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If you’re self-employed, understanding what’s deductible and recording all of your business expenses should be priorities.

When you work for yourself, accurate accounting is critical. The IRS pays special attention to tax returns prepared by sole proprietors. Not only does the agency try to determine whether all taxable income has been recorded, but they also scrutinize business expenses that are claimed, since some taxpayers blur the lines between personal and business purchases.

We’re not suggesting you hold anything back when you’re tracking your tax-deductible business expenses. We want you to claim every penny that the IRS says is permissible. This is especially important if your company makes a lot of money. You’ll need to document everything you can to offset your income and minimize your tax obligation.

How do you ensure that all of the money you’re spending to make money ends up somewhere on your IRS Schedule C? Let’s look at steps you can take.

Review the Schedule C

tax tips

The actual IRS Schedule C form contains broad expense categories. You may need to dig into deeper explanations of them.

If you’ve never completed a Schedule C before, it’s especially important that you familiarize yourself with it. You can view a copy of the 2020 version here. Pay special attention to Part II Expenses. The form breaks down business expenses into specific categories. But what’s the difference between Office expenses and Supplies? What does Other business property mean? Not only do you have to know which expenses are deductible, but you must be sure to include them in the right category.

The IRS has a special publication devoted to discussion of deductible business expenses. You’ll find links to it here. It’s a lengthy document, but there’s an interactive table of contents that lets you jump right to the section you want. You don’t have to read the whole thing, but you might bookmark it so you can consult it when you have a question. There are many questions on the Schedule C that may require additional explanation.

You might want to visit the IRS instructions online. This page displays a detailed outline of the form, section by section and line by line, so you can find what you’re looking for easily and click a link to get there.

Keep Detailed Records

This will be challenging if you’re doing your bookkeeping manually. You’ll need to set up a system of folders or envelopes or whatever works for you and separate receipts by either month or Schedule C category. If you know your way around Excel, you could set up a spreadsheet divided by category and enter receipt information as it comes in. This will make calculations easier, too.

Do make notes on your receipts so you’ll know why you thought the purchases would be deductible. You might also indicate whether the receipt was already entered in your master list, so you don’t have duplicate entries. Don’t forget about credit card charges and checks you’ve written for tax-deductible purchases that didn’t generate a receipt. Enter them in your master list as you go. If you’re ever audited, you’ll need copies of them for documentation. If you get electronic receipts in email, save them in a folder on your computer and record them.

tax tips

You can categorize your tax-related business expenses using personal finance or accounting applications.

There are numerous personal finance and small business accounting applications that allow you to import your online banking transactions and categorize them. These include QuickBooks (online and desktop), Mint, Quicken, and Simplifi by Quicken. Their category lists can often be modified, so you can make sure your tax-related expenses are organized accurately.

Don’t Dismiss the Unusual

There are some legitimate tax deductions that the IRS doesn’t necessarily include in the Schedule C instructions, but which it will accept. For example, H&R Block reported on a case where the cost of cat food was considered a business deduction (a scrapyard was trying to attract wild cats to keep snakes away). A professional bodybuilder was able to claim his purchase of ProTan Muscle Juice Professional Posing Oil as an acceptable business expense.

We’re not recommending that you spend a great deal of time looking for obscure tax deductions. But think about your purchases as you make them to see if they’re tax-worthy.

All of these suggestions may sound time-consuming. They can be, until you get into the habit of tracking all of your tax-related business expenses, but it does require constant diligence. We can help ensure that you’re only claiming legitimate deductions and advise you on those you might question. We can also prepare and file your return for you and/or help with year-round tax planning. Contact us for a consultation.

5 Topics Every Business Owner Should Discuss with An Accountant

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MeetingYour accountant or CPA is a business asset that you should put to good use year-round, not just at tax time. There are several topics beyond taxes that business owners should discuss with their trusted financial professionals. In this article, we cover five of them for you. While the new year is traditionally when business owners think of making financial, strategic, and other business-related plans, any time is the right time to speak to your accountant to discuss the following aspects of your business. You can’t begin the conversation too early, but it could be too late in some cases, so don’t put aside these five essential talking points.

1. Financial Planning

Budget is front of mind for business owners, but other financial issues impact your business, too. Consider a full portfolio review with your accountant to plan your financial future. Some critical topics to cover include strategies to improve cash flow, existing business loans, capital investment, charitable contributions, employee-related expenses like bonuses and health care, retirement planning, and asset management.

2. Company Growth

The goal of all businesses is growth. With growth comes change. As your business objectives shift, your valuation and tax liability often shift, too. Any changes you experience in your business should be conveyed to your accountant or CPA so that they can apprise you of liabilities or status changes. For example, suppose you plan to expand, add additional locations, make significant staffing changes, merge companies, acquire new businesses, or plan to sell your business. In that case, you should set up an appointment with your accountant to develop a logical strategy to address the change.

3. Inventory

If your business sells or resells tangible goods, inventory is vital. Sales tax laws and regulations can be challenging. Many states have rules about nexus (i.e., how much presence a business has in a city or state) related to where businesses warehouse inventory and fulfill orders. Your accountant can assess your order process to verify your restocking and ordering processes to maximize cash flow, ensure unsold inventory is accounted for, and ensure that sales tax is collected everywhere your company has nexus.

4. Risk Management

Do you have a plan in place to protect your business from disruption? Many do not. If that applies to your business, contact your accountant to discuss continuity planning to protect your business. They can provide professional insight regarding how to mitigate risks should a disruption occur. Some topics to address are whether your insurance policies are up to date, if all compliance, security, and privacy standards are met, whether your business has fraud protection in place, and if the existing internal controls protect your business. Given the time and capital small business owners invest in their passion, they must take time to manage any potential risk that could destroy what they worked so hard to create and build.

5. Tax Compliance

Lastly, as a business owner, you always want to be tax compliant. And this doesn’t apply only to federal taxes. It is just as essential to make sure state-imposed taxes are addressed on time. Regulations and tax laws change frequently, so it is vital to have a firm grasp on these. The best way to ensure you do this is to have your accountant guide you. They can inform you of any changes that affect your business and advise you on addressing them. Discuss collecting and filing W2s and 1099s for any contract employees; ensure exemption and resale certifications are collected and stored correctly; comply with online sales and nexus rules; and have an internal review to find any issues that might trigger a sale tax audit.

It helps to think of your business accountant as an extension of your team, an impartial adviser who will assess the risks and rewards associated with your business. They will answer your questions and illuminate unclear topics for you. They may bring up important points you’ve yet to consider, so make that call today and get a meeting on the calendar to discuss these critical points with your accountant. And remember, you can do your part by making sure you keep business and personal finances separate and maintaining complete, organized records.

Customers Paying Late? How to Create Statements

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There are many ways to encourage delinquent customers to pay. QuickBooks Online’s statements may be effective for you.

After the year-plus you’ve just experienced, the last thing your small business needs is customers who are behind on their payments to you. You may have been giving them a break because you know that they’re struggling, too, but things have been looking up for many companies in the past few months. It’s time for you to be more proactive about calling in your debts.

There are numerous ways you can accomplish this. One of the best is to send statements in QuickBooks Online, which are detailed reminder forms that contain multiple transactions. These can be especially helpful if you’ve sent multiple invoices with no response. There are three different types you can send, depending on your needs. Here’s how you create them.

Before You Start

QuickBooks Online offers a couple of options for formatting your statements. To see these, click the gear icon in the upper right corner and select Your Company | Account and Settings. Click the Sales tab and scroll down to the Statements section. Click the pencil icon over to the far right to make any changes needed. You can:

  • List each transaction as a single line or include all of the detail lines.
  • Display an aging table at the bottom of each statement.

Click the buttons to specify your preference and then click Save and Done.

Three Statement Types

You can choose from among three different types of statements in QuickBooks Online: Balance Forward includes invoices with outstanding balances for a specified range of dates. Open Item statements contain information about all unpaid (open) invoices from the last 365 days. And Transaction Statements show every transaction in a date range that you specify. We’ll describe how to create them so you can decide which makes the most sense for a particular situation.

One Way to Create Statements

Like it does for many other actions, QuickBooks Online offers two ways to create statements. The first is easier. Click the New button in the upper left and select Statement (under Other). Click the down arrow in the field under Statement Type to see the three options there.

If you select Balance Forward, you’ll need to define three criteria (there will be similar options for the other two types):<.p>

  • Statement Date
  • Customer Balance Status (Open, Overdue, or All)
  • Start Date and End Date

When you’re satisfied with your statement parameters, click Apply. QuickBooks Online will display a list of the transactions that meet your criteria, along with the number of them that will be generated. Each row in the list will display the recipient’s name, email address, and balance. In the upper right corner, you’ll see the number of statements again and the total balance these customers represent.

If you want to exclude any of these customers, click in the box in front of each to unselect them and delete the checkmark. When you’re satisfied with your list, click Save, Save and send, or Save and close. If you click Save and send, a window will open containing a preview of your statements. Thumbnails of each will appear in the left pane. Click on any to see their previews. When you’re ready, you can download, print, or send them.

If you click Save or Save and close, you’ll still be able to see the statements you’ve just generated. Click the Sales tab in the toolbar, then All Sales. Click the down arrow next to Filter and open the drop-down list under Type. Select Statements, and your list will appear. You can print or send one by selecting the correct option in the Action column. If you want to dispatch multiple statements, click in the box in front of each, and then click the down arrow next to Batch actions.

Another Method

There’s an alternate way to create statements. Click the Sales tab in the toolbar, then Customers. Select any or all of the customers in the list, then click the down arrow next to Batch actions and select Create statements. QuickBooks Online will open the Create Statements window again so you can select the type and process your statements like you did using the previous method.

We don’t expect that you’ll have much trouble working with statements, though you may want to consult with us on when they’re appropriate. We can also suggest other ways to bring your accounts receivable up to date. As always, we’re available to help you maximize and streamline your use of QuickBooks Online. Keeping your financial books current and organized is one way to ensure that you don’t fall too far behind with customer payments.

5 Common (and Costly) Payroll Errors and How to Avoid Making Them

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Payroll is one of the most important aspects of any business, but it’s one that, when running smoothly, business owners don’t tend to think about; however, when there’s a payroll glitch, it jumps to the forefront of an owner’s mind. Here are several payroll mistakes that can cost you a bundle and how to avoid them in your business.

1. Misclassifying Employees

How you classify employees when you hire them impacts how you and your employees are taxed. If you hire an office staffer to answer phones and file paperwork for an hourly wage, that is a non-exempt employee. Alternatively, if you employ an individual as a salaried Head of Operations, they are exempt. The main difference is that non-exempt employees are eligible to receive overtime pay; exempt employees are not.

There is also a distinction between employee, freelancer, and contractor. An employee receives a regular wage, while freelancers and contractors are typically paid per project. Misclassifying employees may not seem like a big deal at first, but in time, the IRS will find out, and your business will end up paying the taxes due, the associated fines, and of course, the interest on the past-due taxes.

To avoid this issue, understand the classifications and the capacity in which you hire your employees. To classify employees, be sure to use IRS definitions. For example, the IRS defines independent contractors this way: “the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”

2. Miscalculating Pay

There are many payroll aspects to consider, such as overtime, commissions, deductions, paid time off (PTO), and more. When it comes to calculating pay, payroll admins should keep in mind that different policies apply to each state, and that must also be considered. For example, the federal overtime law dictates that overtime wages (pay for hours worked over 40 hours in a workweek) are paid at 1.5 times the employee’s regular hourly rate. However, some states have different policies regarding overtime. For example, in Alaska, California, Colorado, and Nevada, overtime is also based on hours worked in a day. As a general rule, a business should comply with the more generous law for the employee.

In addition to overtime pay miscalculations, poor time tracking capabilities also contribute to miscalculated pay. To avoid an issue miscalculating pay, be sure to know your state’s guidelines on overtime pay. Further, be sure that your company has a reliable tracking system for keeping up with employee hours so that pay, overtime, and other payroll aspects like PTO are correctly recorded and calculated. This process will significantly reduce the chance of payroll overpayment or underpayment mistakes that could become costly payroll corrections.

3. Missing Deadlines

One of the most damaging payroll mistakes for a business is missing payroll tax deadlines. Missed deadlines can cost thousands of dollars in penalties, and in extreme cases, a company’s business license can be suspended.

To avoid this critical error, use the IRS Calendar Connector to help you remember your tax deadlines. However, if you miss a tax deadline, contact the tax agency immediately because late payment penalties pile up quickly. The quicker you get in touch with the IRS, the lesser penalty you will have to pay.

4. Messy Recordkeeping

What is the word a small business owner least likes to hear? There are likely a few, but “audit” has to be right at the top of the list. The anxiety that term induces should be reason enough to keep accurate, complete payroll records that are well-organized. The price you pay for not doing that could be fines, penalties, and a plethora of costly payroll-related tax issues. For example, if you accidentally file W-2 forms late, you will pay between $50 and $260 in fines depending upon how late the W-2s are filed.

The same goes for late-filed 1099 forms or any other tax-related documentation. The fines vary. For example, if you do not provide a contract employee with a 1099 form, that’s a $250 fine.

To avoid this issue, keep accurate, complete, up-to-date payroll records for all employees. Mind your paperwork like W-2 forms, timesheets, 1099 forms, and pay records. Also, be sure to retain employee records for the four-year minimum that the IRS requires after an employee leaves your company. FYI: The SBA recommends retaining payroll records for six years.

5. Missed Tax Forms

An extension of point four above targets the end-of-year task that some payroll admins dread – preparing and sending all the necessary tax forms to all employees, whether they are full-time (W-2), part-time (W-2), or independent contractors (1099). Remember, form 1099 is required to be sent to an independent contractor who earned $600 or more during a tax year.

To avoid this issue, make sure tax rates are in order, payroll is correctly calculated, and all forms are correctly filled out and sent to employees promptly.

Payroll-related tax issues are avoidable. Take time to speak to your trusted tax preparer or CPA today so that you avoid these mistakes and keep your business running as it should.