Linda Jenkins, January 24 2017
One of the most important relationships you will forge in business is with your Certified Public Accountant. Your CPA can save you thousands of dollars on your personal and business taxes every year, but only if you are both on the same page. In order to stay on his/her good side, there are certain questions you need ask as a new business owner. Be sure to ask your accountant these 5 questions, even if you think you already know the answers:
How should I structure my business?
From LLC to C corp, there are many considerations when choosing a business structure. For the majority of new small businesses, a LLC will make the most sense, but your CPA and attorney are the best ones to consult on this question.
Can I use my retirement account to fund my business?
This is important to ask before doing because getting this wrong could cost you huge tax penalties. In most cases, you cannot fund your business from a standard IRA, but switching to a self-directed IRA may make this a possibility.
What should I do if I need additional capital?
For most small businesses, the complexity of issuing minority ownership stock/shares/partnerships is more trouble than its worth, so nine times out of 10 the answer will be to take on a loan or seek crowdfunding.
Can I pay my family members to work in my business?
If you are married and filing jointly, it probably does not make sense to add your spouse to the payroll. However, if you have children between the ages of 13 and 18, they may be added to your payroll without incurring social security tax. There are no special tax consequences to adding other family members (uncles, cousins, etc) to the payroll.
What type of accounting software should I use?
Quickbooks or Xero are generally good choices for most businesses, but your CPA may have a preference here, so ask. Here is some other stuff to think about when choosing accounting software.
There are lots of other questions you will eventually need to ask your CPA, but these five will get you started in the right direction. A good rule of thumb is to write down concerns you come across in the course of running your business, then address those concerns during quarterly conversations with your CPA. This way you both stayed informed and your CPA can help you minimize the taxes you have to pay.
Linda Jenkins, July 14 2015
If you own a business and make annual donations to worthy non-profits, you may not be getting the full tax benefits from your generous acts. When planning to give a donation you should always seek out ways to turn it into a legitimate, deductible business tax expense, so you can reap the maximum tax savings while still helping out the charity of your choice.
The best way to turn a donation into a business expense is to seek out "sponsorship" opportunities as opposed to just giving a straight donation. For example, let's say your favorite charity is the Harlem Children's Zone, and they are having donors out to a golfing event to raise money for the organization. If you offer to sponsor a hole by giving HCZ $500 in exchange for your company logo being diplayed on the 4th hole, you are in effect advertising your business. Advertising costs are fully tax deductible. Taking this deduction allows you to save on federal, state and self employment taxes. Just make sure you save your receipt and written materials about the sponsorship. You may also want to take a photo of the event and share it on your company's social media feeds just to have a little more documentation in case you are ever audited, and to create a bit more buzz for your own company and the charity.
On the other hand, if you had just given a check as a straight donation, you would only save on your marginal federal tax rate, if even that. Beware that once your personal earnings surpass about $120,000/yr as a single person, or $150,000/yr as a married couple, the alternative minimum tax rate may come into effect and nullify any tax benefit to giving direct donations. Therefore, if you are in a higher tax bracket, you MUST convert donations into business expenses to realize any financial benefit from the transaction.
Fortunately, most established charities get this, and offer business owners many opportunities for sponsoring events. Your job is to recognize and take advantage of these savings while also doing good through your philanthropic efforts.
Linda Jenkins, June 14 2015
Good management requires constant vigilance. To run a tight ship, review your expenses on a quarterly basis. Here are a few areas to concentrate on for maximum savings:
Health insurance and related services for employees are usually the top expenses for any small business. With average annual premiums for a family hovering at the $17,000 mark, it is crucial for small companies to explore every opportunity to save on these costs. From using HSAs to negotiating with your provider, find out how you can lower the cost of health insurance to your company.
Nothing redoubles a small firm's expenses like an inefficient employee, but nobody likes to have to fire someone. This results in many businesses holding on to bad employees and contractors for way too long, but how do you know when its time to fire? If you have documented the problem, and given the underperforming worker constructive criticism plus enough time to improve, but he or she continues to do a poor job then it is time to fire. Do it now. Your bottom line with thank you.
Ads can be costly. Look closely at what results you are getting for your money. Replace failing ads with social media campaigns that make use of free services like Twitter, Facebook and LinkedIn. Learn more about social media for small business.
Do you always order in bulk and pay on time? If so, its time to call your supplier to work out a discount. If you are willing to pay for deliveries quicker (for example, within 10 days), you can usually work out a discount in the 2-5% range. Depending on how much you purchase annually, this can be a huge source of savings. If you don't order in bulk, you can still save on a variety of products and services through an NFIB membership.
Postage & Printing
If you are still making trips to the post office, or leasing a metering machine, its high time you tried Stamps.com. This is a super-convenient web-based service that allows you to print postage and shipping labels. Also look closely at how much you are paying for printer cartridges. If you are buying replacements at the big box office supply stores, you are definitely paying too much. Order replacements at 1/3 of the cost through sites such as Supplies Outlet. They also honor volume discounts.
New Service Contracts
When hiring ongoing services, such as from an IT services firm, be sure to get proposals from 2-3 companies before signing any contract. You will often find huge swings in pricing for the exact same service, so don't make a mistake by going with the first firm your friend refers. Instead, research your options online. Contact a few firms to present proposals, and then compare and contrast to find the best deal. Also, be sure to review all service contracts regularly to ensure that you are paying for what you actually need, and cancel unnecessary services.
Closely monitor accounts receivable aging. If your customers take 90 days to pay you, this is a big drag on your cash flow that makes doing everything else in your business less efficient. Find out how to stay on top of collections.
Reviewing all of these areas quarterly will help you to improve efficiency and keep your company in the black. Be sure to also read The 4 Pillars of Business Operations, for more tips on improving processes and long-term profitability.
Linda Jenkins, April 12 2015
Just raised a heap of money via crowdfunding for your startup? Congrats. Forgot to plan ahead for your small business taxes? Uh-Oh...
If you raked in more than $20,000 via crowdfunding campaigns in a single year, be aware that you may receive a 1099-K for the total amount. Yes, the IRS considers your good fortune to be income! If you find yourself in the unfortunate situation of having just closed out your business year, your options are limited, but a good small business CPA (certified public accountant) may be able to work some magic for you. Assuming you are not already using accrual-based accounting, making the switch now may allow you to apply related expenses from a subsequent tax year; or, if your company is not already organized as a C-corporation, making that change could allow you a few more options.
Ideally, the best way to deal with this is to plan ahead. If you have control over when your crowdfunding campaign ends, plan it for early in your business tax year. That way, you will be able to apply related expenses, and avoid having a year in which you record high income and low expenses.
Don't forget about state taxes. Have you recorded all of your contributors' zip codes and transaction amounts? If your crowdfunding platform does not already do this automatically, you will be responsible for gathering this information, and will likely have to report transactions from your home state as sales tax.
Be aware that collecting crowdfunding proceeds is new territory, so as of April 2015, a search on irs.gov will get you nowhere. If you are now in a panic over your small business taxes, calm down, and then contact the nice CPAs at jenkinsco.com for further assistance and tax savings .
Linda Jenkins, January 24 2015
Is your company involved in an innovative process? You could be missing out on huge tax savings if you are not taking advantage of the Research and Development Credit.
The Research and Development Credit can save money in two distinct ways:
1. There is a direct deduction for research and development expenditures
2. There is a dollar for dollar credit against your income taxes
Tax payers often miss this credit because they feel their business activities would not qualify. It seems obvious that if you are doing Cancer research or other scientific endeavors, you would qualify; however, there are many general business activities that would also qualify. For example, improving a manufacturing process or inventing a new product, process, technique, formula or computer software. Clearly, this has implications for businesses both large and small.
The credit itself is a somewhat complicated computation; however, generally speaking, the credit equals approximately 20% of expenditures.
According to James Jenkins, CPA, this tax credit seems to be the most overlooked among the small business community. He has had several instances where clients qualified for the credit, but their former CPAs were unaware that they qualified. It is not unusual to see clients saving thousands of dollars in taxes.
Unfortunately, most CPAs, have a very narrow definition of the credit. The reality is that the definition of qualified research is in fact very broad.
For further information, contact the Certified Public Accountants at Jenkins & Company.
Linda Jenkins, November 14 2014
Are you a small business owner looking for new tools to streamline your accounting procedures? Do you like discovering new and innovative resources that help you save time and stay organized? If you're looking for tools that can do everything from simplify your mileage expense reports to offer paperless accounting options, you'll want to dig into the following five resources:
Payvy offers an automated accounts payable service. Business owners request their vendors and suppliers to submit all invoices to a custom email address and Payvy automates the paperless data entry procedure. Features include automated general ledger data inputs, next-day payments to vendors, and data encryption all at a very reasonable monthly cost.
If part of your monthly accounting tasks include filling out mileage expense reports, mileME might be to your liking. mileME offers automatic trip logging and mileage reports via a handy iOS mobile app. You'll never have to complete another road trip log for your bookkeeper again!
HustleBox provides a hardware device you plug into your vehicle that connects wirelessly to a mobile app on your smartphone. Each time you turn off your car's engine, your HustleBox app will prompt you to enter the details of your trip. You can use hashtags to document your trips and then turn those hashtag summaries into month-end mileage reports for your accountant.
Currently accepting requests for early access, Billify will provide an online bill consolidation service to small business owners. The Billify platform will consolidate invoices and electronic receipts from your email inbox into one central location for your accountant. No more scouring through your email folders to find hotel receipts, gas receipts, or subscription renewal notices. If you like the idea of streamlining your month-end accounting procedures, you'll definitely want to sign up for Billifyme.
Fathom lets you turn your accounting information into statistical reports. Integrated with numerous platforms including MYOB, QuickBooks, and Xero, Fathom lets you run profitability reports, accounts receivable/payable activity reports, and even asset efficiency reports.
The above-listed tools are just a small sampling of the resources being created by entrepreneurs within the accounting sector. Staying abreast of new tools at your disposal can help you save precious time at month-end, so you can focus on revenue-generating tasks instead. Will you be integrating any of these accounting resources into your daily business practices?
Learn more about selecting accounting solutions.
Linda Jenkins, August 08 2014
First of all, this article is not for every business owner. If you run an online business, or a retail business, you are most likely collecting the money up front before delivering the product to your customer. However, if you have a service business, such as an accounting firm, you typically bill your client after the service is rendered. This can be a problem if your customer decides not to pay.
An ounce of prevention goes a long way. You can greatly reduce the chances of needing to actively collect money by ensuring that a few key procedures are in place first. This is important for clarity and legal reasons. For example, make sure that:
- Customers give you a deposit if at all possible
- Customers sign a service agreement before services are rendered
- Invoices clearly define when payments are due
- Statements clearly define interest and services charges
- Statements are sent out to the client on a regular schedule
Beyond this, you will need to stay on top of receivables by running regular reports from your accounting software. For payment terms of net 30, run a report on receivables that have gone over the 60-day aging threshold. If your software falls short, consider using something like this accounts receivable spreadsheet. Call the customer to "find out when we will receive the balance". Never ask if there was a problem with the service - the customer will tell you if there was, but you want to remain in a position of strength rather than inviting complaints. From this position you have various options. If there was a problem with the service, you can negotiate a discount on the balance. If the client simply forgot to pay the invoice, you can collect the money by credit card over the phone. If you cannot reach the client, use a red stamp to mark the invoice "Past Due" and mail or scan/email a copy to the client.
In addition, you should update your contact management software or otherwise keep track of your contact with clients that have overdue accounts. This comes in handy to document your efforts, identify repeat offenders, and have something to reference should clients call back at a later date.
If you are following these procedures and still have clients that carry significant balances over the 90-day threshold, then you need to consider formal collections action. First, notify your client that their account is seriously overdue, and they are headed towards collections via a letter or e-mail communication similar to the following:
" Month, Date, Year
Mr. Robert Doe
Doe's Widgets, Inc.
1334 Business Way
Somewhere, Somestate 56677
Re: Account ID# 34XXY
Dear Mr. Doe,
Despite our numerous attempts to contact you in regards to your account, we have received no payments toward your outstanding balance of $4500. We will be referring your account to our collections attorney with 15 days of this correspondence. If you wish to avoid collections action, please contact me to work out a payment agreement at the number listed below.
Approximately 80% of clients that receive such a letter will call or send in payment. For the other 20%, gather copies of agreements, e-mails, letters and current account balances and send them off to collections. If you do not currently have a collections attorney, find one either through referral or by Googling "collections attorney" plus your city and state. Most collections attorneys work on a contingency basis and are well worth the fees charged (usually somewhere around 30% of what is collected) since they typically are able to effectively negotiate payment agreements or manage litigation on your behalf.
Linda Jenkins, April 06 2014
It will happen eventually. As your business grows, you will at some point outgrow your current accounting system, whether you started out with a spreadsheet, manual ledger or simply a shoebox.
The need for a new accounting system may manifest itself in many different forms. You may find that payroll is becoming more onerous to calculate and track as you hire more employees. If you run a manufacturing or resale business, you may keep running out of stock on high-turnover items because you are out before you know it. If you run a service business, you may start losing track of how much time should be billed to each customer. Regardless of the various symptoms, the problem remains the same: your bookkeeping system is taking more of your time than it's worth.
There is always a balance in any small business enterprise between time and money. You can spend either time or money (or both). Scrimping on one will cost you more of the other. For example, if you decide to buy the least-frills accounting package that you can find on the shelves of your local office supply store, you may spend an extra 10 hours per week forcing it to do what you want it to do. If you could take that 10 hours and sell more to your customers, then it perhaps would be worth spending more on more sophisticated accounting software.
Recently, Deloitte & Touche did a study of the top criteria used by businesses when selecting their bookkeeping software. It's quite interesting to see that first-time business owners and seasoned entrepreneurs have different priorities in this regard. This would suggest that experience teaches business owners what's really important when choosing financial software.
The top three criteria used by first time business owners are:
1) Price of software
2) Ease of implementation
3) Ease of use
These reasons make sense. They are all important things to consider in the purchasing decision.
But now take a look at... the top three criteria used by businesses selecting their second bookkeeping system:
1) Level of support provided by the local firm
2) Developer's track record of performance
3) Software's ability to fit the business
Level of support provided by the local firm: Many of the entry-level accounting systems are billed as being turn-key; you just load the software and you're up and running. However, it's never quite that simple. It's important to make sure that you can easily and economically access customer and technical support for your new system. Some bookkeeping software companies charge for support calls, which is fine as long as you can get hold of someone when you need them. You will also want to consider whether there are consultants based locally that can come into your business and provide customized setup and training. When you're looking at consumer reviews of the product, pay special attention to what they say about support.
Developer's track record of performance: A first-time buyer may very well discount the importance of how well the software has worked in the past, but seasoned entrepreneurs understand how much time it takes to work around bugs in the software, or to install patches to fix problems as they arise. Keep in mind that bookkeeping software is generally updated annually, so there are many opportunities for programming errors to arise. Knowing that the company has been in business for several years with little incidence of major programming bugs can ease your mind in this area.
Software's ability to fit the business: Entry level bookkeeping software systems try to be "one size fits all". They allow you to customize the chart of accounts to make sense with your particular type of business. For example, if your business is computer consulting, it doesn't make any sense to have inventory accounts showing up in your books. However, each software system has strengths and weaknesses for every type of business. Some handle real-time inventory better than others. Some track billable time better. Having a good understanding of what's important to track for your particular business will help you be able to assess which package is best for you.
As you can see, there are more considerations than just price when purchasing accounting software. Spending time understanding all of the critical considerations will help. You should also ask fellow small business owners what they use and how it's working for them. Another important source of information is your accountant, so make sure he or she is consulted during your decision process. Most of the major software websites (Xero, Quickbooks and Peachtree, for example) have free trials, a video overview or online test versions. This gives you the opportunity to "test drive" the package to make sure that you're comfortable with it before you buy.
Selecting your accounting software is an important task in your small business and may seem daunting. Keep in mind, however, that most systems can be converted to others fairly painlessly. Mistakes are not terminal. If you are in the startup stages of a new business, or have a low number of monthly transactions, consider using accounting spreadsheets before graduating to more sophisticated software. If you are ready for software, going with an online/cloud-based solution has many advantages over downloadable or packaged software since you can create feeds to your banking data and the software is automatically updated saving you from having to constantly upgrade to newer versions.
Solutions We Recommend:
For a fully integrated online accounting, inventory and payroll solution try...
Xero Small Business Accounting Software - Try Xero for free now.
Gold Alliance Group uses Xero as an accounting solution and is also an authorized affiliate.
Are you a freelancer? For a simple, no frills solution try...
Wave - Try Accounting by Wave
Excel Accounting Templates:
Micro to small-sized business: Income and Expenses Spreadsheet - A simple bookkeeping template for organizing your income and expenses.
Micro to small-sized business: Accounts Receivable Spreadsheet - Track invoices and overdue accounts. Monitor accounts receivable to get paid faster.
Excel Invoice Templates:
Simple Online Invoicing by Aynax