Income Tax and the Small Business: Things You Need to Know

taxIf you own a small business, there is a good chance you are confused about taxes.  This is a common issue for small business owners who may not be very good at the accounting issues surrounding their companies as well as the federal and state tax laws that affect them as business owners.

Fortunately, there is a relatively simple way to figure out what you need to do and which taxes you should pay when.  Besides the information readily available on the Internal Revenue Service’s website at http://www.irs.gov/Businesses, you can quickly find out the basics from a free tutorial like the one provided by Bankrate on its website at http://www.bankrate.com/brm/news/biz/adviser/20020122a.asp.

Basics of Business Tax

If you have just opened a business, there are several things you should know.  First, whether you are a corporation or not will have a significant impact on how you pay your taxes.  If you have incorporated your business, you will need to file both a corporate and a personal tax return each year.  The way income is treated under each return is based on the type of corporation you have, how often you draw from your company, whether you have employees and whether your corporation is a non-profit or for-profit business.  It may be a good idea to have an accountant look over your taxes, at least the first year.

However, it is also wise to familiarize yourself with the basic publications and information you will need to file your returns.  These include:

  • Publication 583, which lists all the records you should maintain.
  • If you are a sole proprietor, meaning that you have no partners or shareholders, read Publication 334. This is a good guide to filing your income taxes, both quarterly and annually.
  • Form 1120 and Form 1120S are the standard forms for C and S corporations respectively. Be sure you know which form your business is incorporated under.
  • Form 940940-EZ or 941 are used to assess your federal unemployment tax or FUTA.
  • Form 945 reports on non-payroll amounts such as IRA contributions.
  • You are also required to pay self-employment taxes associated with Social Security and Medicare.  It is usually best to do this with quarterly estimated tax payments.  Publication 509 gives the tax calendar for each year.

While you are looking over the federal forms, do not forget state and local taxes.  You will need to examine your state’s tax codes to see if you must pay taxes, and there may also be a local income tax assessment.

You can always ask your state or local tax agencies or the IRS for help.  Surprisingly, the help centers at most tax agencies are very good and will usually work with you to ensure that you are paying your taxes correctly.

Ultimately, it is up to you to be sure you have a handle on your business taxes.  However, it is never wrong to seek help from an expert such as an accountant if you do not understand or cannot handle the tax issues surrounding your business.

For more information about Blair Stover, you can visit  Blair Stover Pinterest or Blair Stover Blog

Information About IRS Tax Extensions

Taxes

Taxes (Photo credit: Tax Credits)

If you decide that you need to file a tax extension, you could be looking at delay of up to six months on your tax return. However, filing your extension could be extremely helpful when you have complicated returns. Any additional time is great for tax preparers and taxpayers who need it for preparing a return. It allows for the preparer to pay closer attention to details so the refund can be maximized.

Here is some information about forms that are commonly used, provided by Blair Stover:

IRS Form 7004: A form that is commonly used by corporations, estates, trusts partnerships and LLC’s. Any extensions that you get are in the six-month range but are due by March.

IRS Form 4868: A form that is for personal or individual tax extensions. You can use this one for extending the deadline for another six months. Contractors, Single-member LLC’s and sole proprietors can use this form as well but the deadline is still due in April (without the extension).

IRS Form 8868: Any non-profit or exempt organizations can use this form and they will automatically get a three-month extension.

You must remember that even though you file an extension, you still must do your taxes and still get them in on the time stated. The IRS is just giving you some extra time to get your paperwork in. If you still owe taxes, you will have to pay them like any other year and do so on time unless you ask for an extension. Even if you are expecting a refund or credit, you can use any extended time to try to maximize the refund.

 

 

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Things to Do Before the Beginning of Tax Season

That time of year is once again upon us and as tax season turns into full swing you will see that time is the most valuable asset you have. Don’t wait until the last minute to start your taxes. Take advantage of the time you have now to get ready for when you sit down to file.

Here are a few things that you should do before the tax season begins, which will allow you to save time, as compiled by Blair Stover:

Saving Money

Saving Money (Photo credit: 401(K) 2013)

1.     Make sure that you have all required contact information. Many companies will have territory managers and it is important for you to have all their info. If you rely on a tax accountant, be sure you have their information easily at hand for when filing time comes around.

2.     Join a tax site. Joining up on a tax site that has a help forum or a community board is the perfect way to get the answers you are looking for.

3.     Try bookmarking “Program Tools” on the NCTC website. If you need any help when it comes to tax issues, a great start would be www.tax-coalition.org. Or start looking for an accountant now, as rush time will make finding someone available that much harder.

4.     Scheduling and budgeting for NCTC’s 2013 National Conference. This event is a great way to figure out your budget issues and schedule for the upcoming year.

5.     If you sign up as an NCTC affiliate, you will get free assistance. Paying for the affiliation will bring plenty of benefits.

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Choosing the Right Accountant

Most people don’t like dealing with numbers. But, for the rare few that do, it benefits everyone involved. Accountants are specialists that help people or businesses keep their financial records in check or put them in order for future use. As Blair Stover points out below, there are very few reasons why you should not have an accountant on speed dial.

Many people will have accountants just for tax time but there are some, like huge corporations, that need the experience year round. If you are in search of one, you need to do plenty of homework because there are plenty of these specialists that offer similar services.

But, how does one choose the right accountant? There are a number of qualities that you should look for before hiring one.

Feedback is a great way to know how reliable and knowledgeable an accountant is. You can look online or ask around for feedback. Personal recommendations happen to be the best option one has when choosing any business specialist. Additionally, many accountants will give you a free consultation if you inquire about one. You can either email your questions or speak on the phone in order to see if that accountant’s services will work for you.

Skill-set is another important asset to look for. Many states will have their accountants certified before opening a business. However, there are some that do not have many regulations at all. Certified accountants will charge more but they will usually give you better results.

There are many different areas of accounting so it is important that you seek out a specialist that is tailored to your specific situation. If you do this, you should have no problem in finding the right accountant for you.

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Keeping Your Finances Organized for Tax Season

Tax

Tax (Photo credit: 401(K) 2013)

Many people still do their own taxes even with the plethora of tax help associations and services available. For many, self-filing is a way to save money, while others say that they are just more comfortable doing it themselves. No matter what your reason is, Blair Stover has some tax preparation tips to help you get organized for the upcoming tax season.

  1. Keep your receipts. It doesn’t matter what they are for and where you got them. Receipts can be a huge lifesaver in the tax world. Some of the things that you buy can be written off come tax time, particularly if you own your own business. You don’t want to just throw your receipts into a folder and shove them away somewhere. Make sure you put them into some kind of system so they are easy to find.
  2. Keep your invoices. Invoices are very important as a business owner because it lets the IRS know what you have paid out and what you have been paid for. A filing system is important in this area as well.
  3. Keep mileage logs. If you drive a lot, mileage can rack up especially as a business expense. The IRS will actually let you write this off and you should keep a log of your mileage along with all your gas receipts.
  4. Keep all of your utility bills. If you work at home from time to time, you could actually write off your power bill as a business expense. In fact, you can do this with many of your bills.
  5. Direct deposit or mailed check? You will always want your refund check to be a direct deposit. Do not wait for a mailed check. If you don’t have a bank account, that is fine. You can sign up for a prepaid debit card and that will actually give you the chance to open up a direct deposit account through a vendor.

 

 

 

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Finance Tips That you Should Never Follow

Finances are more important than ever these days, what with the recession recovery going slowly and looming talks of the fiscal cliff. Many individuals are looking for answers to financial questions on everything from taxes to personal finances. While there is plenty of good advice out there, some tips have never been smart to begin with. Blair Stover walks us through a few finance tips that continue to be passed along that may not help your situation at all in the long run:

1.     Always work with debt settlement companies. People who have huge debt will often go through these companies looking for relief. While this is a viable option, if you must do this be sure you read the provisions before using their services. Often the fees themselves will cripple you and can leave you just as badly off as before.

2.     Always have some kind of credit card balance. You should always try to have your credit card balance at zero. The interest rate could go up if you have a balance in your account. It is better to pay off what you owe at the end of each month than it is to keep a small, interest-gathering amount on the card.

3.     Using a 401K to pay debts or bills off is smart. This statement needs to be taken with a grain of salt. Your 401K is there to provide after you retire. Using it to pay off debts will hurt you long term. Talk to a financial advisor about your options before using your 401K to settle a debt.

Be sure to talk to a financial advisor should you find yourself in debt. An objective view on your situation will help you know your options and start in on a plan that will leave you debt-free without hurting your long term financial future.

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5 Great Business Accounting Software

Every good business owner needs great accounting software if he/she decides that going with a bookkeeper or accountant is out of the question. Accounting software is cheaper than hiring a full-time or even part-time employee to keep the books but you still need to ensure that the software you choose is the right one for your business. Blair Stover has a small but valid list of great accounting software below:

1.     Express Accounts is one of the most highly sought after applications dealing with accounting that is on the market today. It helps the user track both outgoing and incoming cash flow transactions like purchases, receipts, payments and sales. It gives you the chance to create journal entries for your transactions as well as reports, profit and loss statements and so on.

2.     Rhino Accounting is a free double-entry bookkeeper that will help you manage everything from A to Z. It will get your accounting job done but this is more of a short term support option.

3.     Billing Boss has the best invoicing out of any accounting software on the market. This is perfect for first-time entrepreneurs or people who are just starting a new business. If you don’t need FreshBooks or QuickBooks or the other fancy stuff, this is the software for you. You don’t have limits on how much you can use it and it is straightforward to use.

4.     Invoicera is mainly for those that are working with a smaller budget or just like freebies. It has a beautiful billing app, which is free, and the interface is nothing short of accessible.

5.     KashFlow has the best all-around accounting software. It is designed for start-ups and entrepreneurs. It has a 14-day trial which is perfect for anyone just starting out.

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Advice on Choosing an Inventory Accounting Service Provider

Inventory accounting is a process that the government mandated years ago. It helps organizations or companies place accurate values on things that help businesses figure out when restocking is needed. Blair Stover walks us through the different kinds of methods and benefits of inventory accounting below:

  • Software inventory versus traditional inventory methods: Maintaining an inventory is something that has been going on for centuries. General Store owners in the Wild West did everything by pencil and paper in the 1800’s. The Romans and their markets did their inventory by simple math and memory. However, now you have the choice of hiring an in-house bookkeeper to ensure everything is kept up to date or you can obtain software to ensure your company keeps up with proper inventory.
  • Benefits of having automated inventory: Anything that automated is going to take up less time but you have to make sure you know how to work the process. The worst thing you can do is try to use software to track inventory without knowing how to operate it first. You could outsource the service too, which will end up saving you time on having to learn to read the system.
  • Choose inventory service providers: Make sure you select a company that has plenty of experience in accounting solutions to the industry you are in. It is also good to know what the company can bring to your business before hiring them. Also, it is smart that you know what services are included are which one’s aren’t.

Accounting is a pain for any business, however, it is a vital part for every company. While Blair Stover is all about succeeding in business on your own, businesses owners needs to know that bookkeeping can be much easier if you have the right tools and the right people.

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Being a Sole Proprietor

Being a business owner is hard enough without having to worry about accounting issues. Many small business owners, however, find that they don’t have the money or time to hire out their accounting, and do it themselves. While it is always best to hire an in-house bookkeeper to track all of the accounting during the year, there are plenty of tips that will help you work things out yourself just the same.

One way to make accounting simpler is to be a sole proprietor. Being the sole owner helps not only in taxes but also helps to keep your accounting localized to one person. Here are a few other reasons why you should seriously consider sole proprietorship of your first business.

1.     Keep things simple when you start out. A sole proprietorship is the best type of business to have when you first start out because you do not have to file any special paperwork with the IRS until you decide to hire employees.

2.     Sole proprietorship could mean acquiring occupational licenses. If your state says that you need one as an owner of a business, you may be required to get a license to own a business. This also means paying taxes, which most owners already do.

3.     Insurance is cheapest as a sole proprietor. Personal liability is the cheapest way to go in most cases, though Blair Stover recommends seeking professional help on deciding details about this point particularly.

4.     Build your business. You shouldn’t worry about the IRS when you are a sole proprietor because the IRS doesn’t even know you are there until your first tax return. Concentrate on building up your business.

5.     Thrive to do business but just stop if you fail. The great thing about being a sole proprietor is that if you fail, you can just stop. No dealings with the IRS or government!

6.     Pay yourself. Being a sole proprietor means you pay yourself. There is no complicated way of doing things.

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Keeping Finances Simple: 5 Easy Tips

Accounting can be a great thing for small businesses. On the other hand, it can be a severe headache for business owners especially when owners have no idea what’s going on. Most companies consider finance a “back-office” task and they do not consider it a vital piece of the everyday puzzle. As Blair Stover points out below, the finance part of your business is vital to keeping your doors open.

Here are a few tips to help you tackle your accounting issues:

  1.  Keep accounting separate: Make sure that your business money is used for business purposes only. This is very important because it can come back to haunt you later on, especially during tax time. For instance, if you are at the grocery store and you do not have your personal credit card but you have your business card, should you buy your items with business credit? The answer is no. Things will become complicated when you try to add things up. Always keep personal items personal and business items business.
  2. Call in the professionals. Hiring an accountant might seem like a waste of money but they will not make errors like you may and they will find extra money that you may have missed before.
  3. Pencils things in. In fact, use pens or permanent markers rather. Every week, set aside some time to figure your finances out.
  4. Consider your staff. Payroll is the biggest part of your business in most cases. Make sure you figure this part in and you calculate benefits, wages, overtime, etc.
  5. Track payments. A lot of owners will skip this step for some reason. They won’t properly track customer invoices or payments and this can be a serious problem.
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