Tax Options for the Self-Employed

Photo by Bonnie Kittle on Unsplash

From the U.S. Small Business Administration comes this insightful article on how to manage Self-Employment Taxes and the options those individuals have.

Self-Employment Tax Wrinkles
By BarbaraWeltman, Guest Blogger
Published: February 14, 2017
Updated: February 21, 2017

Individuals whose businesses are incorporated do not have to think about self-employment tax. Any salary they take from their corporations as owner-employees are subject to FICA taxes. In contrast, those with other types of business entities—sole proprietorships, partnerships, and limited liability companies (LLCs)—are not employees; they are self-employed individuals. As such they meet their Social Security and Medicare taxes obligation through the payment of self-employment tax.

Self-employed individuals pay what amounts to the employer and employee share of FICA tax; the employer share is deductible. In other words, they pay 15.3% (comprised of 12.5% for Social Security tax and 2.9% for Medicare tax). The self-employment tax is applied to net earnings from self-employment, although only net earnings up to an annual threshold ($118,500 for 2016; $127,200 for 2017) are taken into account for the Social Security tax portion. In basic terms, net earnings from self-employment are income minus expenses. It sounds simple enough, but there are some ins and outs that may impact your payments.

$400 threshold

While FICA taxes apply to the first dollar of wages paid to an employee, there is no self-employment tax due if net earnings from self-employment are less than $400.00. So a self-employed individual with only losses for the year, or someone with a modest sideline business, may be below the threshold for self-employment tax.

However, if net earnings are $400.00 or more, then the tax applies to all net earnings. There’s no exemption for this amount.

Optional payments

Self-employed individuals who have modest earnings may want to voluntarily pay self-employment tax. The reason: This enables such individuals to earn Social Security credits, which translate into higher benefits in retirement.

There are two optional methods for figuring earnings: one for farmers and one for all other self-employed individuals (nonfarm optional method). The farm optional method applies for 2016 returns if gross farm income was not more than $7,560 or net farm profits were less than $5,457. The nonfarm optional method can be used if net nonfarm profits were less than $5,457 and also less than 72.189% of gross nonfarm income but you had net earnings from self-employment of at least $400 in two of the prior three years. The nonfarm income optional method cannot be used more than five times by a self-employed individual

Determining self-employment income

In most cases, it’s easy to know what is or is not self-employment income for purposes of the self-employment tax. But there continues to be confusion about certain types of payments. Here are some recent matters concerning this issue:

• Payments for past performance. A former employee received a payment resulting from 34 years of services for a company. The IRS said it is subject to self-employment tax because there is a nexus between the income received and a trade or business. A court said the same thing for retirement payments made to a former Mary Kay sales person.
• Separate lines of work. A plastic surgeon who conducted his medical practice through a single-member professional limited liability company (PLLC) also had a minority interest in a limited liability company that ran a surgery center. The Tax Court said that his earnings from the surgery center were not subject to self-employment tax because he was a mere investor here; the activities did not have to be grouped as a single activity. He did not manage the center or have any day-to-day responsibilities there.

It should be noted that the IRS has yet to issue regulations explaining the extent to which a member’s distributive share from an LLC is subject to self-employment tax. This issue is on the IRS’s Priority Guidance Plan for 2016-2017.

Final thoughts
Self-employment tax must be taken into account in figuring estimated tax payments, and the first estimated tax payment for 2017 is due by April 18, 2017. Self-employed individuals should work with a tax professional to make sure this tax obligation is being handled properly.

10 Questions to Ask Your Accountant

A few of the questions from this article are about how the client can accommodate the accountant. At Accounting Works, we more often than not work the other way around.  Small businesses are so important to us, (in fact, we are a small business ourselves) that we know there is not one template that fits all of our clients' needs.  Working with clients on their current state of affairs as well as reaching toward future business goals is as important to us as it is to you!

10 Questions to Ask When Working With an Accountant

By Kim Lance Shandrow
Entrepreneur.com

Solely relying on free or inexpensive online small-business accounting tools instead of investing the services of a trained professional accountant can be a costly mistake that entrepreneurs make all too often. Don’t be one of them.

Springing for a licensed accountant can be worth every extra penny you spend, says ff Venture Capital chief financial officer Alex Katz. A qualified, certified public accountant (CPA) can tip you off to potentially irreversible financial missteps and brand new tax savings opportunities that you might not know exist. And we doubt most barebones digital accounting solutions could bring red flags like these to your attention as effectively as an accountant.

When you do invest in the services of a reputable accountant, it’s important to know what to ask and when -- not only to be sure you’re getting your money’s worth, but also to ensure he or she helps you do what’s best for your business and your bottom line.

1. What’s the best way to contact you and how often should we be in touch?

This might seem like too simple a question, but clear, effective and frequent communication is the key to a healthy, beneficial relationship with your accountant. Establish early on how often you’ll connect, either in person, on the phone or online (via a video chat app like Skype, Google Hangouts or Facetime). Decide together if you’ll meet weekly, monthly or bimonthly.

2. How can you help me prepare for (and survive) tax season?

Untangling the time-sucking tedium of tax prep is often the number-one reason small businesses hire an accountant in the first place. You’ll want to ask yours which tax credits and deductions you should claim. Also ask him or her if there are any new tax laws you should take advantage of to maximize write-offs.

“Tax opportunities, such as the R&D credit, accelerated depreciation or panoply of state and local tax opportunities, including tax forgiveness and outright grants or refundable credits, can even be applied for as part of the tax return process,” Katz says.

He suggests that you get answers to all of your tax questions long before the April 15 filing deadline. To avoid the year-end rush, get your accountant involved in helping you gather all of the necessary accounting documents and data all throughout year.

3. What are some considerations I should consult with you about on an ongoing basis?

A skilled accountant should get to know you and your business well enough to regularly keep you aware of -- and swiftly and appropriately reacting to -- an array of factors that could effect your bottom line, for better or for worse.

Your accountant should be well-versed in several disciplines, “including but not limited to GAAP [generally accepted accounting principles], corporate and individual tax, retirement planning and financial planning," Katz says.

He or she should also be open to assisting you in weighing the financial ramifications of certain decisions, like whether or not to hire an independent contractor or a full-time employee, buy or rent an office space, or rent or lease a company car and much more.

Your accountant should also work collaboratively with you in a way that makes it easy for you to consider and understand which actions you need to take now and in the future, ideally without the usual confusing accounting jargon. “If an entrepreneur in unable to develop that type of relationship with her accountant, it may be time to look for a new one,” Katz warns.

4. How can you help me grow my business?

A qualified accountant absolutely can help small-business owners expand over time, that is if have the right groundwork in place with you, Katz says.

To grow, you must start with a financial model that is “honest and built on a granular basis from the ground up.” Remember to update your plan on a monthly basis (or ask your accountant to) with actual results. Doing so can help you hone in on opportunities for growth in your market.

5. How can you help me clamp down on my cash flow?

Properly projecting your business’s cash flow is as essential as creating an effective mission statement and living up to it. Tedious, detailed flow projections aren’t easy to wrangle, but that’s what you have an accountant for.

Your accountant should be able to help you develop an organized, effective cash flow model that allows you to adjust your operations in ways that help you survive shortfalls, as well as improve receivables and manage payables.

6. What is my break-even point? 

Your account should be able to analyze a number of metrics to calculate whether your business is making a profit or a loss. Knowing your break-even point is crucial to determining your business’s pricing structure and profitability. Once your accountant helps you identify yours, you should have a strong estimate of how many products or hours of service you have to sell to cover your costs.

7. Can you assess the overall value of my business?

Your accountant should be up to the task of estimating your company’s fair market value in excess of your tangible assets. He or she should start by examining your financial plan and then execute a discounted cash flow (DCF) analysis, a common but effective valuation method.

Another way your accountant can help nail down your business’s value is by deeply understanding what you do and the industry in which you operate, Katz says. “In so doing, an accountant can help the entrepreneur understand which aspects of the comparable companies drive their value, and can work with the entrepreneur to steer the company toward maximizing those aspects of their business.”

8. Can you help me review and negotiate business contracts before I sign them? 

This is a common question for accountants, one that’s probably better to ask your attorney.

“An accountant should not practice law without a license,” Katz says. “They can work collaboratively with your attorney to add color and tax and commercial issues about which the attorney may not be experienced.”

9. What are some special considerations for my particular industry?

Businesses in different industries come with their own unique accounting issues. Your accountant should be knowledgeable about the various ones that specifically apply to yours.

For instance, if you own a startup that builds wearable tech, your CPA should be well-versed at identifying tax opportunities specific to the emerging technology industry, like potential R&D, facilities and training tax credits, as well as applicable manufacturing and sales tax exemptions, etc.

10. What are some common mistakes that I should avoid when working with you?

Not being 100 percent honest with your accountant is the worst mistake you could make, Katz says. “The truth will come out, either in the planning stage or in front of the IRS auditor.”

Failing to follow the advice of your accountant is another common mistake Katz sees. The whole point of hiring an accountant is for their expert advice. Thoughtfully consider it, then use it to make reasoned, balanced judgments.


Click here for the original article.

Tips for Whittling Down Your Tax Bill

Photo By Tom Grillo

                                               
Regardless of what Congress ends up doing about the future of the tax system, you don’t need to pay more than you owe for the 2016 tax filing season. You can probably whittle your liability by going through last year’s records and checking to see if tips from tax professionals may apply to you.

Whether you use a professional tax preparer or software, or handle the return on your own, you will need to assemble information and gather receipts and tax documents.

Here are the basics: You need to track your income, but you are likely to get plenty of help on that. Be prepared for a blizzard of tax forms. Employers issue Forms W-2 to employees. Banks, brokerage houses and other payers, including businesses that use independent contractors, issue Forms 1099 and sometimes Schedules K-1 reporting the money they paid. They must report these payments to the I.R.S. as well, and discrepancies are likely to result in an I.R.S. notice.

But it is up to the taxpayer to claim itemized deductions and available tax credits. If you neglect to do so, you may end up overpaying.

Keep Track of Gifts to Charity

Taking deductions requires good record-keeping. Consider the rules for charitable deductions on donated money, household items or clothing, valuable art or properties. Sidney Kess, a New York accountant and lawyer, who is a senior consultant to the accounting firm Citrin Cooperman, said your own check is sufficient for gifts of less than $250, but for higher amounts a receipt from the charity is needed.

“To claim a deduction for items or property worth over $500 but less than $5,000, in addition to a written acknowledgment, records have to show when and how you got the property, the cost or other basis, and you must report this information on Form 8283,” Mr. Kess said. “For a deduction over $5,000, you need an appraisal from a qualified appraiser.”

Finding Family Opportunities

But record-keeping is only part of what confronts taxpayers trying to reduce liabilities. The tax code — four million words by some estimates — is chock-full of complexities, but therein lie opportunities.

Mr. Kess discussed one such opportunity: deciding how family members should file their returns. Like so much involving taxes, it’s complicated.

Say a couple has a daughter in college who earned money from a summer job. The couple provides more than half her support and could claim her as a dependent, but the I.R.S. imposes certain limits. Personal exemptions, which exclude $4,050 per person from income, begin to phase out for married couples filing jointly with adjusted gross income of $311,300 and are eliminated when income reaches $433,800.

If the parents had an income below those levels, they would probably have claimed their daughter as a dependent. Because their income is above the upper limit, they do not do so. Instead, she claims her own exemption on her return reporting her summer income, and she can take an education credit as well. Her parents could not get that credit because of their high income.

Protect Cash in an I.R.A.

Individual Retirement Accounts and Health Savings Accounts can be used to shelter tax refunds, noted Barbara Weltman, a lawyer in Vero Beach, Fla., and author of two J.K. Lasser books, “1001 Deductions & Tax Breaks 2017,” and “Small Business Taxes 2017,” both published by Wiley.

“You can use your tax refund to lower your 2016 tax,” Ms. Weltman said, “but you have to file as early as you can” because the deadline for depositing the money into an I.R.A. or H.S.A. is the same as the due date for filing tax returns, April 18 this year.

If you are eligible for an I.R.A. or H.S.A., claim deductions for them on the return, based on the amounts calculated by the accounts’ custodians, and include Form 8888, directing the I.R.S. to deposit those amounts directly into the accounts. Tell your account custodian (it may be a bank or a mutual fund company or a brokerage) that the deposit should be applied to 2016, she said. Any excess from the refund can go to your regular bank account.

Fat Refunds Can Be a Problem

Julian Block, a tax lawyer in Larchmont, N.Y., said that big refunds can sometimes cause problems. He cited the case of a new client who, he discovered, had been receiving a plump refund every year. Mr. Block advised him to file a revised Form W-4 with his employer, aimed at reducing the amount of money being held out of his regular paycheck and paring down his refund.

The reason, Mr. Block said, is that online identity thieves are increasingly active, and if they file a fraudulent return using your Social Security number and claiming a refund, your own refund will be delayed while the I.R.S. sorts it out. Of course, you won’t be held liable for the actions of a thief.

If, instead, you owe a small balance to the I.R.S., you won’t have that headache, though you will need to check whether your identity has been compromised in other areas of your financial life.

Mr. Block also noted that there is an alternative to an I.R.A. for some older self-employed people, including people who turn a hobby into a small business or do work like child care. If they are over age 70½, such people can no longer contribute to an I.R.A. but they can set up and contribute to a Simplified Employee Pension Plan. That enables them to deduct contributions now and withdraw money in later years. It will be taxable then, but their income may be lower, too.

For tax purposes, alimony counts as earned income, he added, so recipients who otherwise qualify for an I.R.A. may contribute the alimony to it and claim a deduction.

Scan the Deductions List

Many self-employed people do not realize that they are allowed to deduct the cost of health insurance, regardless of whether their unreimbursed medical expenses are high enough to take a deduction on Schedule A, Mr. Block said. They can deduct the health insurance cost on the front of the Form 1040, on Line 29.

That’s just one of several deductions on the front of the 1040 that are worth keeping in mind. Others include teachers’ out-of-pocket outlays of up to $250 for students or for their own professional development, the deductible part of self-employment tax, student loan interest, alimony paid and an H.S.A. deduction for those who are eligible. All are especially valuable because they reduce adjusted gross income on Line 37. That number ripples all through a tax return, often limiting other tax breaks.

File Quarterly? Watch Out

In addition to filing a 2016 return by April 18, many taxpayers must file Form 1040-ES to pay quarterly estimated taxes on income on which no taxes are withheld, like self-employment income; interest, dividends and capital gains on investments, or rental and royalty income.

Preparers often base the calculations on the previous year’s taxes, Mr. Kess said, but if tax cuts are indeed enacted by Congress, estimates based on 2016 taxes may turn out to be too high. If that happens, you will need to recalculate the estimate later — in June, September or even the end of the year, depending on when a law is enacted — and can reduce the payments accordingly.

Do-Overs Are Possible

For anyone thinking, “I wish I’d known that last year,” Greg Rosica, a tax partner with EY, formerly Ernst & Young, in Tampa, Fla., says it’s probably not too late.

Whatever the reason, you realize belatedly that you failed to take a deduction for which you were qualified. All is not lost.

“It’s fairly simple to amend returns,” Mr. Rosica said. Taxpayers may file a Form 1040X up to three years beyond its original due date. Say you filed a Form 1040 for 2013 income in March 2014. The due date was April 15, 2014, so you have until April 18 this year. But if you filed under an automatic six-month extension in 2014, you have until Oct. 16 of this year to file the amended return.

Mr. Rosica is a member of the editorial board for the “EY Tax Guide 2017,” which is published by Wiley, and includes this tip: Many taxpayers know they can deduct state income taxes on their federal return, but many do not realize they have the option of deducting sales taxes instead. That is advantageous if you live in a state like Texas, New Hampshire or South Dakota that has no state income tax. It may also be a boon to anyone who bought a big-ticket item like a car with a big sales tax, and is often the best choice for people over age 65 because many states — even high-tax New York — exempt Social Security income and some retirement-plan income from state income taxes.

Both Mr. Rosica and Mr. Kess advised taxpayers to check the tax consequences of any big life changes that may have taken place, like getting married or divorced or having a baby, all of which could affect filing status and the number of personal exemptions, as well as bring medical expenses that may have tax consequences. Changing jobs or moving may also mean income changes that would affect withholding.

Don’t Forget Money Overseas

If you have a financial account outside the United States, be careful to report it, Ms. Weltman said.

“Foreign financial accounts are high on the I.R.S. scrutiny list, and people who fail to disclose foreign accounts can be penalized severely,” she said, including people who inherited accounts overseas and those who worked abroad and still have ties where they once lived.

FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, is used for accounts of $10,000 or more and is filed electronically with the Treasury, while Form 8938, which is attached to Form 1040, is used in more complex situations, with the lowest threshold being for accounts of $50,000.

Original Article By The New York Times

E-Commerece & Inventory; calculate its true cost

This is a great article on e-commerce and how inventory can affect your expenses in unexpected ways.  This is for any small business owner, and especially speaks to the growing number of business owners who sell through sites like Etsy or Big Cartel.  Opportunity Cost is often overlooked, but this article by Michael Manzione outlines how to calculate the true cost of your inventory.


What's the True Cost of Inventory?

Inventory is often the largest asset of ecommerce merchants. Inventory defines merchants’ businesses and their position in the marketplace. It defines customers’ expectations of the business.

For most ecommerce merchants, the cost of inventory is the largest expense item and what leads to the most financial woes. There’s typically a direct correlation with inventory turns and company success. This seems obvious: You sell more, you turn more. However, even successful companies carry too much inventory and don’t fully recognize the financial impact.

In “SKU Management Ensures Inventory Profits,” my July article, I addressed SKU selection, answering the question: “Do I have the right item at the right margin?”

In this article, I expand the focus on profitability to managing the cost of inventory.

The true cost of inventory extends far beyond the inventory itself and the cost of goods sold. The cost of managing and maintaining inventory is a significant expense in its own right. But the true cost of inventory doesn’t even stop there. Inventory carrying costs add about 20 to 25 percent to the actual cost.

Understanding Inventory Carry Costs

To get a better understanding, one must measure the cost of carrying inventory. Let’s review some of the costs.

• Financing inventory. In its simplest form, you can calculate the cost of borrowing money to purchase inventory by looking at the interest rate payments. However, for some companies inventory financing may include part of a line of credit that is also used for working capital.

In many cases when you try to evaluate the real cost, this one line item may become daunting. But don’t be discouraged; come up with a best guess. It’s more critical to understand what is being financed externally versus internally to know what should be measured.

• Opportunity costs. This cost is almost always overlooked. For opportunity costs, we’re answering the question, “How else could I invest my money?” If it were invested in something else, what is the realistic return I can expect? If you’re unsure, default to the interest rate from a tax free municipal bond as a consistent and conservative way to apply this cost.

• Insurance and taxes. Many merchants overlook this cost, too. It should typically be a variable cost: It goes up and down with the amount of inventory you carry. Depending on the volume of your business and the swing in inventory, this number could be adjusted as frequently as every quarter.

If the inventory value is fairly consistent or if the value is small, don’t bother calculating this more than yearly. However, if you do have large swings from one season to another, any savings will go straight to the bottom line. Many companies today self-insure and keep a reserve to cover the associated risk. That reserve constitutes an additional opportunity cost that should be considered.

• Handling expenses. These expenses are made up mostly of wages and benefits, but also include lease payments and depreciation on material handling equipment, depreciation on automation, and miscellaneous expenses for supplies such as pallets, packaging, labeling materials, and the like.

• Warehouse overhead. The quickest way to measure this is to split the total expenses for rent, utilities, repairs and maintenance, and property taxes by the percentage of the building associated with processing customer orders.

Here is an example. Assume a merchant uses a third-party fulfillment company. The average rate for pallet space in the U.S. is $15.00 per month. For simplicity, assume 30 items occupy that space. The first month the merchant is paying $.50 per item. At the end of the second month, assume the merchant has 25 items left and therefore pays $.60 per item. So at the end of two months, the first 5 items cost the merchant $.50 each to store and by the end of the second month the remaining items costs $1.10 to store.

Therefore, the merchant’s margin shrinks each month that it carries this item. This is a simple example, but the way you are charged can vary. Many fulfillment companies —such as Fulfillment by Amazon — now charge more the longer the inventory sits.

• Inventory control and cycle counting. These expenses typically are comprised of wages and benefits, but may also include the depreciation or operating expenses of equipment, as well as any miscellaneous expenses directly related to your inventory control team.

• Inventory shrinkage, damage, and obsolescence. Accounting for these costs can become quite complicated. But for the sake of simplicity, capture these costs in the fiscal year they occurred or preferably in the same month.

Calculating Overall Carrying Cost

To determine your overall inventory carrying cost, roll up the components in each category annually and see how close you come to the 20 to 25 percent average. Don’t get bogged down with other aspects that should only be considered if you have a skilled accounting team. For example, in reality many of these carrying costs will vary by item, warehouse, product line, category, product size, and volume. You don’t have to get that detailed.

Here’s a example of how to calculate the overall carrying cost for a hypothetical item with a purchase cost of $10.00.

Purchase Cost of Item: $10.00

Financing: $.30
Opportunity Costs: $.50
Insurance and Taxes: $.10
Handling Expense: $.90
Warehouse Overhead: $.45
Inventory Control: $.12
Inventory Shrinkage, Damage, Obsolescence: $.10

True Cost: $12.47

Once you determine the true cost of inventory, you can better address how to evaluate and manage. You’ll also discover what inventory is essential and what is not. When you reduce inventory, not only are you freeing up capital, but you are also creating opportunities to reduce expenses, improve profitability, and increase cash flow.

It can be the difference between success and failure.

For the full article on Practicalecommerce.com, click here.

Quarterly Tax Returns

     

     If you make quarterly tax payments, the due date for the 2nd quarter is fast approaching; June 15. There are a few possibilities that mean you are required to make quarterly tax returns.

1. Self-Employed sole proprietor filing Schedule C.  As part of your personal return, you may be required to make quarterly estimated income tax payments.  Use Form 1040-ES.  Your payments will be in compliance with the federal “pay as you go” system and will save you from any underpayment penalties that you may incur even if you pay the full balance by April 15.  These payments include federal income taxes as well as self-employment taxes.

2. Payroll taxes.  You must issue and withhold taxes from any employee paychecks.  You are given a certain timeframe to pay, usually using Form 941.  They must be paid one month after each quarter.  The next deadline coming up is July 31.

 

3. Some LLCs, S Corporations, partnerships.  If you’re performing services for your company, you are required to pay yourself “reasonable compensation.”  That means giving yourself a paycheck and filing payroll taxes.

     Make sure you’re in compliance before the next quarterly due date!   

5 Ways to Keep Household Financial Documents Organized

Let’s face it, staying organized for most people is a pain in the butt, especially when it comes to bills, documents and records.  It’s hard to tell what you need to save or what’s superfluous in your record keeping.  Here’s how to keep it organized as it flows through your mailbox instead of just letting it stack up.

1.  Use your computer.  When it comes to documents that you can’t download via the internet, use a scanner and store what could be a giant stack of paperwork in one tiny folder on your hard drive.  Things like pay stubs or monthly credit card statements, medical bills, can all be scanned and saved to your computer.                                                                                                                                                                                                           

2.  Toss documents the safe way.  With identity theft being such a huge threat to millions of people a year, it’s time to invest in a shredder.  Costing a lot less than you realize (starting around $50), you could potentially save yourself thousands in losses from the careless tossing of personal documents.

3.  Not a shoebox, but a file.  Having your documents organized for tax time is so important.  Charitable donations and business expenses need to be documented and saved to reference come January.  Again, you can scan and save to your computer in a specialized file for just this purpose.  Lots of times you can use an app to scan receipts as well.

4.  Using a digital strategy to keep your paperwork at a minimum requires back up.  Make sure to save all of your documents to an external hard drive or flash drive depending on the size of your data. 

5.  Use old binders.  You can make them pretty, or just use some of last year’s school supplies.  Use these binders to keep around annual statements in case of an audit.  You don’t need your monthly statements.

You can find a way to make organizing easy for you.  The point is to review what you need to hold on to or let go on a somewhat regular basis, usually monthly or quarterly.  If your annual statement comes in, you can throw away the quarterly report.  Just make sure there is a secure place to keep passwords and account information in case you forget and communicate with your partner in the event they need access to the information. 

Starting A New Business? Beware of Any Old Business Debts

     Making the move from a sole proprietorship or partnership to an LLC or Corporation is a smart business move.  It protects your personal assets from being threatened against business debts.  Unfortunately, any old business debts accrued before the conversion means your personal assets can still be threatened from that time.  Often if you don’t pay off your old debts before forming the new corporation or LLC, or pay them down in a timely fashion after the conversion, creditors could potentially go after your newly formed business to pay off your old debts.

What’s in a name?

     Being adamant about only using your new corporate or LLC name for business transactions is essential.  Sign all contracts and checks under your new name.  In order to fully establish all that’s required to retain the benefits of LLC status, call the bank where your business holds an account to learn exactly how to endorse your checks.  It is usually using the company’s name, or your current position.

     Its also a very crucial step to change your letterhead, any marketing materials, business licenses and permits, etc. to clearly state your new status.

Notify Clients and Suppliers.

     As soon as the conversion to a corporation or LLC is completed, your new priority is to send a notification letter to your customers, suppliers and clients notifying them of your new business structure.  Make note in the letter that business conducted moving forward should be done using your new name, which can be the same as your old, just tacking “LLC" or “Inc." to the end.

Formalities, please.

     It is important now to distinguish your new corporation or LLC as a separate entity from you.  One of the main guidelines is to have regular meetings as per your structure’s bylaws or operating agreement and to document these meetings.  Following the formalities of your business operation deters creditors from potentially claiming your new structure as a sham to avoid them.

Build your Business’s Credit

     It may be hard to get a credit line or take a loan out from a bank without making a personal guarantee, which is something you want to avoid.  Unless you can prove to the bank that your cooperation or LLC has enough assets to cover the debt, they may want to have your personal signature.  Just as you would work to build your personal credit, you can establish your corporation’s or LLC’s credit.  You can either take out a couple business credit cards, or establish a trade lines of credit with your suppliers.  If a vendor won’t work with you without a personal guarantee, you can usually find someone else who will, especially if you can offer an upfront payment for the first few transactions.

     There are a few ins and outs to operating as a corporate or LLC business structure.  As long as you are aware of the regulations and operate accordingly, you can enjoy the benefits of a corporate or LLC structure and your personal assets will remain protected.

Taking The Leap To Accounting Software

     Nobody likes doing homework.  You’re a small business owner and you’re passionate about what you do, but sitting down with a giant ledger, a pencil (with eraser) and a calculator at the end of the day feels like the homework that you hated doing back in your school days.  Unfortunately, it is a necessary evil all small business owners must suffer for the financial health of their growing business.  This is where modern technology comes in to save the day!  There are lots of software options out there to help free up your time and make the tedium of recording expenses and creating reports a little more bearable.  Choosing the right software can be a crucial step for your business, and will even help make tax time a little easier.

 

     First and foremost, is investing in accounting software right for you?  If you’re one of the few people who find zen in numbers, maybe a handwritten ledger is enough for you.  If crunching numbers isn’t your forte, but you’re still on the fence about making that investment, here are a few things to consider.

     If you’re just starting out, investing in accounting software from the jump is a great idea.  Not only will you have a sophisticated accounting method in place from the beginning, but the tool you have just invested in is already counting on the future success and growth of your business.  It is way easier to start with efficient accounting practices than try to incorporate them down the line.  The object is to see your numbers grow, and accounting software will help you track, streamline, and invest smartly.

     If your business is expanding, don’t wait to get overwhelmed by your growing numbers.  Tackle your accounting issues with software and automated reports, this will save the day.  Using accounting software for your growing business will save you tons of time and can accommodate any amount of expansion your business is taking on.  You’ll be able to see more easily where you’re money is going, what areas need more growth, and areas where you could save a little.

     If you’re into instant gratification, well, more like instant access to data.  Having accounting software can give you on-demand access to customer information such as client and vendor contact information and their purchase history.  You can also link accounts and credit cards so purchases you make will immediately get recorded.  If you’re utilizing any third party solutions, such as POS systems, data will immediately be updated by your accounting software.  Streamlining your business operations will contribute to its success.

     Finally, if you want to make sure you’re operating under laws and regulations.  Keeping a ledger by hand can not ensure you’re following all the accounting principles or tax law guidelines.  Accounting software can do all of that legwork for you and save you the headache.  Especially at the end of the year when you’re worried about tax season, having everything organized and in compliance with regulation is a huge time saver.

     Ultimately investing in accounting software is investing in yourself and your success.  Having a advanced accounting system set up for your business can help you track its financial health faster, easier and more efficiently.  Not only will it help you file taxes at the end of the year, but you can write it off as a business expense.  Its a win/win all around.