Do You Qualify for the Earned Income Tax Credit?

As a small business owner, you could qualify for the Earned Income Tax Credit!  It's different than itemized deduction and available for those that qualify with or without children.

What is the Earned Income Tax Credit?
By Maurie Backman on Fool.com

Taxes can be a huge burden for low-income Americans who need every penny they can get to pay the bills. Thankfully, there are tax credits available to help lower earners make ends meet. One such credit is the Earned Income Tax Credit. The Earned Income Tax Credit, or EITC, is a federal tax credit that can save eligible low-income Americans money on their taxes. You must meet certain criteria to file for the EITC, but if you qualify, you could receive up to $6,318 for 2017. Best of all, the EITC is refundable, which means that if it reduces your tax liability to $0, you'll actually get a check for the difference.


Tax credits versus deductions

Some people use the terms "tax credit" and "tax deduction" interchangeably, but in reality, they're not the same thing. A tax deduction reduces your taxable income, while a tax credit is a dollar-for-dollar reduction of your tax liability. If you're eligible for a $3,000 tax deduction and your effective tax rate is 25%, that deduction will save you $750 in taxes. But if you get a $3,000 tax credit, it'll save you $3,000 in taxes.

Now many tax credits are non-refundable, which means that if they reduce your tax liability to $0 with money left over, you won't be eligible to receive the difference. The EITC, however, is refundable, which means that it has the potential to put even more money back in your pocket. Let's say you owe $2,000 in taxes but are eligible for an EITC credit in the amount of $3,400. Because the EITC is refundable, you'll actually get a check for $1,400.

How do I get the Earned Income Tax Credit?

There are certain criteria you must meet to be eligible for the EITC. To qualify, you must have earned income from a job or business that you own. Furthermore, your tax filing status must be single, married filing jointly, head of household, or qualifying widow. Additionally, for 2017, your investment income for the year can't exceed $3,450.

There are also income limits that determine your eligibility to receive the Earned Income Tax Credit, and they depend on the number of qualifying children you have in your household. The following table shows what the 2017 EITC income limits are based on your tax filing status and number of qualifying children:

How much can I get from the Earned Income Tax Credit?

The amount of money you get from the EITC depends on your income and number of qualifying children. For 2017, the maximum you'll receive from the EITC is:

• $6,318 if you have three or more qualifying children
• $5,616 if you have two qualifying children
• $3,400 if you have one qualifying child
• $510 if you don't have any qualifying children

Don't pass up free money

To benefit from the Earned Income Tax Credit, all you need to do is claim it on your tax return. Surprisingly, an estimated 20% of eligible tax filers fail to claim the EITC and lose out on much-needed money each year as a result. If you're a low earner, it pays to see whether the Earned Income Tax Credit could lower your taxes or, better yet, put extra cash back in your pocket this year.

The $15,834 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.

Charitable Donations for Small Business

As the year comes to a close, many small business owners and individuals look for ways to make deductions on their taxes.  Contributing to your favorite cause is a great way to minimize your bottom line.  Here's how to make those charitable donations count!

Small Business Guide to Deducting Charitable Donations
By Bonnie Lee

Businesses can make tax deductible donations to bona fide nonprofit organizations. But you may be surprised to learn how it is deducted on your tax return. In fact, the only entity able to deduct a cash charitable contribution as a business expense is a C Corporation.

If you are a sole proprietor and you make a donation of $100 to a dog rescue society which is registered as a 501(c)(3) with the Internal Revenue Service – all bona charities must be registered as such for your gift to be tax-deductible – and your business received no goods or services in return, the deduction is listed as an itemized deduction on Schedule A of your tax return. This provides a tax benefit only if you are able to itemize deductions.

You cannot deduct this contribution on Schedule C. It is not a business expense; it will not reduce your self-employment tax. The IRS views it as a personal expense paid from business funds.

But now let’s say you want to support young athletes and therefore donate $100 from business funds as a sole proprietor to the local soccer league. In exchange, they run a small display ad for your business on their program. This is no longer a donation. This is an advertising expense; you received something in return which can be classified as an “ordinary and necessary business expense,” and therefore the cost is deductible as such on Schedule C.

If as a sole proprietor you donate your services to a bona fide 501(c)(3), you have no deduction whatsoever. Doesn’t seem fair, does it? But the IRS places no value on your time or expertise. A manicurist donated her time to do nails for women clients at a shelter who were preparing for job interviews. While she was not allowed to deduct the $35 per manicure she would normally charge, she was able to deduct her mileage to and from the shelter, and the cost of all supplies and materials used in the performance of the manicures. She gave away bottles of nail polish to be distributed by the nonprofit to their clients. These were a write off for her as well.

By the same token, if this manicurist were to give away a nail care set of polish and files and other products to a poor individual who needs help, she would not be able to write off the donation. This is simply because the IRS does not allow the deduction of gifts to individuals, or for that matter to political organizations or candidates.

If your business is incorporated as an S Corporation or formalized as a partnership filing Form 1065, the same rules apply. In fact, any donations made at the S Corporate or partnership level flow out as a special line item on your Schedule K-1 and end up on Schedule A of your individual income tax return. Again, this is a tax benefit only if you are able to itemize deductions.

A C Corporation may take the deduction on Form 1120 but must follow all of the IRS rules regarding donations.

Remember to acquire and retain the acknowledgment letter from the nonprofit for your donation. Your canceled check is not enough documentation and the IRS may disallow the deduction if you cannot provide this document. It must be obtained before filing your tax return. You cannot request it later during an IRS audit.

To view the original article, click here.

How We Helped Design By E

It’s no secret that we help all kinds of businesses, big or small, reach their goals and find their individual success. We have clients from all different backgrounds and we’ve learned that no client is created equal. It keeps it interesting because we are faced with a variety of unique problems to solve and we love finding great solutions for our clients' financial future.

One of our newer clients, Design By E, is no different and they offered a new kind of challenge for us. They are a small firm who specialize in creative multimedia and marketing.  Despite being small, they experienced big growth in a relatively short amount of time. They were growing at an exponential rate and needed financial direction when they sought out the services of Accounting Works Solutions.

Having been the sole proprietor of the company, the founder, Enrique Mendez, was able to create a healthy budget for himself from the start. However, the unique and valuable services offered by the company quickly gained traction throughout the small business owner community in Richmond and he was able to acquire some pretty reputable clients in a short amount of time.

In order to keep up with their gain, Enrique hired two full-time employees and needed help organizing his company's financial future quickly as his business became more complex.

When they came to us, we were we able to analyze and figure exactly where their finances stood and write down a plan for them to budget for the future. The plan included setting money aside for taxes, savings and company growth.

We reached this plan by carefully looking at their profit margins and seeing where their strength and weaknesses lie. We asked them to pay attention to those areas where they were the most profitable and maybe adjust their strategy when it came to less profitable projects.

“Accounting Works Solutions really helped us take our business to the next level,” says Enrique.  “We found ourselves so busy with work that we often forget to pay attention to our finances. Stephen was a such a big help and crucial for our future as a company.  I feel confident going forward that we’re going to continue to be profitable!”

At Accounting Works, we not only offer accounting solutions but also financial planning for growing businesses. We’re excited to have a wide portfolio of clientele and will always do our best to help our clients be at their best. If you always find that your finances are the last thing on your list to worry about, it may be in your best interest to make sure that your business is operating the most efficient way possible. We can help you achieve those goals! It can save you hundreds and maybe thousands in the long run when you talk to an expert. So give us a call today and see if you’re the best you can be!

Spruce Up Your Small Business Finances

With the sunny weather finally kicking in, it's a great time to review your small business finances so you can rest easy when comes to vacation time! This article has 10 great tips on how to clean up some of those financial cobwebs and increase efficiency.

10 Ways to Spruce Up Your Small Business Finances This Summer
By: Nate Matherson

After a particularly brutal winter, the summer months are a welcome shift. For small business owners, the change in seasons should be a reminder to do some cleanup and organization. After long months of building your business model, generating sales and managing your company, it is important to take some time to evaluate where you are and where you want to be. With summer around the corner, vacation plans are in full swing, and the pace at work usually slows down. It is the perfect time to organize your business and your finances.

Reevaluating your business operations can help you stay on the right track. Here are ten tips for getting your business finances in shape:

Analyze Your Income and Expenses:

Cash flow issues—especially old bills piling up—can keep your company from keeping up with payables. Pay any past due invoices and check your own past due receivables to see who owes you money. As an entrepreneur, with so much going on, it is easy to miss an invoice. A simple phone call or email reminder is usually all it takes to get paid the money you are owed. Be persistent, and if clients keep stalling, eliminate customers who are regularly late. And maybe for once, put together an updated balance sheet.

Look Over Contracts

From your technology systems to paper suppliers, your business probably has several contracts with different services. Each one is an opportunity to renegotiate for significant savings. Even if your contract is not up yet, you can still negotiate based on a potential early-renewal or an increase in services. If there have been any problems with the services, such as appointment no-shows, use that as leverage for a discount.

Get Your Records Together

As a small business owner, you probably have mountains of paperwork waiting to be filed. From invoices to purchase receipts, these documents are essential records for your business. File everything away or scan the documents and file them electronically so you’ll have everything at your fingertips when it is time to complete your taxes.

If you rely on accounting software, such as QuickBooks or FreshBooks, to manage your business’ finances, you may have missed important program updates. Most companies update their software every year, and if you are using the old version, you may not have new essential features. Consider using Bench or inDinero as newer, fresher, alternatives to traditional accounting software. Through personal experience, I can attest that managed accounting software can save you quite a bit of time and headache.

File Quarterly Reports

Many small business owners are shocked by quarterly and self-employment taxes. The next quarterly payment is due June 15, so now’s the time to review your income statements and expenses. If you’ve missed a deadline, talk to your CPA about how much to pay for the next tax period to minimize any penalties.

Hire Fresh Talent:

Summer is the perfect time to refresh your workforce. It is college graduation season and thousands of newly minted graduates are looking for entry level employment. Hiring recent graduates can be a great way to refresh ideas, processes, and culture at your small business. And, hiring to graduates is significantly cheaper than experienced employees. Hiring graduates is competitive. Hiring millennials is much different than hiring from previous generations. You should consider thinking outside the box with unique benefits and job responsibilities. Millennials are looking to make an impact and they might be able to give your small business a fresh boost.

Review Pricing Structure

Pricing is one of the most challenging areas for a new business. If you price too low, you give the impression of substandard quality. Too high, and you’ll lose out on customers. As your company has grown, you likely negotiated special deals or discounts with clients and, as a result, your pricing structure is irregular. Compare your services and costs those of your competitors to see what you should be charging.

Check Subscriptions and services

Over time, you may have signed up for programs or services that made your life simpler for an individual project, then have gone unused and forgotten. These recurring subscriptions add up, so take some time to review your statements and cancel any subscriptions you and your staff do not use regularly. Use tools like Trim or Truebill to find and remove unwanted subscriptions.

Set New Goals

Since the summer is usually slower, it is a perfect opportunity to do some planning and a mid-year checkpoint. Evaluate how much progress you have made, where you flourished and where you struggled and establish new goals for the rest of the year. Looking at your income receivables will help give you concrete targets for the next six months.

Establish Credit

If your business has been performing well, you should start planning how to scale up your business operations. Expanding and growing your capacity requires money, and many small businesses rely on credit to meet their needs. If you’ve been relying on your personal credit card and bank accounts, it is time to break away and open up a business checking and credit account. The credit card can give you much needed liquidity in times of emergency or opportunity so you can be nimble and respond to new challenges.

Increase Efficiencies

Entrepreneurs often find creative ways to get things done, often on the cheap with no budget at all. While the do-it-yourself route can be useful when building your business, it is not always the most efficient. Use the summer months to research and learn new processes or programs to streamline your operations, whether it is new software that manages inventory or a more secure online store. With Cloud technology, many of your programs and accounts can be synced together and automated, reducing the amount of time you spend on administrative work.

If you find yourself with a smaller to-do list than usual, take advantage of the slow period and spruce up your finances and business operations. Eliminate distractions by turning off your phone, closing your email and shutting your office door, so you have the time and space to get organized and create a more efficient and cost-effective work environment. It takes a conscious effort and dedication to go through your accounts, processes and forms, but the commitment can produce high returns and set you up for a successful second half of the year.

To read the full article, click here.

Helping Businesses Get Started; A Compass Home Solutions Story!

Charles Williams is a local Richmond small business owner.  His company, Compass Home Solutions, specializes in home organization of every variety.  From decluttering a home room by room when everyday life just gets out of hand, to implementing an organized schedule when there are not enough hours in the day— his goal is to reduce stress for his clients.  After being in the industry for 4 years, Charles decided to take a chance and open his own business on January 1st, 2015 and thus was born Compass Home Solutions!

Being an organizational zealot, Charles knew the importance of keeping his finances in order when starting this new venture.  He will be the first to admit that he is horrible at math, so he knew he needed help.

“If there’s anything math related, I want nothing to do with it,” he admits.  “I knew that before I started my business I needed to find someone,” so he sought the help of Stephen Fishel of Accounting Works.

Stephen initially started working with Charles on setting up a software system to stay organized for invoicing and tracking expenses. “He got me to the point where I could handle my day to day accounting,” he says when recalling starting to work with Stephen. “I’ve absolutely saved money not paying for programs I didn’t need, paper stock, supplies I would’ve never needed without his guidance.”  Not having a lot of start-up capital, it was important to Charles to save as much as he could in initial expenditures.  

“The first year I was in business, we didn’t set up quarterly estimated [tax] payments, because we weren’t sure how much I’d bring in, but this year we’ve set them up.”  Compass Home Solutions has grown a lot in just one year of business expanding to services for Realtors and prepping homes for sale.  As Charles’ business expands and his accounting questions get bigger he knows he won’t have any trouble tackling accounting problems. “[Stephen[ is always in his office and accessible.  If something doesn’t sound right, I still call him up."

If you’re looking to start your own business or need help organizing a system for your daily accounting issues, Accounting Works is there for you! 

3 Tips to Spring Clean Your Business Plan

Spring cleaning isn’t just for your home.  If there are things you need to do to get your house in order, now is the time to do it before it's too late. Refresh your plan for the year!  Taxes are over and it’s time to start planning for next year.  Get your quarterly and yearly goals in order and you can maximize profit, minimize spending and get your small business finances running smoothly. Not to mention be able to fully relax on your summer vacation!

Quarterly Tax Payments

You probably already pay quarterly tax estimates as a small business owner. If you don’t already do that, you should.  It keeps that one BIG bill at bay in the long run.  If you are already doing that, make sure to established a separate account just for the funds going towards your tax bill. It’s also imperative to keep your business accounts away from personal ones.  This helps you keep more accurate records of business income or expenses and minimizes confusion about how much your quarterly payments should be.

Cash Flow

Spring is an amazing time for any business.  People are starting to get out and about, reemerging from their winter funk and non-spending habits.  It’s time for updates to wardrobes, houses, and finances!  A good tip is to check your cash flow every week.  This will let you know if your cash flow is stuck in accounts receivable and more accurately time income and expenses. 

Update Your Plan

Take the time to write down a formal business plan.  If you don’t have one in place, there are no goals to reach with no direction to achieve them.  Take the time to do this because it will make a difference.  If you already have one in place, but it’s from last year, review it!  Do you still have the same goals as last year, or do you want to aim a little higher for the next?  This will help you prioritize time and money in order to curb extraneous spending.  Strategizing your business is a productive task and can really increase profits.

Spring cleaning is a really great way to start fresh not only in your personal life but for your business, too!  So get motivated this season and take these steps towards organizing your business!

4 Things You Need to Track When You're Self Employed

Being self-employed means there's a lot of weight on one person's shoulders - yours!  So come tax time, all of those small accounting and bookkeeping tasks that you've put off are mounting up.  When it comes to staying organized when there are so many other things to do, they key is to keep it simple. This article outlines the important things that you need to be tracking weekly, monthly and quarterly as a person who is self-employed. There may even be an app out there that can help you!

4 Things You Need to be Tracking if Your Self Employed
By Matt Rissell

There are more than 14 million entrepreneurs in the United States today. Together, they represent more than 10 percent of the nation’s 146 million workers. But it doesn’t stop there; the employees those entrepreneurs hire constitute yet another 20 percent of the U.S. workforce—putting a whooping 43 million people (three for every 10) under the self-employed/small business umbrella.

However, it’s a well-known statistic that eight out of 10 small businesses fail within the first 18 months. Which means that 80 percent of those 14 million entrepreneurs will never get their small business off the ground.

Why? Well, there’s a number of reasons a business can fail, but almost all of those failures can be attributed (at least, in part) to inconsistent or nonexistent tracking. One of the most critical things you need to track is also the easiest to do ... but oftentimes the most overlooked—and it can save your business thousands of dollars in gross payroll costs each year. Sound good? Keep reading. These are the four things you need to be tracking if you want to see success.

1. Your business AND personal expenses.
This might seem like a given, but you’d be surprised how many business owners don’t realize the importance nor have an accurate view of their business vs. personal expenses. Use a do-it-all expense tracking system like Expensify to keep your bank account, and your business, on track.


2. Your quarterly and yearly taxes.
Tax time for entrepreneurs can be a huge hassle—and a major financial blow—especially if you haven’t been relentlessly tracking your business and personal expenses. Tracking and understanding where you stand come tax season will help you avoid any nasty surprises and ensure you’re getting every dollar you deserve! Use tax software designed specifically for small businesses like yours. I recommend Avalara for automatic monthly and quarterly tax filing or TurboTax Home & Business for to track, organize, and maximize your annual refund.

3. Your billing and invoicing.
Are you still billing and invoicing using paper invoices and snail mail? Pay or get paid faster and easier with a business payment system like bill.com. Knowing exactly what your profits and losses are, right now, enables you to make smarter decisions for your business and ultimately make more money.

4. YOUR TIME.
Time is your most precious commodity—do you know where you’re spending it? Accurate and easy time tracking results in real-time business insight, more accurate job and labor costing, and faster payroll. Customers who use TSheets save an average of 2-8 percent on gross payroll costs each year. Time is the easiest and most important thing you should be tracking—but often the most overlooked. How much would you save, simply by making the switch to automated time tracking?

To see the original article, click here.