Wendy Cassera – Taxpectations

Tax Law Changes that Affect You as a Small Business Owner

UPDATE:   THIS LAW HAS BEEN REPEALED BY THE IRS AND IS NOT IN EFFECT.   SO AS OF NOW, SMALL BUSINESSES ARE NOT REQUIRED TO DO THESE EXTENSIVE 1099′S - BUT CONTINUE WITH ONLY GIVING THEM TO CONTRACTORS!!!    yAy!!

In all its infinite wisdom, the IRS is constantly making adjustments and new policies in an effort to help keep everyone on the up and up.  Sometimes in the effort to do this, they cause more work for us small business owners.  One of the recent changes that was put into affect as of January 1, 2012 is the new 1099 requirement.

This LAW states that every small business, every charity, and even government business entities are REQUIRED to issue a 1099 to every vendor with whom they have purchased $600 or more of any goods and services in a given year.  In order to prepare a 1099, you must then get a tax ID number from EVERY vendor.  To this end, the IRS offers form W-9 which can be filled out before goods and services are purchased or performed.

Ahhh and it gets more interesting.  Failure to get the tax ID number, which will result in you not being able to provide a 1099, causes you as the business owner to pay a 28% withholding amount.  In other words,  you are then required to take the entire amount paid to them over the course of a year and pay to the IRS the 28% in payroll withholding taxes, the same as you would an employee!!    ie….. you gave $1000 to the guy who repainted your office, you forgot to get the W-9 filled out, now he is refusing to give you the information, you then would be obligated to pay the IRS an additional $280 on that money. (Of course he will only be fined $50 for failure to fill out the form)

** Side note being that if all those payments were made by credit card, the requirement falls onto the credit card company to provide the 1099.  All credit card companies are now required to provide a 1099 to everyone who is paid $600 or more from any one individual.

Now back to the matter at hand.   This also allows for some venues of identity theft as a lot of business owners do not have a federal tax ID number but just file thier taxes under their own social security number so would have to put that on the W-9 when requested.  The obvious solution to that is that if you are a small business owner, call the IRS or go online and get a federal tax ID number.  It is free, virtually painless, and will save you some of those issues.  It takes only moments and does not make any more work for you than getting it.   Use the following link and then click on the apply online now line.

http://www.irs.gov/businesses/small/article/0,,id=102767,00.html

Well, now what?  I suggest that you print out a W-9 and make a lot of copies and keep it right on your desk next to your checkbook.  Tell your vendors that they need to fill this out so that you can pay them.  I would suggest that you get that from everyone you pay and not wait until you have gotten to the $600 dollar mark, as it is always better to be safe then sorry!!

Also, for your own sake, print out one of the W-9′s with your own information and make many copies and when someone pays you, give them a copy and save yourself from having to pay a fine for not providing it.

Your accountant or bookkeeper should be entering this information into your accounting software as it is provided so that at the end of the year, the 1099′s can be printed.  If you do not have a bookkeeper and do all of your own books, keep them and give to your accountant or tax professional at the end of the year to print off the 1099′s for you.  Keep in mind that by law, 1099′s are required to be mailed by January 31st.

Here is a link to the IRS form.  Print a copy and also save the form to your computer or add the link to your favorites to have at hand at a moments notice.

http://www.irs.gov/pub/irs-pdf/fw9.pdf

So … get ahold of your accountant or let your bookkeeper know that this needs to be implemented immediately and start sending letters and forms out to vendors that you do regular business with or already have paid at the beginning of the year.

Remember this is a requirement of the IRS. This means that everyone you pay with check or cash, including your landlord, your website host, and even the person you get your printer paper from must get a 1099. So be diligent about it, or be fined.

Again, I welcome any questions or issues at any time!!

Smiles

What can a monthly bookkeeper/accountant  do for you?

First ask yourself a question.  How much time did you spend last week on your bookkeeping and paperwork?  Last month?  Or maybe I should have asked how much time should you have spent, even though you put it off until next week or tomorrow night?

Well, let’s put time aside.  What can a bookkeeper/accountant do for you?

1. Advice.  What deductions you can take, how to separate personal & business expenses, what type of business entity you should use for your business.
2. Design your accounting system.  What do you need to run your business properly?
3. Help you understand your finances, create financial statements, and explain them to you so that you can understand how well your business is doing.
4. Advise and guide you through an audit if you do have one or what to do with the IRS letters and documents that you receive.
5. Taxes, taxes, and more taxes.  Do you really know all the taxes that you need to pay?  Do you know all the deductions that you can take? Are you paying the correct amount of taxes?
6. W-2’s, 1099’s, payroll taxes and year-end.  Do they all balance?

These and many other questions can be answered by your accountant.  Take the time to develop that relationship as your accountant can really be an ally for your business helping you to save that precious hard earned money.

Find an accountant that gives good service which also includes good communication.

Can you afford an accountant?  A good accountant most often saves you enough in taxes and everyday hassle and time to be well worth their fees and most often save you more than you would have spent yourself.

It is difficult at the best of times to admit when you need help, but a good ally can be a great boost to your business.

THEN of course, there are TAXES.  Are you aware that there are OVER 54 different kinds of taxes just in the US?  Those are types of taxes but some of them have more than one tax attached to them.   As well, there are many levels to various taxes.  What did you buy?  What do you own?  How much money did you make?  What business do you have?  How many pets do you have?  I can go on and on.

The point is, the government, in all its infinite wisdom, likes to spend some of your hard earned tax dollars finding ways to improve (stifles a giggle at this sentence) our tax system on a regular basis.  This creates an infinite number of tax changes at any given time AND at different levels.  Federal, state, local, payroll, etc….

Here is an example.  I receive on an average of 3 -5 emails a day from the IRS with tax information.  Within that is usually 2 or 3 changes or adjustments that they have made.  Now granted, most of them are small adjustments but … Now this is just the IRS – given 5 days a week, a few holidays, some days off and all that,  that adds up to a lot of changes.    Then add in the state and their changes and whew … that feeling of cold sweat on the forehead and the overwhelming feeling.

The nice people at the IRS though, are policing tax preparers so that you know that the person that signs your return is at the very least, somewhat educated in the ways of taxes.  So ….

…..    Tax season is upon us, we are off and running.

Today, in an effort to help educate small businesses, a wonderful social media maven, Idea Girl Media, is hosting yet another day on her January Jig on Facebook, featuring myself talking to others and answering questions the best I can on all things taxes.

Come join in on the fun!!!

Smiles

Home Based Office — Hobby or Business?

These days I see more and more entrepreneurs with the increasing amount of the various multi-level marketing companies not too mention, with the internet and new technologies it makes it easier for people to do what they love.  This allows for them to be connected to anyone anywhere, opening up their sales territory to be world wide.

With these technologies, even a restricted business like mine of bookkeeping, accounting, payroll and taxes, can be done for people everywhere.  I have clients on both coasts and even a couple international clients.  How awesome is all this virtual office technology??!!

With this flexibility,  many more of these entrepreneurs are working from their homes.  So what are the guidelines from the IRS about taking home office deductions?  Let’s review some of them.

1^st.  Your home office has to be used in a trade or business activity.  In other words, using your home to manage your investments or do your mothers tax return, does not constitute a business.

2^nd.  You must use an identifiable area of your home for your business.  So you cannot use your kitchen table for your business, then clearing if off to have dinner with your family.  It does not necessarily have to be a separate room, but it must be a separate area.

3^rd.  Your home must be your principal place of business.  If you have an office or building somewhere else where your clients visit you, then you cannot take a home deduction just because you get more done at home.

Also, keep in mind that unless your company requires you to work from home, you cannot deduct the home business just because you would rather work at home then go to the office.

Ok – next question.  What makes the determination of whether what you do can be considered a business versus just a hobby?  This is something that is important because it can cost you a lot if you run it like a business and take the deductions as such when the IRS determines that it is only a hobby.

The first is to establish that you are carrying on with a motive of making a profit.  You can not deduct expenses from your salary from a regular job.  For instance, you are an artist who spends lots of money on paint and canvas, but your real job is as a telephone technician.  You occasionally sell a painting which is awesome, but it is not what you do on a regular basis.  You can not take the expenses of the artist work off the salary of the telephone job.

To help establish whether your motives include making a profit, you need to show a profit in 3 out of 5 years.  Another way to help make this determination is that you need to run it like any other business.  Do things like advertising, taking classes to learn more, and actually spend some time on this business if your serious.  Do all that you can to make a profit as if your financial well being depended on it.

Entrepreneurs are making a big impact on the economy and the work force in general.  Let’s make sure that we are doing it right.  AND let’s make sure that you are getting all the deductions that you possibly can for your business.

What else do you spend your hard earned money on that you can deduct?

I am attaching 2 checklists of deductions.  Use these as guidelines as to what you might be able to deduct.  The first is a general checklist for personal tax returns, the other is a business checklist for small businesses.  Again, these are guidelines, so check with your tax professional to see which of these deductions that you qualify for.

Business checklist

General checklist

So I hope that I have made some of these tax deductions more understandable, and if you have any questions, please let me know!!!

Smiles for all of us small business owners!!

Tax Time, Tax Deductions, AND Other Tax Stuff

Tax Time is upon us already.  Where did 2011 go so quickly?  With the passing of 2011 we also saw the passing of many of our common tax laws.  As is common every year, tax changes occur, some out and some in.

Some of the more popular changes include:

The IRS has graciously allowed us an extra 2 days to file and pay our taxes.  This year we have until Tuesday, April 17, 2012 to file and pay.  (Or to file an extension if you must) (Procrastinators rejoice!!)

The standard mileage has gone up a bit as well it is now from $ .51 to $ .55 ½ cents a mile for business mileage.  (Still one of my favorite deductions as it can be a big one for those of you who tracked your mileage)

This year it is time for those that got that First-Time Homebuyers Credit to start paying it back on your return.

The ever popular Energy Saving Credits amount has decreased this year.  This year you can only receive a maximum of $500 and can be less if you have taken this credit in 2009 and 2010.

The IRS in its infinite wisdom of needing to raise taxes occasionally is also increasing the taxes on distributions taken from your HSA’s and MSA’s if not used towards qualified medical expenses.

However, in its generosity, such as it is, the IRS has increased the exemption amount a little this year for each exemption.  As well, the standard deduction, for those who do not itemize, has gone up!

The one that vexes me the most though is that we lost that handy Making Work Pay Credit this year.

These are just some of the changes that have occurred.  To find more federal changes go the www.irs.gov and check out publication 17, page 3.

OR better yet, call your friendly and smiling tax specialist!

Keep in mind that during these first couple of weeks of 2012, the IRS and our legislative branch of the government are still making some tweaks to the laws and regulations so … it might be wise to wait a few weeks before filing.  Also, if you have purchased your very own tax software so that you can do it yourself, I encourage you to make sure that you install any updates before submitting your return.

So … I guess then it is time to gather your paperwork, bank statements, merchant statements, W-2’s, 1099’s, 1098’s, invoices, receipts and other such paperwork and get started on putting it together so that it all makes sense.  Every penny counts, so make sure that you take full advantage of any deduction or credit that you can.  If you are unsure if you qualify, look it up or call someone.  (Smiles, raises hand, and squeals “pick me, pick me” Giggles)

As the season progresses, I will post more tax tips, other tax deductions, and more such helpful things to help lessen the fear of this time of year.

Until then …

Smiles

The 10 days of 2011 or Top 10 tax things to gather Before the Year is Up

The year is slowly (or actually rather quickly) coming to a close.  You have spent the year creating, building, and paying for your business.  All your hard work is paying off because you also have income from your business.  Now it is the end of year and time to make sure that all of that income and those expenses are accounted for.

You have 10 days until the end of year, so break up this monotonous chore over the next 10 days.  These steps can be applied for personal taxes, but this list is geared towards the small business owner.

1.  Make sure you have all bank statements, merchant statements and credit card statements.  (don’t forget your check register)

If you don’t get paper statements anymore, you can always go online and print your statements from your bank or credit card company’s website.

2. Gather receipts, bills, and invoices.

Make sure that you have all your cash receipts, all business bills, and invoices sent to all your clients (well at least the ones that paid you!)  Also, if you barter for services, make sure that information is recorded.

3.  List all employees, contractors, and any small business vendor that you paid a total of $600 or more to over the year (cumulative)

This does not mean electric bill or things of that nature.  This means the guy who created your website, anyone that came along and helped you with a specific job, or any consultant (including your favorite accountant or social media manager)

4.  Check your calendar and verify all mileage (remember medical and volunteer mileage).

If you did not keep a mileage log, you can use your calendar to estimate your mileage.  Look at online calendars and anywhere you write down appointments, and keep in mind meetings you go to regularly (like that weekly or monthly networking meeting).  Google maps, get directions, and take down the mileage to those appointments (round trip).

5.  Invoices/Receipts of major purchases or repairs

Include any computer equipment, tools and supplies, new vehicle purchases, and any major repairs to office or home if you work out of your home.

6.  Square footage information if a home based business.

You need to get the square footage of the entire home then break out the square footage of your office space.  Then gather personal bills information that can be deducted like rent, utilities, insurance, and mortgage interest paid.

7.  Advertising/Marketing costs

This includes business cards, signage, and all those network group dues as well as the cost of your social media manager.

8.  Office Supplies and expenses

This includes all the ink and paper for the printer, pens/pencils, software purchases (no, this does not include the new Skyrim game), and presentation folders used for estimates and invoices.

9.  Inventory

Any inventory or cost of good sold that you might have purchased over the course of the year.  Make sure that you separate out the value of whatever you still have left on hand.

10.  Prepare for the new year:

Do you have your insurance paid for the next year paid?

Have you renewed your business license?  Remember that even if you have a home-based business you still need to have a business license.

Go purchase a mileage log for every vehicle.  Write down beginning and ending mileage and where you went and what you did and with whom.

Of course there are many other things that can be gathered and thought of for your business and for you personally, but a good tax preparer will use your bank statements and see about getting you all the tax deductions that you are due. ***Remember, if you aren’t sure if you should deduct it, ask.   Ask your accountant for other tax tips.

Plan your year ahead and work your plan.  Gather 2011 and then go forward and make 2012 an even better year!!!

Full speed ahead with lots of SMILES  ……..

With all the accountants and CPA’s out there, how do you know which one is the best for you?   Which will suit your personality best or which understands your business best?  There are questions that you need to ask yourself and ask your accountant before you make the big decision.

The basic needs may not be so apparent.  The first and most important one is that your accountant / bookkeeper / tax preparer must have a basic understanding of their own business.  Are they up on the current laws and standards?  Do they know even the basics of where things go on the tax return to get the most bang for your hard earned buck?

Does your accountant and / or bookkeeper even offer tax services?  Do they have a full understanding of tax write offs?

One of the things that I find interesting is the lack of communication on the part of accountants and bookkeepers when it comes to their clients.  I have heard time and time again how people call their accountant or their CPA and can’t get a call back.  Or worse yet, they do get ahold of them and can’t get answers to their questions.  It is very important that your accountant be able to communicate your finances to you in a way that you can understand and feel comfortable.  Your money should NOT be a foreign language.

Does your accountant and/or tax preparer have a clear understanding of your business and your goals?  I know that you are asking why they need to know this since it doesn’t it have anything to do with putting your tax return and tax information together, but really it does.  Your business and personal goals can be addressed and your accountant should be a big part of helping you attain those goals.  Really … isn’t making a profit a big part of your goals?

Along the same lines of communication, it is just as important for your accountant to be asking you questions.  Does your accountant/bookkeeper know about your family, your housing situation, your investments, and asks you questions to help determine other tax deductions that you might have?   It is sad when I run across someone who missed out on a large money saving tax deduction because their tax preparer didn’t ask good questions and they didn’t think to volunteer information.  I even had a couple who didn’t get credit for their kids for over 3 years because the preparer never asked if they had kids and they didn’t think to tell her that information!  This may seem like a duh … but truly it isn’t.

What about your business?  Do they understand your industry to know if there are any industry specific deductions or credits that might otherwise not be available?  Each industry, just as each business, has its own specific needs and issues.  Knowing your business is as important as knowing you.  How do you spend your money?  Do you need to tweak a few things to get a better return and a better profit?  Does your accountant help by offering suggestions to help you better achieve your business and personal goals?

Every party involved in your financial status, needs to understand you and your business and where you desire to go.  This of course means that you need to understand where you desire to go.  Set goals, write them down, and tweak them as often as needed.  But I digress and that is a subject for another blog, another day.

At any rate, good solid communication with your accountant, CPA, bookkeeper, tax preparer, or other financial guru is a MUST!!  If you are not comfortable talking to them, or if they are unwilling to talk to you, they are NOT for you.  Make sure that your financial advisor and the person taking care of your finances, has a strong commitment to your business.  Keep in mind that your finances are one of the most important parts of your business and shouldn’t be handled by someone that doesn’t feel the same way about it.  You and your business are important and don’t let someone treat you as if you were any less.

Well, off my high horse and onto the next …..

Smiles and hopes of happiness to all!!

In the knowledge that tax time is approaching quite rapidly, it has come to my attention that many business owners do not know what to look for in an effort to prepare themselves to get their tax forms or tax preparation done.

I thought the best tax tips might come in the guise of a checklist that business owners can use to make sure that they are availing themselves of the proper deductions.  Keep in mind however, that not all businesses are the same, so there may be certain other deductions that are common to individual industries.

But the most common of those deductions for general businesses follows:

Let’s start with vehicle deductions.  Mileage is one of the largest deductions that a small business can take.  Right now the IRS is allowing a deduction rate of 55.5 cents per mile.  Now, you may deduct the actual vehicle expenses of gas, repairs, etc… however, in most cases the mileage deduction should far exceed the actual expenses.    Keep track of mileage by using a simple mileage log that you can buy for very little cost at any office supply store.

Advertising expense – include business cards, website expenses, promotional gifts, online or other advertising expenses.

Contract labor expense – this is for all those 1099 contractors that you may have consulting with your company.

Insurance expense – any business insurance, which does NOT include life insurance or automobile insurance.

Interest on the business mortgage paid.

Legal and Professional services – this includes any attorney fees, court costs or filing fees, accounting fees, or other professional services.

Office expenses – this includes office supplies, things like the water cooler, security systems for the office, and any other direct office expense.

Rent or Lease expense – Any rents paid for the office, any rental or lease on equipment, or other rent or lease expenses.

Repairs and Maintenance expense – Include in this any building repairs and maintenance, as well as, equipment or computer repairs.

Supplies – other supplies that are needed in the ordinary course of business.

Taxes and Licenses – All taxes and licenses and permits that are paid for in the course of ordinary business.

Travel, Meals and Entertainment – the most misunderstood of all expenses – This is for necessary travel away from your home for business and the meals and entertainment that occur during these travels.  You must have hotel invoices in order to claim the deduction for overnight stays.  You may NOT claim alcohol consumed nor movies watched while away.

Other meals and entertainment expenses that may be claimed include meals with a client for business purposes only.

Utilities paid for the building that the business uses.

Wages – this is the deduction for gross wages paid for all employees of the business.

There are other expenses as well that can be included:

Telephone costs for the business or cell phone if required for the job

Internet expenses

Continuing education expenses

If there are other expenses that you feel should be included, make a list and ask you tax preparer if they are relevant to your business.

Well, that is our comprehensive checklist for helping you to prepare for tax time.  (Copy and paste onto a word document and print out for your use.)

Gather your paperwork, starting adding everything together, and take it to a trusted tax preparer that has been properly authorized by the IRS by having obtained a PTIN number.  Also, remember that tax law states that you must have the signature of said preparer in order for it to be considered a lawful return.

Until next time … remember questions are always welcome.

Are you ready????

Smiles