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Tax Tips for Small Business Owners

Posted on September 4th, 2018


This list addresses the best tax practices for small businesses to keep them abreast of tax changes and trends, and away from IRS scrutiny.


List of top 15 Best Tax Practice Tips for Entrepreneurs
1. Maintain thorough and separate records of employees and contractors.
2. If you set up any location based business, even temporarily, keep records of all expenditures and educate yourself on the local tax laws.
3. Use a tax software accounting system – this can help you develop appropriate reports at tax time and can alert you of changing tax rules.
4. If you hire a tax accountant make sure they have experience with taxes as they relate to your specific business.
5. Keep records—including serial numbers and detailed receipts—for all business equipment, office machines, and vehicles.
6. Don’t use funds that are earmarked for taxes as a means to tide your business over in hard times. This will result in a worse financial crunch come tax time and if you can’t pay, you risk the loss of your tax ID.
7. Educate yourself on the correct way to estimate your taxes – This may be overwhelming and a tax professional is highly recommended for small business owners.
8. Determine an appropriate fiscal year so that you can plan better for tax time: A fiscal year refers to an accounting year that does not end on December 31.
9. Tax records should be kept for a minimum of three years – unless related to property and depreciation. In that case, tax records should be kept for three years past the time ownership ends.
10. Keep detailed records on business vehicles’ usage – both on the job and off.
11. When operating on foreign soil and dealing with other currencies and tax laws, be sure your tax professional is vigilant in obeying the new rules on foreign bank accounts enacted in the Foreign Account Tax Compliance Act, or FATCA.
12. Work with your tax professional to determine whether you should operate as a partnership, an S corporation, an LLC, or a sole proprietorship.
13. Become familiar with your requirements in regards to the Affordable Care Act.
14. If you are not able to pay taxes owed to the IRS, or another tax agency, contact your tax professional right away. There are appropriate steps that can be taken and ignoring it only makes it worse.
15. If you are paid in cash – that payment is taxable. The IRS has sophisticated technology to track spending habits and bank accounts to build their case.


Let the experts handle your taxes for you. It is usually a mistake for a business owner to complete their own taxes, and doing so can distract you from making your company a success.


Should I Choose a Roth or Traditional IRA?

Posted on June 20th, 2018

Do you have questions about which type of Individual Retirement Account (IRA) is right for you? When deciding between a traditional IRA and a Roth IRA, consider factors to such as tax incentives, age restrictions, and income restrictions before making your decision.

Tax Incentives

One of the main differences between the traditional IRA and the Roth IRA is the tax incentives provided by each. When deciding which is right for you, focus on what tax bracket you plan to be in when you retire and if that bracket will be higher or lower than the one you’re in now.

  • Traditional IRAs – A traditional IRA is the best choice for you if you believe your tax rate will be lower in retirement than it is right now. With traditional IRAs, you are not taxed when you contribute money to your account. Taxes are paid when you withdraw the funds.

 

  • Roth IRAs – Roth IRAs are the best choice for you if you believe your tax rate will be higher in retirement than it is now. When you contribute to a Roth IRA, you pay taxes on the funds as you put them in. You will not have to pay taxes on funds when you’re able to withdraw.

Age Restrictions

In addition to considering tax incentives when choosing between a traditional IRA and a Roth IRA, it is important to keep in mind that with a traditional IRA, there are age restrictions for contributions.

  • Traditional IRAs – Anyone younger than 70 ½ with earned income can contribute to a traditional IRA.

 

  • Roth IRAs – Roth IRAs don’t have age restrictions.

Income Restrictions

  • Traditional IRAs – You can contribute to a traditional IRA regardless of how much money you make. However, the amount of money you contribute can’t exceed the amount of income you earned that year.

 

  • Roth IRAs – For some high-income earners, Roth IRAs are out of the question. To contribute to a Roth IRA, single tax filers must have a modified gross income of less than $135,000 (in 2018). Married couples filing jointly must have modified AGIs of less than $199,000 (in 2018) to be able to contribute to a Roth IRA. The amount you contribute to a Roth IRA can’t exceed the amount of income tax you earned that year.

 

Withdrawal Rules

Both traditional and Roth IRAs allow their owners to begin taking penalty-free distributions at age 59 ½. A major difference between traditional IRAs and Roth IRAs is when the savings must be withdrawn:

  • Traditional IRAs – Traditional IRAs require you to start withdrawing funds at age 70 ½, even if you don’t need the money.

 

  • Roth IRAs – Roth IRAs don’t require withdrawals during the owner’s lifetime, which means that you can let your Roth IRA continue to grow throughout your life (tax-free) if you don’t need the money. To avoid incurring a tax payment, Roth IRAs require that the first contribution be made at least five years before the first withdrawal.

Since Roth IRAs don’t require that you withdraw funds in your lifetime, and beneficiaries aren’t required to pay taxes on withdrawals, Roth IRAs can be a good wealth transfer strategy.

Other Considerations

  • Traditional IRAs – Contributing to a traditional IRA lowers your adjusted gross income for that year, which can help you qualify for other tax incentives such as the child tax credit or the student loan interest deduction.

 

With traditional IRAs, if you are under 59 ½, you can withdraw up to $10,000 from your account to pay for qualified first-time homebuyer expenses and higher education expenses, without paying the 10% early-withdrawal penalty. You are still required to pay taxes on the distribution.

 

  • Roth IRAs – Roth contributions (but not earnings) can be withdrawn penalty and tax-free at any time. Even before age 59 ½.

If you are under age 59 ½, you can withdraw up to $10,000 of Roth earnings penalty-free to pay for qualified first-time-home-buyer expenses, if at least five tax years have passed since your first contribution.

Roth IRAs can be invested in almost anything you want: index funds, lifecycle funds, individual stocks, or other investments.

 

Remember, whether you choose a traditional IRA or a Roth IRA, it is important that you begin contributing as soon as possible to accrue savings, and avoid withdrawing earnings before age 59 ½ to avoid penalties.

 


Small Business Tips: How to expand your business

Posted on March 2nd, 2018

Congratulations on successfully starting your business! If you’re ready to take the next step, but don’t know exactly how to go about that, here are some ideas for thinking about growing your business. Depending on the industry your business is in, and the type of business you own, the available resources, time, and money on hand, will determine the proper idea or ideas that is right for you and your business.

Open another location – If you’re first business location is successful and under control, consider expanding by opening a new location. Look for specific areas in which your customer demographic prevalently frequents or is well known.

Collaborate with other businesses – By opening yourself up to another business that is similar or related to your own industry, take advantage of that network relationship and collaborate on a joint event. It’s a chance to market yourself to new customers that may have not known of your business.

Diversify your product – Look into seasonal voids, is there a product similar to your own that can be introduced? Diversifying is a great way to increase sales and profit margins. Seasonal or complimentary products or services, or offer to export other colleague’s products.

Turn your business into a franchise – If your business model is easily replicated, and you want to see your business grow quickly, think about franchising. As the owner, now referred to as a franchiser, of the name or trademark sells that right to a franchisee. However, be prepared to work through various regulatory and legal rules and obstacles when it comes to franchising your business. Look into the federal government rules, as well as state requirements, in order to sell your business.

Expand to the internet – In this digital age, it’s important to have a superior online presence to maximize your exposure to new and old customers. Look into creating a website so customer can discover your business through an online search engine.

Understand your limitations, resources available, and your capacity as a business owner before looking to grow your business. However, with a successful business plan, market savviness and dedication, there is always room to grow!


How to make the most of your 401(k)

Posted on December 5th, 2017

If investing in your future is something that rests entirely on your shoulders, know that there are options. If you have employer-sponsored plans like 401(k)s, it’s imperative to that you properly optimize that plan to its fullest. But saving for retirement is a process, and its best to understand your avenues even if you’re just starting out. So here are some tips on how to start preparing for retirement.

– Consider maximizing your contribution which is matched by your employer in the 401(k) program at your company. In some cases you could get a 50 percent return on your investment. By having the money taken directly out of your paycheck, you have an easier time saving money without really thinking about it. If you match your contribution and had a direct deposit set up to add more, you will be on a good path towards affording retirement.

– Consider opening a Roth IRA or Roth 401(k) account with an investment firm. There are tax differences between the two, so it is important to discuss the pay taxes now vs. late discussion with an advisor or tax accountant

– Look into a myRA – A singular investment option by use of U.S. Treasury retirement savings bond. This is a great option for those who do not have a 401(k) account at work, but have dispensable income. The myRA is convenient in that it accept smaller contributions, with low-balance fees and a higher interest rate than a savings account. Contribute your next tax refund, payroll deduction, or a deposit from a checking or savings account. You have options in size, just know with this plan that once you save $15,000, the money must be rolled into a private Roth IRA. Start saving and keep saving! Whether you’re saving for retirement or for another goal – don’t give up. If you’re just starting to save, start small and try to increase the amount each month, know you’re options as you get into more opportunities to save more money for that end goal.



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