Many small businesses are inquiring as to how to cope with the current economic downturn in our country and globally as well. Economists already acknowledge that we are in a recession, and some say it is already a depression. Whatever the current economy is called, the Associations are here to help members through these tough times.
Cash Flow Issues Since lack of cash or cash flow is virtually nil, due to the situation with bail outs given to banks and other financial institutions, try to re-negotiate your loans to achieve lower monthly payments if possible. Under the circumstances, most institutions will probably work with you. Retail businesses have already experimented with a variety of ways to attract customers to their stores by lowering their prices, offering such sales as two -for-one, etc. Doing business today is quite different than two years ago. We are now in survival mode.
Try to Maintain Your Service While most businesses are cutting their costs and prices, consumers still expect quality service. Working within your budget, try to keep up quality service in order to keep your customers. Managers and CEO's will be required to provide more leadership to deal with the current economic situation. There is more turmoil, frustration and uncertainty than in prior years.
Strategic Thinking Reconfiguring your budgets and doing more planning will also be required. You will also need to review your entire operation and employee resources to assure you will be able to get through times when less funds are available. In a nutshell, these are some of the key things owners or managers need to do to keep on surviving.
Source: Association Spotlight, written by Ed Deeb
Tax Basics - Set Up Your Books Correctly
Now that you've started your new business, you realize you'll need systems in place to track your income and expenses. Back in the day, that required ledger sheets, sharp pencils and a green eyeshade. But today we have software packages to help us. Just remember that having the ability to navigate your way around QuickBooks, Quicken or Mint.com doesn't qualify you as an accountant. It's a good idea to hire a competent accounting professional to help you set up and use whichever accounting software you choose.
Once you decide which bookkeeping software to use, you should have the following documents ready:
All business bank statements you've received so far
Credit card statements for all credit cards used in the business
Loan documents for all business loans
Lease papers for all equipment, property, shop, retail or office space, and vehicles
Receipts for all business expenses paid for with cash or from your personal accounts
Sales register in order to record sales made to date
Receipts for all major asset purchases
Insurance policy to prorate insurance expenses
Here are some tips to help you make the most of your accounting software and keep your books in order.
Set up a filing system. Create a file for each vendor and a miscellaneous file for one-time purchases. At the end of the year, remove all vendor files to storage tubs marked with the tax year and create new vendor files for the current year. If you are audited, your files will be well-organized, and it will be easy to provide the auditor with the documents he needs to perform a proper examination of your tax return.
Pay bills using your accounting software. Rather than handwriting checks and posting them later to the books, you can create a check on the computer screen and print a check using your own check stock. The payment will automatically post to the proper expense account. Consider using the check format that contains the check and two stubs below. The top stub goes to the vendor and should contain invoice and account number information. The bottom stub is torn off and stapled to the paid invoice. No more writing date paid and check number information on the invoice itself.
Making the Right Deductions Now that you know the best method to organize and track your expenses, you may be wondering exactly what expenses the Internal Revenue Service allows. In truth, there is no set list of expenses. You are pretty much allowed to deduct all "ordinary and necessary" business expenses, depending on your industry. The best rule of thumb is to consider whether you would have spent the money on an item or service if you weren't in business. When your bookkeeper or accountant sets up your books, they will design a Chart of Accounts. A canned chart of accounts contains expense items commonly allowed but may not include everything.
Some things to keep in mind when making deductions:
Follow the rules on meals and entertainment. The main ones to keep in mind are that business meals and entertainment must take place in an environment conducive to conducting business, there must be a substantial business discussion before, during or after the meal or entertainment, and the cost should never be extravagant. You should discuss these rules with your tax pro to make sure you understand how they work and are clear on how to best maximize these deductions. Some new business owners run into trouble because they don't report travel expenses correctly. Travel expenses, especially to vacation destinations, should be documented with the business purpose.
Be careful with ambiguous expenses. If the expense seems at all personal in nature, you may be up against a fight with the IRS on whether the deduction should be allowed. For example, you may think that cute business suit is deductible because you needed it for an important business meeting. If your clothing is street-appropriate, the IRS is not going to allow the deduction. About the only clothing that can be deducted is uniforms and protective gear. Promotional clothing can be deductible. For example, if you emblazon the name of your construction company across some T-shirts, you've got a write-off.
Deduct insurance policies correctly. Expenses for long-term insurance policies cannot usually be deducted in the year of purchase. The total cost must be broken out and expensed for each month in service. If, for example, you purchased a liability policy effective from October 1, 2010, through September 30, 2011, and paid $12,000 today for the policy, you may only deduct $3,000 as an expense for 2010. Your tax pro can show you how to record this properly on the books.
If you're still not sure how to handle deductions, make a list of the types of business expenses you worry over. Then discuss the deductibility with your tax pro. Sometimes an expense that may not seem like a deductible expense can be documented to prove business intent.
Source:http://www.entrepreneur.com/article/217493#, article written by By Bonnie Lee, 11/5/10
Capital Gains Tax Rates
When determining capital gains tax rates, there are several details that need to be considered. If you are unsure of how to make this determination on your own, you may want to speak with a tax professional. Not paying the proper capital gains tax can result in future problems, such as owing more money to the IRS.
Did you know that you are responsible for both federal and state capital gains tax? Many people are under the impression that they only have to pay tax to the IRS. The majority of states do not have any special rates for capital gains tax. Instead, they opt to tax capital gains at the same rate as your regular income. While this makes it easier to determine what you owe, it also means that you will have to part with more money on the state level.
In 2008, a 0% capital gains tax rate was introduced. To qualify for this special rate, you must be in the 10% or 15% tax brackets. While this rate was designed for lower-income people, there are many tax payers who qualify. Unfortunately, the 0% capital gains tax rate is going to expire at the end of 2010. So those who are thinking about taking advantage of it should do so as soon as possible.
There are several different capital gains tax rates that you should be familiar with. They are described below:
- Short-term capital gains tax applies to assets that are purchased and sold in 1 year or less. These gains are taxed at your ordinary income tax rate. - Long-term capital gains tax applies to assets that are held for longer than 1 year before being sold. Those who are in the 10% and 15% tax brackets must pay 5% capital gains tax for anyone who falls outside those brackets must pay 15% capital gains tax (for most taxpayers). - Collectibles fit into a different category (than other assets, such as stocks). Collectibles held for 1 year or less are subject to ordinary tax rates up to 35%, depending on your income level. Collectibles held for longer than 1 year are taxed at a rate of 28% on the money gained.
It is important that you understand the various capital gains tax rates so you don't end up paying more (or less) than you are required. As you can see, holding onto assets for more than 1 year can result in big savings on the federal level. If you are required to pay capital gains tax, for short-term or long-term assets, make sure you do so in an accurate manner.
Due DateDeposit FICA & FITW for wages paid for the period from Feb. 2 Jan. 26-28 Feb. 4 Jan. 29- Feb. 1 Feb. 9 Feb. 2-4 Feb. 10 Forms 940, 941, 943, 944, and 945 due if all deposits timely. Form 4070 due from tipped employees. Feb. 11 Feb. 5-8 Feb. 15 Individuals. If you claimed exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 to continue your exemption for another year. Employers. Begin withholding income tax from the pay of any employee who claimed exemption from withholding in 2010, but did not give you a new form W-4 to continue the exemption for 2011. Employers. For Social Security, Medicare, withheld income tax, and non payroll withholding, deposit the tax for payments in January if the monthly rule applies. Feb. 28 All Businesses. File information returns (Form 1099) for certain payments you made during 2010. If you file Forms 1099 electronically (not by magnetic media), your due date for filing them with the IRS is March 31. Employers. File Form W-3, along with Copy A of all the Forms W-2 you issued for 2010. If you file Forms W-2 electronically (not by magnetic media), your due date for filing them with the Social Security Administration is March 31.
Source: The General Ledger, Vol. 28, No. 1 and CPA Client Bulletin, Issue, January 2011
Practical Tips: *Hidden traps for EFTPS users*
It's scarily easy to not get creditor payroll taxes remitted to the IRS. When making a payment, make sure you go through the entire process and get the IRS confirmation number before you sign off.
Here are the steps (that the IRS says many depositors do not follow):
1) After you select the "Tax Type," fill in the amount and your EIN, you will see the "verify payment information" Page. Don't stop here.
2) Click MAKE PAYMENT in the lower right-hand corner and you will see the "Deposit Confirmation" page. If you fail to do this, as far as the IRS in concerned, you have not remitted your payroll taxes. Don't stop here.
3) Print this page or make a copy of the "EFT ACKNOWLEDGEMENT NUMBER." If the IRS calls you and you cannot provide this number, you will be considered a late payer, which can lead either to penalties or endless correspondence.
When it comes to tax preparation many people are far from efficient. In fact, most taxpayers are disorganized and unprepared when they begin to file their returns. Of course, you don?t have to make this mistake.
The following 5 tax preparation tips can benefit you in a number of ways:
1. Get organized with the help of a checklist. If you use a tax preparation checklist, you'll know for sure that you have all the right documents ready and that you won't miss a single detail. A tax preparation checklist is the best way to stay organized because you can physically see what you have already done, as well as what needs to be completed in the future.
2. Get tax help if need be. You can find tax help in a couple of different ways. Many people use tax preparation software because it helps them stay organized, maximize tax deductions, tax credits, and file electronically. If you are looking for one-on-one tax preparation assistance, consider hiring a tax professional.
3. Triple check your work. Do not be tempted to send off your tax return until you review it at least three times. This will help to ensure accuracy while allowing you to feel confident in the decisions that you've made. Make sure that all your personal information is correct, especially Social Security numbers. Any mistakes on your tax return will lead to slower IRS processing, which means a longer wait for your tax refund.
4. Tax preparation does not start the day that you want to file your tax return. If you want to be fully prepared, you need to think about your tax situation throughout the year. Those who wait until April to organize their finances are putting themselves in a vulnerable position. Even if the next deadline is months away, you should still do what you can to stay organized NOW to avoid potential problems in the future.
5. Give yourself enough time by knowing your deadlines. This goes along with tax preparation tip #4 above. If you know the deadlines that you must adhere to, it becomes much easier to be prepared for anything that comes your way. Some people only need to be aware of one deadline: April 15th. Others will need to remember several deadlines, such as those who owe local/ state taxes and make quarterly estimated tax payments.
Almost everyone should be able to take advantage of these 5 tax preparation tips. Overall, you must be willing to do whatever it takes to successfully prepare and file your tax return. The closer you follow these tax preparation tips, the better chance you have of avoiding costly mistakes.