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Small Business Success Index 4

Index Score*   Grade
73 marginal
Capital Access 67
Marketing & Innovation 65
Workforce 76
Customer Service 88
Computer Technology 73
Compliance 92
*Index score is calculated on a 1-100 scale.
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Can Hiring Family Members Mean a Tax Break for Your Small Business?

November 23rd, 2010 :: Karen Axelton

By Karen Axelton

Keeping track of tax breaks available to small businesses—especially in the current political climate—can be a complex task. The good news is, there is one kind of tax break that just about every small business can take advantage of: the advantages gained by hiring family members to work in your business. Here’s a closer look at some of the options:

Hiring your spouse: In general, the IRS considers a spouse an employee as long as an employer/employee relationship exists. In other words, one spouse must truly control the business in terms of making key management decisions, and must direct the other spouse’s work duties and activities. Specific rules related to hiring your spouse depend on the business structure you’ve chosen for your company. Visit the IRS website for more detailed information about tax issues related to husband and wife businesses.

Hiring a parent: Hiring a parent is becoming more of an option these days with many seniors and retirees more interested in continuing to work—or needing to work to supplement retirement income. If you are hiring a parent, know your business will be subject to income tax withholding, Social Security tax, and Medicare tax; however, you are not subject to Federal Unemployment Tax Act (FUTA) tax.

Hiring your children: Having your children work for you in the business is a great way to transfer income from your higher tax bracket to your children’s lower one. This is also a way you can transfer wealth to your children without worrying about gift and estate taxes.

If your company is a sole proprietorship or partnership, wages paid to your children under age 18 are not subject to Medicare or Social Security taxes; wages paid to children under 21 are not subject to FUTA tax. At any age, their wages are subject to income tax withholding. If your business is a corporation, get more details about the tax issues of having your kids work in your business at the IRS website.

Before hiring any family member, discuss the issue with your accountant to make sure you follow all the rules. It’s especially important to maintain detailed records of the person’s duties and the hours he or she works to protect you from any questions of fraud. And, of course, be sure the person’s salary or wages is in line with what he or she actually does, or you risk raising red flags.

Tax savings aren’t the only benefit of hiring family members. Working with your spouse can build bonds as you feel that you’re working together for a goal. Children at any age can gain responsibility and learn from seeing their parents working hard to build a business. Children approaching adulthood can be groomed to take full-time roles in the business and be part of your succession plan. Start your children in the business at a young age, and you’re less likely to face resistance from other employees as your kids take on more important roles.

DISCLAIMER: The information posted in this blog is provided for informational purposes. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. The information presented here is not to be construed as legal or tax advice. Network Solutions recommends that you consult an attorney or tax consultant if you want professional assurance that the information posted, and your interpretation of it, is appropriate to your particular business.

A Good Business Owns Its IP

November 23rd, 2010 :: Thursday Bram

Intellectual property is rapidly becoming one of the most valuable assets many businesses have. Think about a company like Google, built entirely on computer code and other intellectual property that the business has developed. It’s not just a matter of what big businesses create, either. Smaller businesses have plenty of intellectual property of their own. From proprietary processes to the logo on your business card, intellectual property is what sets businesses apart.

That’s why it’s so astounding that there are businesses out there that don’t own any of what might otherwise be considered their intellectual property. There are companies that rely on others’ intellectual property to function. That might mean paying for access to the processes that your employees follow for day to day work or it may mean that a graphic designer is the actual owner of your logo and other promotional materials.

The Question of Ownership

In many cases, intellectual property comes with a hefty price tag. Something that can sound relatively simple — like developing your own process to complete a given project — can be surprisingly expensive, as well as require a sizable investment of time. But that cost is upfront. It’s the difference between buying office space and paying rent. While there’s a big price that goes along with buying property, for many types of businesses that plan to be in the same spot year after year, the actual total cost is much lower.

But while buying property may be out of reach for many small businesses, making sure you own your intellectual property is much closer. The main reason that most businesses choose, for instance, to only pay for their immediate graphic design needs is that the cost for the finished product is lower than the cost of getting all of the files involved, including an editable version of your logo. The price difference can be huge and if you aren’t able to edit your projects for the future yourself, it may seem pointless.

Legalities and Price

If your contract with your graphic designer says that the designer retains ownership of the ads and other intellectual property related to your business’ marketing, you may be in trouble if you want to take an ad created for a print publication and put it online. There are other legal problems that can pop up, depending on the intellectual property involved. By paying more at the start, you can avoid the legal fees that could go along with a problem later on, as well as put yourself in a position where you simply can use your intellectual property any way you choose.

If you have any concerns about your intellectual property (or who owns the intellectual property you routinely use), consulting with a legal professional who specializes in intellectual property should be your first stop.

Image by Flickr User Horia Varlan (Creative Commons)

DISCLAIMER: The information posted in this blog is provided for informational purposes. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. The information presented here is not to be construed as legal or tax advice. Network Solutions recommends that you consult an attorney or tax consultant if you want professional assurance that the information posted, and your interpretation of it, is appropriate to your particular business.

How Will the New IRS Audit Program Affect Your Small Business?

November 17th, 2010 :: Rieva_L

By Rieva Lesonsky

Has your business ever been audited by the IRS? Just hearing those words can send a shiver of fear down any entrepreneur’s spine. Unfortunately, small business owners have more reason than usual to be nervous about opening their mail for the next few years thanks to the IRS’s Employment Tax National Research Project (NRP).

The NRP is a comprehensive audit that will hit 2,000 small companies each year at random in 2010, 2011 and 2012. The goal is to see how well businesses are complying with employment tax regulations. The last NRP was conducted 25 years ago, and with the federal government seeking all possible sources of revenue it can, the IRS is looking to make sure it’s getting all the money it’s owed by small business taxpayers.

An article in CFO Zone reports that the NRP is honing in on four areas:

  1. Worker Classification: Classification of workers as employees or independent contractors
  2. Executive compensation: Salary and non-salary compensation, such as loans, deferred compensation and stock
  3. Fringe benefits: This includes both executive and employee perks
  4. Payroll taxes: Forms 941 and Form 1099/W-2 will be examined regarding withholding and next-day deposit requirements.

The IRS has stated these audits will be “comprehensive” and if you are hit with one, be ready to open all your records. However, you don’t have to get audited to be affected by the NRP: The results of the completed study will be used to adjust tax regulations and tighten up compliance in these four areas above.

Don’t wait to get audited—make sure your company is in compliance. Have your accountant take a look at your finances and ensure any problems are corrected sooner, not later.

Image by Flickr user Lisa Percival (Creative Commons)

DISCLAIMER: The information posted in this blog is provided for informational purposes. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. The information presented here is not to be construed as legal or tax advice. Network Solutions recommends that you consult an attorney or tax consultant if you want professional assurance that the information posted, and your interpretation of it, is appropriate to your particular business.

Regulatory Costs Crunching Small Businesses

November 1st, 2010 :: Rieva_L

By Rieva Lesonsky

This probably isn’t news to you as a small business owner, but the SBA’s Office of Advocacy has published a study showing that the costs of government regulation are disproportionately affecting entrepreneurs. The Impact of Regulatory Costs on Small Firms looked at five economic sectors (manufacturing, wholesale and retail trade, services, health care and “other”) and the federal regulations that affect them.

The results? Small companies spend $2,830 more each year per employee to comply with government regulations than big companies do. “That is a 36 percent difference, and that is an unfair burden to place on American small business,” said Winslow Sargeant, Chief Counsel for Advocacy.

Per employee, the average cost of compliance for businesses of all sizes was $8,086 per year. For companies with fewer than 20 employees, it was $10,585; for those with 20-499 employees, it was $7,454; and for those with 500 or more employees, it was $7,755.

Here are some areas where the burden was especially disproportionate on small firms:

  • Manufacturing: Per-employee costs of compliance were more than twice as much for small manufacturing companies than for midsized and large firms.
  • Environmental regulations: Compliance with environmental standards costs small businesses almost four times as much in as big ones.
  • Taxes: Tax compliance costs small companies more than double what it costs large ones.

The oversized burden small companies shoulder isn’t new—it’s continuing a trend. The Office of Advocacy’s prior studies in 1995, 2001 and 2005 also showed small businesses paying more than their share of regulatory costs.

I believe government regulations can be a good thing—but it’s only fair to spread the cost of this type of regulation proportionately over different sizes of businesses so that small companies can stay competitive. You can find out more about your industry and details of the report at the Office of Advocacy website.

Image by Flickr user smlp.co.uk (Creative Commons)

Preparing for the New 1099 Requirements for B2B Transactions

July 30th, 2010 :: Steven Fisher

If you are in business for yourself it is safe to say that you probably utilize sub-contractors for your own business or for a client project. In the past it was pretty straightforward – if the person was not a corporation, they were a 1099 contractor. Company to company or B2B transactions were filed with the IRS through an I-9 form but that was pretty much it.

New regulations (don’t you just love them?) have mandated that all B2B transaction must be filed with a 1099 form. Section 9006 of the massive Patient Protection and Affordable Health Care Act will mean yet another huge paperwork burden for your small business. I wanted to thank Bobbie Lee who wrote this great article on Entrepreneur.com on the details buried in the new Healthcare legislation.

Here are some excerpts:

“Beginning in 2012, all businesses will be required to prepare 1099s for all services and goods purchased from all vendors in excess of $600. Current law dictates that only services provided in excess of $600 must be reported via form 1099 and that corporations (with the exception of attorneys) are exempt from receiving 1099s.”

“Beginning in 2012, corporations will no longer be exempt, and purchases of goods must also be included. The passing of this legislation is an attempt by the government to close the $300 billion tax gap, which will help pay for health-care reform. So I guess it indirectly relates to the Patient Protection and Affordable Health Care Act in which it was included.”

Depending on the industry, many businesses must collect, report and pay over a variety of excise taxes, as well. How much does all that cost your business in bookkeeping and payroll preparation fees? Now business owners must report all business-to-business transactions. So purchases your business makes from Staples, Office Depot and other vendors are included as reportable transactions.”

To read the full article with more details on the impact on small business, check out http://www.entrepreneur.com/money/taxcenter/taxpertisecolumnistbonnielee/article207404.html

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Small Business Quick Guide to Healthcare Reform

July 19th, 2010 :: Steven Fisher

Over the last year the healthcare landscape has changed dramatically leaving small businesses asking “how does this impact us?”. I recently came across this post from Entrepreneur.com on an “entrepreneur’s guide to healthcare reform“. It provides a great run down on the specific that impact small business along with dispelling some rumors that are floating about.

Here are some excerpts from the article:

Before you worry too much about the changes, know that if your business has fewer than 50 employees, there are no penalties if you don’t provide insurance, even after the law goes into full effect in 2014. But that leaves small to midsize businesses trying to make immediate sense of the changes that are coming and prepare for them as the bill’s execution is finalized and implemented. Adding to the confusion is a rampant mix of misunderstanding and misinformation-not to mention that some elements just haven’t been finalized yet. However, there are some important facts you need to know now, as well as some that are coming at various intervals over the next several years.

On Immediate Provisions:

The bill made some “immediate” provisions to insurance policies, which need to be met within one year of the date the law was signed. Beginning in September 2010, children cannot be excluded from coverage due to pre-existing conditions. (This provision applies to adults in 2014.) Also in September, insurance companies will be prohibited from dropping insured people after they get sick, and the provision bans limits on lifetime coverage limits, prohibits policies that provide insurance only to higher-wage employees, and allows dependent children to be insured on their parents’ policies until their 27th birthdays. In all, the bill has 18 such short-term provisions affecting everything from coverage limits to Medicare.

Of course, these changes are just the start of reform. After all, the bill is approximately 2,600 pages of “broad strokes.” It will be up to the government agencies that implement and oversee the new system-such as the Department of Health and Human Services, the Internal Revenue Service, state insurance commissions, and others-to figure out how the details will be carried out. That is happening now.

At the heart of the bill are state-based exchanges called the American Health Benefit Exchanges and the Small Business Health Options Program (SHOP) Exchanges. Administered in each state by the government or a nonprofit institution, these insurance marketplaces will offer qualified health insurance options for individuals and small businesses with up to 100 employees. They will be in place by 2014. In 2017, businesses with more than 100 employees will be able to purchase insurance through the SHOP exchanges.

On Tax Credits:

Starting this year, businesses with 25 or fewer full-time equivalent employees and that pay an average annual wage per employee of less than $50,000 are eligible for tax credits for a portion of their premium contributions. These employers must contribute at least 50 percent of the premium cost. Through 2013, the tax credit will equal 35 percent of the employer’s contribution. However, that maximum will only be available to businesses with 10 or fewer employees whose annual wages average $25,000 or less. As the number and employee wage average increases, the credit amount decreases. After tax year 2014, eligible businesses that purchase their insurance through a state exchange can receive tax credits of up to 50 percent of their contributions on the same sliding scale for two years.

“There should be about 4 million small businesses that can take advantage of this,” says Hayley K. Matz, spokesperson for the Small Business Administration. Analysis by the Congressional Budget Office and Joint Tax Commission in November 2009 estimated that only about 12 percent of those with coverage in the small group market would benefit from the credits in 2016. The IRS has devoted a section of its website to information about the bill, including tax credits.

On Tax Credits:

National Federation of Independent Business analysis cites fewer deductible medical expenses, an increase in Medicare payroll taxes on wages, and self-employment income in excess of $200,000 ($250,000 joint) will increase to 2.35 percent and is not indexed to inflation, and flexible savings account contribution limits will be capped at $2,500 per year. In addition, if you offer more than “minimum essential coverage” under the law, your policy may face an additional tax to the insurance company, which will likely be passed along to you, says Arensmeyer. Employees may opt out of employer-offered plans and are then entitled to employer-sponsored vouchers that help them purchase individual policies in the exchanges.

There will also be changes at the individual level that may affect small-business owners and shareholders, including new taxes of 0.9 percent for individuals earning more than $200,000 individually ($250,000 for married couples) and a new 3.8 percent tax on unearned income, such as income from investments, real estate and business investments for high-income taxpayers. The Kaiser Family Foundation has published an excellent overview of the changes and when they take effect.

On the 50 Employee Threshold:

If you have or plan to have more than 50 employees by 2014, it’s probably a good idea to sit down with an accountant or qualified financial advisor and take a look at which provisions apply to you to begin planning for them, says the National Association of Independent Business’s Austin.

“There are several different phases of the bill, as far as implementation,” she says. “It’s important to know what is going to affect you and when it will affect you.”

Arensmeyer agrees that it’s critical for business owners to educate themselves and speak out through the channels available to them to help shape implementation. Various state and federal agencies are in the process of determining exactly how these changes will be implemented, so it’s time to make your voice heard. He encourages business owners to voice their opinions directly to government entities, including their state insurance commissioners, which will be very involved in setting up the exchanges, as well as through organizations like Small Business Majority, Chambers of Commerce, trade groups, and other business-related organizations.

“This is going to be a constant process of providing input to the states and to the federal government, which is writing regulations,” Arensmeyer says. “This is not the end of the game. This is a dynamic process and an interactive process going forward. It’s not too early to start weighing in on these issues, even though they don’t take effect until 2104.”

Dispelling Rumors:

Rumors are flying about health-care reform. Here are a few that we’ve heard, as well as the real deal on each.

  1. Health-care coverage is now reported as income on W2 forms and taxed as such. THE REAL DEAL: No. While the cost of health insurance and some other related expenses must now be reported on an employee’s W2 form, it is for information purposes only and not considered taxable income. The total is not used in calculating the individual’s tax liability.
  2. Businesses need to start sending 1099 forms to Staples. THE REAL DEAL: Maybe. Beginning in tax year 2012, if you spend $600 or more on business-related purchases with any supplier or vendor over the course of a year, you must gather that entity’s tax identification number and issue a 1099 for the total purchased. However, several of the small-business advocates and agencies interviewed for this piece are awaiting further direction from the IRS on this matter, so keep an eye on the agency’s website for updates.
  3. Businesses that offer tanning services face a new tax. THE REAL DEAL: Yes. As of July 1, 2010, there is a new 10 percent tax on indoor tanning services. Some medical devices will also be assessed new taxes. In 2013, certain medical devices will also face a new 2.3 percent tax.
  4. Employees who belong to certain religious groups, such as Muslims, Christian Scientists and Amish citizens, are exempt from health-care reform requirements. THE REAL DEAL: At this point, it appears that the exemption primarily applies to Amish citizens. However, more guidance on this matter will likely be issued by the Department of Health and Human Services.

Read the rest of the article over at Entrepreneur.com

Why Every Small Business Needs an HR Program, Not an HR Department – An Interview with Jack Hayhow

May 5th, 2010 :: Steven Fisher

I met Jack Hayhow from Opus Communications at SOBCon in Chicago last year. Opus creates custom online training with large corporations for whatever issue they might have (business processes, risk management, human resources). Jack is also a long time Network Solutions customer. He is a gregarious and knowledgeable guy who after spending 10 minutes talking with him realized we had much in common. He had just put out this book called “Wisdom of the Flying Pig”. It is a great title and wanted to read it but he didn’t have any copies so he asked for my card and promised to send a copy. As most conferences go, you hope to stay in touch with usually you never talk to them again. Low and behold about a month later I received this package and in it was a copy of the book and a box with a battery operated, you guessed it, a flying pig. This became quite the popular toy in my office and left an indelible impression so I would never forget Jack. So a year goes by and he emails me about a new business that he has spun out from Opus called ReallyEasyHR. Of course, I wanted to know more. Recently I was able to sit down with him, catch up on things and talk about this new business, ReallyEasyHR. This is a transcript of the interview:

Steve: Jack, you mentioned that the motivation to build this started about 5 years ago based on the need to do HR compliance for your own small business. You decided to build your own so, why were other solutions not a fit?

Jack: To answer that, I need to give you a little background.  Our business had grown quickly from three to nine employees.  I suspected there were some HR issues I needed to tend to, but I had no idea exactly what they were.  I looked, but I could find nothing that told me in definitive terms what I needed to do to keep myself out of trouble.

So I hired an HR consultant and worked with our lawyers and we put together a very good program – but it cost close to $10,000.  When I saw what I got for that $10,000, I thought  –  “there HAS to be a better way”.

Lawyers are good for dealing with problems but they cost a lot.  HR consultants want to make a huge deal out of HR stuff.  Small business owners like me want to comply with the law in quickest, easiest, cheapest way possible.  We’re not interested in becoming HR professionals – we’ve got businesses to run.

So we developed ReallyEasyHR.  ReallyEasyHR provides a complete small company HR program for just $30 per month.  It gives small business owners a way to deal effectively with HR compliance and get back to their business.  We built it because we couldn’t find an existing option that was anywhere near cost effective.

Steve: From your experiences you first wrote HR Basics to help other small business avoid the landmines you experienced. What is the core of this white paper?

Jack: HR Basics tells small business owners what they need to do right now, what can wait until later and what they can forget about completely.  If I would have had this information a few years ago, I would have saved myself a bunch of money.

Fundamentally, HR Basics details the three things a small business needs to do to comply with HR laws and regulations.  If a small business does these three things, it’s tough to get in too much trouble.

Steve: After living with this application and evolving it to a mature solution that others could use, you decided to open ReallyEasyHR into the wild. What was the catalyst to spin this off from Opus and start and entirely new business?

Jack: The business model for ReallyEasyHR is substantially different from Opus.  It just seemed to make more sense to operate it as a separate entity.

Steve: ReallyEasyHR is sold as software as a service (SaaS) and includes many things around compliance and HR management. What are its core functions and more importantly, what does it not do? What are the real differentiators in this solution that small business should note?

Jack: That’s a great question.  The core of any effective HR program is the employee handbook.  ReallyEasyHR provides an Instant Online Handbook.  The business owner answers 12 questions and ReallyEasyHR generates a customized online employee handbook with the policies most small businesses need.  It takes less than five minutes.

Most importantly, after an employee reads the handbook, the employee acknowledges receipt and acceptance of everything in the handbook by digitally signing.  A record of that acceptance is stored in the system.

ReallyEasyHR also provides high-quality, video based training on a variety of essential topics.  Sexual Harassment Prevention, Time Management and Management Skills to name a few.  Every course has a test and test records are stored in the system for reporting purposes.

Finally, ReallyEasyHR also accommodates any proprietary documents, notifications or training a business might have – all of it goes right into ReallyEasyHR making it really easy to administer.

I guess the other differentiator is the price.  For $30 per month it’s almost impossible to go wrong.

Steve: Many small businesses get pitched with all types and sizes of products these days, what have you learned from marketing and selling a product (ReallyEasyHR) to marketing and selling a service (Opus)?

Jack: I wish I had a magic bullet or a secret sauce but I don’t.  I think it always comes down to understanding what the target audience needs and addressing that need in a far superior manner.  HR is a distraction and a pain in the butt for most small business owners.  We alleviate that pain quickly and cheaply.

Steve: I usually close my interviews with a “five things” question. In this case I would like to have you talk about five HR mistakes that could kill a small business.

Jack: HR is about two things:  Compliance and performance.

Let’s start with compliance.  Every business needs an employee handbook that lays out the rules and regulations.  If you don’t have that, you run the risk of having all kinds of problems.  So if you don’t do anything else, put together an employee handbook.  Take a look at our HR Basics document to get a sense of the policies you need.

Every company needs to maintain certain employee files.  Again, refer to our HR Basics for details.  But make absolutely certain your I-9 file is in proper order.

And every company is required to post certain state and federal information.  I don’t mean to sound like a broken record, but it’s all covered in HR Basics.

Now, to performance.  I think the short version is performance is about selecting the right people and providing what they need to excel.

I believe you can’t stack enough good people up to make a great one, so selection is critical.  And finally, great people need great managers.  In my opinion, companies languish or fail far too often because they lack great managers.

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The IRS Is Not A Bank

April 9th, 2010 :: Gary Honig

The Internal Revenue Service is not a lender of last resort. By not paying taxes, you are ultimately borrowing from the Government, at extremely costly rates. The addition of compounding interest and penalties will make a bad situation much worse. Any unpaid taxes due will garner a daily interest rate, plus a monthly 5% penalty each month up to 5 months for a maximum of 25%.

For businesses, the most common tax payment problems come from not paying the payroll tax. Failure to pay 941 payroll taxes can easily put the entire business in jeopardy and have a drastic affect on the business owners’ assets. If the company is dissolved, the IRS will still require the owner to pay outstanding balances of payroll taxes.

The best advice for tax problems is to be pro-active at all times. Like most bad situations, ignoring it will not make it go away. If there are not enough funds to pay taxes on a timely basis, there is a strong indication the business is improperly capitalized. This can cascade into difficulties that may be hard to get out of, which could create lasting negative obligations.

As far as the IRS is concerned, first they will send a letter for a balance due. Upon not hearing anything from the taxpayer they might send a few more. When the bureaucracy figures out no one  is heeding the message, they will assign a case worker. This means your account has moved down a notch.  At this point either a payment plan is negotiated or a Notice of Federal Tax Lien is filed. Avoiding a tax lien is highly recommended. Once a payment plan is in place, it is imperative that payments are made on a timely basis. With good cooperation a payment plan can be in place without having a formal tax lien.

The latest news is that the IRS is now checking that Federal contractors are in compliance. Meaning, they conduct a review of certifications of non-delinquency in taxes for any companies bidding for Federal contracts. This could potentially kill an active solicitation bid if there are outstanding taxes due.

In some cases a factoring company can actually assist in situations where there is a delinquency. But once a lien has been levied against a company it will require written subordination from the IRS in order for any commercial finance company to even consider funding. . When a payment schedule is in place, the factor may send advances from invoices directly to the IRS. This insures that payments are being made in a timely fashion per the IRS agreement.

Fortunately tax problems can be remedied, but they can’t be ignored.

An Interview with the Taxgirl

April 1st, 2010 :: Thursday Bram

Kelly Phillips Erb is the Tax Girl — not only is she a top-notch blogger covering the topic of taxes, but she also is a top notch tax lawyer. She took some time to answer our questions about taxes for small businesses.

How did you get to be Tax Girl? What’s your background as a tax expert?

On my site, I joke about being in law school in Moot Court wearing an oversized itchy blue suit and hating it. But it’s true. It was horrible. In a desperate attempt to avoid anything like that in the future I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I had a LL.M Taxation. I worked for other law firms for a few years after graduation and decided that I could do it better on my own – so I convinced my (not quite yet at that time) husband to quit his BigLaw firm job and work with me. We opened our firm ten years ago.

The blog kind of grew organically out of opening our firm. I was updating our firm web site fairly constantly because tax law changes so quickly. I was looking into a better way to do it (because that’s how I’m always thinking) and I came across this notion of a blog – this was years ago when the word wasn’t even in mainstream vocabulary. I loved the idea of a site that was constantly moving and encouraging dialogue about tax. So I started blogging about tax. A bit after I started, I took the plunge and made an offer for the domain (taxgirl.com) since it had been my moniker for years. I bought it and I’ve been at taxgirl.com ever since.

What’s the strangest tax question you’ve ever gotten?

Gosh, I get literally thousands of questions so it’s hard to pin down the strangest… The absolute oddball ones tend to be related to tax evasion schemes, like the notion that if you’re service based and not product based that you don’t have to pay taxes or the ones that say the government has “secret accounts” that you can access. But the ones that really blew my mind were the folks trying to maximize rebate checks that were based on the number of dependents – one guy had something like 10 kids that he had not been supporting and he was wondering if the government would chase him for back child support if he claimed the kids this year. It’s unbelievable what people will say and do to get a refund.

What would you say are the key differences between completing your taxes as an individual and as a business owner?

Individual taxes are much easier because there’s usually just the one (income tax). Business taxes tend to be more complex because you may have other issues to worry about – corporate tax reports, franchise taxes, sales & use taxes, use & occupancy taxes, payroll taxes… Depending on what kind of business owner you are, the list can be fairly extensive.

I think, because of the sheer number and types of taxes, business owners have to focus on tax planning and compliance all year round as opposed to your individual taxes which, for better or worse, you can typically crank out your individual obligations in a day or two. Perhaps a painful day or two, but still…

What sort of key problem areas should business owners be on the look out for when tax season rolls around, especially if they’ve already been in business for a couple of years?

It’s easy to lose track of tax items that you may have already elected to report a certain way like depreciation, use of your car, etc. That’s why having a regular accountant can be helpful.

I think business owners tend to fall down on the record-keeping side when it comes to meals and entertainment. Inevitably, on examination, business owners struggle to remember what they were doing at a meal – and with whom. Contemporaneous record-keeping, even if it’s just writing little notes on the backs of receipts, helps a lot.

The same issue comes up on the home office side. It’s a wildly misunderstood deduction and there’s just so much bad information out there that I don’t think taxpayers always keep the right kind of records. I recently wrote a post about home offices and the comments, even from alleged tax professionals, just showed a real lack of comprehension about what’s acceptable. That actually ties in with the idea that overall knowledge about what is and is not deductible is pretty lacking – of course, I don’t blame taxpayers, I blame Congress. The rules and the changes are just out of control.

As a tax professional, what characteristics do you think are key for a business owner looking to find help with his taxes?

Trust and communication. You have to feel comfortable with your tax professional. If you feel intimidated or stupid around him or her, it’s time to find someone new. You need to feel as though you can ask any question and get a good, complete answer.

If you can only offer one piece of tax advice for a small business owner, what would it be?

Be educated. You don’t have to know everything about taxes but you need to know enough to make smart decisions. Don’t rely on your tax professional or anyone else to tell you about your business – that’s your business, to know what’s going on. You don’t have to know the intricacies of the Tax Code (that’s what you’re paying someone else to do, right?) but you need to know the basics: what constitutes income, what kinds of things are generally deductible, and the timing and nature of your filing obligations. Don’t be that business owner that just signs returns each tax season: know what (and why) you’re signing.

Creating a Financial Workflow

March 25th, 2010 :: Thursday Bram

When you run a small business, bringing in someone to handle bookkeeping and similar tasks just isn’t always an option. The cost of hiring help can make it necessary to do that sort of work, although it doesn’t hurt that keeping your own books guarantees that you’re familiar with every aspect of your business.

The biggest problem for many business owner when it comes to updating financial records is actually getting around to it. It’s easy to put off tasks like tracking expenses — after all, you can always catch up at the end of the week. Then a week turns into a month, which turns into a quarter, which turns into a year before you even notice. It’s easy to focus on tasks that directly make you money, rather than figuring out where that money goes. Having a financial workflow in place, though, can help you manage your business’ money in such a way that it doesn’t get out of hand.

Your Financial Workflow

A workflow is a series of steps, each one following the next so that you can complete a larger task — usually a task that you must complete on a regular basis. It can make sense to write down the steps you need to keep up with your finances: from reconciling your bank statements with the receipts you have to entering information into your bookkeeping software, having a checklist makes the process smoother. It’s easy to say that you already know what you need to do, but it’s easy to miss a step or put things off entirely because you feel like there’s so much to do. Having it in writing lets you build a habit of handling your finances, making it easier to stay on track.

Determining just what steps you need to take can be a longer process. Before you try to create the perfect workflow, discover what you’re already doing that works. Follow the approach you normally take to get your books up to date and just write down the steps you take. If you’re not the best about doing so on a regular basis, you may have to actually spend some time on your books to start getting an idea.

Once you have a list of the steps you generally take in place, you can look for opportunities to tweak the process. You may find that you have to take information off the same piece of paper multiple times — that can be an opportunity to improve your system because if you can arrange things so that you only handle each piece of paper once, you can speed things up. There are also many tools that will help you speed up the process, such as receipt scanners.

You may find that you need to keep adjusting your routines as you go through them. The first couple of times, it’s possible to miss a step, especially if you haven’t practiced the habit. But having a list that you can work down on a daily or a weekly basis will help you to build the habit, as well as make things much easier when you are in a position to hand the bookkeeping off to someone else down the road.

Image by Flickr user ben_onthemove