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Posts Tagged ‘taxes’

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.

Last-Minute Tax Tips

March 23rd, 2010 :: Thursday Bram

The due date for federal income tax returns is just around the corner. If you haven’t already gotten on top of your taxes, it’s time to do so. These last minute tax tips can help you meet that April 15th deadline without a problem with the IRS.

Estimate the Tax You’ll Owe

Ideally, you’ve been making quarterly estimated income payments and you have a clear idea of how much you’ll owe to the IRS. If, for any reason, you’re not going to get your tax paperwork done on time, you can easily file for an extension, as long as you’ve already paid however much tax you expect to owe on April 15th. It may not be a bad idea to overestimate, depending on the reason the rest of your paperwork won’t be ready — you can face penalties if you underestimated what you might owe.

Having an estimate can also make things easier if you will be on time with your tax return but just haven’t gotten around to it yet. You don’t want to be in the position that you need to make a payment and don’t have quite enough in your business checking account for any reason.

Get Organized

If you’re going to be asking your tax preparer for a rush job, you’ll have much better results if you aren’t handing over a shoebox of receipts or equally disorganized electronic files. There are tools out there that can scan and organize your receipts — Shoeboxed, for instance, just requires you to stick your receipts in an envelope and mail them off. There’s a fee for such services, of course, but if you aren’t going to get to it yourself, the fee is much lower than you might pay to your CPA for a similar service.

Check Your Resources

Trying to claim a particularly difficult tax deduction or credit? Check your professional associations or other resources for guides to doing just that. Many groups offer a regularly updated tax guide for those bumps in their industry, especially focusing on how to appropriately claim specialized deductions. For instance, if you are a building contractor, you may be claiming one of the various energy efficiency credits related to projects you’ve built over the last year. The paperwork can be complicated, but many local contractor organizations offer their own version of a guide to that particular tax credit.

Your personal resources can also make the process easier. If you work with the same tax preparer year after year, he may send you a simplified document to fill out about the changes in your business over the last year, rather than requiring you to fill out every form from scratch. You’ll still have to have all your paperwork but you can avoid having to calculate much more than what your bookkeeping software can already provide.

Image by flickr user alancleaver_2000

15 Small-Business Tax Deductions

March 22nd, 2010 :: Steven Fisher

As Tax Season is upon us we thought we would share some great tax deduction advice we came across on

  1. Auto expenses: You may deduct mileage, parking fees and tolls for business use of your car. Most people take the standard mileage rate deduction because the record keeping requirements are less burdensome, but actual expenses often yield a larger deduction, says Fawaz. Keep track of the mileage, odometer start and finish for each trip, destination, the starting point and business purpose. “The actual expense method often yields a higher deduction, including repairs, insurance, maintenance and depreciation for the business portion of use,” Fawaz says.
  2. Equipment, furniture and supplies: Look at your purchases and ask your tax preparer to run the calculations to see if you should expense it or depreciate it. But don’t overdo it, says Clare Wherley, a certified financial planner and certified public accountant with Lassus Wherley in New Providence, N.J. “I’ve often had to caution the entrepreneur that buying a piece of equipment just to get a tax deduction isn’t good business sense.”
  3. Professional and legal expenses, and association dues:Professional and legal expenses are deductible, but if the costs are part of startup expenses, you may need to amortize the cost over 60 months. Association dues may include a portion for political contributions or lobbying, so those can’t be deducted, Fawaz says, noting the association must disclose this amount or percentage.
  4. Expenses to start up or expand your business: The biggest mistake in deducting expenses to start up or expand your business is failing to make an election to amortize or deduct these expenses in the first year. A paper election is required to be attached to the return, stating your intention to amortize them, Fawaz says. Otherwise, the expenses become nondeductible until you sell or liquidate the business.
  5. Professional publications and software: Here again, the common error is taking the cost as an expense instead of amortizing, Fawaz says. Software licensing fees, for example, should be capitalized and amortized over 60 months unless it has a life of only one year, such as an annual maintenance agreement. Professional publications should be amortized over the subscription period if prepaid.
  6. Gifts and advertising: Client gifts are deductible up to only $25 per gift. And if you advertise, deductions taken for costs that cover multiple-year contracts must be spread over all the contract years, Wherley says.
  7. Home office: If you have a legitimate home office, don’t be afraid to deduct it. To qualify, the room must be used exclusively for business. It can’t double as a spare bedroom or toy room for your kids. You can deduct a portion of rent, utilities, insurance, taxes, maintenance, professional cleaning, depreciation and interest. State tax deductions will vary.
  8. Telephone and internet: Any dedicated services for your business are deductible. If you use your home or personal cell phone for business, you may only deduct the portion used for business purposes.
  9. Education and training: You may deduct the cost of continuing education or certification for the business you’re already in, but education that qualifies you for a new line of business is not deductible, Fawaz says.
  10. Bad debts: A bad debt is only deductible if the income has been declared. Wherley offers this example: A business owner bills a client in December 2009 and declares that income on his 2009 return. By the end of 2010, he realizes he will not be paid by that client. So in 2010, he can take a bad debt deduction for the income previously declared. If that income was not declared, he can’t take the bad debt deduction.
  11. Interest on loans: You can fully deduct interest on loans for your business. If you have a loan from a relative, make sure it conforms to IRS rules.
  12. Entertainment and travel expenses: Keep excellent records here, and keep a log of who you met, why, where, when and for what business purpose. “Only 50 percent of meals and entertainment costs is deductible, and none of the costs associated with country club memberships are deductible,” Wherley says.
  13. Taxes and Social Security: State taxes paid are a healthy deduction; just don’t allow yourself to be surprised by how high Uncle Sam’s bill may be. “I often advise setting aside 50 percent of net income to cover everything,” Wherley says. “If there is something left over, the refund is that much sweeter.”
  14. Insurance: Insurance premiums for the business for one year or less are deductible currently, while excess prepaid premiums are deductible in subsequent years, Fawaz says.
  15. Charity: Save all your receipts, and don’t forget to keep track of contributions of inventory or property.

10 Easy-to-Miss Business Deductions

March 11th, 2010 :: Thursday Bram

The deadline for completing your tax return is closing in. There are so many different tax deductions, though, it’s easy for a few to slip through the cracks. Make sure that you claim all the deductions that you’re eligible for.

  1. Going green: Did you take steps to make your office greener in the last year? If so, you may be able to write off the expense of doing so as a deduction. Depending on your industry, there are even some tax credits available.
  2. Payment processing fees: Using online payment processors, like PayPal, is becoming more common among small businesses, but there’s a price tag that goes along with doing so. The fees charged on each of your transactions are deductible.
  3. Travel to and from the airport: The fact that you can write off business travel on your taxes is common knowledge, but did you know that you can even write off the taxi trip to and from the airport, as long as you’re traveling for business purposes?
  4. Tax preparation: Considering the expense of getting a tax return prepared when you own a business, it’s a good thing that you can deduct your tax preparer’s fees. The same holds true if you have any help throughout the year with tax planning or other tax-related tasks.
  5. Blog posts: If you hire a writer to put together posts for your business’ blog, it’s a marketing expense and can be written off. The same holds true for other social media help.
  6. Hidden bank and credit card fees: If you have a bank account or credit card in your business’ name, go over the statements very carefully. Even if you can’t get hidden fees removed, they are still business expenses and can be written off on your taxes.
  7. Unpaid invoices: As long as you’re using the accrual method of accounting, rather than cash, your unpaid invoices can be written off on your taxes. However, this deduction can be tricky, making it particularly important that you talk to your accountant before claiming it.
  8. Employee benefits: Of course you can write off any benefits that you provide for your employees, but that term can cover a lot of ground. If you buy an employee a monthly bus pass as one of their benefits, that’s just as deductible as health insurance.
  9. Holiday parties: Do you have a get-together for your employees during the holidays? The expenses for that shindig can be written off, as can holiday cards to your clients.
  10. New employees: The expense of hiring a new employee, from putting out a job listing to printing up new business cards, is entirely tax deductible. Even paying for a prospective employee’s travel for an interview is deductible.

It’s important to note that every business’ tax situation is different and it’s impossible to address every situation in a blog post. In order to make sure that your taxes are in order, it’s crucial to talk to a tax professional who can walk you through determining your eligibility for these tax deductions.

Image by Flickr user AlanCleaver_2000

Winding Up the 2009 Tax Year

January 21st, 2010 :: Thursday Bram

Income taxWe’ve all got big goals for 2010 — but before we can get to them, we have to get 2009 off our plates. That means not only closing the books on last year, but getting them ready for tax season. For some of us, it can take right up to April 15th to be done with 2009, but the sooner you can wind up the 2009 tax year, the better shape you’ll be in for 2010.

Get Your CPA on the Phone

If you can schedule a time to talk to your CPA or tax preparer before handing him your shoebox full of receipts from last year, he can make it worth your while. Most importantly — at least from your tax preparer’s point of view — he can go over exactly what documentation you need to bring in so that your tax return can be prepared. While you may have a good idea what to bring from doing your 2008 taxes, if anything changed in the last year (like you hired an employee, you started carrying more inventory or you changed your business’ structure), you may need to bring in some more documentation.

On top of that, though, your CPA may be able to give you some last minute advice on minimizing your business’ tax burden. While 2009 is over, you can still take a few steps: for instance, if you have a retirement account set up, you may still be able to contribute towards the 2009 limit. Since you’re there already, you should take to your CPA about planning for 2010 as well. Go beyond tax planning: your CPA can talk to you about ways to minimize payroll costs, improve cash flow for your business and generally meet your goals for the next year.

Get Your Books in Order

While we all have just made resolutions to keep up with the paperwork in 2010, there may still be some 2009 items sitting in your inbox. It’s time to get those dealt with so that you can close the books, back them up and send them off to the tax preparer — the sooner, the better if your CPA is one of the many whose prices go up on tax returns when March rolls around.

If you worked with contractors during 2009, you have only about a month left to get your Form 1099s prepared and sent off to both your contractors and the IRS. If you paid payroll taxes for employees, it’s also time to get your Form W-2s sent out. You have until the end of January to send them to employees and until the end of February to send them to the IRS. For both forms, you can face some penalties if you don’t get them mailed off in time. It’s worth talking to your CPA about these forms, as well — some will prepare these additional forms, as well as provide bookkeeping services to make sure that your books for 2009 are done correctly.

Photo — AlanCleaver_2000

Last-Minute Small-Business Tax Tips

April 10th, 2009 :: Steven Fisher

Reading many articles in the last few weeks on taxes and preparing my own small business for April 15 I came across this excellent article by Forbes Magazine titled “Last-Minute Small-Business Tax Tips“. In the article there were 15 pretty straightforward tips that can help your small business with the caveat that the IRS is looking for people to grab as many deductions as possible. In the event that you get audited, have all your paper trail itemized and in pristine condition. On upside to the stimulus package they point out is that small businesses are able “now to deduct as much as 100% of capital expenditures up to $250,000-up from a $125,000 limit prior to the new law.”

Here is a portion of the tip list along with a quick explanation (see disclaimer at the end):

  1. Keep Detailed Records – See the comment on auditing above
  2. Pay Dividends This Year – Right now, the taxable dividend rate is about 15% and with the government spending going on right now, it is bound to go up. Remember that these distributions are slightly different for C corporations and subchapter S corporations, so check with your accountant on the best way to go about this.
  3. Don’t Pay Tax on Out-Of-State Sales to Your Home State – According to Forbes research “If you do business outside of your home state, you may not have to pay taxes on that income.” I would check with your tax advisor on this to be sure because if you sell all over the country, this might save you a fortune.
  4. Set Up A Non-Qualified Retirement Plan – According to Forbes, “Nonqualified plans, unlike a 401(k) or some IRAs, allow unlimited contributions and typically don’t require the level of administration that most qualified plans do”. Best part of these kinds of plans? “You don’t have to set one up for every employee-just for the folks you want and you could set up a plan whereby your contributions are contingent on an employee hitting certain performance goals. If the employee falls short, so might his retirement stash.”
  5. Shield Income With Today’s Losses – I found it fascinating that you can use this year’s loss to offset your tax bill from the previous two years and put money back in your pocket today. Get a good accountant for this one and it could pay back in a big way.
  6. Go Green – This means using tax incentives for environmentally friendly initiatives-from solar panels to energy-efficient washers and dryers that are part of the stimulus package passed in late 2008 and in effect for this year
  7. “Abandon” Your Business For the Right Deduction – This is a really interesting one because if the business is worth more to walk away then try and sell it you can count it as a ordinary income loss which means that you can use the entire loss to offset any other personal income (rent, salary, etc.). Just work with your accountant before you do it because if it is not done right and ends up as a capital loss you can only deduct a limited amount and carry it forward to future years.
  8. Go Diving for Depreciation – Section 179 of the Tax Code allows you to deduct $100,000 worth of qualifying assets during the first year up to the point where it cannot exceed taxable income. Also, as I mentioned above there are some increased deductions because of the stimulus package but we will dive deeper into that at a later date.
  9. Employ Your Children – This is a cool idea and now I know why my dad did it so many years ago. If you do it today you can get your kids to begin contributing to a Roth IRA and if you are a small family owned business you will be transferring a portion of the company’s income into a lower tax bracket. That is really cool.
  10. Simplify And Save With a SEP IRA – A SEP isn’t much different than a 401k but Business owners can claim a tax credit equal to part of the cost to set up a SEP.
  11. Opt for an ESOP – Employee Stock Ownership Plans are cool and according to the Forbes article “they work a lot like a 401(k) plan, but rather than offering shares in, say, a stock index fund, you offer slices of equity in the company. If the ESOP borrows money to purchase company shares, it can deduct both the principal and interest on the loan.”

Thoughts on this list from Forbes

As a fellow small business owner, what I get out of a list like that there are many straightforward and powerful ways to reduce your tax liability. However, only a few at this point can be done before April 15 but most are recommendations that you should look into now with your account and tax advisor.

The ones that really impress me as something worth doing is the increased depreciation amounts for the year, the “pass-back” of losses from this year to adjust your 2006 and 2007 tax years which might give you back a refund, and the SEP IRA because of the tax benefits.

Which Tips Are Useful for Your Business?

We would love to hear from you on which tips would help your business. To read the full article along with a cool slideshow, check out the Forbes Small Business site and article here.