Category: Accounting

Must Use Tax Planning For Your New Company

How to Start Tax Planning

Start a filing system

Start a filing system to organize your documents. Any successful tax planning strategy requires you to maintain records of all transactions and receipts that may affect your tax return. This helps to keep track of important documents and avoid forgetting about transactions that occur months before the tax filing deadline.

Understand tax deduction requirements

Before you get too far along in the tax year, you should evaluate all available IRS deductions and the requirements to claim them. By doing this beforehand, you can be proactive in preparing to claim a deduction at the end of the year.

Evaluate the tax credits offered

Tax credits offer a significant opportunity to save money on income taxes since they reduce your actual tax bill on a dollar-for-dollar basis. The types of tax credits offered each year change more frequently than deductions. Credits are often available for a limited time and cover specific types of expenses.

Use an IRA

Use an Individual Retirement Account (IRA) instead of a savings account. Many taxpayers put their savings into a typical bank account that earns taxable interest. However, you can avoid paying tax on the interest each year by depositing money into a traditional IRA instead where the interest will accumulate tax-free. When you do, you might also be also eligible to claim a deduction each year for a certain amount of contributions you make to the account.

 

Good tax planning includes good recordkeeping

Taxpayers should develop a system that keeps all their important info together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.

Throughout the year, they should add tax records to their files as they receive them. Having records readily at hand makes preparing a tax return easier.

It may also help them discover potentially overlooked deductions or credits. Taxpayers should notify the IRS if their address changes. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return.

Records that taxpayers should keep include receipts, canceled checks, and other documents that support income, a deduction, or a credit on a tax return.

Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.

In general, the IRS suggests that taxpayers keep records for three years from the date they filed the return.

 

What Is a Tax Advisor and How Do You Choose One

Enrolled agents

Specially trained enrolled tax agents must pass a rigorous test and meet annual industry regulatory requirements to meet and sustain their professional credentials. Enrolled agents are licensed by the federal government, and are fully approved to represent clients before the I.R.S. They also provide general consumer and business tax services like preparing income taxes and offering specialized tax planning advice.

Certified public accounts (CPA)

A certified public accountant shares many of the same attributes as an enrolled agent, but with a key distinction. While enrolled agents are licensed by the federal government, a CPA is licensed by the state where they set up shop, and must complete 150 hours of undergraduate and/or graduate school study and clear a CPA test given by the American Institute of CPA’s

How to Find a Tax Advisor

No matter which type of tax advisor you choose, finding one isn’t difficult. You can either opt for word-of-mouth (asking co-workers, neighbors, family and friends for recommendations) or through industry trade groups.

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Make sure to vet your tax advisor

Unfortunately, there’s been an uptick in shady, fly-by-night tax preparers in recent years. So, job one is to thoroughly research a tax advisor. Ask for professional credentials and references – any tax advisor who can’t deliver on either front should be dropped from your list. Also, check your local Better Business Bureau for any record of complaints against a specific tax advisor.

 

Tax Preparation Tips Every Entrepreneur Should Know

Hiring employees vs. hiring subcontractors

Your business is ready to bring on employees, but should you pay them as W-2 employees or 1099 subcontractors? It’s a good question, and one Seaman is asked a lot. Freelancers work in their own environment and are hired on a project-by-project basis. Employees work regular hours, which are dictated by the company, and receive regular checks. If you get the two mixed up, you could be in for a big surprise, Seaman says.

Keep your accounts separate

No business owner is 100 percent sure if the business will float when it firsts opens, but that’s no excuse to run your business from your personal bank account. When you start a business, get a business checking and savings account and make sure business income and expenses come out of the business account, Seaman says.

Get your payroll straight

From income tax to Social Security, the IRS gets a little touchy if you’re not paying your dues. There are a lot of tax forms and scheduled payments that come with employees, so it’s important to understand the ins and outs of payroll, Seaman says.

Take a startup deduction on taxes

The expenses you rack up while preparing to start a business can be used as a tax deduction, Seaman says. “Be sure to take the allowable deduction for a startup,” she reminds entrepreneurs. “You can deduct up to $5,000 of research and development and startup costs.” Research and development deductions can include investigating whether or not the business idea is viable, training employees, and ordering supplies

Claim depreciation

You can claim the wear and tear or deterioration of business items over time. For example, you can claim the depreciation on your business computer or the fleet of company cars. According to the IRS, tangible items like buildings, machinery, vehicles, furniture, and equipment are depreciable. Intangible property like patents, copyrights and software is also depreciable. You can claim depreciation of property over time to help your tax situation a little each year, or you can take it in one lump sum

 

Great Year-end Business Tax Planning Tips

How the 2017 Tax Changes Affect Year-end Tax Planning

The 2017 Tax Cuts and Jobs Act (the “Trump Tax Cuts”) should be a factor for your business tax planning for the 2018 tax year and beyond.First, take a look at the new 20 percent deduction from net business income that’s available to small businesses. There are some restrictions and limits.  Second, look at the deductions and credits that are no longer available, like the deduction for entertainment expenses.

Save on Taxes by Stocking Up and Pre-Paying

As mentioned in Step One, you can increase expenses (and lower profits) by stocking up on inventory and supplies and pre-paying expenses. If you have any cash sitting around, or you can reasonably use your credit line or a business credit card for purchases, stock up on supplies

Save on Taxes by Setting Up a 401k Plan for Employees

If your company will be profitable this year, and you have some excess cash, you can save on taxes by setting up a 401(k) or Safe Harbor 401(k) for yourself and your employees. Even if you have a sole proprietorship, you can still use a 401(k) to set aside money for your retirement and save on business taxes. In fact, the process is easier with no employees, because there are fewer rules.

Write off Bad Debts to Save on Taxes

Bad (Un-collectible) debts can be written off before the end of the year and the uncollected debts can be used to lower your profits

Writing Off and Writing Down Obsolete Equipment and Inventory Can Save on Taxes

Obsolete, damaged, or worthless equipment can be taken off your accounting records to increase your expenses and lower your tax liability

Must Learn To Use Payroll Service In Your Company

Small Businesses Relying on Online Payroll Services

Today, online payroll software is the payroll system of choice for small business owners. It’s affordable, easy-to-use, and can grow with your business.

Accurately Pay Employees and Deduct Payroll Taxes With Online Payroll

The first and most important advantage of online payroll is being able to accurately pay your employees. Both employees and employers can enter hours into the software. You provide payroll information about each employee – like their wage, salary, overtime rate, and other unique data. Then, the software calculates payroll taxes and deducts those from the paycheck.

Payroll taxes vary from state to state and payroll software is guaranteed to be accurate no matter where you are (and yes, payroll software is available in many countries outside the United States as well).

 

How to process payroll with a payroll service:

Just like with the DIY option above, you need to have all your employees complete a Form W-4 and find or register for Employer Identification Numbers.

From there:

Step 1: Choose a full-service payroll provider. If you’re not sure how to do payroll yourself, use payroll software that reduces the risk of errors or fines. Many payroll processing services, like Square Payroll, handle your payroll taxes, filings, new hire reporting for you, and allow you to complete payroll online. Sign up takes minutes — so you can quickly start doing your own payroll the same day you sign up.

Step 2: Add your employees. You need to set up your employees before you process their payroll. Adding employees you’re paying for the first time is generally quicker; if you’re switching to a new payroll provider, then you also need to add your current employees’ year-to-date payroll information. Either way, you generally need to enter employee names, addresses, Social Security numbers, and tax withholding information. If you’re using Square Payroll and would like to pay employees using direct deposit, you can just enter your employees’ names and email addresses so they can enter their personal information themselves.

Step 3: Track hours worked and import them. The U.S. Department of Labor requires employers to keep track of wage records such as timecards for up to two years. Certain states may have longer retention requirements; be sure to check the specific requirements in your state. You can track time using your Square Point of Sale and import the timecards to payroll.

 

Manually do calculations

When you manually run payroll, you have full control over your payroll. You know when and how your payroll is completed. But doing payroll yourself likely means you don’t have someone to check your calculations. Doing payroll manually has an increased chance of errors—and errors are often followed by fines.

Doing payroll by hand also takes a lot of time. You have to do all the calculations, distribute wages, and file taxes. You could spend a lot of time working on payroll instead of working on your business.

There are many steps to follow for manual payroll:

  1. Gather information
    1. Find all business information related to payroll, such as your EIN and tax rates.
    2. Collect employee information, such as pay rate and withholding information (e.g., Form W-4).
  2. Track time
    1. Use an attendance management method to track employee time. Or, you could have employees track their own time.
  3. Calculate payroll
    1. At the end of each pay period, use employee time cards and the rate of pay to calculate wages.
    2. Make sure you include all types of compensation, including any tips and overtime for the pay period.
  4. Subtract deductions
    1. Begin by subtracting pre-tax deductions.
    2. Then, deduct employment taxes.
    3. Finally, withhold post-tax deductions.
  5. Pay employees
    1. Distribute paychecks to employees using your designated method. You can pay employees with checks, direct deposits, or pay cards.
  6. Pay taxes
    1. You will periodically have to file and remit employment taxes. How often you do this depends on your depositing schedule and form due dates.

 

The 5 Best Payroll Options for Small Businesses

Did you know that 1 in every 3 small business owners gets penalized by the IRS for payroll errors?

Those fees and fines add up. When you add on the extra time and energy of figuring out the complicated payroll system, it suddenly doesn’t seem like a great place to cut costs. That’s why many small business owners choose to pay for a payroll service instead. That way, you won’t need to worry about legal mistakes, clerical errors, or wasted time.

Here are five of the best payroll options for small businesses:

  1. Intuit Payroll

Looking for the barebones when it comes to payroll services? Or do you want a fully-automated, everything-but-the-kitchen-sink payroll service instead? No matter where you fall on that spectrum, Intuit Payroll has an option for you.

Intuit Basic, for $20/month plus $2 per employee/month, will run your payroll instantly and calculate your taxes (but won’t go as far as filing those taxes for you). Their most popular package is called Enhanced, $31.20/month, which adds tax form completion, filing, and payment on top of that. And finally, their Full Service option will run payroll entirely, transfer data from other payroll services, and guarantee its accuracy — for just $79/month.

  1. OnPay

OnPay doesn’t have all the tools and add-ons that Intuit offers, but in exchange, it provides a simple pricing model with the straightforward payroll necessities that especially small small businesses need.

For $47.95 per month, you get up to 10 employees’ worth of unlimited pay runs, tax filings and deposits in one state (with additional states running you extra), and check printing. It’s an easy, quick, mobile-friendly system that doesn’t require a steep learning curve.

  1. Gusto

Gusto, previously known as ZenPayroll, is an intuitive payroll service for any sort of small business. PC Magazine named Gusto its payroll service of choice for a reason: after its one-month free trial ends, Gusto costs only $39/month, plus $6 per month per employee. That includes benefits planning, direct deposit and check services, and more.

  1. Namely

While it has an undisclosed price, Namely offers a full suite of payroll and HR tools to help you cut down on wasted time. It will automatically carry out benefits deductions, pay and file all of your payroll taxes, handle year-end reporting and time-tracking, ensure your small business is compliant with regulations, and give employees access to their paycheck histories.

  1. Sage

Like Intuit, Sage also offers different payroll packages depending on how big your small business is. If 10 or fewer employees, Sage Payroll Essentials comes in at the low price of $49.95/month. (For comparison, Intuit’s Enhanced plan would run you around the same price with fewer features.)

 

10 Steps to Setting Up a Payroll System        

Here are 10 steps to help you set up a payroll system for your small business.

  1. Obtain an Employer Identification Number (EIN)

Before hiring employees, you need to get an employment identification number (EIN) from the IRS. The EIN is often referred to as an Employer Tax ID or as Form SS-4. The EIN is necessary for reporting taxes and other documents to the IRS. In addition, the EIN is necessary when reporting information about your employees to state agencies. You can apply for an EIN online or contact the IRS directly.

  1. Check Whether You Need State/Local IDs

Some state/local governments require businesses to obtain ID numbers in order to process taxes.

  1. Independent Contractor or Employee

Know the Difference. Be clear on the distinction between an independent contractor and an employee. In legal terms, the line between the two is not always clear and it affects how you withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment taxes.

  1. Take Care of Employee Paperwork

New employees must fill out Federal Income Tax Withholding Form W-4. Your employee must complete the form and return it to you so that you can withhold the correct federal income tax from their pay.

  1. Decide on a Pay Period

You may already have a manual process for this, but setting up a pay-period (whether monthly or bi-monthly) is sometimes determined by state law with most favoring bi-monthly payments. The IRS also requires that you withhold income tax for that time period even if your employee does not work the full period.

  1. Carefully Document Your Employee Compensation Terms

As you set up payroll, you’ll also want to consider how you handle paid time off (not a legal requirement, but offered by most businesses), how you track employee hours, if and how you pay overtime, and other business variables. Don’t forget that other employee compensation and business deductibles such as health plan premiums and retirement contributions will also need to be deducted from employee paychecks and paid to the appropriate organizations.

  1. Choosing a Payroll System

Payroll administration requires an acute attention to detail and accuracy, so it’s worth doing some research to understand your options. Start by asking fellow business owners which method they use and if they have any tips for setting up and administering payroll. Typically, your options for managing payroll include in-house or outsourced options. However, regardless of the option you choose, you – as the employer – are responsible for the reporting and paying of all payroll taxes.

  1. Running Payroll

Once you have all your forms and information collated, you can start running payroll. Depending on which payroll system you choose, you’ll either enter it yourself or give the information to your accountant.

  1. Get Record Keeping Savvy

Federal and some state laws require that employers keep certain records for specified periods of time. For example, W-4 forms (on which employees indicate their tax withholding status) must be kept on file for all active employees and for three years after an employee is terminated. You also need to keep W-2s, copies of filed tax forms, and dates and amounts of all tax deposits.

  1. Report Payroll Taxes

There are several payroll tax reports that you are required to submit to the appropriate authorities on either a quarterly or annual basis. To get more information, visit the IRS’s Employer’s Tax Guide, which provides clear guidance on all federal tax filing requirements. Visit your state tax agency for specific tax filing requirements for employers.