3 Essential Tax Tips For Small Business Owners

Attention, small business owners! Here are three essential tax tips to help you navigate the financial landscape and keep your business thriving.

1️⃣ Organize, Organize, Organize! Efficient record-keeping is key to maximizing deductions and minimizing stress during tax season. Establish a system to track all business-related expenses and income. Keep receipts, invoices, and financial statements meticulously organized. Consider using accounting software or apps to streamline your record-keeping process. Remember, proper documentation is the foundation of a successful tax strategy!

2️⃣ Stay Informed about Deductions! Don’t leave money on the table! Educate yourself about the deductions available for small business owners. From home office expenses to equipment purchases, there are numerous deductions that can significantly reduce your tax liability. Consult with a tax professional or utilize reliable online resources to ensure you’re aware of all applicable deductions. By taking advantage of these opportunities, you’ll keep more money in your business’s pocket!

3️⃣ Consider Hiring a Tax Professional! As a small business owner, your time is precious. Complex tax regulations and changing legislation can be overwhelming. Consider enlisting the expertise of a qualified tax professional. They can help you navigate the intricacies of tax law, identify potential tax-saving opportunities, and ensure compliance with regulations. Hiring a professional may save you time, reduce stress, and ultimately lead to more accurate and advantageous tax returns.

Remember, by organizing your records, leveraging deductions, and seeking expert advice, you’ll be well on your way to a successful tax season and financial stability for your small business. If you found these tips helpful, share them with your fellow entrepreneurs and let’s build a thriving small business community together!

Need help navigating the tax and bookkeeping side of your business? We can help! Give us a call at (608) 667-0142 today to see how we can help!

Categories: Blog Posts

The Four-D Time Management Trick to Boost Your Efficiency

Time is our most precious personal resource; once we’ve spent it, we’ll never get it back. As busy entrepreneurs, we seem to have less time than anyone else, so it just makes sense to look for ways to use our time wisely. Here is one technique that has worked for many.

The Four D’s

When you think about it, there are only four actions you can take against any one of the many tasks you have on your plate:

  1. Do it.
  2. Delegate it.
  3. Delay it.
  4. Delete it.

As you approach each task on your to-do list, ask yourself which one of the four D’s is best. 

Do It

The first option is simply to do the task yourself.  Get it done, checked off, and out of the way.  This is often the best option if it’s urgent, important, or you are the only one with the experience and training to do it. 

It might sound counter-intuitive at first, but doing a task might not be the best option. Let’s look at the other three options before we decide. 

Delegate It

If your to-do list is full of simple, routine actions, then delegating is a strong choice. Delegating is also a great choice for tasks that are beyond your skill set and that would take too much learning-curve time away from your core work. If you don’t have time to do everything yourself, then getting help is a smart alternative to doing it yourself. 

Getting help doesn’t mean you have to hire a full-time employee. You can get help in a multitude of ways:

  • Engage a company to do a task. From walking dogs to managing Google Ad campaigns to handling your bookkeeping and taxes, there are companies like ours that would be delighted to take over your task for you.
  • Automation is a form of delegation. Can software do what you are doing? 
  • Find someone on Fiverr.com or UpWork. You can hire someone for a five-minute task or a 5-day task. Find them on any website that lists freelancers for hire. 
  • Plenty of people are looking for part-time jobs, just in case you don’t have enough work for a full-time person. 

If you can write instructions about how to perform the task, you can delegate it. And if you’re worried about losing control or quality, simply add milestones where you check the person’s work. Initially, it might not be faster, but in the long term, it will pay off.  

Delay It

If a task is not urgent or important, delaying it might be the right option. The problem with this option is that you have to handle the task at least twice: once when reviewing it and deciding whether to do it, and again when you finally decide to do it.  If you keep deciding to delay it, you’ve handled it more than twice. Not only can this take up precious time, it can be a drain on your energy as you see the incomplete task on your to-do list for a long time. 

However, there are times when delaying a task is best:

  • Delay if it’s not urgent and you have other urgent items to attend to.
  • Delay if it’s not important.
  • Delay to prioritize other, more profitable tasks first.  
  • Delay when the task is best done in batches. Here’s an example: Rather than answer each email as it comes in, think about blocking out three times a day where you check and clear your email. You can apply this time-batching concept to just about everything to gain efficiency: posting on social media (write and schedule a month’s worth in advance), returning phone calls, attending meetings (book them all on one day and keep other days clear), and running errands (delay until you have three to four errands, then do them all in one run. 

Be careful of delaying a task over and over again.  Something else may be going on with your mindset:

  • The task may be uncomfortable for you (find someone that loves to do what you don’t and delegate), or
  • How to get started is ambiguous (get training or find someone experienced to shorten your learning curve). 

Delete It

Some tasks should never have been added to your to-do-list in the first place. When there is no return on investment for a task, perhaps the best choice is to delete it.

Take a look at some of the things you do out of habit. Does it still make sense to do that task, or is it simply done because it was always done that way? 

Do, Delegate, Delay, Delete

Try the four-D time management trick for yourself to get an instant boost in efficiency and productivity. 

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Updates to the Employee Retention Credit

In early August of this year, the IRS released additional guidance on the Employee Retention Credit.  For 2021, the credit was expanded to allow businesses to receive a credit of up to $7,000 per employee per quarter if their operations were fully or partially shut down by government order or if they had a significant decline in gross receipts.

One of the biggest surprises and disappointments to come out of the guidance was the IRS conclusion that wages paid to majority owners and spouses do not qualify for the credit in most cases.  How IRS arrived at this conclusion is a rather complex and confusing path that uses family attribution rules that view an entity as controlled by an owner’s family. Many tax professionals are split on whether the IRS has sufficient evidence to make this claim, so this is one that might see some court cases in the future.

The guidance also clarifies that employers are not required to use the alternative quarter election consistently from quarter to quarter. In 2021, this election allows employers to compare their gross receipts for the prior quarter, rather than the current quarter, to the corresponding calendar quarter in 2019. For example, an employer could elect to be a Q2 2021 eligible employer if its Q2 2021 gross receipts are less than 80 percent of its Q2 2019 gross receipts and could then make an alternative quarter election in Q3 2021, again relying on the gross receipts decline in Q2 2021.

Lawmakers are also considering ending the Employee Retention Credit early to move unused COVID relief funds to the infrastructure bill that the House will be voting on. 

The ERC is a lucrative cash windfall for employers that do qualify. Don’t let complexity get in the way of claiming the credit if you are eligible.  Give us a call so we can help you reduce your taxes with the ERC and any other credit you may be eligible for. 

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Making Customers Pay…You

If you grant credit to customers or take recurring credit card payments, the unexpected can happen: a customer fails to pay on time, the credit card expires, or the check bounces. What can a business owner do to spend as little time as possible on these items but get the cash collected?  Plenty.  Here are our ideas:

Re-examine your credit policy

Is there any way you can have credit customers pay up front? Perhaps you can collect a deposit to minimize your risk. Perhaps you can request final payment right before you deliver the final product.  Perhaps you can convert credit terms to a layaway situation, like they use in retail. 

The best way to speed up collections is to change your payment terms if at all possible. 

Be proactive

If the client is late with a payment, respond quickly.  Send them proactive reminders. Give them a call just before the payment is due if you have this luxury. 

If the customer pays by credit card, monitor credit card expiration dates, and send reminders to update the card before it expires. 

Make it easy and clear on your website support section how a customer can update their credit card number on file at any time. Automating this process will save you a ton of time.

Payment failures and disputes

It’s inevitable that you will experience customers whose credit card payments, ACH withdrawals, and checks fail or bounce. As a business owner, you need to have solid procedures for you or your employees to process these exceptions. 

When a credit card payment fails, make sure your shopping cart, merchant account, or gateway processor notifies you of the failure. Contact the customer right away to correct the situation. The same is true of bounced checks or failed ACH deposits. Assess any extra fees and flag the customer account if you want to place any future payment or credit restrictions on them.     

You may also have customers that report disputes to their credit card company. Respond timely to these transactions as there is always a tight deadline, and make sure you have all of the documentation you need at the time of sale if this comes up. 

Develop solid collections processes

If the payment is late, start your collections routine.  Send out friendly reminders at first; then get progressively aggressive as the payment grows later and later. 

Follow-up steps are very important. Make sure your customer is getting your notifications, and give them a call before you have to take legal steps with them. 

Finally, if necessary, turn the payment over to a collections agency who can impact the customer’s credit report and possibly collect your money.

We hope you do not have too much of this activity in your business. But if you do, being proactive is a great way to reduce it. Check to see if you have all the processes described above in place to handle collections in your business so that your cash continues to flow. 

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Short-Term Capital Gains vs. Long-Term Capital Gains – What’s the Difference?

Have you ever wondered why gains are separated between long-term and short-term when you receive your 1099 at tax time? There is a very good reason for that, and one you might want to consider more carefully when investing.

Short-term capital gains are derived if you hold an investment one year or less before disposing of it.  Short-term gains are taxed as “ordinary income,” the same rate you pay on wages or business profits. 

Long-term capital gains, on the other hand, are generally taxed no higher than 20% and could be taxed at 0%, depending on your income. See the table below:

Tax Filing StatusIncome Range at 0% Rate Income Range at 15% RateIncome Range at 20% Rate
Single0 – $40,400$40,401 to $445,850> $445,850
Married Filing Jointly0 – $80,800$80,801 to $501,600> $501,600
Married Filing Separately0 – $40,400$40,401 to $250,800> $250,800
Head of Household0 – $54,100$54,101 to $473,750> $473,750

Exceptions to the long-term capital gains tax rate are collectibles such as art, jewelry, and precious metals.  These are taxed at 28% regardless of your income.  Bear in mind, though, that tax rates on ordinary income range from 10% to 37%.

Be sure to keep this information in mind when managing your investments. It could make a BIG difference come tax time!

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Help Wanted: You Have Options!

Many people have complained about the worker shortages this year. If you need additional workers in order to grow your business, here are some ideas for your consideration. 

Where to Look for Workers

We may think of workers as only being employees, but there are a lot more options if you’re open-minded.  Here’s a list of places to find workers of all kinds:

  • Recruiters
  • Employment agencies
  • Online job portals, such as Indeed, SimplyHired, and ZipRecruiter.
  • Social media, including LinkedIn Jobs
  • Your own website, email list, or employee referrals
  • Temp agencies
  • Specialized online job portals that cater to your industry and business type
  • Virtual assistant organizations
  • Day labor online sites and pickup areas
  • Job matching sites such as Upwork, Fiverr, and Freelancer.
  • Colleges, when you need interns and entry-level workers
  • Your local unemployment office
  • Small business development centers
  • Virtual assistant agencies or businesses
  • Chambers of Commerce and other business organizations
  • Professional organization directories where a license is needed, such as hair stylists, dentists, or CPAs
  • Friends, colleagues, competitors, and neighbors; your own personal or business network
  • Craigslist and local classified ads
  • High school guidance counselors if you want to hire straight out of high school
  • Outsourcing to a company that provides the labor that does what you need
  • Volunteer matching sites

Options for Adding Workers/Labor

There are many ways you can increase labor in your business. The obvious is hiring employees.  Beyond employees, there are many more options than you might first think:

  • Contractors, where you have a contract for a particular job and meet all of the IRS and other compliance requirements
  • Temp workers, where you “lease” an employee who stays on the temp agency payroll or hire them outright with a limited term of employment.
  • Part-time workers on your payroll
  • Companies that you outsource the work to and contract with as vendors to provide a particular service. They may outsource your labor needs or simply have labor as a component of the product or service you have contracted them to supply.
  • PEO, or professional employer organizations, act as a client’s employer and hire their employees as well as manage payroll and other HR compliance tasks.
  • Interns, which are unpaid positions. Check your state and local rules for laws regarding hiring interns. 
  • Volunteers.  This is common if you have a nonprofit organization. 

With all of these options available, it should be a bit easier to find ways to add labor and grow your business.

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The American Rescue Plan Act Creates ERTC Windfall for Startup Businesses

The American Rescue Plan Act extended the Employee Retention Tax Credit (ERTC) for the third and fourth quarters of 2021.  It has also expanded the pool of eligible employers who can take the credit to include businesses started during the pandemic.

A Recovery Startup Business (RSB) is a business that was started after February 15, 2020 and has average annual receipts of no more than $1,000,000.  While under the CARES Act, an employer had to experience a full or partial suspension of operations due to COVID-19-related governmental orders or a significant decline in gross receipts to take advantage of the ERTC, an RSB does not need to meet those requirements.

The time period to claim this credit for an RSB is from July 1, 2021 through December 31, 2021.  It can be claimed on an originally filed Form 941 or an amended 941.  As with other businesses, the credit continues to be capped at 70% of qualified wages limited to $10,000 per employee per quarter ($7,000 per quarter per employee), but an RSB is also limited to a maximum $50,000 in ERTC per quarter, regardless of the number of employees. 

For new businesses, this is an incredible tax benefit and a great safety net to the normal struggles of any startup. The goal is to get employment back to pre-pandemic levels. The total benefit could be as high as a $100,000 cash infusion for 2021, so it’s definitely worthwhile for eligible employers to take advantage of this while available!

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Re-Imagining Your Chart of Accounts

The Chart of Accounts is the backbone of your accounting records. It is a list of all of the accounts – bank, loan, asset, revenue, and expense – in your General Ledger, which holds all of your accounting transactions.

Think of your Chart of Accounts as a collection of buckets that hold dollars of items related to your business. Each bucket should be meaningful and have a purpose. For example, if you have three checking accounts, you need three buckets on your Chart of Accounts to hold the transactions for each bank account.  It would not make any sense to have more or less than exactly one bucket for each checking account. 

While it’s standard to have certain buckets or accounts for assets, liabilities, and equity, the number of buckets that you create for revenue and expenses can vary greatly from company to company.  It makes sense to create and design your accounts for what you need for tax, accounting, and decision-making purposes in your business. 

Let’s say you are a hair stylist.  Do you want your revenue to be in one big bucket? That’s all that Uncle Sam requires. But for decision-making purposes, you may want to break out men’s and women’s services, or cuts versus color and other treatments, or both. In that case, you would have four revenue accounts: men’s cuts, men’s color, women’s cuts, and women’s color.  This type of detail would help you see where your revenue is highest so that you can better manage your supplies as well as target your marketing to that group.    

Having certain expense accounts matched to the tax requirements can reduce extra work at tax time. For example, separating travel costs – hotel and airfare – from meals and entertainment is a common one, as is keeping meals and entertainment separate.

The goal is to get your Chart of Accounts working for you. If, when you first set up your accounting system, you accepted the default Chart of Accounts, it may be time to redesign and restructure the list so it serves your needs better. Here are some additional considerations.

  • What revenue or expenses do you want to watch more carefully? Should they be broken out in more detail? You can also use subaccounts to group transactions.
  • Is there cleanup work to do due to misspelling or other duplication?
  • Have you interviewed all the financial information users in your company to see how they need the data organized? 
  • What spreadsheets could be eliminated if the Chart of Accounts was better organized?
  • Does your Chart of Accounts support your budgeting process? If two people are responsible for controlling spending from one account, would it be useful to break it out?
  • Do you have too many accounts? Or too few? (Most people have too many due to poor data entry hygiene.)
  • Are you properly using other categorizing features in the accounting system, such as classes, divisions, and custom fields? 
  • What reports could produce better information for taking profit-focused actions in your business if the Chart of Accounts stored the transactions differently? 
  • How could key performance indicators be better linked to the Chart of Accounts?

These questions can help you begin thinking about how your Chart of Accounts can better serve you.  After all, it’s your business, your accounting system, and your Chart of Accounts. 

And if we can help you through the redesign process, please let us know. 

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Categories: July 2021 Newsletter

Child Tax Credit Payouts – What to Expect

The Child Tax Credit (CTC) is not new, but it was expanded as part of the American Rescue Plan Act of 2021, and you may be wondering what that means and how it will impact your situation.  The biggest takeaway is that instead of waiting until filing your 2021 tax return (in 2022) to take advantage of the credit, you can instead opt to receive part of the credit in advance, during 2021.

First, the overall amount of the credit was increased for taxpayers under a certain income level.  For those individuals, the CTC is $3,600 for each child 5 and under, and $3,000 for each child between the ages of 6 and 17.  This is an increase from $2,000 per child under the existing rules.  To receive the full amount of the expanded credit, your Adjusted Gross Income (AGI) must fall within the following limits:

  • Single Filer – $75,000 or less
  • Head of Household Filer – $112,500 or less
  • Joint Filers – $150,000 or less

Beginning on July 15, 2021, IRS will begin sending monthly payments to parents with eligible dependent children.  These payments represent an advance on the full CTC, and the rest can be claimed on the 2021 tax return.  The full monthly payment will be $300 per child under 6 or $250 per child 6 to 17 years old, and will be paid each month from July to December 2021.  Keep in mind that if you are over the above income thresholds but within the existing income thresholds for receiving the CTC, you can still receive up to $2,000 per child, just like in years past.

To automatically receive these payments if eligible, you need to have filed a tax return for 2020 by the extended May 17,2021 filing deadline, even if you are usually a non-filer.  You are eligible for these payments even if you do not have any income to report or taxes due.  If you were not able to file by then, you will still get the higher credit amount if eligible, but will need to wait until filing your 2021 tax return to take advantage of it.

If you would prefer to NOT receive the advance payments and instead take advantage of the full CTC when filing your 2021 tax return, you will be able to opt out using an online portal that IRS will be opening on July 1, 2021.  There will also be another portal where you can update your information, such as changing the number of dependents you have.

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Categories: July 2021 Newsletter

Business Meal Deduction Changes from the Consolidated Appropriations Act

The Consolidated Appropriations Act that was signed into law December 27, 2020 includes a temporary provision allowing a 100 percent write-off for business meals from January 1, 2021 through December 31, 2022.  The food and beverages must be provided by a restaurant, although they do not need to be consumed on a restaurant’s premises. The deduction also includes any delivery fees, tips and sales tax.  This is an increase from the 50 percent deduction that applied for 2020 and earlier years.

It is important to note that other than lifting the 50 percent limitation on deductions for meal expenses, this legislation doesn’t amend any of the other rules related to business meal deductions.  Therefore, to be deductible:

  • Business meals should still have a business purpose and involve dining with current or prospective customers, clients, suppliers, employees, partners, or professional advisors.
  • The food and beverages should not be lavish or extravagant under the circumstances.
  • You or one of your employees must be present when the food or beverages are served.

Although meals are 100 percent deductible, entertainment expenses are still disallowed.  So, while taking a client out for a dinner is tax deductible, the cost of the baseball game after dinner is not.  Furthermore, if an entertainment event includes food and beverages, they must either be purchased separately from the entertainment or broken out on a separate invoice or receipt.  Be sure to update your chart of accounts to make an account for meals and another for entertainment.

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Categories: May 2021 Newsletter