small business

How Blockchain is Changing Small Business

Blockchain is Changing Small Business

Blockchain, blockchain, blockchain….what is the blockchain?

It’s plastered all over billboards, blog posts, and the news. It’s considered the new hotness and it’s poised to potentially change small business but you still aren’t 100% what it is or what it might mean for your business. Well, here’s the deal… 

The Blockchain Explained

The blockchain (adequately named) is a chain of blocks, each block in the chain contains data related to a specific transaction. When a transaction occurs, this information is stored in a block and then added to the chain. These blocks combine to form a distributed database that can scale as more and more transactions occur. Unlike traditional databases, this system creates a single shared ledger.

blockchain for small business

How does the blockchain keep transactions secure?

The blockchain maintains security through approval of its participants. Blocks are distributed amongst users (peer to peer network) and information is protected using private key cryptography. Rather than information being stored in a single location, data is distributed amongst many smaller decentralized networks working together as if one.

Each user has both a private and a public key. The public key is like an address by which other  users can send and receive digital assets; the private key is known (or should) only be known to the individual user. Combined, these keys form a user profile by which they can anonymously interact and create transactions with others online.

Why is Blockchain important?

●     Increased efficiency: A single ledger that’s continuously synchronized throughout a network potentially eliminates the need for reconciliations.

●     Reduced loss and fraud: Blockchain is designed to create and maintain unalterable records. This may help reduce the risk of fraud and show compliance through an audit trail.

●     Improved customer experience: Using blockchain to share information with clients and vendors may allow companies to serve customers more quickly and even find new sales opportunities.

●     Higher availability of capital: Blockchain technology may reduce capital consumption due to quicker settlement of trades, straight-through processing, and freed-up capital flows.

What the Blockchain Means for Small Business

A New Future for CFOs

Blockchain may also have significant impact on financial operations. The KPMG analysts who have been studying the technology anticipate these key trends:

●     Work with existing systems: Blockchain will not replace current CRM (Customer Relationship Management) software offerings overnight. However, it may take time to fully realize the benefits of blockchain's real-time view of data.

●     Go private, then public: Finance organizations may start with private blockchains to retain sensitive data, but could eventually add permissioned blockchains for industry partners and even customers.

●     Mind the regulations gap: It's going to take time for government regulators to understand the technology and its decentralization of financial activities.

Smart Contracts

Smart Contracts are a less talked about blockchain innovation that can help facilitate agreements between businesses directly. Leveraging the power of the blockchain, smart contracts may help eliminate legal fees and create speedier workflow between two entities without the need for a lawyer or intermediary.

Smart contracts aren’t beholden solely to two separate entities. A company can use the technology internally, using it like an operating system that governs different types of transactions. In this sense, a business might be able to better track parts and services, transactions, data flow and other functions.

Some of the small business areas that will likely be affected are:

●     Invoicing

●     Payroll

●     Fulfillment

●     Property Management

●     Lending

●     Construction

●     Legal Matters

●     NDAs 

Evaluating Blockchain for Your Business

Blockchain may have a big impact on core processes: Quote-to-cash, source-to-pay, and acquire-to-retire processes may all be affected.

But blockchain is not the latest new cure-all. It’s important for CFOs and executive leaders to address a number of questions about when and how blockchain implementation makes sense for their businesses, including:

●     What types of transactions are best handled by a blockchain technology?

●     What kind of infrastructure or new equipment will be required?

●     Who will manage a blockchain and new participants?

●     How can blockchain technology improve risk management?

●     What are the regulatory implications?

Industries Likely to be Impacted by Blockchain Technology

smart contracts

Blockchain can cut through that multilayered complexity by establishing a single ledger to track and capture as many of the interconnected web of transactions as makes sense for a given business. For example, consider the possibilities for a shipping company, which has to navigate transactions with:

●     Internal staff

●     Contract staff

●     Manufacturers shipping goods

●     Ports-of-passage requirements

●     Transfer fees and taxes at multiple stops

●     Bills of lading requirements at multiple stops

●     Transnational and international maritime laws and boundaries

●     Insurance requirements across multiple borders

●     Final delivery and confirmation

●     Losses and damages

Let’s take another, simpler example, like a landlord with several properties and a couple of employees. Here are some areas where blockchain technology might help:

●     Fulfilling payroll for employees

●     Rental Agreements between landlord and renter

●     Property leasing agreements for an office

●     Building Contracts

●     Invoicing of tenants 

Examples like these have many challenges that can stall business growth and cause headaches. However, leveraging the power of the blockchain may provide many opportunities to make complex process and workflows run smoother, safer, and more efficiently.

Businesses, developers and consumers are still learning and discovering the potential that blockchain technology holds. It has yet to completely overhaul an industry but the excitement behind it is undeniable, and the technology—potentially revolutionary.

For more insights about blockchain, visit here.

The information contained herein is general in nature and based on authorities that are subject to change. Applicability to specific situations is to be determined through consultation with your tax adviser.

Sources:

https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2018/07/h1-2018-pulse-of-fintech.pdf

https://www.forbes.com/sites/kpmg/2018/09/11/blockchain-and-the-future-of-finance/#7cda4f55620f

https://advisory.kpmg.us/articles/2018/blockchain-future-finance.html?utm_source=forbes&utm_medium=content&mid=m-00002211&utm_content=blockchainfinance&utm_campaign=c-00061241&cid=c-00061241

https://tax.kpmg.us/articles/2018/blockchain-and-future-of-tax.html

Some or all of the services described herein may not be permissible for audit clients and their affiliates or related entities.

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. 

 

 

Bookkeeping 101: The Ultimate Beginner's Guide to Bookkeeping

bookkeeping 101

Welcome to Bookkeeping 101, where you'll learn Everything you Should Know About Bookkeeping basics (And Then Some)

The term "bookkeeping" might conjure up scenes from a classic gangster flick, with back-alley deals, horse betting, and offers "you can't refuse." But the reality is that this couldn't be farther from the truth. Sure, we have our fair share of excitementan unreconciled transaction or an uncategorized charge (we kid, we kid). Bookkeeping is an arduous and time consuming process, a marathon that begins the day you open for business, to the day you (hopefully never) close your doors. 

The purpose of this article is to give business owners a full overview of what bookkeeping entails so that they can:

A. Implement proper bookkeeping practices

B. Decide which bookkeeping methodology to use (yes, there's more than one way to keep your books...) 

C. Decide if it's something you really can and should do. 

Since there is a lot of information contained on this page, we recommend you bookmark this page and refer to it often. 

bookkeeping basics

What is Bookkeeping?

Bookkeeping is simply keeping tabs on all of your financial transactions pertaining to business expenses. Or for the real nerds out there (and don't worry, that includes most of us here in the office), here's the Wikipedia answer:

Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation. There are several standard methods of bookkeeping, such as the single-entry bookkeeping system and the double-entry bookkeeping system, but, while they may be thought of as "real" bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process.

WHAT IS THE IMPORTANCE OF BOOKKEEPING?

Whether you own a niche pop culture news site or a multi-billion dollar car companyyou need to implement proper bookkeeping techniques. 

How you go about doing your books is up to you, but even if you don't use a 3rd party bookkeeping service you must keep solid records of business transactions.

If you don't, not only could you lose out on thousands of dollars in potential deductionsyou could also lose compliance with the IRS. If the latter happens, not only will you not be eligible for deductions, you might end up owing the IRS money. 

What are Good Bookkeeping Practices?

Rather than list a million things you should be doing, we will list some of the most common bookkeeping pitfalls and how you can avoid them, starting with unreconciled transactions.

Unreconciled transactions

Do you have unreconciled transactions on your books? Your books cannot be complete until all transactions that occurred in 2015 are categorized correctly. Solution? Think and act chronologically.

Loan payments

Do you have loan payments on your books? You may not have accounted for the principle and interest portions of the payments correctly. If you have categorized the whole payment to a single expense, your books are probably incorrect. Make sure you always account for the principle, as well as interest.

The infamous “shoe box” 

Simply put, if your receipts are sitting in a box somewhere, then you haven’t even begun to keep your books. There is really no way to reconcile this pitfall except for to suggest that business owners abandon this practice and implement correct accounting principles from the beginning. Trust us when we say, it’s a lot easier to start documenting your transactions from the start, than to go through a year of coffee stained receipts to try and categorize transactions you may or may not remember. 

Inventory count

Your books may have inaccurate values for inventory and Cost of Goods. This can be due to a miscount or, just as common, theft. This is especially important for business owners who have a physical product. Always stay current on inventory, and December 31 is always a good date to do a proper inventory check. This is a crucial step as you aim to properly keep your books. 

Payroll

Like a bicycle wheel, you’re payroll needs truing. Such maintenance requires that your income statement show payroll at gross but without a manual adjustment to the standard bank feeds, this account is probably only shown at net payroll. 

Accrual basis bookkeeping

There are numerous accounts that need to be manually updated at year-end. This task is often far too difficult if you do not have an accounting background. It’s best to discuss this process with a CPA or accountant. 

Should I do my Own Bookkeeping?

bookkeeping 101 funny

The question of whether or not you should do your own bookkeeping really comes down to a couple of things.

Time:

Bookkeeping is an extremely time consuming and tedious task. If you are in the early stages, you are most likely stretching yourself as it is--perhaps trying to manage your marketing, sales, PR, customer service, and inventory all at the same time. As a startup, we understand the "hustle" mentality. 

Expertise:  

Does your accounting experience boil down to a couple of college courses? Have you ever taken the time to get to the state and federal tax codes that apply to you? Are you familiar with the term "nexus"? 

Many business owners think they have what it takes to do their own books, and they very well might. But chances are, most business owners overestimate their "expertise" when it comes to proper accounting. 

Side note: On a philosophical level, you also need to ask yourself, what makes you happiest. Why did you start your business? Was it to categorize transactions, or was it to fulfill a need, explore your passions, share your gifts, better a product, or change the world?  

Chances are that you didn't become a business owner so you could practice bookkeeping. Hiring a bookkeeper will allow you to focus on the real reason you decided to put blood and tears into your product. 

What are the Different Bookkeeping Services Available?

bookkeeping 101 small business

The O.G. or “Traditional” Bookkeeping Services: Accounting Firms

The most traditional method of bookkeeping is to hire an accountant or accounting firm. (We’re talking local mom and pop shops and freelancers.) These guys offer great benefits over the DIY self method—like the fact that you’ll barely have to lift a finger and you’ll also be privy to expert insight (pending their qualifications of course).

Of course there are also some drawbacks with these bookkeeping services, such as higher fees and slow turn around times. Many of these institutions charge high hourly fees for consultations which can make it difficult to set a steady course for your monthly budget, not to mention their services can often be “behind the times” in terms of integrating technology. 

When it comes to the traditional method, business owners will have to consider whether or not they want to hire an in-house bookkeeper or an external accounting firm. Both methods can be expensive with hourly consulting fees and salary/benefit considerations for in-house hires. In-house accountants can be a solid option if you own a large operation and need constant oversight. Smaller businesses however, might find that the costs don’t outweigh the rewards when it comes to hiring a full-time accountant. 

accounting 101

The "Semi-Traditional” Bookkeeping Service: DIY Software

DIY software is an increasingly popular option, giving business owners a great UI to track their finances. Companies like Quickbooks provide robust software that can help facilitate advanced accounting functions. Not only are many of these types of tools extremely helpful, they can also save money when it comes to hiring a traditional accountant. Although this is a great option for accountants, it may not be optimal for business owners.

Having a good piece of software doesn’t make you knowledgeable about the US tax code, regulations or requirements. Business owners can miss out on deductions, disqualify themselves as a compliant business, and face IRS auditing through improper tax filing. Having simply taken an accounting class in college is no substitute for the wealth of knowledge an accountant brings to the table. 

Even if you feel confident enough in your accounting, there is still the consideration of time. Anyone who has started a business knows that they will soon find themselves being pulled in lot’s of different directions. Bookkeeping is a time consuming task—business owners need to ask if reconciling transactions is the best use of their time. A more honest labeling of "DIY" software is not a bookkeeping service, rather a bookkeeping tool.

online accounting

The "Fully Automated” Bookkeeping Service: Software+Human Touch

The third and final option which we will most definitely compare to a puppy being wrapped in a blanket—are software as a service options. This hybrid service provides the best of both worlds, giving users access to customized software as well as a dedicated bookkeeper. Instead of having to reconcile your own transactions, a bookkeeper (accountant) will do it for you. Some of these services like Bookly, offer unlimited consultation at no hourly cost. Instead they prefer the more modern “Netflix” model of a monthly flat-rate fee. This gives business owners comfort, knowing the can reach out for advice without fear of incurring extra costs and make more accurate monthly budget predictions. Rather than a mean (tool) to an end, this option is a completely automated solution. 

This option will not be for everyone, for example—extremely large and complicated corporations or accounting firms (just covering our bases). However for the other 90% of business owners—this type of bookkeeping service  is likely to be the most inclusive and cost effective. It offers all of the good (and more) of the aforementioned methods without the bad. The hybrid mixture of cloud-based tech combined with a human element of a bookkeeper takes away the headache of navigating tax law and entering data—while still providing a high touch high tech solution to your bookkeeping service needs.  

Before clicking the X on your browser, or the button below, remember to ask yourself two things: "Do I have the expertise to make the most of my tax returns?" and "Are my talents best spent doing my own bookkeeping?" If you find yourself unsure on either of these fronts—click the button below and we'll give you a no-hassle consultation where you can ask any questions you might have and even get a free month trial of our services. 

 

 

How Business Credit Can Affect Your Business

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Like your personal credit, your business has its own credit scores too—scores that can help (or hurt) you in a number of ways. Thus, it’s best to know what they are and how they can affect you.

How can business credit help me?

A good business credit score can help you secure better interest rates on loans, decrease instances where you need to prepay for a specific product or service, and secure better trade terms with important suppliers in your industry.

Let’s say you’re looking to start a hair salon. You plan on purchasing salon equipment, such as expensive styling chairs and supply trolleys. In addition, you’ll need to keep consistent inventory of hair products. How do you plan to buy all this equipment and inventory?

Maybe you have money saved up or generous friends and family that are willing to help out. In the likely case that that doesn’t cover all your expenses, keep in mind that lenders and suppliers need a means of determining how well your business repays debts before they will approve you for financing or favorable payment terms. This is where business credit scores come in. A lender can check your business credit report and/or pull your business credit scores to see how likely you are to make on time payments.

Whether it’s equipment and inventory for a hair salon, construction materials for a home repair company, medical supplies for your office, etc., startup costs, expansion costs, and general running-your-business costs can add up to much more than expected. Having good business credit scores can be your best bet for securing financing options you can afford, or simply keeping your business afloat when the costs pile up or cash flow fluctuates.

What is a business credit score?

Just like personal credit, there are a few big credit reporting agencies collecting information about your business credit. Each agency can have different information on file for the same business, which means they are creating a different business credit report and calculating a different score for your business. Three of the most notable business credit scores are:

Dun and Bradstreet PAYDEX Score, used by suppliers and vendors to determine your payment terms. Scores range from 1 to 100, higher scores indicating better payment performance.

The Intelliscore Plus℠ from Experian, used by lenders to determine the likelihood of delinquency over the next 12 months. Again, scores range from 1 to 100.

FICO® LiquidCredit® Small Business Scoring Service℠, used by the SBA to pre-screen applications for commercial loans under $350,000. Scores range from 0 to 300, where the minimum score to pass the SBA’s pre-qualification is currently 140.

Top tips to improve your business credit scores

It’s tough to add another thing to the list of what you need to take care of as a business owner. Fortunately, taking care of your business credit is similar to taking care of your personal credit. Here are a few things you can do now to keep your business credit reports and scores in check:

Pay bills on time. Pay early if you can! To score a 100/100 on your PAYDEX score, you’ll have to consistently pay early.

Open multiple credit accounts, such as a business credit card, a line of credit, or loan. Use only your business accounts for your business expenses to ensure that you keep your business and personal finances separate, and try to keep your balances under 25% of the available credit line.

Maintain good relationships with your suppliers and vendors, and check to see if they report to business credit reporting agencies so that your positive payment history is being reflected in your business credit report.

Check your reports for errors or derogatory remarks. 25% of small business owners have reported significant errors on their business credit reports. If you find an error, be sure to request a correction from the reporting agency.

 

Gerri Detweiler is Head of Market Education for Nav, which provides business owners with simple tools to build strong business credit. Her articles have been widely syndicated, and she writes a column for Money.com. She is also the coauthor of Finance Your Own Business: Get on the Financing Fast Track.

Please note that Bookly’s sponsorship of this blog article is not intended to address the specific circumstances of any particular individual or entity and does not constitute an endorsement of any entity or its products or services. This content represents the views of the author, and does not necessarily represent the views or professional advice of Bookly.

Where Should I set up my Business?

north east city

Where should I set up my business?

Now that you have decided to form an LLC or Corporation, the next step is to determine to either set it up in your home state (physical location) or choose another state. This is a decision you should not make lightly or do it because "someone" said it was a good idea without investigating how it will effect you and your business specifically. 

For most small businesses there are two factors to considered when deciding where to form your LLC or Corporation: 

  • Cost of forming in your home state vs. the cost of forming in another state and foreign registering to do business in your home state. 
  • Taxation & Requirements of both states of registration.

1. Home state incorporation vs. foreign registration

If your business is owned by one or a couple members/shareholders and its primary business activity is conducted within your home state it is typically most efficient to register in your home state. This is usually more cost effective than registering your entity in another state and then registering as a foreign entity to do business in your home state. 

2. Requirements and taxation

Before registering in a foreign state it’s a good idea to research that state’s ongoing business requirements as well as general state taxation requirements. A company that foreign registers to do business in another state is subject to filing taxes and annual report fees in both states. 

Another factor to be aware of is the potential of litigation in each state you are registered to do business in.

4 Things you Should do NOW to Prepare for Taxes Next Year

woman with glasses

Tired of always being stressed about taxes? Coming to the realizing that “There IS a better way” is the first step to taming tax time. The next step is to figure out what you can do now, months ahead, to build up to a stress free April 15th. 

Getting ahead of the game can lead to a less taxing tax time with fewer mistakes, meaning your business and you are much happier. Here are a few easy things you can do now for a less taxing tax time in 2017: 

1. Organize Your Paperwork

You typically wait until April 14th to even think about gathering all your necessary materials. After all, you don’t file until April 15th, so why rush things? The trouble with this thinking is you’re setting yourself up to have problems right off the bat. Instead of waiting around and rushing at the last minute, get all your paperwork together right now, well before the New Year hits. Find a good spot that works for you – a folder system, or by digitizing all your receipts and forms with a company like Shoeboxed. Of course you won’t receive tax forms from clients or banks until next year, but getting your system organized now will make it a snap to fit those forms in! 

2. Brush Up on Deductions

There are undoubtedly a ton of deductions you need to be taking at tax time. The problem is you wait so long to do your taxes you don’t have time to properly research them, so you just skip this section. This is literally like leaving money on the ground and walking away. Take time now to brush up on these deductions. Home office, mileage, office expenses – there are so many for you to take that it’s worth it to look at everything way before it’s time to file. This way you don’t miss anything and you can save a ton of money! 

3. Take Advantage of Tax Breaks

We mentioned deductions earlier, and hopefully you already have some to utilize. Even if you don’t, though, you have a couple months before the end of the year. It’s time to take advantage of the tax breaks available to you. For instance have you given to charity this year? If not, there’s still time. There are also tax breaks for things like making your home “green” or when you contribute to a retirement account. Now’s the time to make these changes so you can get some help in 2015. 

4. Remember There’s an App for That

Feel like everything is getting away from you? Wish you could get organized but having trouble keeping up with your basic recordkeeping, much less your taxes? Luckily, you have options. Bookly can help you with your small business accounting. 

By freeing this up you have more time to do other things like get your tax documents together and figure out deductions. This can also aid you going forward and instead of always worrying about your finances you can concentrate on growing your business. Bookly is here to help get your books in order, discover those hidden tax deductions, and keep you up to date so that tax time doesn’t sneak up on you. Try us today and make tax time less taxing!

Your Small Business Tax Checklist for a New Hire

ping pong office

Congrats on your new hire! Bringing a new face into the office and culture is always an exciting time as it presents so many opportunities for the future. Hopefully your new employee will be with you for quite some time and bring a whole new perspective on your business. 

In the meantime, you have to worry about onboarding. There’s plenty to do and forgetting even just one step out could be a huge problem, both for the new employee and your business. To help you out, here'ss a checklist of forms you must fill out.

EIN

If this is your first hire, make sure you have your Employee Identification Number (EIN) from the US Internal Revenue Service. This number is also known as an Employer Tax ID or as Form SS-4 and is necessary for reporting taxes and other documents to the IRS. State governments might also ask for this number so it’s important to get it ASAP. 

Form W-4

This is the typical form that everyone thinks of when they get a new job. This form is for calculating the amount of money to withhold from each check the new hire gets. They fill out the number of dependents, marital status, and additional withholding amounts. You take this information and figure out how much you withhold every check to send to the federal government. State Income Withholding Depending on the state you operate out of you likely have state taxes to consider. This typically comes with a separate form much like the W-4. Here the employee fills out much of the same info. Every state’s process is different, so make sure to contact your state’s Department of Revenue or equivalent to find out exactly how the process works. 

Form I-9

This form is for verifying that your new employee is actually eligible to work in the United States. It proves that either they are a natural born or naturalized citizen or otherwise have permission to work in the country. Make sure to be thorough with this form, especially if the employee isn’t a natural born citizen, because the consequences could be dire if the government thinks you’re hiding an immigration issue. Your state or industry may also require that you E-Verify that your employee is eligible to work in the U.S. Be sure not to forget this vital step! 

Workers’ Compensation Insurance

Every business with employees must carry workers’ compensation insurance coverage. This covers the employee in the case of an emergency like a box falling on their head or any other injury on the job. Each state will have its own version of this insurance and you should contact your state’s Workers’ Compensation Insurance program for more information. Post Notices Another thing you should do to fulfill your ultimate obligations is to post required notices around the workplace. For example, you should post information about the Compensation Insurance in the break room or some other place where employees are likely to see it. There are also notices about federal and state taxes as well as rights and employer responsibilities under labor laws. Recordkeeping One last important tax task to consider is federal and some state employment laws require you to keep accurate records. 

If this is your first employee and you’re used to playing hard and fast with your record-keeping, it’s time to take it seriously. The more accurate and detail-oriented your records are the better off you’ll be anyway as knowing where every single cent is and has gone will help you grow your business. This may seem overwhelming, but it’s worth it to go through the hiring process right the very first time. Your second hire will be easier, and your third hire will be even easier still until eventually you’ve built your empire. If you have questions, always be sure to contact a good accountant who will be happy to help.

Good luck with your new hire! 

Beware! Tax-Related Scams Small Business Owners Should Watch Out For

hackers

The holiday season isn’t only the most wonderful time of the year for you, it can be the time when scammers and spammers come out to play. 

I recently read an article from TaxGirl Kelly Erb on a new phone scam targeting U.S. taxpayers. This detailed scam involves a series of phone calls purportedly from the IRS telling the taxpayer that his identity has been stolen and asking for identifying details to aid in the investigation. Of course, the scammers then use that identifying information… to steal the unwitting taxpayer’s identity. 

This new version on the same old scam got me thinking about other financial frauds I’ve seen over my years writing about small business and taxes. 


Why Financial Scams Work 

According to a 2013 survey by the FINRA Investor Education Foundation, 8 in 10 survey respondents were approached about some kind of financial fraud. And 11% of respondents actually lost money to fraud. 

Most of the time, fraud occurs because of totally understandable ignorance. If you’ve never had to deal with the IRS in your entire life, how would you know that they normally contact you with important information via U.S. mail and not a phone call? Or if you’re fairly new to email, that message from your bank asking you to click a link and give them your private details could be very tantalizing. 

Fraudsters also play on fear. There’s a reason that they use email subject lines like “Your identify has been stolen!” They want to get your guard down and panic you so that you throw your good sense out the window as they lure you farther into the scam. 

Sadly, scammers also feed on desperation. In a bad economy, a good person struggling financially can be tempted by offers of money that seem too good to be true and that they normally wouldn’t look twice at if not in a place of financial need. 

Be suspicious of easy money and anyone who asks for your identifying information out of the blue and you’ll be inoculated from most fraudsters. 


Common Scams Small Business Owners Face 

Email Phishing Scams – Beware of emails that appear to be from your bank or the IRS asking for personal information. Most times, these emails will tell you to click on a link and enter identifying data, like your social security number. Of course, the link usually goes to a site set up by the fraudster, who then uses it to collect the data he can later use to steal your identity. If you ever receive a communication from the IRS or a financial institution through email, don’t click any links. Instead contact the purported sender yourself to find out if the communication is legitimate. 

Tax Preparer Fraud – This scam occurs when a less-than-professional tax prepare claims she can get you a huge tax refund. Often, you’ll notice that she receives a percentage of your return, so, of course, it’s in this fraudsters best interest to take every outrageous deduction and tax break she can find. She’ll also often fail to give you a copy of the return, or insist that the refund be deposited into her bank account first. Make sure your tax preparer is a professional and beware of too-good-to-be-true tax refunds. 

For more info about these and other common scams check out the IRS’s common scams page or their Dirty Dozen Tax Scams list for 2014. 

 

Quarterly Estimated Tax Payments Explained

white board instructor

There are a lot of upsides to being a small business owner–fun, flexibility, the chance to pocket your profits. But there are also downsides, and one of those is that you (unlike your neighbor with the plain ol’ W-2 job) get to deal with Uncle Sam multiple times per year for fun things like quarterly tax payments

What are quarterly estimated taxes?

The U.S. is a pay-as-you-go tax system. This is why, when you worked for an employer, you probably noticed that they probably took taxes out of every paycheck. The problem is, when you’re self-employed, you no longer have an employer to take the taxes out of your check, but Uncle Sam (and, if you live in a state with an income tax, your state’s taxing authority) still want their money. 

Because of this, the government asks that small business owners pay quarterly tax payments four times a year.

Quarterly Tax Payment Due Dates:

1st Quarter: April 15th 

2nd Quarter: June 15th

3rd Quarter: September 15th

4th Quarter: January 15th

How much do I owe for my quarterly tax payments? 

Ideally you will pay, throughout the year, the exact amount in taxes you will ultimately owe on April 15th. Of course, exactly how much profit you will make is almost impossible to determine, so that’s why these are “estimated” taxes. 

First off, if you don’t expect that you will owe more than $1,000 in taxes in April, then you don’t have to make quarterly tax payments. This may occur because your business isn’t profitable yet, or because you or your spouse also have taxes withheld from a W-2 job which covers your tax burden. 

The IRS provides form 1040-ES to help you figure out just exactly how much you owe each quarter. Don’t worry if you’re a little off – you’ll either have to pay a little more or a little less at the end of the year. If you pay far too little, though, you can be penalized. 

How to Pay Your Quarterly Tax Payments

Via  Giphy

Via Giphy

If you are self-employed and think you'll have to pay at least $1,000, or a corporation who thinks you'll owe at least $500 in taxes you will most likely have to make quarterly tax payments. 

According to the IRS website:

If you are filing as a sole proprietor, partner, S corporation shareholder and/or a self-employed individual, you should use Form 1040-ES, Estimated Tax for Individuals (PDF), to figure and pay your estimated tax. For specific information on how to pay online, by phone, or by mail, refer to the section of Form 1040-ES titled "How to Pay Estimated Tax." For additional information on filing for a sole proprietor, partners, and/or S corporation shareholder, refer to Publication 505, Tax Withholding and Estimated Tax.

If you are filing as a corporation, you should use Form 1120-W, Estimated Tax for Corporations(PDF), to figure the estimated tax. You must deposit the payment using the Electronic Federal Tax Payment System. For additional information on filing for a corporation, refer to Publication 542, Corporations.

What happens if I don’t pay quarterly estimated taxes? 

If you don’t pay quarterly estimated taxes, or pay far too little, you can be penalized. 

One smart way to avoid penalties on quarterly tax payments is to pay at least the same amount you owed in taxes form last year. For example, if you owed $2,000 in taxes last year, if you make four quarterly estimated tax payments of $500 throughout this year, you should not be penalized. Do keep in mind that if you make much more in profit this year than last year that you still might find yourself paying a large tax bill in April. 

 

This is not an all inclusive treatise of quarterly tax payments. For further reading we recommend you visit the IRS's Estimated Taxes page.