Common Tax Mistakes!!!!

Small business tax mistakes

Whether you like it or not, you always need to file taxes, and you have to do it on time to prevent penalties. You also have to make sure that everything is accurate as well, otherwise you run the risk of overstating or understating your taxable income.

Avoid

• Not deducting startup costs

Deducting startup costs is a very good idea since you will get to pay less on various taxes. The IRS allows you to deduct startup cost.

• Mixing business with pleasure

Many small business owners are paying for personal expenses out of their business accounts and vice versa. This can be problematic as it could lead to a wide range of financial problems with expenses be convoluted. So, it’s crucial to keep your private costs away from business costs, otherwise you can end up with various IRS issues.

• Not picking the best business structure

Different company structures will have their taxation method. An LLC will be different than a C corporation for example. You have to understand the type of company structure that works for you and use that to your own advantage. Work with a professional to select the best business structure for your business.

• Doing taxes on your own

It’s important to hire a professional when it comes to filing your taxes. An accountant or CPA will help you manage your finances and file your taxes faster and with better results. Plus, this way you get to avoid any potential issues and/or penalties.

• You don’t pay taxes on time

Not paying on time is problematic, because you will have to deal with various penalties. These can add up the more you avoid paying your taxes. So, the idea is that you should always try to pay your taxes ahead of the deadline to ensure you don’t run into issues with the IRS.

• Over reporting your income

Not deducting the correct business expenses can result in you over reporting your income. As an example, are you considering food & entertainment, car expenses, home office expenses, etc. If not you are leaving money on the table and can possibly be paying too much taxes to the government.

AS A RESULT…

There are lots of small business tax problems that you can run into. This is why working with a reliable tax professional should be taken into consideration for the best possible outcome!

Pros and Cons of Filing Our Own Taxes

Thinking about preparing your own taxes?

The Pros and Cons of Preparing Your Own Taxes

Whether we like it or not, it can be quite an issue if we choose to prepare our own taxes. This is why it’s important to know whether it’s a good idea to handle your own taxes or not. What you want to do here is to make sure that you hire an accountant or someone that can help you deal with all these costs the best way you can. With that in mind, here are some of the pros and cons that come from preparing taxes on your own.

Pros

• Saves Money

One of the main reasons people prepare their own taxes is to save money. However, it will be up to you to identify the right way to file your taxes and properly account for all income, expenses, credits and deductions.

Cons

• Loss of time & money

You will need to learn how to prepare your taxes, something that requires a lot of work and commitment. Then you also have to think about the capital losses that may appear as a result of not allowing a professional to prepare your taxes. Keep in mind using things like tax preparation software without the proper knowledge may cost you to leave money on the table.  

• Errors

Even if you want to be very careful, you still run into potential errors. Which may not seem that problematic at first, but it can add up in the long run. It’s a much better idea to leave this to the experts instead of experimenting with your finances.

As you can see, preparing your taxes can save you money, but it can also expose you to various financial issues/errors both long-term and short term.  Study all the pros and cons listed above; then it can simplify whether preparing taxes on your own is a good idea!

Tax Responsibilities as an LLC

Responsibilities as an LLC

Creating a LLC is one of the most popular ways for a company to exist but you have to keep in mind the  potential tax responsibilities that come from creating this type of business. The LLC formation offers you limited liability protection if you are an owner. However, you are taxed at your  personal income tax rates.

First let’s start with key questions that need to be asked and answered in order to understand the tax responsibilities of an LLC.  Now will be a great time for you to grab some note taking materials!

ASK THIS!

* Is an LLC a taxing entity?

An LLC is not a taxing entity, so the IRS doesn’t recognize it as a business form that can pay taxes.

*How can you pay taxes as an LLC?

As an LLC you can be a single member or a Multi-member; the way you are taxed comes down to how many members you have.

*What are the tax responsibilities for a single member LLC?

Single member LLC will be taxed as a sole proprietorship. The LLC’s net income, expenses and income as a whole is prepared via the Schedule C. The net income of the business is added to the personal tax return of the owner.

NOTE: A single member LLC can choose to be a disregarded entity when it comes to income tax, so the LLC and its owner can be seen as separate entities. This decision is made by the LLC’s owner.

*What are the tax responsibilities for a multi-member LLC?

              Multi-member LLCs will pay taxes as a partnership.

NOTE: Partnerships are not required to pay their taxes to the IRS, but the individual partners will pay their tax based on their ownership share in the partnership. The partnership will have to file an informational return; that can be done with help form 1065.

Once that is done, the information from the 1065 is used to prepare a Schedule K-1 and the is prepared for each one of the partners.

Good - Excellent Credit

The Importance of having a Good – Excellent Credit Score

THE WHY

Whether you want to face the reality or not, your credit score has a huge impact on your life. The perks are endless with having good- excellent credit; good interest rates for your mortgage, car and acquiring a personal and/or business loans are the most common perks of good-excellent credit.  

THE DEFINITION

What is good-excellent credit?

 FICO score is most commonly used amongst lenders. Therefore a FICO score of 670-850 is within range of good-excellent. There are multiple ways to check your credit score, However I suggest usingMyFico.com

THe HOW  

How is my credit score made up?

Your credit score is based on five categories:

• Payment History (Attributes to 35% of your Credit Score)
• Credit Utilization (Attributes for 30% of your Credit Score)
• Length of Credit History (Attributes to 15% of your Credit Score)
• New Credit Inquiries (Attributes to 10% of your Credit Score)
•  Mix of Accounts (Attributes to 10% of your Credit Score)

TIP!

These categories are aggregated from your credit report which you can obtain for free by visiting Annualcreditreport.com. You can get your credit report for free once a year. The site is authorized by the Federal law, so it’s legit and trustworthy.

THE PROCESS

How you can build a good credit score?

To build a good – excellent credit score, you’ll need to;

1.     Keep your debt balances below 30%

2.     Make sure all necessary payments are made on time

3.     Make sure the credit you currently have contains installment and revolving loans

4.      Prevent closing accounts

 THE BENEFITS

What can you do with an excellent credit score?

Better credit card rewards: Some companies will give you no annual fees, cash back and other benefits. Moreover, you can get credit card churning and lots of bonus points for your purchases too.

Qualifying  for a mortgage, car loan, business loan, Etc.  Moreover, an excellent credit score can also have a positive impact on your job search as some employers will look at your credit report to determine if you are an organized person that always pays his/her debts on time. This can bring in a major advantage on your resume.

Lower interest rates for investment. As a result, an excellent credit score can help you create a good investment portfolio and earn/save money with lower interest rates.  There are also instances where Insurance companies will offer you a lower rate if you have no loan and credit issues.

There are tons of benefits to harness if you have an excellent credit score. Even if it seems like a tough objective, it’s something doable, Make sure that you properly manage your debt, and use financial literacy as a guideline at all times. Make sure to drop your email address below to receive notifications from Ms. Business101 on Credit tips, financial literacy, business tips, and so much more.  Also follow me on Instagram, I am always dropping gems to help you level up personally and professionally.

Hiring an Accountant

When should you hire an accountant?

Finding out what’s wrong with your business is why you may consider hiring an accountant. Most small businesses can struggle with their day to day finances. Keeping a keen eye on your finances can be very time-consuming, and many times it can lead to some major challenges along the way. This is why you may consider hiring an accountant who you can trust, who has the time, expertise and professionalism needed for a task like this.

Q: But when should you hire an accountant?

A: If you don’t know anything about taxes or accounting.

If this is the case, then you have to hire an accountant right away. Dealing with taxes and managing your finances is extremely important. Plus, it will be a lot harder for you to identify what works and what doesn’t within your business. Hiring a true professional that can give you the necessary value and expertise is crucial; in addition learning accounting on your own can be very time consuming and even more costly in comparison to hiring a professional. It’s a lot easier to hire someone that has the right tools and expertise on this.

Q: Is your company growing rapidly?

A: If yes, then it may be time to consider outsourcing.

While it may be easy to handle your finances when you have no employees or very few employees , as your company grows you have to outsource this type of task. Working with a professional is a lot better, as the accountant will help you get a good insight into the total costs of your business.

Q: Do you have the time for managing your finances solely?

As a business owner, you always have to work hard to grow your company. So, you may not have the time to handle the finances, and that can be very problematic. What you want to do is to invest in the right accounting services, to help alleviate the stress of dealing with finances so you can focus on more important areas of the business.

Q: Are you not able to see profits even if the revenues are increasing?

A: An accountant can look at your overhead costs to identify the issue.

In case this happens, a good accountant will always help you figure out what’s wrong with your business, so you can rectify this and start growing your business correctly.

Q: Finding it difficult to expand your business?

A: An accountant will help you determine if it is the right time to expand your business based on the newly acquired overhead cost in comparison to potential revenue.

A good accountant will help you make sure that you comply with the payroll, income, sales and tax requirements that come from dealing with a new business. In addition, an accountant will help you determine if it is the right time to expand your business based on the newly acquired overhead cost in comparison to potential revenue. The accountant has the knowledge and expertise needed to pull this through. In the end, it’s safe to say that working with a good accountant can help you obtain some incredible results without a lot of trouble. The right accountant will always offer you a stellar value for your money, and you can focus on growing your business the best way you can. The faster you hire an accountant, the better the results can be for your company as a whole!