Inside Small Business | Small Business & Home Business Marketing
Archive for November, 2007
Slash Your Single Greatest Business Expense
If you think you know what the single biggest expense is for your business, think again. It may surprise you.
As a business owner you’ve already experienced the benefits of self-employment. You know what I mean: no schedules or performance reviews, a steady income for expenses and extras, total control over your tax bill, and more qualified, capable workers lining up for your next job opening than you could ever hire. Sound familiar? Well, at least it sounded great when you laid out your options on paper before taking the entrepreneur plunge.
If some of those benefits haven’t worked out like you’d planned, you can still take steps today to seize control over your single biggest expense for your business: taxes.
You’ve probably experienced what I call the “April 15 terror” as you wait to see the bottom line of your tax return. This often means a nasty surprise when you realize you owe Uncle Sam much more than you’d hoped, or more than you can afford.
Imagine how much better you’d sleep on April 14 if you could plan your taxes — how much you pay and even when you pay.
The single most expensive tax mistake people make is failing to plan. The key to beating the IRS – completely legally — is developing a proactive tax strategy to take advantage of the hundreds of tax loopholes available to you. The good news is, you still have time left in 2007 to be proactive, implement some money saving ideas, and save those deductions.
Here are two surefire ways to pay less tax in 2007.
Tip 1: be aware of your AMT status, and avoid AMT
The alternative minimum tax (AMT) has become a virtual “flat tax” for thousands of people earning more than $50,000 per year. Most of us fall into the trap due to itemized deductions. The AMT rules force you to calculate your regular tax – then calculate it again, under an alternative tax system, which takes back your deductions for state income and property taxes, medical expenses, home-equity interest, and more.
What’s worse, traditional tax planning can backfire and cost you more under the AMT. But there are strategies you can use to minimize the bite. One good solution for avoiding AMT: maximize your 401(k) contributions to lower your adjusted gross income. The best thing to do is act PROACTIVELY and work with your tax professional to create a plan to work with AMT.
Tip 2: Avoid missing deductions
Review how and where you are spending your money. Most business owners leave thousands of dollars on the table when it comes to tax deductions.
If you have a legitimate business and your expenses are necessary for you to earn your income, you’re probably entitled to a deduction. These expenses include things such as auto, cell phone, meals, entertainment, travel, computers, and even tax-planning expenses. (That’s right – a good tax planner is deductible herself) Reviewing your spending doesn’t just help prepare you for tax time. It rescues lost deductions before the end of the year.
Don’t get caught in the terror. Advanced planning can save you thousands in wasted deductions and AMT tax. Be sure to keep more of what you earn by being proactive and have a plan.
Dominique Molina is a licensed CPA and tax strategist. She is an experienced real estate investor and specializes in tax strategies for investors and business owners – helping them keep more of what they earn. She is managing partner of AccountOnIt, LLP in San Diego, California. For more information, please visit www.USATaxCoach.com.
Is it Time to Hire a Full Time Accountant?
Hiring an accountant for your business can be a tough decision, and knowing who to choose and when to hire is not easy. However, having an accountant can be helpful, even when your business is relatively small. Chartered accountants can help you to cut business costs and negotiate the minefield of complex financial rules that are in place today. If you need help finding an accountant, then this article can help you to ask the right questions before hiring someone, and explain what an accountant can do for you.
What can the right accountant do for me?
Tax planning
Accountants help with more than just tax returns, and can help you to set up finance and bookkeeping systems, as well as negotiating leases. When your business is running, the accountant can give you advice and help produce financial reviews and reports.
Business planning
A good accountant will also act as a business consultant. Through their ability as an accountant they can tell you if business decisions make sense or not, and how to make changes to pricing and cash flow. Often, an accountant is the most trusted business advisor you will have.
Networking
Another way that an accountant can help you is by putting you in touch with potential clients or business partners. You may need financing, and your accountant may know someone who is look to invest, and can help put the two of you together. Your accountant may even be able to refer new customers to you. If you pick an accountant with the right connections then you will benefit from this.
How to choose
Now that you know what a good accountant can do for you, how do you go about choosing one? Accountants are going to handle all of your money, so choosing the right one is a very important decision. Here are a number of factors you should consider when choosing an accountant:
Experience
Accounting rules are complex and change regularly, so you want someone who has enough experience to deal with these complex issues. Look for someone who has been practicing for at least 5 years. Also, you want to find an accountant who has experience within your specific industry, because laws can vary depending on the industry.
Response time
You want your chartered accountants to respond to you quickly, because tax issues can weigh heavily upon your mind. Pick an accountant who will keep in regular contact, and will call you promptly to let you know of any progress.
Firm size
Even though large accounting firms can handle small businesses, it is not often advisable to go for a huge company if you are only a small business. You will not get the same attention as you will from a smaller firm, and there is a greater chance for mistakes. Generally you should try to pick chartered accountants that are about the same size as your own company.
Knowledge of accounting systems
To make sure that the accountant can work quickly and efficiently, you want them to be familiar with the computerized accounting systems that you use. That way they can do your books and send them back much more quickly.
Comfort
One other crucial element you should consider when hiring an accountant is whether or not you feel comfortable with them personally. You are going to have a relationship with them, so you need to feel that they are the right person and that you believe in their ability. They may be very skilled, but if you don’t believe that they understand you and your business then you should choose someone else.
Interviews and references
You should treat an accountant like you would anyone else you were going to employ or buy from, in that you should seek referrals, interview them, and check their references. You should ask them how they would handle hypothetical situations, and also ask them to explain the relevant industry experience. This will give you some idea of whether or not they are right for your company
Fees
The final thing you should consider is fees. The fees of chartered accountants vary greatly, and can even vary within the same firm. Although simple tasks such as bookkeeping or tax returns might be at a low rate, for consultancy and business advice the fees might be higher because more senior staff will carry them out. If you find the right accountant then they will charge fairly, and will even tell you when you should move on. At some point your business might become big enough that it is too expensive to continue using an accountant for certain things, and you will need to use people in-house to do them. A good accountant will be honest with you and tell you this.
If you have thought about hiring an accountant, then the time is probably right for you to do so. A good accountant can do a lot for your company, and is an excellent investment.
Singing Pig is a community for entrepreneurs, business owners, and property investors. For more information, visit www.singingpig.co.uk
Tax Angles for Small Businesses
Looking for tax angles for small business owners? Tax-deductible business expenses can help improve your bottom line. Make sure you understand these tax tips for small business owners and find an accountant who can help you minimize your tax expenses.
Taxes are something that many small business owners don’t like to talk about.
You spend the whole year trying to scrape out a few dollars of profit and then Uncle Sam swoops in and takes a big chunk of it away at the end of the year. It can be frustrating, to say the least.
But it might surprise you to learn that Uncle Sam has a good side. Small business owners can discover his good side by taking advantage of the many tax benefits available to small businesses. In fact, by leveraging some of the tax benefits that are available to you, you just might be able to hold on to a little more of your hard-earned cash at the end of the year.
Car Deductions for Small Business Owners
Do you use your personal car for business purposes? If you do, you may be able to claim a deduction for the cost of the business use portion of your vehicle. There a couple of ways this can be calculated, but most small business owners track their mileage and expense it at the I.R.S. rate, which in 2006 is 44.5¢ per mile.
Home Office Deductions for Small Business Owners
Many start-up small business owners operate their business out of their homes. Under certain conditions, you can claim a deduction for a portion of your housing expense. This deduction is based on the square footage of a space that is devoted completely and entirely for business use. If you use the kitchen to prepare meals and conduct meals, you won’t qualify for a deduction. But if you use a spare room exclusively for business purposes, then you may realize a sizeable deduction.
Personal Asset Deductions for Small Business Owners
You may also be able to claim the business use of other personal assets such as computers, fax machines, tools, etc. If you qualify for these deductions, you can typically claim an amount equal to the percentage of business use multiplied by the overall costs associated with the asset.
Entertainment Deductions for Small Business Owners
You can deduct entertainment expenses? Absolutely – or at least 50% of entertainment expenses that are directly related to the operation of your business. Qualifying entertainment expenses include things like meals with clients and other activities that you can prove have a legitimate business purpose.
Travel Deductions for Small Business Owners
Business travel is also deductible, but only to the extent that it is used for business purposes. If you take a trip that has both business and personal components, you need to prorate the deduction to account for business use.
Retirement deductions
It is possible to structure a tax-free retirement plan for yourself that qualifies as a deduction for your business. Your business benefits from the deduction, and you benefit personally because the funds channeled into your retirement are not taxed – at least not until they are withdrawn when you retire.
The best advice for leveraging tax benefits for your business is to consult with a qualified tax professional. A capable professional will keep you out of trouble with the I.R.S. and offer suggestions for deductions you may not have considered.
Ken Gaebler is founder, Chairman and CEO of Gaebler Ventures.
Ken has over fifteen years of experience working with high-tech and other companies and a proven track record of successfully creating organizations that achieve market leadership positions.
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