Thursday, September 20, 2018

List of Common Expenses and Tax Deductions for Construction Workers and Contractors

With the rigors of physical labor and the headaches of compliance regulations, most construction workers would appreciate a break after a long day on the site. Unfortunately, we can’t help lighten your material load. We can, however, ease your tax burden.

Lots of construction workers are classified as independent contractors and thus are seen as self-employed professionals. If this describes you, then you don’t have taxes withheld from your paycheck like a traditional employee. While this means more of the tax-prep burden falls on you, it also means you can claim deductions against business-related expenses. Deductions help you lower your tax burden and keep more money.

When it comes time to file, you’ll list the majority of your tax deductions in Part II of your Schedule C (IRS Form 1040). If you have less than $5,000 in claims, you may be able to use Schedule C-EZ. Whichever you choose, both are due April 15 along with your annual tax return. If your business is registered as a sole proprietorship or single-member LLC, then you also need to fill out the Schedule C.

(NOTE: If April 15 falls on a weekend or holiday, it is observed the following Monday or Tuesday. In 2018, this means your taxes aren’t due until April 17.)

Transportation Expenses (Line 9)
When you’re deducting transportation costs, you can’t deduct the commute between your home and the jobsite. You can, however, deduct trips between multiple job sites, as well as those made for business-related trips throughout the day (e.g. traveling to get supplies or attending meetings off-site).

You also have to choose between two methods of tax deduction: the actual expenses method or the standard mileage method.

Method 1: The Standard Mileage Rate
Because there are so many expenses to account for when it comes to using a car for business, the IRS consolidated the most common of them into one single rate per mile. The standard mileage method is by far the simplest method. To calculate your deduction, multiply the total number of miles used for business by the rate set by the IRS for the tax year ($0.535 per mile for 2017). This figure is meant to reflect each of the following expenses:

  • Gasoline
  • Lease payments
  • Insurance
  • Maintenance and repairs (e.g. oil, tires, etc.)
  • Vehicle registration
  • Depreciation

Because the IRS bundles these expenses into one standard mileage rate, it won’t allow you to deduct them piecemeal should you choose this method. That being said, here’s an example of how you would use the standard mileage method to claim a deduction:

You drove 14,000 miles for the year. Excluding your home commute, 7,000 of those miles were driven between multiple construction sites and supply runs. Since you can only deduct the business use of your car, you can only deduct the rate based on those business-oriented 7,000 miles. That would be 7,000 x 57.5¢, which equals $4,025.00.

An important note: If you’ve used the actual costs method (see below) for this car in a previous tax year, you are not allowed to switch back to the standard mileage method. There are also a few other cases where you cannot use it: If you aren’t the owner or lessee of the car, or if you use five or more cars at the same time.

Method 2: The Actual Costs Method
The actual cost method entails deducting each and every business-related car expense by itself. This includes gasoline, insurance, maintenance, depreciation, lease payments and more.

Claiming actual costs requires solid record keeping and holding onto receipts. You can do this manually with pens and papers, or automatically track and categorize expenses with accounting software like QuickBooks.

Some expenses, such as gas and maintenance, are relatively easy to track as long as you hold on to your receipts. Other actual costs, such as depreciation, can become quite complicated. Here’s an example of how you figure out depreciation for a $10,000 vehicle:

You buy a $20,000 car (congratulations!). You realize that your car won’t provide all its value in the first year, because you plan to own it for more than a year. Since it provides you value for the entire time you own it, you must manually account for that value over time.

That’s depreciation. There are many ways calculate an asset’s depreciation, but the easiest way—and the one preferred by the IRS—is by using the “straight-line method.” This is the total cost divided by the number of years (maximum of seven years from the point the car has been put into service).

If you depreciate a $20,000 car over seven years (the maximum number of years allowed), that’s $20,000 / 7 = $2,857 per year depreciation expense. Keep in mind, however, that you can only deduct the business-related portion of the depreciation expense. If you used the aforementioned car for business 60% of the time, then you can only deduct 60% of $2,857, or $1,714.

There are other things to keep in mind when using the actual expenses method. Should you decide to claim depreciation, the vehicle will also have to meet weight and type requirements. On top of that, once you use the actual costs method, you will not be allowed to use the standard mileage rate for any following year.

If this sounds confusing, that’s because it is. That’s why most people decide to use the standard mileage method.

Parking and Tolls
If your business meetings or supply runs require you to pay for parking or a toll, those expenses can be claimed as tax deductions. For example, if your local hardware store doesn’t validate parking while you’re picking up supplies, you can deduct that parking expense. You can also deduct tolls on roads and bridges.

Be aware, however, that if you’re taking a break for lunch, you cannot expense the parking, as it is not business-related.

Public Transportation 
If you use municipal bus or rail to get around, then those expenses are also deductible. But, just as with car-based deductions, you cannot claim either leg of your commute to or from home.

Deductible Costs of Doing Business

Advertising (Line 8)
You can deduct any materials you use to market your business. This includes not only the flyers, branded promotional items themselves, but also the cost of hiring someone to design and make them for you.

Just remember that “advertising” doesn’t apply to things like business gifts, holiday party fare or anything that isn’t branded.

Business Insurance (Line 15) 
The cost of insurance premiums related to running your business is entirely deductible. This can include contractor general liability insurance, property insurance and others.

This doesn’t, however, include your personal health, auto or disability insurance.

Contract Labor (Line 11)
If you made payments to any subcontractors who have worked with you on a job, those payments are deductible.

Note that those contractors, unless they’re employees, will be seen as “independent contractors” for tax purposes. Employees have their own deduction, which is listed in the “Wages” section below.

Health Insurance Deduction (Line 29 of IRS Form 1040)
You can deduct the costs of your personal health insurance premiums as a self-employed person as long as you meet certain criteria:

  • Your business is claiming a profit. If your business claims a loss for the tax year, you can’t claim this deduction.
  • You were not eligible to enroll in an employer’s health plan. This also includes your spouse’s plan. If you were eligible to enroll in one and chose not to, you cannot claim this deduction.
  • You can only claim premiums paid for the months when you were not eligible for an employer’s health plan.

Legal/Professional Services (Line 17)
Professional fees incurred by attorneys, tax preparers, accountants or other professionals can be deducted.

This deduction does not apply, however, to any employees that perform these services for you. They should be included under “Wages.”

Meals for Travel and Entertainment (Lines 24a and 24b, respectively)
Meal deductions can be made either within the context of business travel or for entertaining a client. When traveling for business, you can deduct up to 50% of the meal expense, which includes sales tax and gratuity.

If you’re deducting meals as part of entertaining a client, you can still only deduct up to 50% of the cost. In order for the meal to be eligible for a deduction, it must be consumed with at least one client, and the meeting must include business either directly before, during or after the meal is consumed.

Self-Employed Contributions Act (SECA) Tax Deduction (Line 27 on IRS Form 1040)
Whereas traditional employees have their FICA taxes split between themselves and their employers, self-employed professionals are responsible for paying their own share of those Social Security and Medicare contributions, which are known as SECA.

Self-employed workers can claim a SECA deduction on Line 27 of Form 1040. You will compute this amount as part of Schedule SE.

Supplies and Equipment (Line 22)
Any costs for normal replaceable supplies that you use in the course of your work can be deducted. For construction workers and contractors, this can include things like cleaning supplies, but not the materials used as part of actual construction.

Equipment can also be written off if it is solely used for business purposes. This can include saws, hammers and more.

Taxes/Licenses (Line 23)
Business taxes (e.g. your share of FICA if you have employees) can be deducted. Perhaps even more relevant, however, is that the various licensing fees you pay can also be deducted.

Note that self-employment taxes, however, are not deductible here.

Wages (Line 26)
Employees’ wages can also be deducted. This includes any salaries, commissions or bonuses.

This does not apply to any employee benefits you provide your employees, which can be deducted separately on Line 14. It also does not apply to any salary you pay yourself.

Being detail-oriented today can save you from a lot of headaches tomorrow. When it comes to claiming deductions, it’s essential to have all of your expenses recorded, especially when it comes to a potential audit. QuickBooks can track and organize your expenses throughout the year, so you can save yourself some time and focus your attention where it’s needed most.

If you’re doing all of this for the first time, it’s always easier with the help of an accountant. Find one near you and have them help you find all the deductions you’re entitled to come tax time.


Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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Tuesday, September 18, 2018

8 More Ways To Keep Expenses Down During Business Trips

Traveling for business can be fun, but it can also be expensive. Between hotels, transportation, food and incidentals, it can really add up fast. It’s important to be careful with a company’s money and not spend it unnecessarily. We asked members of the Young Entrepreneur Council (YEC) for ideas on the best ways to save money during a business trip.

“Going out of town to secure new partnerships or take meetings can be key to growing your business.
What’s the best way to keep expenses down when you’re traveling? “

How to Keep Traveling Expenses Down

Here’s what YEC community members had to say:

1. Find Cheaper Hotel Stays

“Accommodations is a great place to start. For longer stays, I always check out Airbnb as a cheaper alternative to hotels. Usually, you can find a great deal. For shorter trips, I’ll browse Hotel Tonight the day before to find last minute hotel deals.” ~ Ben Lang, IT Kit

2. Don’t Overspend on Food

“When you eat out of town, unless you’re wining and dining clients, go easy on the grub. Pack a handful of healthy, high protein snacks that will keep you energized and feeling full so you resist the urge for overpriced burgers. And, take advantage of hotels that have free meals included. This way, you’ll save money and stay focused on landing the deal.” ~ Sam Davidson, Batch

3. Experiment More With Virtual Meetings

“Sometimes, traveling is necessary, and sometimes, it’s really not. If you are meeting a potential new investor or thinking of partnering in a new industry, then a face-to-face meeting probably is unavoidable. However, many other types of meetings don’t require a plane and a hotel room. Virtual meetings and video calls can be just as effective, just be sure you prepare. It can take some skill to pull off a good virtual meeting. In the end, you will find that it’s a much more cost-effective way to get the job done.” ~ Blair Thomas, eMerchantBroker

4. Use Rewards Cards

“Start making the most of any business rewards cards and accumulate points that can fund these trips, rather than costing you money. Many airlines, hotels, and car rentals are part of these programs.” ~ Angela Ruth, Calendar

5. Pretend It’s Your Money 

“Treat your business account as your own savings. It’s easy for people to say ‘I’ll just charge it to the company’ as if it has endless cash. But before you, do ask yourself if you’d be opting for this expense if it were your own money. If you have to think twice about it, perhaps you can skip or modify it for now. If you play it right, perhaps someday that business will have seemingly endless cash.” ~ Nicolas Gremion,

6. Schedule Multiple Meetings Per Trip

“If you know you’re going to be in a particular city for a meeting, make the most of it. Are there any industry events happening at the same time? Other prospects you can meet with? Old colleagues you can take out for coffee? Use the opportunity for networking or connecting with people you haven’t seen for a while. You’re spending the money to be there, so take advantage of the opportunity.” ~ Vik Patel, Future Hosting

7. Stay with Friends

“I’ll often stay with a friend (if I have a friend close enough to where I’m going). This allows me to cultivate a deeper relationship with my friend while knocking out key local meetings. Oftentimes I’ll even combine a group dinner or other networking event. Combining ‘personal’ and ‘professional’ helps me reduce my accommodations expenses and enjoy a more meaningful trip.” ~ Robby Scott Berthume, Bull & Beard

8. Stay Within Walking Distance

“I try to save money on business trips by not renting a car when I don’t have to. One tip is to book a hotel or Airbnb that’s walking distance to your meeting. This will save you money by not having to rent a car or take an expensive Uber drive.” ~ Syed Balkhi, WPBeginner

Image Credit: Shutterstock

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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Monday, September 17, 2018

How to Teach Your Children About Money

Megan and Chad were determined not to repeat their parents’ money mistakes. Neither was raised in a home that taught them much about how to handle finances. Megan’s parents were spendthrifts. Chad’s parents came from very modest backgrounds, living paycheck to paycheck.

The young parents knew they had the opportunity to break the cycle. They also let me know in no uncertain terms that they were committed to making sure their children got the financial education that they had missed.

Sensing their zeal, I cautioned them not to overreact.

Whenever I hear a young parent say they want to avoid a deficiency in the way they were parented, I fear an overreaction. A little bit goes a long way in this area with children.

With Young Children, Start Small

So here was my advice to Megan and Chad. When children are young (preschool, early elementary), keep it simple and concrete. They will likely have a very limited appreciation for the concept of money, so teach them a few basics that will carry over as they get older.

Teach them that money is limited.
Don’t give them everything they ask for (even if you can afford it). An allowance is fine, but limit it. You want them to realize they have to make choices in how they spend their money. Some will even learn to save it, so they can buy more later. There are plenty of adults who have never learned this lesson!

Teach them that money is to be handled wisely.
I recommend an unorthodox teaching tool here: three glass jars. Label one “sharing,” another “saving” and another “spending.” You can pick your own ratios, but we used 10%, 20% and 70% as the amount of each dollar that went into each jar. The source of the jar funding might be the allowance, gifts from grandparents or chore income.

Teach them that work has financial value.
Some chores are done simply because you are the member of the family. Those things might include making your bed, cleaning up after yourself and helping with larger clean-up duties on a Saturday morning. But it’s also a great teaching opportunity to have some chores that may or may not be voluntary, but for which they get paid. Some parents resist this idea, but that is the ultimate arrangement in the world for which you are preparing your child. So why not help them understand it now?

Ramp Up Lessons as They Grow

As your children get older (middle and high school age), you can deepen their understanding and appreciation of the basics you taught them earlier.

Let them work more.
Your teen will learn a lot in an afternoon or summer job. It may be babysitting, housekeeping, lawn mowing, lifeguarding, golf caddying, working at a retail store or working in food service. The summer before I went to college, I worked in a factory stacking sheet metal. I think, mostly out of sheer fear that I might have to do that the rest of my life, I made a 4.0 my first quarter in college.

Let them pay for more.
You’ll probably pay for the basics as long as they are under your roof. But as your teen gets older, their tastes may both expand and get more expensive. It’s a great idea to explain to them what you will provide (food, clothing and shelter are the three biggies), and what they will need to provide for themselves through their own work. Examples might include some clothing, entertainment, music, a smartphone or recreational activities.

Let them choose more.
Your children need to learn that as they demonstrate greater responsibility and maturity, they earn the right to make more and more choices for themselves. While I am not advocating an abdication of parental duties just because your kid starts working, you need to realize their time under your roof is limited. So if the only way you can guide their choices is through force, you’ve got other issues than financial ones.

A Successful Transition
As your child matures, you’ll gradually transition from being in total control of what they do to being able to offer some influence over the choices they make. They will also transition from needing that control (younger children) to wanting to be more and more independent (teenagers).

Money offers a great venue for both parent and child to learn as they both go through the transition together.

Your thoughtful plan for how you will teach your child about money is one of the best investments you’ll ever make.

Image Credit: Getty Images

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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Friday, September 14, 2018

PayPal Mobile Updates Make Small Business Payments Faster and More Secure

The latest development to the PayPal (NASDAQ: PYPL) mobile app will make it easier to send and request money. PayPal has become popular with consultants, freelancers and other small business operators as a quick and easy way to invoice clients and get paid online and a way for other small business owners who need those services to pay for them as well.

Updated PayPal App

According to PayPal, the new improvements to the app are focused on the customer experience. So when users want to send or request money, pay for a service, send a gift or buy something it will be much easier.

This means small businesses using PayPal will also be able to accept payments, pay their freelancers and more with fewer hassles. PayPal has more than 17 million businesses on its platform, and the vast majority of these are small business owners.

The platform has more than 244 million active accounts as of Q2 2018,  reflecting an addition of 7.7 million net new active users for a growth of 18% year over year. With hundreds of millions of users around the world, small businesses can access this global customer base and make their products and services easy to purchase.

The New Improvements

The improvements have been made based on the features customers use most. When you open the PayPal mobile app you can now see your balance right away, get notifications and transfer funds from almost anywhere around the world.

Send and Receive Money with the Improved PayPal App

Additional improvements include the repositioning of the Send and Receive buttons so users can access them in the home screen.

Customers can now add their photo to personalize their contact list, and, as an added security feature, users can be sure they are dealing with the right person when they see the image.

Other security features include advanced authentication tools with 24/7 fraud monitoring and instant account notification in the event of unauthorized access from a new location or device.


The improved PayPal mobile app is now available in select markets around the world on Android, including in Australia and Italy. And iOS users will have the new features available for them on their devices over the coming weeks, including in the US.


Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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Thursday, September 13, 2018

What To Choose For Your Small Business Startup: Sole Trader Or An LLC?

When first deciding to start your own business, you will be faced with making an important decision: choosing the business form suited to your business type, your budget and future plans for expansion. The sole trader and the LLC are two different business forms suitable for small business startups, available for incorporation in virtually any jurisdiction (although they may have different names).

So, what to choose for your small business startup: the sole trader or the limited liability company? We look at the definitions for each of these two business forms, their advantages and the main issues or red flags entrepreneurs should take into consideration.

The sole trader: starting up small

The sole trader is generally accepted as the simplest business form because it is essentially a one-man business. The entrepreneur is self-employed and the only owner of the business. It is the simplest business form from an incorporation and an accounting/reporting point of view; this is why it is a widely popular type of business form for start-ups.

The taxation of the sole trader is simpler than in the case of corporations, such as the limited liability company. The entrepreneur will be taxed on his or her earning as a self-employed individual according to the local taxes for individuals. This can be an advantage, according to the annual profits made by the small business, however, investors are advised to seek proper tax counseling in order to understand how tax rates can change in some countries according to the level of profit/earnings.

An important issue to consider when opening a sole trader is that the entrepreneur, being the sole owner of the business, is also the only one liable with all of his assets for the debts of the company. The sole trader is not a separate legal entity, with legal capacity, thus the identity of the business and that of the owner are inseparable.

The LLC and the sole trader in Ireland are both two types of business forms taken into consideration by investors willing to start a business in this country. There are many advantages for companies in Ireland and taxation is one of them, an important issue to consider when choosing the business form.

The LLC: looking towards the future

Investors in Hong Kong can open a limited liability company or a sole trader as a means of starting a business in this city that offers important tax and location advantages.

The choice between the sole trader and the LLC is often based on the essential difference in terms of liability between these two business structures: while the sole trader is not a separate legal entity and the owner is fully liable, the LLC has legal capacity and the owner is only liable to the extent of the capital invested in the company.

The taxation and annual reporting principles are generally lighter for the sole trader, however, in jurisdictions like Singapore, where the taxes are low, it may come as an advantage to open a LLC and not bear full liability. Corporations can also benefit from various tax incentives or tax advantages. In terms of start-up costs, the LLC will require a minimum share capital, and this requirement will depend on the chosen jurisdiction.

A limited liability company is a type of business that, once incorporated, offers different perspectives for expansion and business growth. It can hire a number of employees which are sufficient for a small business or start-up and can own assets in its own name. Thus, the personal assets of the founders or the founder are not exposed. In many jurisdictions, opening a limited liability company can be accomplished with only one director and one shareholder. The director will also have its fiduciary duties towards the company, however, these are different from the unlimited liability in case of the sole trader.

The choice between the sole trader and the LLC will be summarized according to available budget, business goals and future plans for growth. For some entrepreneurs, it may also be business-sector dependent. For example, consultants in fields such as marketing, legal, tax or business can find that the sole trader suits their needs. For others, like those who wish to open a software or tech start-up, the LLC will offer different advantages.

We recommend that you talk to a company formation expert who will be able to answer detailed questions about specific taxation, reporting and legal requirements for each of these two business forms before deciding which one to incorporate.


Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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Wednesday, September 12, 2018

How Entrepreneurs Can Significantly Reduce 2018 Taxes by Choosing the Right Business Entity

If you’re confused about what type of business entity to set up -- entrepreneur or contractor -- under the new Tax Cuts & Jobs Act of 2017, you’re not alone.

Whether you’re an Uber driver, tech startup founder or medical professional contractor, you'll find that the new tax law will significantly impact your 2018 returns. So, don’t waste any more time mulling this question because you have only a few months left to make changes that will affect your 2018 tax liability.

And that's worth noting, because, with the right tax strategy, you can save up to 10 percent to 40 percent on your taxes, permanently. So, as an entrepreneur, you should talk to a tax advisor about whether you want to be taxed as self-employed, an "S" Corp, "C" Corp or partnership.

Bottom line: If you have the right entity setup, you’ll pay less tax. 

The biggest tax changes in the new law for small business owners are the lower corporate tax rate of 21 percent and a potential 20 percent pass-through deduction that starts in 2018 for self-employed, sole proprietors, partnerships and S corporations.

For service businesses involving categories like doctors, lawyers and financial advisors, the taxable income of the professional involved, according to the IRS, must be below $207,500 (for a single individual) or $415,000 (married, and filing jointly) for that person to qualify. 

The 20 percent deduction is considered “between the lines,” as CNBC has pointed out, because it doesn’t lower your adjusted gross income nor do you have to itemize to take this deduction.

Let’s break down your options as a business owner:

Self-employed (example: Uber driver)

Self-employed individuals such as independent contractors and freelancers pay self-employment taxes in addition to regular income tax, to satisfy social security and Medicare requirements. If they qualify for the new 20 percent tax deduction, their top effective marginal tax rate could be reduced to 29.6 percent or less. However, these individuals will likely get better tax savings and asset protection as an S Corp or C Corp. 

S-Corp (example: accountant, doctor, lawyer)

One of the biggest benefits of forming an S corp versus remaining a self-employed contractor is asset protection. An S-Corp also does not have a legal responsibility to pay taxes on its corporate income.

Instead, the owners of the company pay taxes on their personal tax return. The new tax law includes a 20 percent deduction on qualifying companies, including S Corps, with limitations. S Corps must also be domestic (meaning the company and its owners must live in the United States). Shares must be held by individuals, estates or certain trusts (not by other companies). 

C-Corp (example: a health tech startup)

A C Corp may be better for tech startups or companies that have future plans for equity crowdfunding or want to go public. A C Corp is a corporation where the shareholders are taxed separately from the entity. 

C corporations have no restrictions on ownership. They can have an unlimited number of shareholders, in contrast to S corporations which can have only 100 shareholders, maximum. The biggest drawback of a C corporation is a "double taxation" potential. The corporation is taxed, corporate profits first, and then shareholders are taxed again when dividends are distributed. And the corporation cannot deduct dividend distributions.

Because of the low (21 percent) corporate tax rate, many new startups will want to consider being taxed as a C corp. In addition, Section 1202 of the new tax law allows startup shareholders to sell their stock after five years, with no tax on the first $5 million of gain.

LLC (example: a real estate consulting company)

Some businesses may choose to be an LLC, and then select to file as a partnership, sole proprietor or corporation. An LLC is a legal designation, not a tax designation. The owners of the LLC report profits and losses on their personal federal tax returns as a "pass-through entity,” unless the LLC owners elect to have the LLC taxed as a C corporation.

If taxed as a pass-through entity, the LLC itself does not pay federal income taxes (though some states charge an annual tax on LLCs). As part of the LLC tax process, these companies will want to fill out Form 8832 to define their entity (corporation, partnership or sole proprietorship). Assuming that the owners elect to tax the LLC as a pass-through entity, the 20 percent deduction may apply.

The impact on asset protection

In addition to tax savings, the business entity that you choose will have an impact on your asset protection. Most attorneys will tell you that if you own a business, it’s not a matter of if you get sued, it’s when you get sued. As a result,  you'll want to establish an LLC or corporation between yourself and your actual business, to reduce the opportunity for someone to sue you personally.

With an LLC or corporation, if you get sued and your opponent wins, the opponent should only be able to take money out of that company versus your personal accounts.

To maintain asset protection and preferred tax status, owners of LLCs, S corps and C corps need to have an operating agreement or bylaws in place, maintain books and records and track their minutes.

In sum, anyone can take advantage of the tax incentives provided by our government. The task simply requires understanding the incentives and legally changing the facts to receive the corresponding benefits. The more you educate yourself on your options, the more money you can put back in your pocket.

Image Credit: alfexe | Getty Images

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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Tuesday, September 11, 2018

30% of Small Businesses Think They’re Overpaying on Taxes

The complexities of the US tax code are notorious, so it shouldn’t come as a surprise when a new Clutch survey indicates 30% of small businesses think they are overpaying.

Even though close to a third of businesses believe they are paying more than their share of taxes, 95% said they are confident about the accuracy of their financial records. This contradiction further highlights the challenges small businesses face when it comes to finance and taxes.

In addition to some revealing insights, Clutch is also providing four tips so small businesses can better manage their finances in 2018.

When a business manages it finances improperly, it affects the overall operations of the organization. Everything from growth to hiring the best talent can be hindered if a company can’t clearly see its financial status. For small businesses operating with limited resources, the ramifications are more consequential.

Riley Panko, Senior Content Developer and Marketer, Clutch, put it best in the report, “Small businesses often fail to manage their finances until it’s too late.”

Small businesses have to be aware of their strength and weaknesses and use the best available resources to them to ensure they don’t find themselves in this positions.

Panko goes on to say, “Successful small businesses must know how to manage their finances properly. Using outdated or improper financial and accounting processes, however, may be inhibiting small business revenue growth.”

Clutch carried out the survey with the participation of 302 small business owners or managers involved in the financial business decisions of their organization. Clutch said the goal is for small businesses to use the report so they can understand where their accounting is failing and figure out the best processes for managing their finances.

Findings From the Survey
In a decision Panko call risky, more than one-quarter of small business owners and managers or 27% said they don’t have a separate bank account for the business.

This not only creates a problem for their business finances but their personal one also when it comes time to do taxes and other record keeping.

More than two thirds or 67% also use the recommended accrual basis method for tracking finances. But companies with less than 10 employees are more likely to use the cash basis method.

As to their biggest challenges, 35% said it was unforeseen expenses followed by 23% who said it was mixing business and personal finances. Another 21% said it was the inability to receive payments on time, which further compounds the other financial problems.

When it comes to how confident businesses are, the vast majority in the survey seem to be doing great. However, the fact that 95% have said they were confident or very confident has experts skeptical, according to the report.

4 Tips to Avoid Overpaying Taxes

By using the following four tips, Panko says small businesses can maximize their potential financial success.

They are: keeping business and personal finances separate; figuring out the best method for tracking small business finances; seeking outside help for small business accounting (according to Panko, even if you think everything is correct); claiming more tax deductions by hiring a small business accountant.

Image Credit: Clutch

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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