Friday, February 24, 2017

9 Things Your Company Should Spend Money on This Year

9 ways to make the most of the opportunities in 2017 and defend against the threats.

If surveys of business confidence are to be believed, 2017 is going to be a year in which companies will be spending their cash. Small-business optimism soared after the 2016 election. The overall optimism index in the National Federation of Independent Business's November 2016 survey hit 102.4 post-election, up from 95.4 before the vote.

What's more, the cash that companies have been holding has reached record levels. BlackRock, a huge money-management firm, reported in November that global companies are sitting on a whopping $50 trillion in cash.

The rise in optimism could ignite those hoards of cash into a conflagration of spending and borrowing that would accelerate economic growth. While this could cause economic trouble down the road, that growth means your company will face different opportunities and threats this year than it did in 2016.

Although each industry is unique, there are general opportunities and threats likely to affect all companies in 2017. Here's how your company should spend its money to capture the opportunities and deal with the threats.


Bigger customer budgets

One of the biggest opportunities created by increased optimism is that businesses and consumers will have a greater appetite to spend. Spend your money on advertising, sales people, geographic expansion, experience development, and capital raising to capture a share of those bigger customer budgets.

1. Advertising. You can get an attractive return on investment from buying the right kinds of advertising. First, analyze which groups of customers buy your product, why they buy, and what media they like to consume. With that information, you should be able to create the right message to reach them when they are getting ready to spend.

2. Sales people. While I have seen a few companies that build products that sell themselves, most need sales people to boost revenue. If you want to capture a share of growth opportunities, you should spend money on great sales people. If you make the right hiring decisions, your company will grow faster.

3. Geographic expansion. One of the most common ways companies grow is by finding new customers in parts of the world where they don't already operate. To expand geographically, you can give your sales people bigger travel budgets, or open up a sales office in a new geography or partner with a distributor there.

Urge for experiences over things

Millennials are the largest demographic segment, and they are likely to enjoy a boost in their incomes as employers compete for their services. This means their preferences will become bigger opportunities.

Of those preferences, one of the most significant for your business could be Millennials' desire for experiences over things.

If you want to capture a share of their budgets, this could mean looking for ways to offer your products in the context of an experience. For example, rather than selling skis, you could sell ski weekends in which your skis would be a part.

4. Experience development. To make such a shift, your company should spend on hiring people who can conceive, market, and deliver such "experience" services.

Easier access to capital

The constraints that keep equity and debt providers from writing checks to companies are likely to loosen up this year. That's because leading capital providers will invest more aggressively, enjoy highly visible wins in the initial public offering market, and fear that they are falling behind unless they follow their peers.

5. Capital raising. Your company should spend time and money to meet with such capital providers, present your case for capital, and raise as much as you can during this period of loose money. If you succeed, you should be careful how you spend the funds so you can survive the inevitable shakeout that will follow the bursting bubble that looms ahead.


Competition for talent

With the unemployment rate at 4.6 percent and a likely boost in economic growth, your employees could find themselves in high demand from other employers.

If this happens, you could lose your best people even as your need for their services increases while your company seeks to satisfy growing customer demand.

The combination of losing talented people and rising revenue could threaten your company's profitability and even endanger its reputation.

Fortunately, there are ways to protect your company from this threat.

6. Create a compelling culture. Small companies offer talented people a chance to make more of a difference than they could in a large organization. You should spend 20 percent of your time creating and cultivating a culture that attracts and motivates talent.

7. Pay referral bonuses. You can boost the odds of keeping your best people and bringing in new talent by paying bonuses to employees who refer new people your company hires.

8. Build an onsite health club. Another way to keep employees happy is to provide them with a place where they can exercise during the day. If you don't operate an onsite health club, give employees membership discounts at nearby clubs or open one in in your building.

Rising employee pay

Even though money is not the primary motivator for employees, people still need to pay their bills. Moreover, inflation is likely to increase, which will put more economic pressure on your employees and make a higher paycheck more compelling to your talented people.

9. Make your pay competitive. Keep track of how much your competitors are paying people and make sure your company pays as much if not more.

Spending on these nine things will help your company capture the opportunities that lie ahead and protect itself from threats.

Image Credit: Getty Images

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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Wednesday, February 22, 2017

You Suck at Money, So Never Mingle Business and Personal Expenses

If you don't keep personal and business book accounts separate, neither will your creditors or the IRS if things go badly.

Let’s keep this short and sweet. There are two reasons why you need to keep your business and personal expenses separate: taxes and personal liability. This isn't me giving you legal advice, but just letting you know some of the basics that have helped me avoid disaster in the past.

Unfortunately, plenty of freelancers, entrepreneurs and small business owners haven’t gotten that notice and continue to mix their personal and business finances. It may not seem like a big deal but trust me -- it is for IRS when you file your taxes, or if you ever default on lines of credit, loans or leases. It once prevented me from purchasing a home.

Here are five tactics that you need to implement immediately.

1. Set up separate accounts and obtain a business credit card.

“One of the first things to do when you start a business is to open at least one business bank account,” suggests Max Palmer. “Opening a bank account is fairly straightforward, as long as you have the documentation you need, which for a business account might include proof of your business from your state, and proof of an EIN from the IRS.”

Besides a business checking account, you may want to also consider opening a business savings account and even separate retirement and benefits accounts.

“Once you have a bank account, use it to manage business transactions. Business income should be deposited in your business bank account,” adds Palmer. “Likewise, expenditures for your business should come out of this account. Even if your money just passes through your business and almost all of it ends up in your personal checking account, you need to move your money through the business account.”

This creates “an extra step to put the money into your business account first, and then move it from there to your personal account, but it’s an important step that helps with record-keeping.”

Along with opening-up separate checking accounts, Palmer also recommends that you obtain a business credit card for all business-related transactions.

“Even if your business credit isn’t established enough to qualify you for a card, you should still find a way to separate those transactions,” says Palmer. “Designate one of your cards for your business so that, at the very least, you are using a different card for business-related purchases.”

Work on building your business credit score so that you don’t have to rely on your personal credit score for your business in the future.

2. Establish a legal entity.

“As a business owner, one of the best ways to protect your personal liability is to establish a separate legal entity for your organization,” says April Macquire for QuickBooks.

“When determining the best business structure for your needs, it’s important to consider all relevant factors, such as number of employees you plan to hire, your business’ financing goals and your business’ long-term tax implications, just to name a few.”

This creates a distinct legal entity for your business limit for your future tax burden, as well as protects you as an individual from and legal liability is your company is ever sued. “In this way, incorporating your business creates a veil that safeguards the company owner (and his or her loved ones) from the organization’s debts and obligations,” adds Acquire.

When creating a separate business entity you need to obtain an employer identification number (EIN), also known as taxpayer identification numbers. EINs allow the IRS to track your earnings in a way that’s distinct from your personal finances.

3. Come up with a budget.

Even though you have separate bank account and credit cards, there may be times when you have to pump money from their personal accounts into the company’s account. Sometimes this is unavoidable, like for seasonal business owners. If you have established a clear budget that is based on your business' current earnings you should be able to avoid this since it lets you forecast your future earnings and how much you need each month to pay your expenses.

With this knowledge, you are forewarned and you can plan accordingly so that you don’t have to dip into your personal finances.

4. Keep separate shoe boxes for receipts.

OK, you’re not keeping receipts in literal shoe boxes. After all, there are some great tools like Neat, Expensify, and Shoeboxed that allow you to capture, organize, and manage your receipts electronically. The concept behind this is that you should have two separate locations for your business and personal receipts.

These separate accounts may seem like a time consuming activity, so if you’re in a crunch, make sure that you prioritize your business expenses.

The truth is, if you’re ever audited, the IRS is going to be more concerned with your business receipts than your personal receipts.

5. Define gray areas.

There are plenty of gray areas when it comes to separating expenses and deductions, such as travel, food and entertainment. For example, if you take your spouse out to lunch on a Tuesday and you spend most of your meal discussing a client, would you consider that a business or personal expense?

The same is true if you work from home. You have to split the bills because it’s not right that your business is paying all of the utility bills. You’re not working 24/7, are you? Okay, well you might be working 24/7, but you get the idea.

To understand what is considered a personal versus professional expense, visit the Internal Revenue Service and speak with a financial advisor or tax specialist.

Image Credit: Shutterstock

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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Monday, February 20, 2017

10 Money Habits That Will Help You Get Serious About Prosperity

Take your financial life to the next level through actions like seeking new income sources, making debts your priority and separating friendship from business.

The power of habit can be quite interesting. Rather than create 2017 resolutions that may not stick, a good alternative is to develop positive habits this year. Especially when the category is financial life.

So, make it your goal to form new habits that will take your financial life to the next level.

From learning a new skill every day to hitting the gym regularly, habit takes away the one singular thing that prevents us from getting things done -- resistance. With good habits, we no longer resist. We just do it.

You can quickly attain financial freedom by positively channeling the power of habit toward how you treat money. But, first, let's look at the steps to developing new habits.

Author James Clear breaks down habit formation into three steps (the three R's): reminder (what triggers the behavior); routine (the habit itself) and reward (what you get from this behavior). In order for a habit to stick, it must follow the three R's rule. By practicing some of the following habits, your reward will be a more financially rewarding lifestyle.

1. Be clear about your financial goals.

One habit you need to develop is clarity toward your goals. Your goals can shape your attitude toward whatever you do and put you in the right perspective about your financial life. Lack of clarity is equivalent to having no goals at all.

"Clarity about your money goals is the first step towards getting your finances right," Yasir Khan, founder and chief editor at, told me. "Getting your finances right -- being able to prioritize what you do with your money -- can only be achieved by clearing the unnecessary obligations out of the way."

Developing a habit of being clear about your financial goals will also create a sense of focus, which is the psychological effect of setting goals. Let's assume your aim is to start your own business this year. You'll outline how much funding is required to do that, and how much you want to raise yourself.

2. Stop associating guilt with money.

One habit which keeps a person from growing financially is how he or she feels about money. A lot of people feel guilty, which is why they often find it difficult to discuss the financial terms of a business relationship before starting one.

Develop a positive attitude toward money this year by overcoming any guilt you feel about money.

3. Seek more income sources.

The best way to improve your financial life this year is to use your free time to earn an extra income. Start by looking at areas where you can fill a need and earn extra money in the process.

And make converting your spare time into income opportunities a habit. You could freelance for businesses or help people with things they can't do themselves. Khan said he was able to start two small businesses apart from his main job when he noticed he could use his free time to help others. Now that his side businesses are growing, he hires people to help him run the business.

4. Make clearing your debts a priority.

One of the biggest hindrances to financial growth is debt. The problem is that debt keeps compounding, making it your most expensive liability. Start paying off your debt with each paycheck you earn. By forming this habit, you could become debt-free by the end of 2017.

5. Save to secure your future.

Make saving a habit in 2017. The more you save, the more you'll have when you retire. JPMorgan Chase puts together an annual guide to retirement that provides investment and savings strategies for all stages of life.

6. Separate friendship from business.

Underscore the purpose of your relationship with others, and make it a habit to always separate money from friendship and friendship from business.

A lot of relationships have gone to ruin because of money. In 2017, be careful when forming business relationships. Make sure you know enough about someone before entering into such a relationship. Use background check tools like Check Them or Check People before a first meeting. Entering into a relationship with the wrong person could be costly or devastating to your financial life.

7. See money as a means, not an end.

Many people get the notion of money very wrong. Because we see money as the end goal, it affects our orientation about it. See money as what it is and what it's meant to be -- a tool, a means to an end. What the end is for every one of us may be different. For most, it might be happiness, while for others it's simply a comfortable lifestyle.

8. Seek advice from money experts.

Develop a habit of seeking advice before making any major financial decision. This will help you avoid making any decision you'll end up regretting. When you make a habit of seeking financial advice, you'll be less likely to take financial risks that could hurt your lifestyle.

9. Decide against impulse buying.

Make it a habit to spend only on things you need. Cut back on impulse buying by weighing your options before making any purchase. When you buy on impulse, you only gain a temporary sense of satisfaction. Once this instant gratification has worn off, what you're left with is a shrunken purse and a tinge of regret, or buyer's remorse.

10. Live below your means.

Many wealthy individuals mastered the habit of living below their means, even before they became hugely successful. A lot of wealthy individuals prefer to live a frugal lifestyle.

Going frugal can help you create a financial lifestyle that's easily manageable. It can leave you with enough money and time to invest into your business and relationship. And that's what good money habits are all about.

Image Credit: Shutterstock

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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Friday, February 17, 2017

4 Essential Bookkeeping Tips For Freelancers

Becoming self-employed gives you the freedom to choose your own path in the workplace. But your aspirations can quickly spiral out of control if you fail to keep your books in order. Come tax season, any missing receipts or incomplete records can undermine all your hard work for that year, especially if they result in you being stung by the taxman.

For this reason, careful and routine bookkeeping should be a top priority for any freelancer. In particular, traders who work from home should make sure they are putting regular time aside each week to deal with their accounts. The household contains many distractions and unless you adhere to a strict schedule, you can easily forget to file away important paperwork. If you want to succeed in business, then you need to give your business every opportunity to succeed, which means finding a way to keep everything in order.

1. Keep Hold Of All Financial Documents

Even if you run a relatively small operation, you are bound to rack up a number of expenses over the course of the tax year. Since your business purchases reduce your taxable profit, you can save a stack of money by claiming back any expenses. However, you must be able to prove these expenses were essential to your business, so saving all your receipts should become routine practice.

Freelancers can claim on all kinds of work related items from laptops to vehicles, but only if they can be cross-referenced by the tax office. In the event of an investigation, you may also be asked to present other documents such as bank statements and invoices. You must store these either at home or online for at least five years after the 31 January tax return submission deadline. Be sure to file them in chronological order so you have easy access to them at any time.

2. Separate Personal and Professional Assets

Working for yourself can become tricky if you’re not keeping track of which finances are personal and which belong to your business. In order to avoid any confusion, you’ll should open up a separate account for business transactions. Even if you’re only bolstering your main income with freelance work, the differentiation will make your life a lot easier.

For one, it allows you to work out exactly how much money is tied up in your business at any point. This makes budgeting and costing a much simpler task and means you are unlikely to get into any financial trouble. On top of this, with all business transactions going through this account, you won’t face the problem of deciding retrospectively which expenses were crucial to your job.

3. Keep Track Of Your Income

Nowadays, online and mobile banking have made it possible to check your balance at any given moment. But it is still worth keeping track of all your invoices, so you know exactly where the money has come from. By retaining copies of all your invoices, you can match them with the money going into your account to make sure there are no discrepancies. Invoicing software is available online for this very purpose, so you don’t have to worry about stashing payment details around the house or office. With routine checks, you can ensure you’re being paid every penny you’ve earned and easily report your yearly income on tax returns.

4. Get Into A Routine

Despite working more flexible hours, it can still be tricky for freelancers to fit everything into a hectic week. By the time tax season rolls around, you may not be as prepared as you first thought you were. Tax returns can be difficult to complete if none of the necessary paperwork is immediately to hand and even harder if there is no discernible order to it. To overcome this problem, you need to begin filing documents from the very first day of the tax year. Whether you do the majority of this online is up to you, but you still need to put aside 20-30 minutes a week to make sure everything is in order. There’s nothing worse than finding yourself scrabbling around for documents three days before the deadline, so develop a bookkeeping schedule and stick to it.


Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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Wednesday, February 15, 2017

You Know You Need Accounting Support When …

Businesses of all sizes rely on accountants to keep their books organized and up-to-date. Small business owners like you often have one or two bookkeepers to manage accounting activities like invoicing and payroll. You may even manage the books on your own.

Of course, there comes a time when your accounting resources run thin. Perhaps you’re experiencing rapid business growth, or are overwhelmed at tax time. You may be wondering, when is the right time to find additional accounting support? Are outside accountants worth the investment? If one of the following seven scenarios sound familiar to you, it may be time for you to look for some help.

Scenario 1: You Owe a Lot in Taxes

You keep close track of employee payroll and benefits. You estimate this year’s tax burden based on previous years and try to plan properly. You spend days completing your taxes. Yet each year you still find yourself owing money to the IRS. This may be an indicator that there’s some uncertainty with regards to the United States tax code. And who can blame you? Our nation’s tax code is one of the most complicated in the world, which is why we have accountants and tax professionals. These experts not only help you properly estimate your taxes each year, but know the deductions available for you to minimize your tax burden. Accountants can even file your tax forms so you can spend that time focusing on running your business.

Scenario 2: You’re Facing an Audit

The word that everyone fears after filing their tax return. While audits don’t automatically mean you did something wrong, the IRS did spot something that warranted a closer look. Perhaps your deductions are out of sync with your income. Maybe all the numbers on your returns were rounded. These are all common practices that can trigger an audit. Fortunately, experienced accountants can provide guidance through an audit and point out what you can do to prevent one in the future!

Scenario 3: You’re Experiencing Rapid Business Growth

Perhaps your baking business is gaining traction around town and you need to purchase new equipment to keep up with demand. Maybe you’re having trouble keeping up with the orders coming through your online clothing store and need to hire employees. Many small businesses have one or two bookkeepers, but they can quickly get overwhelmed with the additional paperwork that comes with growth. This opens up room for error and makes reconciling at tax time a nightmare. Accountants can walk you through these new forms and processes and ensure everything is in compliance with tax laws.

Scenario 4: Your Business Has Stalled Profit Growth

Perhaps your business’s revenue is increasing yet your profit margin is shrinking. In other words, sales aren’t turning into increased profits in your pocket. This likely means costs are getting out of hand and need to be reeled in. Business owners are often too close to everyday operations and likely had a hand in creating them. This makes it hard for them to take a step back to find processes or practices that are costing the businesses too much.

Accountants do more than invoice and file taxes. They can look at your overhead and suggest ways to rein in costs. Perhaps your packing and shipping process can be streamlined. Maybe you can switch to cheaper supplies that aren’t crucial to the quality of your product. Sometimes an objective perspective is all you need to get your profits growing again.

Scenario 5: Your Business Grows Across State Lines

There comes a point when business growth goes beyond hiring new employees and working out of a small office space or warehouse. If you run a restaurant, maybe you have the opportunity to open up another location, maybe in another state! Maybe you found a warehouse in another state to keep up with your product’s demand. Both cases require a significant change in business operations.

Every state and locality has its own regulations, complete with tax laws and paperwork. While you and your in-house team may understand the rules of your current location, how much time are you willing to set aside to learn about a new state? Accountants can help you set up your payroll and tax reporting processes to ensure you’re in compliance with local and state laws. Come tax time, accountants can also ease the burden of filing multiple state returns.

Scenario 6: You Know You’re Out of Your Depth

We’ve walked through several scenarios that may sound familiar to you. Yet the most important sign that your business needs help is when you or your team feel exhausted and overwhelmed. Everyone is stressed around tax time, but is your in-house accountant overwhelmed simply by completing payroll? Do you find yourself pouring through online accounting resources trying to teach yourself? Is this taking time away from running your business?

Reaching out for additional accounting support doesn’t mean replacing your existing team. Perhaps your in-house accountant has invoicing and payroll under control but needs to turn taxes to someone else. Maybe your bookkeepers only need to be walked through out-of-state employment forms once. In either case, a specialized accountant can save your team from hours of stress that could be taking a toll on operations.

Choosing the Right Accountant for You

Regardless of why you need to hire accounting support, it’s important to choose an accountant or team that’s right for you. If you prefer in-person support, ask for referrals from local business owners. Be sure to conduct your own research through online reviews. Ensure that the accountant specializes in the support your need, such as auditing. Let’s not forget that in today’s world, remote finance teams are also at your fingertips. These teams typically include accountants and other financial advisors to provide the right advice for your business. Regardless of the accounting support you choose, you should be able to get a free consultation.

Hiring outside help is nothing to be ashamed about. In fact, this is a good indicator that your business is growing faster than expected or you’re dedicated to running compliant and ethical operations. Accountants have the expertise necessary to ensure businesses meet all accounting and tax regulations. They can educate your bookkeeper(s) and in-house accountant(s) about topics they aren’t familiar with. Running a successful business means tapping every resource to keep operations strong. This means keeping the numbers in check, as any good accountant will tell you.

Image Credit: Shutterstock

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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Monday, February 13, 2017

3 Smart Ways to Reduce Your Business's Tax Liability

Tax season is now underway, and businesses across the country are preparing to submit their financials to the IRS. If this is your first business tax return, you might be nervous about how much you owe the government. Fortunately, there are plenty of smart, simple and legal ways to reduce your tax liability. 

Business News Daily spoke with tax experts to uncover some of the best strategies for lowering your business tax bill. 

Know which deductions you can legally make 

The IRS allows for a wide range of tax deductions that you can potentially use to your advantage.

"Many small business owners are unaware of deductions and are missing out on money that can be saved every year," said Gary Milkwick, chief product officer of

Milkwick named a few of the most common business expenses owners can deduct from their taxes:

  • Expenses and mileage for personal vehicles that are used for business.
  • Cellphone bills, if the phones are primarily used for business
  • Costs incurred to operate businesses from home (portion of the rent, utilities, etc.)
  • Meal and entertainment expenses with existing or potential partners, employees, contractors and clients (meals and entertainment expenses are 50 percent tax deductible)
  • Costs to purchase business equipment, such as computers, printers, monitors and phones
  • Setting up and contributing to retirement plans

Make smart purchases and investments

If you're going to invest in new equipment or services for your business, the timing of those purchases can affect your tax liability for the current or next year, said Milkwick. While it's still early in the year, you may want to think ahead and plan out what you're willing to invest in before the end of 2017.

"If it's November and you're planning on purchasing equipment within the next several months for a business expansion, for example, it may make sense to accelerate the purchase of the equipment before the end of the year to get the tax deduction in the current year," he told Business News Daily. "Same goes for services. If it's towards the end of the year and you're planning on a large marketing campaign over the next several months, it may make sense to prepay for some of the costs to take the deduction in the current year."

Happen to have the spare cash to make bigger investments? Be sure to consider tax-friendly opportunities. For example, you can write off a significant portion of initial investments in areas like real estate and oil and gas, said Casey Minshew, COO of

"Oil and gas investments that pass through 'intangible drilling costs' help reduce an investors' taxable income, as they can take these costs as active deductions against their earned income," Minshew said. "This can generate up to a first-year return of 30 percent based on tax benefits alone, even before a drop of oil has been produced."

If you want to learn more, see this Charles Schwab article outlining which investment expenses are and aren't tax-deductible.

Understand what is and isn't taxable

Business owners often mistakenly think that all cash inflows are taxable income and all cash outflows are deductions, Milkwick said. In reality, the nature of the cash inflow or outflow determines its deductibility.

For example, he said, income from the sale of the business's goods or services is taxable. However, some common cash increases that aren't taxable to the company include bank loans, lines of credit and loans from the owner to the business.

"These [loans] are also not deductible to the owner until the business spends the money," Milkwick added.

If you're not sure about whether you can or should use these strategies, consult with your tax attorney or CPA.

Avoid an audit

While it makes good financial sense to explore all your options for reducing your tax bill, you need to be careful: If your deductions look suspicious to the IRS, the agency might select you for an audit.

The IRS has switched its focus from large corporations to smaller business entities like sole proprietors, LLCs, partnerships and S corps, said Jessie Seaman, senior managing attorney at Tax Defense Network. In other words, Seaman said, your business could be under even greater scrutiny than your bigger competitors are.

Seaman noted that the IRS commonly looks for certain types of business tax deductions — such as those for home offices; meals, travel and entertainment; vehicle use; and real estate losses — to make sure taxpayers are adhering to limits and regulations.

Similarly, Steven Aldrich, chief product officer of GoDaddy and former CEO of online accounting system Outright, reminded business owners to keep personal and business expenses separate. (The IRS looks for personal expenses reported as business expenses, he said.) And always report full, gross income before any fees, such as those for credit card processing, are taken out, he added.

Photo Credit: Shutterstock

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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Friday, February 10, 2017

Tax Deductions for Independent Contractors

Write-offs for business expenses will help offset your self-employed income.


I retired from my job early in 2016 and then did some part-time consulting work for my old company. I was paid a few thousand dollars as an independent contractor. What tax forms do I need to file, and what can I deduct?


You should receive a Form 1099-MISC from your old employer by the end of January reporting your self-employed income for 2016. You’ll need to report that income on a Schedule C accompanying your tax return. You may be able to use the shorter Schedule C-EZ if your business expenses do not exceed $5,000, you have no employees and you don’t claim a home-office deduction (see below). If your net earnings are more than $400, you’ll also need to file Schedule SE to figure your Social Security and Medicare taxes.

The good news for you as an independent contractor is that you can deduct many of your business expenses -- such as the cost of a computer, printer and other equipment you use in your work, plus the cost of work-related phone calls and mailings, office supplies, duplicating, advertising and business travel. You can also deduct legal and professional fees for your business, books and publications you purchase for your business, and the cost to rent an office space (or you may qualify for the home-office deduction if you work regularly and exclusively in your home). Half of the Social Security and Medicare taxes you pay is also deductible.

Also on the list of write-offs: your health insurance premiums, if you aren’t eligible for health insurance from an employer or your spouse’s employer. If you’re on Medicare, you can deduct the premiums you pay for Medicare Part B and Part D, plus the cost of medigap or a Medicare Advantage plan. This deduction shows up on your Form 1040, not the Schedule C, and is available whether or not you itemize deductions. You can’t deduct more than the net income of your business.

See IRS Publication 535 Business Expenses for more information about tax-deductible business expenses.

Independent contractors can deduct the cost of a home office if they use part of their home regularly and exclusively for a freelance business. See the IRS’s home-office deduction factsheet and Publication 587 Business Use of Your Home for more information. If you qualify, you have two options for taking the deduction: You can use the simplified option, which lets you deduct $5 for every square foot in your home that qualifies for the deduction (up to a maximum write-off of $1,500). Or you can use the regular method, which is based on your actual expenses, deducting a portion of your mortgage interest or rent, utilities, property taxes, homeowners insurance and other expenses based on the percentage of your home you use for your work. For example, if your home office is one-fifth of the square footage of your home, you can deduct 20% of those expenses. You’ll also be able to deduct the full cost of certain direct expenses for your home office, such as the cost of maintenance and repairs to that part of your home. See IRS Form 8829 Expenses for Business Use of Your Home for more information.

Self-employed people can make tax-deductible contributions to a solo 401(k) or Simplified Employee Pension based on their self-employed income. It’s too late to open a solo 401(k) for 2016 (you needed to open the account by December 31 but have until April 18, 2017, to make contributions if you already have an account). But you still have time to open and contribute to a SEP, which is similar to an IRA and offered by many brokerage firms, banks and mutual fund companies. See How Self-Employed Workers Can Save for Retirement to help calculate how much you can set aside in either plan.

Photo Credit: iStockphoto

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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Wednesday, February 8, 2017

6 Tax Checkups You Can Do Any Time of Year

The first quarter of the year may be the height of tax prep activities for many business owners, but you shouldn't only be thinking about your taxes right before the April 15 deadline. Day-to-day decisions can have a significant impact on your overall tax obligations, so you should be planning throughout the year to make sure you're ready.

"When a small business owner plans for tax season strategically and consistently throughout the year, they can create a much better financial outcome for their company," Jamal Ayyad, vice president of service delivery for SurePayroll, said in a statement.

Whether you're preparing to file your 2016 tax return or you just want to plan smart for the current year, here are six "checkups" you can do to make sure you're always on top of your taxes.

1. Ensure that ownership records and hiring/employment practices are up-to-date 

In order to guarantee that your business is complying with guidelines that are constantly changing, plan regular reviews of documents and applicable rules, said Scott Augustine, a shareholder with Chamberlain Hrdlicka law firm.

2. Calculate your projected payroll taxes 

Small businesses that are having trouble paying their payroll taxes may be able to take advantage of an IRS installment plan, Ayyad said. If you owe less than $25,000 in combined tax, penalties and interest, and filed all required returns, you may be eligible. Visit the IRS website for more details.

3. Do a compliance checkup 

The Affordable Care Act, the IRS and the U.S. Department of Labor have rules regarding independent contractors or 1099 employees. Make sure your firm or organization operations are in compliance to avoid costly penalties and fees, Augustine said.

4. Keep up with your home state's tax issues 

Some states take loans from the federal government to meet unemployment benefits liabilities. Ayyad noted that if your state has taken, but not repaid those loans, there will be a reduction in the credit against the Federal Unemployment Tax Act tax rate. This means employers in those states will have to pay more. A number of states may be affected, including Arizona, Arkansas, California, Connecticut, Delaware, Indiana, Kentucky, New York, North Carolina, Ohio, Rhode Island and South Carolina, as well as the U.S. Virgin Islands.

5. Review non-competes and confidentiality agreements 

This is especially important for those that have been written by attorneys outside your state of operation to avoid possible theft of important assets, Augustine said. As part of this, he also advised reassessing document-retention policies to make sure they balance exposure with business needs. This will help you avoid issues in tax matter and litigation, he said.

6. Think about succession planning 

What would happen to your business if you had an unexpected health crisis or accident? Augustine said business owners should be discussing and determining what actions may need to be taken to ensure the firm continues on. There are also tax benefits to succession planning, so discuss with both your attorney and your accountant, he added.

Organizing tax records now can make filing taxes much easier and faster later on, Ayyad said.

"When small business owners get their information together well ahead of time, they greatly improve the odds of filing a complete and accurate return," he said. "Being compliant is the law, but instead of merely checking taxes off of a list of things to do at the end of the year, a savvy small business owner knows that preparation and planning ahead are key components of success."

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Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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