Strategic Tax Planning

Have you ever wondered after submitting your tax returns if there was something you could have done to save money on the taxes you pay?

One of the first things entrepreneurs must do when starting a new business before getting a tax identification number, or opening a bank account, is to determine if you want your company formally recognized by your state of incorporation.   Most new entrepreneurs will establish an S Corp or Limited Liability Company (LLC).  But there are many other options and each option has different tax implications.

Without going into all the different tax implications of each, other options included:

  • C Corp

  • Nonprofit Corporation

  • Limited Partnership (LP)

  • Professional Corporation (PLLC)

  • Doing Business As (DBA)

  • Sole Proprietorship

Each business is different, each has different business cycles, and each entrepreneur has different goals for their business.  These and other factors need to be analyzed carefully before the business is established.  If an entrepreneur establishes their business incorrectly, then excessive and unnecessary taxes will be paid by the business.  These excessive and unnecessary taxes are funds that will come directly from the business owner’s pockets.  So establishing the correct incorporation for your business is essential in reducing the business’ legal tax obligation as well as putting the maximum profit into the pockets of the owners.

Entrepreneurs also need to constantly evaluate their business and goals.  As the business grows, it may be beneficial to change its incorporation status to reflect the growth of the business.  If an entrepreneur does not evaluate the business on a regular basis, even if the entrepreneur initially established the business incorporation correctly, over time the growth of the business may have caused the business to outgrow its original incorporation status.  This results in the business incurring excessive and unnecessary taxes as well.

Entrepreneurs also need to be aware of opportunities provided by their current business to create new businesses that can help reduce the overall legal tax obligation.  A good example of this is a heating and air conditioning HVAC company.  The business originally began servicing residential heating and air conditioning units.  As the company grew, it had an increase in the selling of heating and air conditioning units.  A new HVAC business was soon created that only sold units while the original HVAC business concentrated on the service of units. The two HVAC businesses were incorporated differently, but in a way to reduce the overall legal tax obligation of the two businesses.  Many entrepreneurs miss this opportunity to lower their business taxes.

Contact us to discuss how your business is set up and if there is a more beneficial way to set up your business to save you financially.  Phone (704) 560-9318

Bookkeeping for New Entrepreneurs

As a new business becomes successful, the entrepreneur begins to focus on the main factors that keeps the business cycle flowing.  It may be keeping the inventory supplied to keep up with demand, increase the service options to meet the client’s needs, or just depositing the money in the bank account.  These are all fun and just some of the main reasons the new business owner created the company.  But as the new business owner’s time becomes more consumed with these events, they tend to put off the tasks they dislike most such as the bookkeeping.

This is a trap that entangles many new entrepreneurs. In fact, in conversations with new entrepreneurs, this is one of the main problems many have in common.  And because most new entrepreneurs have small businesses, the bookkeeping responsibility falls on their own shoulders.  The new business owners take on this responsibility because of I.R.S. requirements, but soon discover they are overwhelmed with the task because they do not know the proper procedures or just don’t have the time.  The bookkeeping quickly becomes unorganized or incomplete all together.

What many new business owners don’t realize is that this problem can be compounded as the new business grows and sales increase. Now they know they are successful so they must be running the business right, and begin to think the bookkeeping can be ignored even longer.  The owners know the business is making a profit because of the amount of money in the bank.  But they don’t know how much profit the business made over the past year, which month was the most profitable or the amount of increase in expenses as the sales have increased.

There are simple solutions to solving these issues.  If the new business owner cannot hire someone to do the bookkeeping, then the first step to find the right accounting system that fits the business’ needs and provide the information the owner requires (hopefully this is done before the bookkeeping gets to this point), and to actually use the system. The system then needs to be setup so that it meets the needs of the business in the best possible way, such as creating invoices or tracking purchase orders.  Finally, the new entrepreneur needs to take advantage of the features and short-cuts of the system most relevant to the business such as bank account feeds and memorized transactions. These features and short-cuts can save the owner precious amounts of time to address other issues of the business.

If you are looking for a someone knowledgeable to help your business with your books, accounting, or Quickbooks training, contact us for your no-obligation quote at (704) 560-9318.

Small Business Bookkeeping Mistake #4

Owners Managing Their Bookkeeping Alone

Owners of small businesses must perform many duties. Most small business owners become small business owners because they are experts in the service they provide or because of the high quality of the product they produce.

If an owner is not knowledgeable of basic accounting principles, mistakes made in accounting, and the time (and possibly outside costs) needed to correct those mistakes, could mean the difference between a business making a profit or a loss.

With a limited amount of work hours in each day, small business owners need to spend that time doing what they do best: providing their service or producing their product. In most cases, the bookkeeping of the business should be delegated to a specialist.

By hiring a professional bookkeeper, the owner will save money that would have been spent on hiring an accountant to correct the mistakes.

This will also free up the owner’s time to actually conduct business and bring in revenue. The money spent on a bookkeeper will come back to the owner many times over given the time savings and all the mistakes that will be avoided.

Small Business Bookkeeping Mistake #3

Lack of Internal Financial Control

According to the ACFE (Association of Certified Fraud Examiners), the estimated fraud losses for small businesses (less than 100 employees) were the highest amongst all business size categories.

Why do small businesses have the greatest share of fraud?

Lack of internal financial controls.
Five of the most common fraud schemes for small businesses are:

  • Check tampering

  • Skimming

  • Billing fraud

  • Expense reimbursement fraud

  • Corruption

Of those who were convicted of small business fraud, 41% of the employees been with the business between 1-5 years.

Why is there such a problem with internal small business fraud? Too many small businesses let just one bookkeeper handle all the business’ accounting responsibilities, which many times is a family member or close friend.

The family member or close friend handling the accounting is most often the source of fraud for many small businesses because there are no checks and balances.

Reducing this risk of fraud is as easy as segregating the financial responsibilities between two or more professional bookkeepers, with a clear set of checks and balances in place.

For example, you can have one person approve expenses and invoices, another prepare checks, and the owner sign the checks so the receipt and payment cycle includes a series of checks and balances with no one employee responsible for the entire cycle.

This way, no one employee has complete control of every aspect of the business’ finances. If this is not practical for the business owner, then the business owner MUST personally oversee the bookkeeping work and possibly take on some of these responsibilities.

If you are in the Charlotte, Mecklenburg, Ballantyne, Matthews, Pineville, Lake Norman, or surrounding areas and are looking for part-time bookkeeping services, feel free to call me at 704-560-9318 or email info@charlottebookkeeping.com

Small Business Bookkeeping Mistake #2

Becoming Totally Paperless

If I asked you where all the digital photos you took of your kids or adventures 8 years ago were…many of you would feel bit of regret knowing that unfortunately… some are on your current computer, some on a very old computer of yours that crashed suddenly after your spilled milk on it, and the rest were on 3 or 4 other computers you have had through the years.

The truth is, technology changes fast and suddenly your photos and important documents are left behind.

With the trend moving more and more to going paperless, not having the needed hard copies of records is becoming an increasing problem.

As a small business owner you may find yourself in a situation where you will be required to provide hard copies. One such request could be an IRS audit. And as Murphy’s Law has shown us, that will be the time your computer crashes or you will be unable to access your Cloud. Financial records and banks statements are just a few things that should always be “hard copied.”

Top 10 Accounting and Bookkeeping Mistakes Made by Small Businesses

Ask any small business accountant or bookkeeper about the top ten mistakes they see most business owners making and you are sure to find many different answers.

As a bookkeeper for small business owners in Charlotte, North Carolina, I have seen them all. It is easy to spot the common mistakes that business owners are making yet many times, it comes too late and the business owner is stuck suffering from the consequences.

In the next set of articles I write, I am going to list what I feel are the Top 10 Mistakes Small Business Owners Make and what they can do to make sure they stay clear of these bookkeeping pitfalls.

Bookkeeping Mistake #1

WRITING OFF A MAJOR PURCHASE AS IMMEDIATE EXPENSE

Many business owners make the mistake of expensing a purchase at the time it was acquired. This may be due to the amount of money spent at the time of the purchase.

A good example of this is the purchase of a new printer, which can be purchase for as little as $250. Because the life expectancy of the printer is to be for several years, the printer is considered an asset and should be depreciated over its useful life. On the other hand, printer paper is considered an expense, even though a business may purchase $1,000 worth at a time. So the amount of money spent is not the deciding factor, but the useful life when determining whether to expense or depreciate the item.

When determining whether your purchase is an expense vs an asset, here are general guidelines to consider:

Longevity – What is the life cycle of the item in question? If it is expected to last for several years, both in durability and its usefulness, the recommendation would be to depreciate the item rather than expense it.

Consistency – When deciding to expense or depreciate an item, consider how similar items have been treated by your business in the past.

Materiality- If the cost of the item is minimal, when compared to income and the other expenses of the business, the tendency is to expense the item rather than depreciate it.

Playing it Safe- When in doubt, play it safe, be conservative and depreciate the item rather than expense it.

Although much of accounting and its underlying principles are straightforward and black and white, this is one of the areas where there are gray areas. Again, when in doubt, be conservative. If you are still not confident, contact your tax professional or accountant to help you determine what is best.

If you are in the Charlotte, Mecklenburg, Ballantyne, Matthews, Pineville or surrounding areas and are looking for part-time bookkeeping services, feel free to call us: 704-560-9318 or email info@charlottebookkeeping.com