Category Archives: Tax Organization

Protect yourself from identity theft

As if you don’t have enough to worry about as an entrepreneur this tax season, there is one more thing you need to be very aware of: identify theft.

If you are a sole proprietor, everything about your business is tied back to you. Your livelihood not only depends on your good work habits, but on safeguarding your information — your clients’ information and your own. And as we slide into the middle of FY2016 tax season, you should also do what you can do to ensure your private information isn’t stolen and used to steal your tax return right out from underneath you.

The first thing to consider, if you haven’t already, is getting an Employee Identification Number (EIN). As a sole proprietor, you’re not legally required to get an EIN. But in addition to protecting your personal assets in the event your business hits a few bumps, having an EIN can also help protect your identity. With an EIN, you will not have to use your social security number for any business-related tax forms or credit or loan applications.

The best part about it is this: it doesn’t cost you anything.

Here are a few other tips to keep in mind:

Watch what you throw away.

The easiest and most common method thieves use to steal someone’s identity is simply going through their garbage. Be very careful about what you throw away. Just because you tie up your garbage bag and have a secure lid on your can or dumpster doesn’t mean you are being as careful as you could be. It wouldn’t hurt to invest in a paper shredder to ensure that any documents with potentially useful information for identity thieves are unusable.

(Here’s a little side tip if you also garden: depending on how much paper you shred and what kind of paper it is you can add shredded paper to compost.)

Watch where you handle financial matters

One of the big draws about being a freelancer or owning your own business is that, depending on what you do, you can literally take your business anywhere. We’ve all seen the gig economy articles with pictures of satisfied looking semi-professionally dressed people sipping a latte in some generic coffee shop while working on a laptop.

And there’s nothing wrong with that. But when it comes to doing your taxes, it’s a good idea to avoid public Wi-Fi hotspots for filing digitally. You should also avoid publicly accessible hotspots at hotels and fast food restaurants, even if it’s a secure spot that requires a password. Your best bet for filing digitally is to file from home or your business office, using a hardline connection or a secured connection where you control access.

Also, if you’re using a tax app on your smart phone that requires you to take a picture of your W-2, be sure to delete the photo after you’ve sent it.

Beware phone and email scams.

The IRS always sends documentation if there is an issue with your tax return. If you haven’t received any documentation, but are receiving phone calls and emails claiming you owe the IRS an excess of back taxes, be extremely cautious. They will sometimes give you fictitious but very real sounding badge or employee numbers. Sometimes they even know the last four digits of your social security number. If you receive a phone call from someone claiming to represent the IRS, immediately hang up and contact the IRS. If you receive an email, you can forward the IRS the email, but if possible, you should not open it as it may be part of a different phishing scam to install malware on your computer.

If you don’t prepare your own taxes, make sure you find someone trustworthy.

If your tax preparer asks you to sign a blank return, run – don’t walk – the other direction.

There are other ways to protect yourself

If you decide that protecting your identity is also a worthwhile financial investment, there are several programs available.

  • LegalShield © has a service called IDShield ©. They offer this in addition to other legal services for small businesses.
  • AAA also has two identity theft services they provide for members: ProtectMyID Essential and ProtectMyID Deluxe.

To LLC or not to LLC: that is the question

Being an artist or working in a creative industry as a freelancer isn’t always easy. Unless you’re fortunate enough to find steady clients and gigs, you feel like your professional life is forever going in a circle of feast and famine.  And, if you have worked as an artist of a creative freelancer, you know that being talented at what you do isn’t enough. That myth of the carefree artist with his head in the clouds and no notion of how the business world works is simply that – a myth. Being a great artist goes hand-in-hand with being a savvy businessperson, because as much as you love your art, you need to eat and keep the lights on, too.

One thing every entrepreneur thinks about eventually is whether to operate as a Sole Proprietorship or to form a Limited Liability Corporation (LLC).

In most cases, you’re probably going to start with and stay with a Sole Proprietorship. This is the easiest business to start because there isn’t much set up required. Although you may be required to get a business license, there isn’t any paperwork you need file unless you choose to “Do Business As” (DBA) a name besides your own. You may also want to consider going ahead and applying for an EIN (Employer Identification Number. While it’s not necessary for a Sole Proprietorship, it will help protect your social security number. It also legitimizes that what you are doing is more than a hobby. You report your earnings annually and you are responsible for paying self-employment taxes as well as covering contributions to Social Security and Medicare.

If you’re fine with all of that, and you’re careful with your accounting practices, then you will probably want to form a Sole Proprietorship.

Keep in mind though, that if your business should ever be sued, then you are personally liable for everything. And if you should lose, your house, your property, and other assets will be at risk.

Forming an LLC takes some legwork, preparation, and money. After you chose a name and make sure it’s not already being used, it’s time to file articles of corporation. Depending on the state you live in, expect to pay between $100 and $800. In Kentucky if you forgo the ease of having someone else do the heavy lifting for you, it will only cost you a $49 fee paid to the State Treasurer to file your articles of corporation.

Some states also require an operating agreement that outlines how your business is run; Kentucky, however, does not. You’ll then need to get an EIN (Employer Identification Number), which is free and can be obtained online at the IRS website. Keep in mind though, that you can only register for one EIN at a time. At this point, you can separate your personal and business assets. This is the main advantage for forming an LLC as an artist or freelancer.

Finally, you’ll need to register for state tax and unemployment insurance. Even if you happen to be your only “employee” you will still need to do these things in order to be in compliance of state law.

Depending on the nature of your work, forming an LLC might be overkill. Many artists and members in what is termed the “creative class” keep it simple. And, unless the kind of work you do expands to the point that you need to bring in extra help, you will want to seriously consider keeping your work life as least complicated as possible.

If you’re reading this and your business or business concept doesn’t fall under the umbrella of the “gig economy” or you don’t identify as part of “the creative class,” keep in mind that every entrepreneur has to make the decision at some point whether to operate as a Sole Proprietorship or as an LLC.

GrinchtoGlee

From Grinch to Glee – Make year end easier with these bookkeeping tips

It’s not that your heart is two-sizes too small like the Grinch, but rather that your head might explode from all the year-end bookkeeping tasks on your list. While these to-dos could certainly put your holiday spirit in short supply, we know how and Who can help.

It’s essential that your data is accurate, complete and organized for tax time and the year ahead. But where do you begin?

Like the Whos in Whoville helped Grinch, we offer tips to keep you and your books on the nice list.

  • Evaluate your financial standing

Review profit and loss, your balance sheet and general ledger. Make sure they aren’t mangled up in tangled up knots by checking that all transactions have been recorded and posted to the proper income, expense, asset or liabiity accounts. Also check the accuracy of your accounts receivable and accounts payable, and write off uncollectible debt so as not to overstate your income (especially if accrual based), and overpay the You-Know-Whos.

  • Complete bank reconciliations

Make sure your checking, savings and credit card accounts have been reconciled. Loan interest should be separated from the principal and accurately logged. And a decidedly, non-grinchy trick: reconciling monthly makes it easier to catch errors.

  • Review Personal Expenses

You shouldn’t, wouldn’t, oughtn’t, mustn’t mix your personal and business expenses (although for the Sole Proprietor it’s often a necessity), so look at your expenses closely and if that’s the case find receipts and/or cancelled checks and log the expenses in your books. Then watch your heart grow because you avoided paying extra taxes.

  • Review Subcontractor Services

If you’ve hired any Whos who are Sole Proprietor’s or LLC’s, for contract services totaling more than $600 during the year, you’ll be required to send them a 1099 Misc form. It’s a best practice to send each new subcontractor or vendor a W9 at the time of hire to ensure you have complete address information and either their Social Security Number or Federal ID Number information on file.

  • Take Inventory

Review your inventory during the last month of the tax year and make necessary adjustments to align the inventory account of floofloovers and whowonkas to match the items in stock.  Your inventory value should show the cost price or price paid rather that the selling price for your items.

  • Create a Filing System

It may sound overly simple and antiquated, but we know an organized system for easily accessing the documents you need, when you need them come tax time will make you happy as a Who.

As you celebrate the close of 2016, it’s also time to look to the year ahead. If one of your goals is to have more flexibility and time to achieve your personal and business goals, consider the advantages of having a Bookkeeper. Not only an excellent resource to simplify your financials and ensure accuracy, a Bookkeeper can also be a personal advocate, a partner as loyal as Max, and someone to help you make your Holidays mean a little bit more for years to come.

Budgetary Moves That Will Move You Cross-Country

Planning a cross-country move can become your worst nightmare! For starters, organizing a move like this will feel impossible… I mean, where do you even start? It can also take a toll on your well-being (i.e. your mood and your health) and it can drain your bank account too!

The good news is, there are some simple steps you can take to alleviate the pain and put you back on the road to success… and it’s called having a strategy. Once you sit down to map out your move then it’s almost guaranteed to minimize your stress and maximize your financial savings.

To help you get started, here are a few steps:

  • Start an “Action Plan” – Be sure to write down your plan… better yet, find an app that will enable you to create a checklist of your moving to-dos. By staying organized and “on task” you will save money because you’re not having to buy things at the last minute.
  • Seek Relocation Assistance – Are you relocating due to your job? Many companies offer relocation assistance, to cover some of the costs for the move, so you may want to check with your new supervisor to see if this is available.
  • Collect Packing Materials – Companies like U-Haul charge premium costs like boxes, tape and rope so once you know that a move is going to happen, visit your local grocery or convenience stores and ask for any boxes they still have after restocking their shelves. Ask friends and neighbors to save their newspapers and any other packing materials such as old blankets.
  • Organize your Packing Priorities –
    • Have a “GO TO” Box: Priority 1
      Have one large box to the side where you will keep all of your must-have items such as packing tape, pens, markers, scissors, paper, important documents, medicines, toiletries, and anything you’ll need until you leave home. This will prevent having to buy new stuff every time you pack away or lose things you need. Keep this box with you at all times so you can get access to these important items when you reach your destination.
    • Have an “FIRST THINGS FIRST” Box: Priority 2
      This is like the “GO TO” box, but  will be the box of your priority items you may need when you arrive to the new location. In this box will hold what should be considered your 2nd on the list priority items.  Give some thought to what items you’ll need (or want) to have right when you get to your new home. Maybe you’ll want to include things like the coffee maker, coffee cups, toilet paper, towels, and toys to keep the kids busy.
  • Label Your Boxes – It can be really easy to skip this step or to just do it sloppily. Some people would actually rather go out and buy new items instead of searching through yet another box for something they need. Nip unnecessary spending in the bud by marking each box with a permanent marker noting what room it belongs in with a brief list of what’s inside. Try to avoid my technique that usually comes out at the end of the packing experience where I throw stuff into the boxes and just label them all MISCELLANEOUS…;)
  • Clean as You Go – When you pack up an area, give it a good cleaning immediately after the space has been cleared. This will keep things efficient and prevent you from having to hire cleaners to do your entire residence when you are sick of the moving process. Cleaning will also be beneficial if you rent and are counting on a security deposit refund.
  • Ditch the Junk – Keep a JUNK and GARAGE SALE box close by. While you’re boxing up your keepers, you’ll easily be able to toss your junk and garage sale items into their proper boxes. Moving is a great chance to clear out the stuff that finds a way to accumulate over the years. Plus, you’ll spend more money if you have to move boxes of stuff you don’t even want anymore. Sell anything that is still in good shape by having a moving sale when you near the end of your packing process. When you make your donation to the thrift store be sure to get a donation receipt because that will come in handy when tax time rolls around.
  • Check out Storage Options – For any family heirlooms or pieces you may want back at some point, consider renting a low-cost storage unit to house your items until you can have them set to your new place of residence and cheaper option is to consider asking trusted friends or family to house your treasures in their homes until you can arrange for transportation. If you do decide to go with the storage unit be sure that you don’t forget about it and continue to rack up $50 + a month in fees.
  • Get Moving Company Quotes – If you decide to have a moving company move your stuff be sure you get multiple estimates and quotes before making a decision. You want affordability, of course, but you also want reliability. Some will even store your belongings for FREE, up to 3 months!
  • DIY Packing – You may choose to have a moving company pack you up… but it will cost you! Use a company that will provide you with a truck and a driver. All you have to do is pack up the truck yourself and they’ll drive it across the country.
  • Be Truck Smart – If you plan to rent your own moving truck and haul your stuff across country on your own, make sure to only reserve the truck size you need. It will cost you a lot of extra money (in gas and truck rental fees) if you book a truck that is too large.
  • Overnight Stays – If you have friends and family along the travel route, ask them if you can borrow their couch for a night rather than spending your money on hotel lodging. If that’s not an option, you’ll need to consider where you will be stopping to rest. You can find valuable coupons in the books available for free at state welcome centers. Look for coupons for hotel deals and restaurants along the way and online before you leave. If you have fur kids, there are options that accept your pets… do your homework!
  • Utilize a Cooler – Depending on the room available in your vehicle you can save a good amount of cash if you pack your own snacks and drinks for the morning and afternoon. Then, only stop for dinner.
  • Finally… Don’t Buy until You’re Settled – Don’t rush out to the store to buy what you think you need… Give yourself time to sort through your stuff and get set up, keeping a list of ideas along the way. If you rush off to the store the 1st week you’re in town it will most likely lead to overspending, especially on things that you don’t really need. The only store you need to hit in the first few weeks is the grocery store.

By using some or all of these steps, your worst nightmare can be transformed into some wonderful memories that will allow you to embrace the next chapter in your life with some extra cash to boot.  See you on the road!

 

Spring Cleaning For Your Finances

OK, now breathe! That’s it, take a deep breath in and slowly release it… tax day is over, spring is in the air and summer is just around the corner. LIFE IS GOOD!

That is until you take a good look at the mess around your computer… the strewn trash piles along with the old financial records and leftover coffee cups and who knows how long that box of chow mein noodles has been siting there… right?!

But remember, it’s SPRING and what better time than to get started on a bit of spring cleaning? I’m not just talking about cleaning up from your deadline with the IRS or cleaning out the closets and under your bed, I’m talking about your financial spring cleaning.

Now, don’t get me wrong, spring cleaning your house goes a long way in helping you spring clean your finances too. By organizing your home, you are much more likely to know what you need to buy and may prevent you from purchasing something that you don’t need, simply because you misplaced it. Listed below are a few other ways that you can spring clean your finances:

  • Check Your Credit Score – Is there any incorrect or misleading information about you that could hurt your score? What can you do to improve your score?
  • Organize and/or Shred Old Financial Documents – Clean up your files and shred any old or no longer needed information.
  • Re-balance and Diversify Your Investment and Retirement Accounts – How are your investments doing? Are you on tract with your retirement goals?
  • Review Your Insurance Coverage – has there been any life event changes? Do you need any additional coverage or is any coverage obsolete?
  • Review Your Expenses and shop for better rates – Can you pay less if you switching to a different company? Are you using what you paid for like that gym membership?
  • Set up Automatic Bill Pay – Late fees undermine your financial goals, therefore put regular payments on automatic bill pay so this doesn’t happen.
  • Save without Thinking – How is your emergency fund? Are you saving enough each month?
  • Revisit Your Budget – Once you have reviewed your finances ensure that the new numbers are worked into your budget.
  • Record Your Financial Passwords and Store Records in a Safe Place – Or better yet, use a trusted online password storage system and be sure to use a different password for each of your financial sites changing the password on a quarterly bases.

Knowing where you stand with your finances will better enable you to make wise and prudent money choices and as a result, you will be better prepared for your next tax deadline in 2017.

THE SQUEAKY NAGGING VOICE OF MARCH MADNESS

Spring is in the air… We have altered our clocks to give us that extra hour of day light, our lawns are in need of a manicure and that age old tradition of college basketball teams battling it out for the ultimate title is underway.

There is also one more sign that winter has morphed into spring. It starts out as a small annoying tickle in the back of our brain as we become glued to our tablets and newspapers for the latest basketball scores and bracket updates. Then it quickly develops into a squeaky nagging voice, shaking us into reality at about the same time the newest NCAA Champions have been crowned. Finally we are hearing the same words over and over and over… “taxes”, “taxes”, “taxes”, “TAXES”!!!!

Yes, spring also welcomes in the Tax Man and by April 1st we will all be filled with a new type of madness, running around in circles; hastily gathering any tax documentation and tossing them into the only handy box we can find… the same one filled with the pictures and receipts from last summer’s trip to Walt Disney World in Florida. All the while praying that we didn’t forget anything important that will prevent us from meeting that April 15th deadline!

We all know this picture and every year we keep saying the same thing, “Next year, I am going to do it differently!” Well folks, it’s now next year and we are a month away from the inevitable tax deadline. So let’s make 2015 the year to make a difference in how we handle our financial obligation.

The trick is to work a little each day so that you don’t feel overwhelmed. Break your tax process into smaller chunks and spend 20 to 30 minutes a day to get it done. Listed below, is a sample of how you can split up your tax project into a more manageable set of tasks:

  1. Choose a qualified tax preparer
  2. Set up an appointment
  3. Organize your tax documentation
  4. Get your receipts in order
  5. Check out your tax deductions
  6. Don’t forget your charitable contributions
  7. Grab your tax file from last year
  8. Check for changes in tax laws (knowledge is important)
  9. Write out your personal information (any changes over the last year)

By following the steps above, not only will you feel better because you are in control of your time but your stress will also be alleviated, which lowers your blood pressure for an overall healthier you.

“A nickel ain’t worth a dime…”Basics of Bookkeeping

Every Business is unique, you need a bookkeeping system customized to your business operation.

Two Considerations for creating your basic bookkeeping system:

  1. Types of transactions the business enters into and how information about those transactions can be captured:  Income, Expense, Asset, Loan or Credit Card Liability, etc.  Will you manually enter the data, or download from the Bank?
  2. Type of financial information the business needs to efficiently manage its operations: In addition to tracking Income and Expenses, do you need to track inventory, valuation and profitability;  income and expense across multiple locations; or Employee costs?

The Chart of Accounts (COA), is the heart of every Company file. The COA should include:

Accounts to capture Income, Assets, Expenses, Liabilities, and Equity specific to your business, and be flexible enough to allow for future growth. Every transaction you enter is allocated to the appropriate COA account.

On a regular basis, you, your Bookkeeper, or Accounting Professional should run at least these (3) financial reports to make sure your Company is healthy and on track:

  1. **Profit and Loss or Income Statement- Summarizes your income and expenses for a period of time, so you can tell whether you’re operating at a profit or a loss, and where you might trim spending
  2. Balance Sheet – Summarizes the financial position of a business as of a specific date – a “Snapshot” of your company. The value of the assets is always exactly equal to the combined value of the liabilities and equity.
  3. Statement of Cash Flow – This report shows how your cash position changed over a period of time. Shows cash earned from profit; Where you received additional cash; Where your cash was spent; How cash was provided or used in terms of Operating, Investing, and Financing Activities.

Seeking Funds for your Business?  Lenders want to see the true value of the nickels and dimes of your business.