Small Business Profit Explosion

Tax Tip of the Week- IRS Introduces Fresh Start for Back Taxes

The IRS has created a new program for people who owe back taxes. There are forms of changes that may help you if you the IRS money.

The first part of the Fresh Start program pertains to taxpayers that owe for tax year 2011. If you were unemployed for 30 days or more in 2011 to April 17, 2012, the IRS will waive their late payment penalty for 6 months. You will need to file the Form 1127-A to apply for the waiver. If you decide to do this, you will have to pay the full amount plus interest and any other penalties you may have accrued by Oct. 15, 2012. There are some income exclusions and caps on this waiver.

The second part to the Fresh Start program is related to the installment agreements. Before, if you owed $25,000 or less to the IRS you would automatically approve a payment plan and you were not required to provide your financial information to the IRS for approval. They have increased the debt amount to $50,000. This is the only part that changed when asking for an installment agreement. You will still pay for an installment agreement fee, if not done online, and interest and penalties still apply.

If you would like to learn more about this, click on this link to learn more.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

For The Busy Business Owner That Can’t Keep Track Of Their Mileage And Expenses!

I’m always looking for things that can help my business clients keep better records and I came across Texthog.com.

Texthog is an online program that allows users to text their expense to their account and the program will keep track of the amounts you have spent. With the paid accounts you can take pictures of your receipts, track mileage, and create subaccounts and reports. It’s inexpensive too! It’s only $7 a month or $50 a year for 2 users. Trust me; it will probably save you a lot more than that in taxes and is a tax deductible item for businesses. Go to www.texthog.com to check it out.

FYI- I do not get paid to products or services I promote. I just like to promote things that I feel will help people make their lives easier. 

 

What Would You Tell a Family With This Household Budget?

How would you counsel a family with the following household budget?

                Annual Income                                                                 $ 24,700

                Annual spending                                                              $ 37,900

                New credit card debt for the past year                          $ 13,300

                Existing credit card debt                                                  $ 153,500

                Recent spending cuts                                                     $ 385

You would probably tell them that they are close to bankruptcy. You would also probably tell them that they have to cut spending. Not just by the pretend amount of recent cuts they have made; but, with really, deep, meaningful cuts!        

Well this is every family’s share of the national budget and the national debt! (From a recent John Stossel Show.)

So, what will you be telling the politicians in this November’s election about our countries budget situation? Should they continue with more of the same and bankrupt the country or rein in our out-of-control spending now.

Better choose wisely! Your family’s future financial well being depends upon you making the right choice now!

(Start by educating yourself with a past blog – The Federal Deficit is Increasing by $237,823 per Minute! What Does That Mean to the Small Business Owner? (Link http://bit.ly/yRgdYs )

 

10 Surefire Ways to Make More Money and Keep it in the Bank!

Go to www.myprofitguru.com to listen to our free webinar that will show you the following 10 Surefire ways to make more money and keep it in the bank. This one hour webinar is jam packed with information that I have used over the last thirty plus years to help business owners increase their profits.

The following are the items I cover that I know can help you double or triple your profits this year:

1. See what the crowd is doing and do the opposite.
2. Focus your time on the work that increases profits, sales and cash flow.
3. Manage & improve every step of the sales cycle.
4. Increase sales to current customers.
5. Create a marketing system to get the big customer.
6. Speedup and improve all areas of the business transaction cycle.
7. Understanding & utilizing the most important rule of business.
8. Using 5 critical accounting numbers to increase profits, sales & cash flow.
9. Never totally trust your bookkeeper.
10. Be a lifetime learner.

At www.myprofitguru.com you will also receive a list with all legal business tax deductions (So you don’t ever miss a legal deduction again!), 65 tax cutting tips and a list of QuickBooks keyboard shortcuts.

Please let me know what you think of this free webinar.

Thank you for your continued support and let’s make this year our most profitable year ever!

 

Tax Tip of the Week: Short of cash for your IRA deposits – Get a loan from the IRS

Are you short of cash for an IRA contribution this year? The IRS may give you a “loan”.

Planning strategy: Use your federal income tax refund to fund your IRA contribution. Simply file your 2011 return early; claiming a deduction for the amount you intend to contribute (assuming you are allowed to make a deductible contribution). When you receive the refund, use it to help fund the IRA contribution you deducted on your return

Is it legal? Absolutely, the IRS approved this taxpayer-friendly technique years ago. (IRS Revenue Ruling 84-18) All you have to do is make the IRA deposit by the April 17 deadline.

The IRA contribution limit for the 2011 tax year is $5,000 ($6,000 if age 50 or older).                                                          

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

The top 25 causes of small business failure

(Growing Your Business Series: Part 2)

One of the big advantages a CPA has working with small business owners is that we get to learn what makes them profitable and what makes them fail – without losing any of our own funds. On top of that, we too are business owners who face many of the same kind of opportunities and challenges that all small business owner’s face.

So what have I learned? Well for starters, launching a small business is risky and the chances of building a successful business are small. According to the Small Business Administration (SBA), over 50% of small businesses fail in the first year and 95% are out of business in the first five years. Of the ones that survive past five years, less than 1% reaches a level that allows the business to survive the retirement or death of the founder.

The following are the top 25 reasons I have seen for small business failure:

1. Choosing a business in an industry that just isn’t very profitable.
2. Not having actual hands on experience in the industry before opening the new business.
3. Unwillingness by the owner to take responsibility for everything that is not working in their business.
4. Poor management skills by the owner.
5. Lack of necessary effort by the owner. They often don’t understand that they are not in a 9-5 job anymore.
6. Unwillingness of the owner to be a continuous, lifetime learner.
7. Failure to have a business and marketing plan.
8. Inadequate cash reserves.
9. Failure to truly understand their customers wants and needs. This also includes not understanding what triggers a customer to buy.
10. Lack of marketing & sales skills.
11. Failing to price your product or service correctly.
12. Failure to anticipate or react to changes in the marketplace, competition or technology.
13. An overdependence on a single (or a few) customers.
14. Uncontrolled growth.
15. The owner believing they can do everything themselves.
16. Poor customer service.
17. Unqualified or untrained employees.
18. Failure to seek outside professional help.
19. Employee fraud.
20. Poor location.
21. Poor inventory management.
22. Poor credit arrangements.
23. Absence of performance monitoring.
24. Over borrowing.
25. Failing to innovate and introduce new products or services.

A review of the list shows that the key reason for business failure is the inexperience and lack of business knowledge by the owner. We will be launching a series of free and low cost webinars to help the business owner acquire the business knowledge they need to succeed. Keep an eye out for future emails from me introducing these webinars.  

Thank you for your continued support and let’s make this year our most profitable year ever!

 

Tax Tip of the Week- New Credit for Hiring Veterans

Congress has passed new legislation providing an expanded tax credit to employers that hire unemployed veterans. The maximum credit is $5,600 for hiring veterans who have been out of work at least six months; $9,600 for hiring unemployed vets with disabilities.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Don’t forget your required year-end IRA distributions!

Taxpayers 70 ½ and up must take their payouts from IRAs and company plans by year-end. Start with your December 31, 2010 IRA balances and divide each of them by a factor for your age. (The age factors are printed in IRS Publication 590 which you can find at www.IRS.gov .) You can use a higher factor if you are more than ten years older than your spouse. The sum of these amounts can be taken from any of IRA you choose. The process is similar for retirement plan payouts, but you must take the required amount from each plan.

Failing to do so can result in a 50% penalty on the amount that should have been distributed. The IRS can waive the penalty if the individual can establish that the shortfall was due to reasonable error and steps are being taken to remedy the failure to distribute.

 

  Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

7.5 Year-End Ways to Slash Business Income Taxes

There is still time to cut your business income tax bill for 2011. Here are 7.5 tax cutters that you should consider implementing before year-end:

1. Buy equipment this year. For 2011, the maximum 100% deduction of equipment under Section 179 is $500,000. This is scheduled to be reduced to $125,000 for 2012. There is also a bonus 100% depreciation on new equipment (not used) will be in place for both 2011 and 2012.
2. Write-off your bad debts. If your business uses the accrual method, you should write-off any receivables that you deem to be uncollectable. Document your good faith effort to collect these debts. Remember, if you later collect an account that you wrote-off you will need to pick up the total amount as income. 
3. Write-off old inventory. Review your inventory and write-down old inventory to market value. Research what you could sell it for on the internet. (Better yet, sell it at a deep discount. Better some cash than just throwing it away!)
4. Donate old inventory.  Better even than throwing away old inventory – donate it. You will be able to deduct an amount equal to ½ the difference between market and the product cost. Assume you normally sell your product for $100 and it costs you $50. Your deduction would be $75.
5. Prepay 2012 expenses in December. Pay property taxes in December rather than January. Pay your January 2012 rent or building payment in December. Look for other expenses that you can pay early. If you are short of cash charge it to a credit card. Even if you are on a cash basis you can deduct these expenses in 2011.
6. Donate computers and other equipment you no longer use. You can write-off one half of the difference of the fair market value less your remaining basis (original cost less depreciation). Since most of the equipment you replace is likely to have been written off, your charitable deduction will most likely be half of the market value. Take digital pictures to prove the deductions and keep proof of what you could have sold the equipment for at the time of the donation.  
7. Look into creating a retirement plan. The vast number of tax deductible retirement plan options makes this a subject that is well beyond the scope of this blog. Call your CPA for more information on how this can help you. 
   
   7.5  Check out my FaceBook page for daily tax savings tips that we have been posting since 10/21/11 (http://www.facebook.com/#!/pages/Wayne-J-Belisle-CPA/185259446999).

  Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

11.5 Year-End Ways to Slash Personal Income Taxes

There is still time to cut your income tax bill for 2011. Here are 11.5 tax cutters that you should consider implementing before year-end:

1. As long as it makes financial sense, sell any of your stocks that are in a loss position to offset any capital gains you may have from the sales of other assets.  But, if you have losses from 2010 or from prior years, consider selling stocks that you have build-in gains in order to use the loss and shelter the gain.
2. Install energy savings improvements in your personal home in order to reduce your taxes by up to $500 (Some improvements are limited to 10% of qualified expenses and amounts taken in prior years).
3. Secure deductions for charitable gifts by keeping excellent records. If you donate clothing or household items to charity, be sure to take digital pictures so you can prove the properties condition and worth. If you charge a donation to a credit card in 2011 you can deduct it even if the bill isn’t paid until 2012.
4. Pay your property taxes by year-end in order to deduct them in 2012. In El Paso, property taxes are not due until 01/31/12. Paying them early will allow you to double up your deduction for 2011 (assuming that you paid 2010 taxes were paid in January 2011).
5. If you are going to buy a car in early 2012, consider buying the car before the end of the year so that you deduct the sales tax paid on the auto in addition to the sales tax amount calculated from the IRS tables.
6. Bunch out-of-pocket medical expenses into one year. Medical deductions are only allowed to the amount that exceeds 7.5% of your adjusted gross income.
7. Reduce or, in some cases, even eliminate the estimated tax penalties by paying at least 100% of your 2010 tax (110% if your AGI exceeded $150,000 in 2010). Alternatively, try to estimate your 2011 tax liability and make payments equal to (or greater than) 90% of your estimated 2011 tax.
8. Divide tax on real estate gains. If you sell property before the end of the year consider receiving the proceeds in two payments – one in 2011 and one in 2012. This very easily could result in dropping you into a lower tax bracket.
9. Review your alternative minimum tax (AMT) liability. You may be able to reduce or eliminate the damage by postponing tax preferences to 2012. However, if you definitely will pay the AMT in 2011, you might accelerate taxable income into this year if the extra income will be taxed at a lower rate than your normal rate.
10. Lock in higher-education tax breaks. The tax law provides some relief to parents who put their kids through college and grad school. But the tax benefits phase out for certain high-income taxpayers. Strategy: Pay the tuition bill before Jan. 1^st as long as the related education will begin in the first three months of next year.
11. Consolidate personal loans with a home equity loan and deduct the interest. Normally, you cannot deduct interest payments made on personal loans. (There is a limited exception for student loans.) Convert non-deductible personal debt into deductible home equity debt. This way, you can deduct the interest on up to $100,000 of the home equity debt, regardless of how you use the borrowed funds. With interest rates at an all time low this is the best time you will ever get to refinance your home.

11.5  Check out my FaceBook page for daily tax savings tips that we have been posting since         10/21/11 (http://www.facebook.com/#!/pages/Wayne-J-Belisle-CPA/185259446999).

  Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Tax Tip of the Week: Last chance to write-off 100% of Qualified Real Estate Improvements!

Until 12/31/11 you can use Section 179 to write-off 100% of qualified real property (called real estate for people who don’t speak IRS). Historically, only tangible personal property (equipment) qualifies for Section 179 treatment.

But, for tax years beginning in 2009 & 2010, up to $250,000 of qualified real property can be treated as Section 179 property. Qualified property includes qualified leasehold improvements, qualified restaurant property and qualified retail improvement property.

So, if you in one of those areas and are thinking about spending money on your rentals, your restaurant or your retail property in the near future you should 1) talk to your tax person to learn what qualifies and 2) complete it before year-end. Otherwise these expenses will be deducted using straight-line over 39 years.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Lessons Learned – Six Ways Smart Business Owners Cut Their Income Taxes

The myth most business owners believe: Hiring a good tax preparer is the secret to paying lower taxes.

Why this myth causes a problem: The normal business owner believe that their work is done once they hire a tax preparer. They don’t do anything to control tax costs. This leads to them being surprised when they get their tax return and paying a much higher tax liability than smart business owners.

So, they blame their tax preparer and find a new one. Of course, this doesn’t change anything since they took the source of the problem with them to the new tax preparer.

The truth successful business owners learn the hard way! Uncle Sam is your partner. And, he is a bad partner! He does little work in the business and demands a third or more of the profits. Smart business owners also understand that income tax is an expense like any other. Thus, it can be planned for and managed.

Smart business owners cut their income taxes in the following six ways:

1. Smart business owners take year-end tax planning seriously. After the first of the year there is very little that can be done to reduce taxes. Before year-end is the only time where a business owner can effectively reduce their tax liability.
2. Smart business owners call their tax advisor before doing any major transactions. They call before selling assets, opening a business or taking money out of retirement accounts. Since they know in advance the tax consequences of their actions they don’t “Shoot-the-messenger” when they get their tax return and discover how much they owe.
3. Smart business owners keep good accounting records. They don’t drop off shoe boxes full of receipts to their tax preparer and they understand that good accounting records ensure that they deduct everything they spend in their business. With the current technology there is no good reason not to have good records in order to prepare your tax return.
4. Smart business owners get their records to their tax preparer early. I prepared close to fifty returns in the last two weeks. There is no way that they received the same amount of attention to helping them reduce their taxes that I was able to spend with clients earlier in the year. Smart business owners understand this and make time to meet with their tax preparer as early as possible.
5. Smart business owners save for taxes as they earn the income. Uncle Sam’s motto – pay me now or pay me more later. Smart business owners make their estimate payments. The smartest business owners put an amount into a savings account weekly that represents how much they will owe. (Hint: divide your total tax liability last year by your total sales from last year. Put this percentage amount in a savings account weekly.)
6. Smart business owners get a basic understanding of the income tax law. They don’t become experts. But, they do learn how the system works and how to use it to their advantage.

Lesson learned: Income taxes can be reduced like any other expense with proper management and planning. This allows the smart business owner to use the savings to grow their business, or support their family, plan for retirement, take a vacation, etc.  

Tax Tip of the Week: Year-end tax planning time is here!

Yes, I survived the 10/17/11 personal extension deadline. Barely! I, like most CPA’s, hate this deadline. We are dealing with the clients who have bad records, don’t plan, are surprised that they owe taxes and complain about how we must have missed something. (Obviously, I'm not talking about any of my clients!)

I tell them all the same thing, “After the first of the year we write history not fiction.”

Now we are entering a time most CPA’s enjoy - Tax planning season!

This is the time that smart business owners work to reduce their taxes for 2012. No surprise that the business owners who hire me to help them reduce their taxes are the same business owners who are expanding even during this economic downturn. They try not to be surprised by anything in their business and they understand that income tax is an expense that can be controlled just like any other cost.

I just recently finished initial tax planning for two of my clients. Together, we identified legal ways to cut their taxes by over 60% (Savings of $108,000 for one and $124,749 for the other). If you are in business you should be tax planning. Yeah, you might only cut your bill by a few thousand dollars. But, if you are like me, you can think of a few things your business or your family could use the savings for.

Tax planning starts by projecting your income to the end of the year and then exploring different tax strategies, loopholes and opportunities that are available to you. This can be intense and time consuming if you have a large business. So call your tax preparer for help.

I will be sending out a year-end tax savings tip each day from now to the end of the year. Signup for these daily tax planning emails by going to www.wjb-cpa.com and entering your email address in the box in the upper right hand corner. I will also be posting these to my FaceBook business page, Linked In account and Twitter account. So search for me there.

Finally, I have only a few tax planning spots available. Email or call so I can discuss with you if this is something that will help you and your business cut your taxes.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Tax Tip of the Week: What volunteer expenses can be deducted?

Most taxpayers who do volunteer work for charitable organization fail to deduct their costs as charitable gifts on Schedule A of their income tax return. These deductions include:

• Travel, meals and entertainment related volunteer and charitable activities (actual expenses or 14 cents per mile, plus parking and tolls).
• Telephone calls and office supplies.
• Convention expenses – including travel to and from the convention.
• Part of organizational dues (the organization can usually tell you how much).
• Uniforms and work clothes, including laundry and dry-cleaning expenses. This is only for clothing not usable as ordinary street clothing (Boy Scout uniforms for example).

The trick, like any deduction, is to get proper documentation. Taking pictures and keeping receipts and logs of your volunteer work would be excellent documentation.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Client Question of the Week: When should I incorporate my business?

Question: When should I incorporate my business?

Answer: This week I had an appointment with the owner of a small trucking company who wanted to know if he should incorporate. He has been in business for about five years and had grown the company to about $700,000 in revenue but was still having small losses due to high fuel costs and a slow economy.

As I told him, there are really only four reasons to incorporate:

1. If you are in an industry that has a high legal exposure such as doctors, construction and trucking (due to possible accidents by his drivers). But, this may not be enough of a reason. A business owner’s first line of defense should be their liability insurance. Also, many startup business owners have very few personal assets so they are in effect “judgment proof”.
2. To save taxes. About 87% of small businesses who incorporate are formed as S-Corporations. The ability to save social security taxes is the big reason. The idea can be illustrated by considering a small business that has a schedule C (sole proprietor) income of $100,000. They would pay self employment (SE) tax of $15,300 (15.3%) on this business income. If they are an S-Corporation and the owner pays themselves a salary of $60,000 then the remaining $40,000 would be not subject to the SE tax for a savings of $6,120.
3. If the business has more than one owner. For these businesses I highly recommend that they start off incorporated and structured as a S-Corp. A partnership has shared liability by the partners. This basically means that your partner can borrow money or sign agreements that you are also personally liable for even if you don’t agree with it.
4. To look bigger then you really are. The idea here was that having the words “President” on your card made you look more attractive to your prospects. In the world of the internet and social media this really just doesn’t work anymore.

These reasons must be compared to the following extra costs related to incorporating. These include:

• The cost of having a good accounting system. For a schedule C all I need to prepare the income tax return are its income and expense items for the business. Once you incorporate I will also need good numbers for your assets and liabilities. This means spending the time and money to have a real accounting system. Something that I strongly believe every business owner should have anyways.
• You have the cost of incorporating. If you do it yourself online this will cost you around $500. If you hire an attorney to incorporate you this will cost you about $1,000 to $1,500.
• You will need to file a separate corporate return that will cost you at least $750 per year.
• In Texas, you also may have to pay a franchise tax return of 4.5% on your gross profit.

So what did my trucking company owner decide? Well, he decided I had given him a lot to think about and he probably will wait until the company starts to make money before he incorporates.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Business Success Secrets: Lessons Business Owners Keep Learning the Hard Way! No Pain – No Change! The Unofficial Business Owner’s Slogan



The myth most business owners believe: I can still get the job done, it can wait.

Why this myth causes a problem: Just about every week I meet with business owners who have waited too long to address an issue that has now become an emergency! The numbers of potential problems just waiting to trip up a business owner are almost limitless. The most common first symptom that a business owner usually has is a shortage of cash.

The truth successful business owners learn the hard way! You can never rest! A successful business owner is always on the lookout for little problems that can grow into huge problems that can threaten the survival of their company.

One of the ways they do this is by updating their strategic plan at least annually. They pay particular attention to external threats that are affecting their business now and could threaten their very survival in the future.

 

I know that this sounds somewhat melodramatic. But, consider the fate of BlockBuster. A decade ago they had a rapidly expanding business and were a leader in the home entertainment market. But, they failed to see the threat that a small startup named Netflix represented. Now they are in bankruptcy.

 

The second thing a successful business does is review their internal systems annually. They are looking for better ways to deliver their products and meet the needs of their customers. Failing to do this often leads to a competitor who took the time to improve their systems stealing your customers.

 

Third, they review their marketing and sales tools to make sure they are still reaching and appealing to their “ideal” customer. With the internet and social media changing the way your customers are interfacing with businesses almost on an hourly basis, failing to at least consider the impact of these items on your business may make you the next “Blockbuster”.

 

Fourth, a successful business owner understands that their employees are one of their most important assets. They review their personnel needs with their current employees and determine whether any changes are needed. Do they need new employees, an improved training program, a better recruitment plan, changes in the compensation plan and many, many more employee related items?

 

Finally, a successful business owner doesn’t ignore the financial side of their business. They have accounting systems that provide them with accurate data that allows them to make educated business decisions rather than making decisions based on a hunch. They have a budget that supports their business goals. And finally, they also understand the importance of tax planning.

 

Lesson learned:  If you want to grow a profitable business you must plan for success and solve problems before they grow to such a size that they threaten the very survival of your business.          

Tax Tip of the Week: If I barter my products or services do I have taxable income?

The fair market value of property or services received in barter is taxable. But, it may not result in an increase in taxable income based on how what you received is used.

As an example, we trade accounting and tax services with an office supply company. We must include in income the fair market value of the office supplies received. But, we also get to deduct these costs as office supplies expense since they are used in our business.

But, when we trade accounting and tax services for a family photo we still have taxable income but we cannot deduct personal expenses. This results in an increase in taxable income in the amount of fair market value of the family photo.

Like all tax law there is an exception to the general rule. An informal exchange of similar services on a non-business basis is generally non-taxable. An example of this is carpooling.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Tax Tip of the Week: What employer payments to an employee are not taxable to them?

This is a frequent question I receive from both employers and employees. The debt fight in Washington has highlighted what the President calls, “tax loopholes that should be closed.” A “loophole” is a legal deduction that Washington has written in to the code to encourage some behavior that they feel is worthwhile.

Contrary to public opinion, “Loopholes” are not just for millionaires and billionaires. There are many “loopholes” that employers can offer to their employees that are normally deductible to the company and not considered taxable wages for the employee. These include:

• Noncash gifts of a nominal value, such as a holiday turkey or movie tickets.
• Expense reimbursements under an accountable plan.
• Reimbursed and employer paid moving expenses.
• Contributions to a qualified retirement plan.
• Certain employee length-of-service and safety achievement awards. This is limited to $1,600 in a qualified plan or $400 in a non-qualified plan.
• Value of health and accident insurance premiums paid by the employer. (This is one benefit that the Obama administration and congressional democrats want taxed. Keep an eye on the “Super-Committees” deficit reduction plan this fall to see if this “Loophole” survives.)
• Meals furnished on the employer’s premises for its convenience.
• Lodging on the employers premises required for the performance of their job. (A good example is a fireman.)
• Qualified adoption expenses.
• Qualified transportation fringe benefits.
• Up to $5,250 of qualified educational expenses.
• Qualified retirement planning services.
• Value of employer-provided athletic facility that is on premises.
• Qualified dependent care benefits.
• Employee discounts on property or services normally offered to customers.

Every employer should talk to their tax preparer to see how they can take advantage of these legal “Loopholes”. It will help employee morale and allow you to recruit better employees.

If you are an employee, talk to your employer to be sure you are taking advantage of everything they are currently offering. You might want to give them a copy of this blog article so they can speak to their CPA about adding “Loopholes” that they currently aren’t taking advantage of.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Marketing & Sales Tip Of The Week – Don’t Forget To Budget Me In!!

I have a hard time stressing the importance of budgeting money each month on marketing.  A lot of business owners see it as a wasted expense. It’s really not!

I like to use this analogy when it comes to spending money on marketing. It’s like buying a $20 gift certificate for $10 to your favorite restaurant. You spend money to make money. Just because you don’t get an instantaneous response doesn’t mean it won’t pay off.

The trick is to spend your marketing dollars in the right areas. You have to know your customer to have any type of success. If you need help budgeting or getting to know how your customer’s think, call my office at 915-857-8158, to schedule a meeting.

Business Success Secrets: Lessons Business Owners Keep Learning the Hard Way! More Sales Isn’t Always the Answer!



The myth most business owners believe:  Most business owners think that if they just bring in more sales that profits will take care of themselves.

The truth successful business owners learn the hard way: You can increase sales dramatically and still end up going broke. Many new business owners are talented sales people and get their business off to a fast start. But, a successful business owner quickly learns that in addition to marketing they must also be good at finances and management.

Consider each of these as one leg of a three legged stool – if one leg of your stool is much longer than the other two you will quickly find yourself on the floor. But, keeping the three legs even is a never ending battle for the small business owners. Almost all business owners end up following the same pattern:

1.       New business owners, by necessity, start off concentrating on getting customers. A business without customers is called a hobby.

 

2.       Soon they realize that they must work on their finances. At this stage, the business owner often realizes that even though they have built up their sales, their business is running out of control. They frequently complain to me at this stage that they don’t know what they have in the bank, who owes them money, who they owe money to, what products are their best sellers and who are their most profitable customers. Then they end up being surprised by how much income taxes they owe.

At this stage, the business owner has to seriously improve their bookkeeping and management reporting. Also, they often need to improve their banking relations in order to obtain financing in order to even out cash flow fluctuations.

3.       The next hurdle that a business owner typically hits is that they now have more employees than they can easily manage. So now they must concentrate on implementing management systems in order to ensure that their customer has a consistent experience.

At this stage the business owner also often realizes that the demands on their time are multiplying. Successful business owners become experts at delegating and time management.

4.       After working on all three legs the business owner often thinks that they are done. But, they quickly find out that they are never done. At this stage they often have to revisit their marketing leg. In the beginning sales was the only thing the business owner concentrated on. Now, they find that their time is split between all three legs and the marketing leg now needs work. In place of 100% of the owner’s time they now must create a formalized marketing plan, marketing systems and measurement systems. Once again they are lengthening the short leg of the stool.

Lesson learned: Increasing sales does not guarantee increased profits. Also, what you don’t know can bankrupt you.