Like many business owners, you may have structured your business as an S corporation because of the tax benefits it offers. An S corporation provides the same limited liability as a traditional C corporation, but it generally avoids the double taxation associated with a C corporation. You and the other shareholders (if any) pay income taxes on corporate income directly.
Once you have an S election in place, it’s important to make sure you avoid taking any action that would put the election in jeopardy. Your corporation’s failure to meet certain tax law requirements on an ongoing basis could result in the IRS’s termination of its S corporation status.
An S corporation generally may not have a corporate shareholder. (Exception: An S corporation may be wholly owned by another S corporation.) All shareholders generally must be individuals, estates, certain trusts, or taxexempt 501(c) (3) charitable organizations. However, a partnership may hold S corporation stock as a nominee for an eligible shareholder. Nonresident aliens may not be shareholders.
Number of shareholders.
An S corporation may not have more than 100 shareholders. For purposes of this limit, a husband and wife are treated as one shareholder, as are certain other related individuals.
An S corporation may have only one class of stock. Generally, a corporation is treated as having only one class of stock if all outstanding shares of the corporation’s stock confer identical rights to distribution and liquidation proceeds.
…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).
If you run a small business, you already have a full plate. The last thing you need is for the IRS to question any of your business expense deductions. But it could happen. And that’s why having records that prove your expenses is so important. Even deductions for routine business expenses could be disallowed if you don’t have appropriate records.
What Records Are Required?
Except in a few instances, the tax law does not require any special kind of records. You’re free to have a recordkeeping system that is suited to your business, as long as it clearly shows your expenses, I suggest working with the ACT Group as both accounting management and financial consulting. In addition to books that allow you to track and summarize your business transactions, you should keep supporting documents, such as:
- Canceled checks
- Cash register receipts
- Credit card sales slips
- Account statements
The rules are stricter for travel, entertainment, and transportation expenses. You should retain hotel bills or other documentary evidence (e.g., receipts, canceled checks) for each lodging expense and for any other expense of $75 or more. In addition, you should maintain a diary, log, or account book with the information described below.
Travel. Your records should show the cost of each separate expense for travel, lodging, and meals. For each trip, record your destination, the dates you left and returned, and the number of days spent on business.Also record the business purpose for the expense or the business benefit you gained or expected to gain. Incidental expenses, such as taxi fares, may be totaled in reasonable categories.
Entertainment. Record the date the entertainment took place and the amount of each separate expense, along with the name and address or location of the place of entertainment. Note the business purpose for the expense or the business benefit you gained or expected to gain and the nature of any business discussion or activity that took place. Also list the identities and occupations of the individuals you were entertaining or other information that indicates their business relationship to you.
If the entertainment was directly before or after a business discussion, be sure to indicate the date, place, nature, and duration of the discussion and the individuals who took part in both the discussion and the entertainment activity. For a business meal, you must prove that either you or your employee was present.
Transportation. As with travel and entertainment, you should record the amount and date of each separate expense. Note your business destination and the business purpose for the expense. If you are deducting actual car expenses, you’ll need to record the cost of the car and the date you started using it for business (for depreciation purposes). If you drive the car for both business and personal purposes or claim the standard mileage rate, keep records of the mileage for each business use and the total miles driven during the year.
Don’t Mix Business and Personal Expenses
Things can get tangled if you intermingle business and personal expenses. You can avoid headaches by having a separate business bank account and credit card.
One more thing you should consider is commercial business insurance that can take care of property, liability and workers’ compensation. Check out https://www.hightowerrisk.com/ for exclusive insurance programs.
…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).
Owners of closely held C corporations are often interested in withdrawing profits from their companies in ways that minimize taxes. What are the options?
If the owner is a company employee, taking more salary or a yearend bonus is an option, as long as the total amount of compensation the owner receives is reasonable. The company deducts the payments as a business expense; the owner is taxed on the money. The “cost” of this option depends on the corporation’s and the owner’s tax rates. Payroll taxes are an added expense.
Pay Family Members.
Reasonable amounts paid to an owner’s family members for services actually rendered to the company are deductible by the corporation and are taxable at the family members’ own tax rates. Often, these rates are much lower than the owner’s. Pay a Dividend. Dividends the company pays out will, in effect, be taxed twice — once at the corporate level (dividends are nondeductible) and once to the owner personally. No payroll taxes will be due. With the individual tax rate on qualifying dividends currently capped at 20% for taxpayers in the 39.6% regular bracket (and 15% for most other taxpayers), this option may have more appeal.
Utilize Fringe Benefits.
Certain fringe benefits are deductible by the corporation but not includible in the owner’s gross income. Examples include qualifying group life insurance, health care benefits, and disability insurance. (Most fringes must be provided on a nondiscriminatory basis to other company employees.) To the extent an owner is paying for these items individually, having the company pay for them increases the cash available to the owner.
Take a Loan.
If an owner borrows money from the corporation, the owner is not taxed on the loan amount. The loan must be a legitimate debt, with proper documentation and timely interest and principal payments. How myinstantoffer.com works is a useful resource in this respect.
Lease Assets to the Company.
An owner might consider leasing property to the corporation. The company deducts the lease payments; the owner includes the amounts received in income and deducts expenses associated with the rental activity.
Check for possible thefts
Finally, hire an expert from Identity Theft Orlando to ensure that everything is alright and under the law.
…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).
As a business owner, it is normal to want to know as much as you can about a potential employee. That’s where background checks come into play, but before you dive in, you need to have a firm understanding of the laws that surround background checks to ensure you are in complete compliance.
Before you even begin, keep in mind that regardless of how you obtain information about an employee, you must still comply with federal laws put in place to protect prospective and current employees from discrimination. As an employer, you cannot discriminate in your hiring practices for reasons of national origin, religion, race, disability, color, family medical history, or for age over the age of forty, and you cannot collect information due solely to one of these factors.
Before you get any background information, you need to notify the employee that you are doing so, and that this information can or will be used to make employment decisions. When obtaining an investigative report, meaning using interviews with family members and associates, you must inform the prospective employee that they have the right to ask for a description of the investigation that lays out the nature and scope. However, snooping on a higher level and on VIPs would always result in a futile outcome because agencies like Los Angeles executive protection company are hired to keep all data confidential, and also to protect the one who hires these agencies.
In addition, you will need to obtain the employee’s or applicant’s written permission to perform a background check. Finally, you must certify to the vendor that will perform the background check that you have received said permission and have notified the prospective employee.
If you receive a negative background check for an applicant or employee, you must notify them in writing or verbally that any adverse action you take is a result of the information received.
Finally, any background information gathered must be retained for no less than one year. Once the year is up, the information can be disposed of in a secure manner including shredding, burning, or removing digital information so it cannot be reconstructed.
Background checks are an integral part of the hiring process. As long as you understand and follow all laws and regulations, you and your business should be well protected.
If you are interested in a personal background check for your records, apply here today.
Your business is unique. Make sure that QuickBooks knows how you operate.
QuickBooks was designed to be used by millions of businesses. In fact, it’s possible to install it, answer a few questions about your company, and start working right away.
However, we strongly suggest you take the time to specify yourPreferences. QuickBooks devotes a whole screen to this customization process. You can find it by opening the Edit menu and selectingPreferences.
This is the screen you’ll see when you go to Edit | Preferences in QuickBooks. You can turn features off and on, and customize the software in numerous other ways.
Let’s look at some examples of what you can do on this page. In the image above, Accounting is highlighted. You can see that QuickBooks makes it easy for you to specify your preferences. You simply click in boxes to check or uncheck them. Sometimes, you’ll click on the desired button in front of a list item. Other times, you’ll be asked to enter numbers and text.
Tip: When you click on a tab in the left navigation pane of the Preferences window, you’ll notice that there are two tabs in the larger pane on the right. If My Preferences is highlighted and there are no options on that screen, click on Company Preferences.
Some of the screens here, like Accounting, contain complex concepts. Do you know, for example, why you would or wouldn’t want to Use account numbers? What Retained Earnings are?
Warning: While the mechanics of this process are simple, there may be times when you don’t understand what’s being asked because you’re either not familiar with the terms or you don’t know which option you should choose. Rather than guessing, please connect with us to set up a to go over all of the content in the Preferences window.
Some preferences are easier to define. Let’s look at one of these.
The Time & Expenses window in QuickBooks’ Preferences
The image above is a partial snapshot of the screen that opens when you select Time & Expenses from the left vertical tab in the Preferences window.
Tip: If you start making changes and decide you’d like to return to the options selected before you started, click the Default tab in the upper right.
Your options here are very simple:
- Do you want to use the time-tracking features in QuickBooks?
- On what day does your work week start?
- Does all of the employee time worked and recorded get billed back to the appropriate customer? (You can change this manually on each time entry by checking or unchecking the box in front of Billable.)
When you create an invoice for a customer who has outstanding time charges, do you want to be able to select those from a list?
If you check the box in front of Create invoices from a list of time and expenses, this box will appear when you open the Create Invoices window and select a customer who needs to be billed for time:
If you are creating an invoice for a customer who has received services but who has not been billed for them yet, you can opt to have those charges added to the invoice.
You’ll notice that there’s a box in the lower left corner labeled Save this as a preference. While QuickBooks allows you to specify preferences in countless areas in the Preferences window, you will often have the opportunity to make an exception for a particular action as you’re working on transactions. Also, as shown here, you can sometimes turn on specific preferences once you’ve already started a task.
You’re not required to go through all of the entries in the Preferences window before you start working. You can always go there to see if there’s a setting you can change if an element of QuickBooks isn’t performing the way you expected.
But we think it’s a good idea to learn about all of your options in the software before you get started. If you let us go through this process with you, you’ll learn not only about the customization allowed, but you’ll also get a good introduction to all of the things that QuickBooks can do. You’ll also discover where your knowledge of accounting may be lacking. And we’ll learn more about your business and its needs. Contact us and we’ll help you get going.
Individuals who are working and who have low-to-moderate taxable income may qualify for this income tax credit.
When you think about ways to offset your income as you’re preparing for income tax time, do you primarily consider the deductions you can take? Things like home mortgage interest, charitable donations, and taxes you paid that can be claimed? And if you are in India make sure to fill out the pan card application online.
Allowable credits can also work in your favor. If you meet the Internal Revenue Service’s seven criteria, you may be eligible for the Earned Income Tax Credit (sometimes called Earned Income Credit, or EIC).
Note: As you read the rules that the IRS has established, keep in mind that, as with many of the agency’s regulations, there can be exceptions. We can help you determine whether you are a candidate for this credit.
If you can answer “Yes” to these seven questions, you may be able to fill in and file a Schedule EIC:
- Is your Adjusted Gross Income (AGI) less than the IRS’s limits? For 2015, this is:
- 3+ qualifying children: $47,747 ($53,267 for married filing jointly)
- 2 qualifying children: $44,454 ($49,974 for married filing jointly)
- 1 qualifying child: $39,131 ($44,651 for married filing jointly)
- No qualifying children: $14,820 ($20,330 for married filing jointly)If you qualify for the Earned Income Credit, you’ll need to complete a Schedule EIC, which can be filed with either the Form 1040 or 1040A.
- Do you have a valid Social Security number? If you are filing jointly, both you and your spouse are required to have valid Social Security numbers issued by the Social Security Administration (SSA) by the date your tax return is due (including extensions). Any qualifying child claimed must also have one.
- Is your status “married filing jointly” or “head of household”?Couples whose filing status is “married filing separately” cannot claim the EIC. An exception here: A couple is married, but one spouse did not reside in the home at any time during the second half of the year. The spouse who remained might qualify for the EIC if his or her filing status is “head of household.”
- Were you or your spouse a U.S. citizen or resident alien for the entire tax year?This is complicated. If one of you was a U.S. citizen or resident alien but the other was a nonresident alien for any part of the year, you may qualify for the EIC if your status is “married filing jointly.” If that’s the case, you will be taxed on your “…joint worldwide income.”
- Was your income earned only in the United States and/or a U.S. possession?If you earned income in a foreign country and you plan to exclude it from your gross income, you cannot claim the EIC. Filing a Form 2555 (Foreign Earned Income) or Form 2555-EZ (Foreign Earned Income Exclusion) disqualifies you (learn what to do if your pancard lost and how to pay taxes on income in India).2015 Form 1040, lines 66a and 66b (EIC information appears on lines 42a and 42b of the 2015 Form 1040A)
- Is your investment income $3,400 or less?Simple enough. For the Form 1040, this includes:
- Interest and dividends,
- Capital gain net income, and,
- Royalties and rental income from personal property.
- Do you have earned income? This means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. But you may be in another situation that would make you eligible for the EIC. For example, nontaxable combat pay, ministers’ housing, and strike benefits provided by a union are considered earned income. Do you have any benefits of the best umbrella company?
Only Part of the Equation
If you believe that you’re able to claim the Earned Income Credit, or if there are other tax-related topics that you don’t fully understand, we’ll be happy to look at your entire financial scenario. If you’ve filed an extension for 2015, we can work with you to make sure you’re taking all of the deductions and credits that you’ve earned. One year, I was careless enough to lose my pan card and I panicked a little, thankfully the system is well in place for such occurrences, if you find yourself in this situation, don’t panic everything will be fine if you contact the right people.
As always, tax planning should be a year-round process. Let us know if we can help you start preparing now for next year’s filing.
Granted, retirement plans are usually easier if you’re a full-time employee. But if you’re self-employed, you can still contribute to a retirement plan like the physical gold IRA, for example.
It’s expensive to be a sole proprietor. If you’ve been one for any length of time, you already know that. There’s the self-employment tax. Business insurance. Computers and mobile devices and applications. Office expenses. Health insurance premiums.
Although you can get some of that back by documenting it on your Schedule C, you still have to pay for a lot of things that full-time employees don’t. Plus, you don’t get those nice employer-match contributions to your retirement plan that many workers get these days.
But you can still set up a retirement plan as a self-employed individual. The IRS offers a handful of options, including:
Yes, you can set up one of these even if you’re not a full-time employee. They’re sometimes referred to as “one-participant 401(k) plans” (though your spouse can also participate). And since you’re both the employer and employee, you’re allowed to make contributions as both.
These solo plans work similarly to employer-provided 401(k) plans; they have comparable rules and requirements. And they’re complicated. For example, you can make elective deferrals of up to 100 percent of your earned income until you hit the annual contribution limit of $18,000 in 2016 (or $24,000 if you’re age 50 or older).
Warning: “Earned income” as the IRS defines it for self-employment is a complex concept that requires some advanced calculations. If you want to explore this option, please let us work with you on it from the beginning. You want to be sure that you don’t exceed the maximum contributions as both employer and employee.
Simplified Employee Pension Plan (SEP)
If you’ve ever worked for another company as an employee, you may already be familiar with this concept. SEPs are traditional IRAs (“SEP-IRAs”) that employers can set up for employees; they can also contribute to them. They’re bound by the same rules for investment, distribution, and rollover as traditional IRAs.
Here, too, you can make contributions as both employer and employee. And like one-participant 401(k)s, the calculations required are daunting. We can help with these.
Traditional IRAs and Roth IRAs
These options are of course available to self-employed individuals. Each has its own tax implications, and they’re not as difficult to understand and implement as SEP IRAs and one-participant 401(k) plans. If you’ve never explored these retirement vehicles, you can get more information here. Again, we’re available to help you cut through the IRS language.
Not Necessarily a Good Option
If you’re self-employed and plan to be for the rest of your career, retirement planning is absolutely critical for you.
Some sole proprietors say that they just plan to work forever, so they don’t need to have a sizable nest egg ready for retirement. This line of thinking always throws up red flags for us. Depending on your vocation, your physical health, and your overall attitude, this may work for you.
But we’ve seen clients who feel this way hit 65 or 68 or 70, only to discover one of a variety of realities:
- Their friends are all retiring, and they feel like a failure because they’re unable to.
- They don’t have the energy they expected, and business is suffering.
- The fast-paced, ever changing world we live in has passed them by, and there’s little need for their product or service anymore.
- They feel bad because they haven’t amassed an estate that they’ll be able to leave for their children or grandchildren.
You’re in a tenuous situation as a self-employed individual planning for retirement. It’s simply harder for you to sock away the amount of money you’ll need for a comfortable retirement due to the many expenses required of sole proprietors.
We want you to have the option to retire at a reasonable age and to do so comfortably. If you expect to still be flying solo at the typical retirement age, we’d really like to help you create a workable plan to do so.
For many businesses, a registered agent is a requirement, not a luxury. Failing to retain a registered agent can result in an LLC, for instance, losing its legal status in the state in which the business operates. Unfortunately, many small business owners do not realize the full potential of having a third-party registered agent for their businesses.
What is a registered agent?
Registered agents, sometimes referred to a statutory agents or resident agents, act as the point man (or woman as the case may be) between your business and state and local government organizations. Registered agents must have a physical presence in the state where your business was formed and must be available during regular business hours in order to properly perform his or her duties to your company and the state.
Why do you need a registered agent?
Most states require it. Without it, some states invoke penalties and fines, in addition to revocation of an LLC’s license. However, there are other benefits and advantages to consider when procuring these services of a third-party registered agent for your small business.
1) It keeps some of the red tape out of your workplace. This means that customers, employees, and competitors aren’t privy to what’s taking place between you and the state. In other words, it adds another layer of privacy around your business.
2) It leaves one person dedicated to this particular job for your company and no other. There is no need to provide additional training or waste valuable time learning skills that aren’t natural to you as a business owner. They are experts in this field and know their way around, whereas you, or someone appointed by your company to fill this role, may miss something very important for the sake of your business.
3) You can move your business location without going through the laborious and costly process of changing your address with the state.
The real secret to success, though, is to find a real gem when you select your registered agent so that your business is well represented and covered with the state. When you do this, you can rest easy without the worry of whether your business is in hot water with the state over some minor paperwork-related technicality.
Last month, we explored the process of creating a product record. Now we’ll look at where they’re used in QuickBooks Online.
Have you been able to create records for all of your products and services? If you have a large inventory, this can be quite a time-consuming process. But we highly recommend that you build complete records, even when you create them as you need them. This is critical if you plan to track inventory items.
You’ll use your product and service records in several areas of QuickBooks, including invoices and estimates, purchase orders, and sales receipts. There’s also an entire set of reports dedicated to products and inventory.
Important: If you’ve tried creating Inventory Items in QuickBooks Online but have only been allowed to set up Services or Non-Inventory Items, you missed a step when you were completing your Company Settings. Click on the small gear icon in the upper right (next to your company name), then on Settings | Company Settings. Click on Sales in the left vertical tab to see the Products and services section. If any of these three options is turned off, click in the box to turn it on.
Figure 1: These three options in Company Settings must be labeled On in order to make use of all of QuickBooks Online’s inventory-tracking features.
This is one of the reasons we recommend that you let us help you set up QuickBooks Online, even if you’re making a transition from the desktop version of QuickBooks. If you don’t visit every area of Company Settings and designate your preferences, you may get frustrated as you start working, thinking that the site isn’t capable of doing everything you need.
Using Your Records
You’ll see why it was so important to build a thorough set of product and service records when you start to enter data in transaction forms. Assuming that you’ve also created records for your customers and vendors, filling out an invoice, for example, is mostly just a matter of selecting the correct options from drop-down lists.
Of course, even if you have a comprehensive set of records, you’ll certainly take on new customers and vendors, and start offering additional products and services down the road. When this occurs, or if you didn’t complete your setup work because you absolutely had to start entering transactions, you can add items as you need them.
Figure 2: When you create transactions, you can choose products or services from a list of existing records or add new ones “on the fly.”
Once you’ve selected a customer and either accepted the default terms and dates or edited them to reflect your needs, you’ll click on the arrow to the right of the first field in the body of the invoice, as pictured in the example above. You can scroll down and find the item that the customer wants to purchase in the list that drops down or click on +Add New.
If you do the latter, the Product/Service information panel will slide out from the right. You can then create a record for the product or service, like we wrote about last month.
A Running Tally
Here is another reason why it’s so important to be conscientious about completing product records. When you enter that number in the Initial quantity on hand field, QuickBooks Online uses that as a starting point for tracking your inventory levels. Every time you process a form indicating that you’re selling x number of widgets, the site subtracts that from the most recent total.
Figure 3: QuickBooks Online helps you keep a close eye on your stock levels in real time.
When you click in the Quantity field, a small cartoon bubble opens above it, telling you how many units are currently available. This keeps you from selling items that you don’t have. It also indicates when you may have too much of a product, and it’s not selling quickly.
Unless you have a very small product list, you may not recognize overstocks. So QuickBooks Online offers several reports that can help you track your inventory. Click on Reports in the left vertical tab, thenAll Reports, then Manage Products and Inventory to see what’s available.
Figure 4: The Inventory Valuation Detail report
Setting up QuickBooks Online for a successful launch can be challenging. So can the concepts involved in tracking your inventory of products. We’re always happy to help with either process – or both
The acronym PEO stands for “professional employer organization.” These organizations help business reduce costs by allowing them to outsource the management of important company functions, such as workers’ compensation, payroll, employee benefits and human resources. By partnering with a PEO, a company can grow its bottom line and focus on its core tasks, such as marketing, production and customer service, which inconspicuously but effectively contribute directly to the quality of customer engagement of the company.
The Function of a PEO
When a company begins working with a PEO, the PEO takes over many of the company’s most cumbersome human resource responsibilities. In addition to handling everyday human resource tasks, the PEO also assumes some of the employer’s legal responsibility for human resource issues, such as unemployment and healthcare, thus reducing the employer’s level of risk.
Once the employer establishes his relationship with the PEO, the PEO begins functioning as a second employer for its clients employees. Instead of coming to their legal employer with human resource concerns, employees will go to the PEO. The PEO manages all of the company’s human resource dealings on a daily basis, and the company no longer needs to worry about the accuracy of its payroll or whether its healthcare plan complies with federal regulations. Many PEOs even offer a comprehensive benefits package for employees that allows the PEO’s clients to become more competitive within the industry.
Benefits of a PEO
The business industry is always evolving. Congress enacts new laws, such as the recent change to healthcare regulation, and businesses must alter their procedures to comply with the new guidelines. When a company is small, keeping up with the constant changes can be nearly impossible. Instead of focusing on their most important tasks, employees are forced to spread themselves too thin. Furthermore, because employees are inexperienced in these areas, tasks are not completed as accurately and efficiently as they should be.
When a company hires a PEO, most of these problems disappear. Instead of relying on its own overworked and under-prepared employees to handle unemployment insurance claims, payroll tax compliance, workers’ compensation claims and issues with employee healthcare, companies can rely on a PEO’s experts to take care of all of these obligations. Not only are these facets of the company’s operations dealt with more effectively, but employees also find themselves with more time to concentrate on activities that produce revenue for the company. Furthermore, all human resource management tasks are completed with efficiency, and the company’s bottom line improves.