Individuals whose businesses are incorporated typically do not have to worry about self-employment tax if they are paying themselves a reasonable salary. Any salary taken by owner-employees is subject to FICA taxes (Social Security and Medicare). FICA taxes are deducted from the shareholder’s paycheck and are remitted regularly through payroll tax payments to the IRS. Owners of sole proprietorships, partnerships, and limited liability companies (LLCs)—are not considered “employees” but “self-employed individuals”. Instead of paying FICA tax through wages, self-employed people pay self-employment tax. Partners, sole proprietors and LLC members do not take a regular salary through payroll, so there is no tax withheld from the payments they take which are called “draws”.
Self-employed individuals pay self-employment tax equal to the employer and employee share of FICA tax. In other words, they pay 15.3% (comprised of 12.5% for Social Security tax and 2.9% for Medicare tax) on the net earnings of their business. In basic terms, net earnings from self-employment is calculated by subtracting total expenses from total income. Oftentimes, self-employed clients get confused because they think they only pay tax on the draws they pay themselves from the business. This is not the case, however, because if the business is profitable and no draws are taken, the owner will still pay 15.3% self-employment tax on those profits. The draws that the owner takes do not decrease the net profits of the business and generally have no effect on self-employment tax. There are some “draws” called ‘guaranteed payments” taken by some partners in a partnership that do decrease the profits of the other partners, but those guaranteed payments are still subject to the 15.3% self-employment tax for the partner who has received such payments. An LLC can elect to be taxed as a corporation thereby allowing the owners to take a regular salary and have some control over the self-employment tax that they pay. This is a good option for LLCs that are profitable.
Benefits of Participating in a Mastermind Group
- Be part of an exclusive community. Participation in most Mastermind Groups are by invite or application only. The other members need you just as much as you need them, so quality of experience and knowledge is crucial to all involved.
- Advisement and Accountability are top priorities of the group. Being involved in a Mastermind group nixes that feeling of “being alone” in running your business. The other members of the group turn into your business advisory board and hold you accountable for your progress.
- Collaboration is king. Everyone has strengths and weaknesses. Chances are that someone in your group will have certain strenghts that can help you balance out your weaknesses and vice versa. The group works together collaboratively, to achieve more together.
- You get to extend your network and make new connections on a deeper level. Joining a Mastermind can expand your network exponentially. As a professional, you know how important your network is. By joining a group of other professionals who are equally focused on success, you instantly add quality connections to your network.
- New learning opportunities are key to Mastermind participants. Everyone in the Mastermind is unique in skill, experience and connections. By interacting and sharing your challenges, it’s almost certain that someone in your mastermind will have a solution for you and you may also be able to offer a solution, connection or tactic to help another in the group.
- Think bigger to grow faster. Being in a Mastermind eventually gives you a Master Mind! You can’t help but think bigger and stretch beyond your boundaries when surrounded by amazing professionals striving to accomplish their own amazing goals.
About our Online Mastermind Groups
- Your group meets exclusively online one day a week for 1 hour 30 minutes.
- Your initial committment is a once a week meeting for three months with the option to continue in six month increments.
- You choose either an early morning, lunch time or evening group.
- Your group members must apply by submitting the form below.
- Your group members are required to sign a confidentiality agreement.
- Your group members must commit to attending every meeting or risk being expelled from the group
Masterminds are incredible and can do wonders for your business as well as for you, personally. Growing in a group is not only more effective, it’s quite a bit more fun! Give it a try – what do you have to lose?
Extender from PATH Act means you can take bonus depreciation on your 2015 returns – but should you?
Once again, bonus depreciation has been extended allowing taxpayers to recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extended 50% bonus depreciation through 2017. Many taxpayers may benefit from claiming this break on their 2015 returns however some might save more tax in the long run if they elect out of bonus depreciation.
What type of assets qualify for bonus depreciation?
For 2015, new tangible property with an IRS stipulated depreciable life of 20 years or less (such as computers, office furniture or equipment) qualifies for bonus depreciation. Off-the-shelf computer software, water utility property and qualified leasehold-improvement property also qualifies. The new assets must also have been put in to use in 2015 in order to qualify for any depreciation deduction.
To bonus or not to bonus, that is the question…
Typically, taxpayers always want to maximize their tax deductions in the current year. But wise tax planning calls for considering the effects of this year’s choices on future year’s tax burdens. If a taxpayer has assets that are eligible for bonus depreciation and they expect to be in the same or a lower tax bracket in future years, taking Section 179 deduction first, then bonus depreciation is most likely a good tax strategy. Doing so will defer tax, which generally is beneficial and usually the goal of tax planning.
However, if a business is growing and expects to be in a higher tax bracket in the near future, it may be better off forgoing bonus depreciation altogether. Why? Because it makes sense to decrease deductions in years when a taxpayer is in a lower tax bracket, when they expect to have a higher taxable income in future years. They will need the depreciation deductions more in the years they have higher taxable income, so electing out of bonus depreciation and not taking Section 179 deductions can be a smart tax move. Deductions are worth more when your tax bracket is higher.
Have questions about depreciation? We can help
If you’re unsure whether you should take bonus depreciation on your 2015 return — or you have questions about other depreciation-related breaks, such as Sec. 179 expensing — contact us – we can help.
Jennifer recently updated her Intuit QuickBooks certifications to include the latest version of Intuit’s Premier cloud-based accounting system QuickBooks Online! Jennifer has been certified in QuickBooks desktop since version 99 and she also holds certifications in QuickBooks Point of Sale as well as Microsoft Office User Specialist in Excel and PowerPoint! Contact Jennifer today to get a primer on QuickBooks and find out how the software can best be used to achieve your financial goals! Interested in learning more about QuickBooks Online? Check out the free test drive here. Learn more about QBO by visiting their website here!
If you die without addressing your digital assets (such as online bank and brokerage accounts) in your estate plan, your loved ones or other representatives may not be able to access them without going to court — or, worse yet, may not even know they exist.
The first step in accounting for digital assets is to conduct an inventory, including any computers, servers or handheld devices where these assets are stored. Next, talk with your estate planning advisor about strategies for ensuring that your representatives have immediate access to these assets in the event something happens to you.
Although you might want to provide in your will for the disposition of certain digital assets, a will isn’t the place to list passwords or other confidential information, because a will is a public document. One solution is writing an informal letter to your executor or personal representative that lists important accounts, website addresses, usernames and passwords. Another option is to establish a master password that gives the representative access to a list of passwords for all your important accounts, either on your computer or through a Web-based “password vault.”
If you have significant digital assets and need help incorporating them into your estate plan, please give us a call.
Don’t underestimate the tax impact of an acquisition
If your company wants to acquire another business, you’ll need to anticipate many challenges. To improve your odds of success, it’s important to devote resources to intensive tax planning before — and after — your deal closes.
During deal negotiations, you and the seller will likely discuss issues such as to what extent each party can deduct their transaction costs and how much in local, state and federal tax obligations the parties will owe upon signing the deal. Often, deal structures (such as asset sales) that typically benefit buyers have negative tax consequences for sellers and vice versa.
Tax management during integration is also important. It can help your company capture synergies more quickly and efficiently. You may, for example, have based your purchase price on the assumption that you’ll achieve a certain percentage of cost reductions via postmerger synergies. But if your tax projections are flawed or you fail to follow through on earlier tax assumptions, you may not realize such synergies.
Negative tax consequences of an acquisition can haunt a company for years. Let us help you avoid them and identify tax benefits that can improve the acquisition as a whole. Please contact us for more information.
Prudent business owners take measures to smooth out cash fluctuations that are a normal part of the business cycle. Follow these four practices to moderate the ebb and flow of your cash:
- Analyze cash every month: Analyzing cash doesn’t have to be complicated. Start by writing down your cash balance at the beginning of the month, then add all the cash that came in during the month from all sources. Finally subtract all of the outgoing cash and calculate the ending cash balance. After a few months, review the ending cash balances of each month and compare them. If your cash balance is decreasing month after month, then your business has a negative cash flow (not good). If the ending balance is increasing, then your cash flow is positive (the goal). You should keep record of the cash balances over the course of a and run a trend analysis to determine the causes ups and downs. If you are funding your business with loans, be sure to leave this money out of the analysis so you can gauge the true cash flow from operations.
- Monitor your customer balances: It is easy to fall short in the management of your accounts receivable (money owed to you from customers). Put in to place adequate pre-qualifying processes before extending credit to customers. Always use a software system to track who owes you money so that you can follow up with customers and send invoices and statements. A last resort would be to factor or sell your receivables to a factoring company to maintain a predictable cash flow. Just keep in mind that factoring isn’t free! There are several new companies out there that will fund your receivables for a fee – check out Fundbox amd Blue Vine.
- Slow down your cash disbursements: Prudent cash flow management dictates that you retain cash as long as possible. This doesn’t mean you become a deadbeat customer to your own vendors – you still have to pay on time, just not too early and not late. If your vendor offers any sort of early payment discount like a 2% 10, net 30 you will always want to take advantage of the cost savings. You can also try negotiating extended payment times with your vendors. The longer the cash stays in your bank account, the better. Try keeping the majority of your idle cash in an interest bearing account when possible as long as the monthly and transaction fees are not too steep or eating up any interest you might be earning.
- Time large expenses: Get in to the habit of setting aside small amounts to fund large expected expenditures such as business license renewals and quarterly estimated tax payments. You may also want to start an equipment fund, to save up for large capital assets that will eventually need to be replaced. Being prepared for large purchases with a fully funded savings account will give you peace of mind all year long. It is best to put the money in a separate account that you don’t have regular or easy access to, that way you are not tempted to “raid’ it for splurge purchases.
Give these cash management techniques a try and give us some feedback on how you made out. Do you have other ideas that work for you? Share them in the comments below.
Are problems beginning to surface in your business? Have profits been dwindling? Are customers complaining with greater frequency? Are competitors encroaching on your market share? These are warning signs that you’re headed in the wrong direction – and you don’t want to ignore them until it’s too late. Here are suggestions for turning things around.
- Focus on the money-makers.
- Perhaps your business has developed products your customers aren’t willing to buy. If so, it may make sense to redirect your company’s available resources. Does that mean you should never create new product lines or expand into new markets? No. But new products must eventually improve the bottom line. If they don’t make money within a reasonable time, refocus.
- Reestablish your brand.
- Identify what you do best; then tell everyone. Your goal is to educate customers, vendors, and employees on the reasons why your product or service is better than the competition. Be specific. Of course, to remain credible you must back up your claims, so be realistic as well. Win trust by following through.
- Track results.
- Once you’re refocused on the money-making segments of your business, keep a close eye on the numbers. Know whether customer complaints are down, cash flow is improving, back orders are declining, and market share is holding steady or increasing. If profits aren’t showing an upward trend, take another look – then adjust and remeasure.
For help getting your business back on track, give us a call (757) 926-4109, it’s what we do.
Considering establishing your own company? Here are a few tips to help your new venture get off to a smart start.
- Choose the right form for your business.
- Sole proprietorship, partnership, corporation, or limited liability company: your decision will depend on questions such as how many owners the business will have, who will be in control of decision-making, and what liability issues exist.
- Set up a good recordkeeping system.
- A business launch means paperwork, including establishing a business bank account, filing for an employer identification number, acquiring a local occupational license, and maybe registering a fictitious name.
- In addition to these permanent records, you’ll also need to track pre-launch costs and ongoing expenses for tax write-offs.
- Understand tax reporting requirements.
- Depending on how you structure your business, you may need to file a separate tax return each year.
- You might also need to make quarterly estimated tax payments.
- Other tax returns include federal and state forms for reporting sales and employment taxes.
Please call for advice before you open the doors of your new business. We’ll work with your legal, banking, and other advisors to help you establish a good foundation for future success.
Do you ever take the home office deduction?
Do you work at home or have a home-based business? If so, you should be aware that the IRS has created a simpler option for calculating the deduction for the business use of your home. The new option makes record keeping easier because, instead of maintaining records of specific home office expenses, you can use a standard rate per square foot. The rate is $5 per square foot (up to a maximum of 300 sq. feet or $1,500) for qualifying business use space in place of taking a pro rata percentage of items such as mortgage interest, taxes and repairs. Keep in mind there are good and bad aspects to this “simpler” method. The new method gives you back your full interest and tax deduction on schedule A, but you will lose your depreciation and loss carryover deductions. Of course, you must still use your home office regularly and exclusively for business. This may be a welcome relief for some taxpayers, but it might not be the best choice for others. Let our firm’s tax experts help you determine if the simplified deduction is the right choice for you. Please contact us at (757) 926-4109 for answers to all your financial questions and concerns – it’s what we do.
Considering Crowdfunding as a Means for Raising Funds?
Have you ever thought about raising funds for your small business using online crowdfunding tools? Crowdfunding gives entrepreneurs the ability to raise funds by attracting relatively small amounts of money from large numbers of people. Through a provision in the Jumpstart Our Business Startups Act (JOBS Act), crowdfunding creates a means for allowing startups and small businesses to raise capital through securities offerings using the internet. The JOBS Act permits internet-based platforms, like kickstarter, rockethub and indiegogo, to facilitate the offer and sale of securities. In coming up with the rules, the SEC attempted to create protections for investors while enabling businesses to use crowdfunding effectively. Click on the following link to read the SEC press release and to get a rundown of the new JOBS Act rules pertaining to crowdfunding SEC Press Release 2015-49 .
The CPAs at Todd & Co. CPA Group understand the tax implications of raising funds through crowdfunding. We also understand the Securities and Exchange Commission’s rules, which help small businesses gain access to capital and take advantage of more investment choices. We can help you understand this innovative means for raising capital. Contact us at (757) 926-4109 to find out more.