Common Small Business Tax Misperceptions

One of the biggest hurdles you'll face in running your own business is staying on top of your numerous obligations to federal, state, and local tax agencies. Tax codes seem to be in a constant state of flux making the Internal Revenue Code barely understandable to most people.

The old legal saying that "ignorance of the law is no excuse" is perhaps most often applied in tax settings and it is safe to assume that a tax auditor presenting an assessment of additional taxes, penalties, and interest will not look kindly on an "I didn't know I was required to do that" claim. On the flip side, it is surprising how many small businesses actually overpay their taxes, neglecting to take deductions they're legally entitled to that can help them lower their tax bill.

Preparing your taxes and strategizing as to how to keep more of your hard-earned dollars in your pocket becomes increasingly difficult with each passing year. Your best course of action to save time, frustration, money, and an auditor knocking on your door, is to have a professional accountant handle your taxes.

Tax professionals have years of experience with tax preparation, religiously attend tax seminars, read scores of journals, magazines, and monthly tax tips, among other things, to correctly interpret the changing tax code.

When it comes to tax planning for small businesses, the complexity of tax law generates a lot of folklore and misinformation that also leads to costly mistakes. With that in mind, here is a look at some of the more common small business tax misperceptions.

1. All Start-Up Costs Are Immediately Deductible

Business start-up costs refer to expenses incurred before you actually begin operating your business. Business start-up costs include both start up and organizational costs and vary depending on the type of business. Examples of these types of costs include advertising, travel, surveys, and training. These start up and organizational costs are generally called capital expenditures.

Costs for a particular asset (such as machinery or office equipment) are recovered through depreciation or Section 179 expensing. When you start a business, you can elect to deduct or amortize certain business start-up costs.

Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced (but not below zero) by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized.

2. Overpaying The IRS Makes You "Audit Proof"

The IRS doesn't care if you pay the right amount of taxes or overpay your taxes. They do care if you pay less than you owe and you can't substantiate your deductions. Even if you overpay in one area, the IRS will still hit you with interest and penalties if you underpay in another. It is never a good idea to knowingly or unknowingly overpay the IRS. The best way to "Audit Proof" yourself is to properly document your expenses and make sure you are getting good advice from your tax accountant.

3. Being incorporated enables you to take more deductions.

Self-employed individuals (sole proprietors and S Corps) qualify for many of the same deductions that incorporated businesses do, and for many small businesses, being incorporated is an unnecessary expense and burden. Start-ups can spend thousands of dollars in legal and accounting fees to set up a corporation, only to discover soon thereafter that they need to change their name or move the company in a different direction. In addition, plenty of small business owners who incorporate don't make money for the first few years and find themselves saddled with minimum corporate tax payments and no income.

4. The home office deduction is a red flag for an audit.

While it used to be a red flag, this is no longer true--as long as you keep excellent records that satisfy IRS requirements. Because of the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. In other words, there is no need to fear an audit just because you take the home office deduction. A high deduction-to-income ratio however, may raise a red flag and lead to an audit.

5. If you don't take the home office deduction, business expenses are not deductible.

You are still eligible to take deductions for business supplies, business-related phone bills, travel expenses, printing, wages paid to employees or contract workers, depreciation of equipment used for your business, and other expenses related to running a home-based business, whether or not you take the home office deduction.

6. Requesting an extension on your taxes is an extension to pay taxes.

Extensions enable you to extend your filing date only. Penalties and interest begin accruing from the date your taxes are due.

7. Part-time business owners cannot set up self-employed pensions.

If you start up a company while you have a salaried position complete with a 401K plan, you can still set up a SEP-IRA for your business and take the deduction.

A tax headache is only one mistake away, be it a missed payment or filing deadline, an improperly claimed deduction, or incomplete records and understanding how the tax system works is beneficial to any business owner, whether you run a small to medium sized business or are a sole proprietor.

And, even if you delegate the tax preparation to someone else, you are still liable for the accuracy of your tax returns. If you have any questions, don't hesitate to give us a call today. We're here to assist you.

 

Barry Eisenberg,  SCORE Counselor, email: barrye003@aol.com

Visit us at:  www.scoresouthflorida.net

 

 

 

SCORE Counselors and Confidentiality

 

We at SCORE South Palm Beach take your business seriously.

 

We want to be sure you are aware of our policy on confidentiality. We recognize that discussions with our SCORE Counselors often involve and necessitate sensitive and/or confidential matters.  This message is driven home on a regular basis to each of our Counselors. Each year, each Counselor receives a current copy of the SCORE Code of Ethics and Conduct, and is required to sign the following statement: “I have reread the SCORE Code of Ethics and Conduct and reaffirm my agreement to comply with its provisions.” These documents are retained in the chapter personnel files in accordance with SCORE regulations.

 

SCORE South Palm Beach expects a lot from its Counselors. The goal is to encourage and inspire clients, making sure to “be there” all the way as a team working to help realize dreams, and create “Entrepreneurs of the Year” where possible.

 

Steve Koenig, SCORE Counselor

Check us out at: www.scoresouthflorida.net

 

Marketing By Word of Mouth

 

In a recent dialog with a friend, he described his experience as follows:

 

My sole experience in marketing was to market myself and the members of my team as legal specialists in real estate development, leasing and finance in an era which, for many years, preceded the use of computers and the internet. I know I have broadened my knowledge base considerably, but that occurs only if you choose to take the initiative and desire to learn from others whose skill sets are different from their own.

 

I may be old-fashioned, but I still believe that Word of Mouth (WOM) recommendation is the best form of marketing that exists, particularly for a service organization, and by no means do I mean to de-emphasize the importance of other means or ways to market. “Word of Mouth” is vital to any business that hopes to grow.  Happy clients recommend the organization to others, so having satisfied clients is the first and foremost priority.

 

Word of mouth can also be planned, executed and nurtured as a specific marketing method today using social media, blogging, tweeting, etc.  While we did not have these tools at the time, my practice developed and grew to what it became through word of mouth, by my “targets”, i.e. individuals, private and public companies and financial institutions seeking real estate counsel in the commercial real estate arena, recommending me and the team I had put together. We did that by being superior to our competition. Word of mouth recommendations spreading throughout the community we serve has the benefit of people “advertising” your services for you, and from my limited knowledge of marketing is the best form of marketing on the planet, particularly for a service organization.

 

How do you use WOM marketing?

Steve Koenig, SCORE Counselor

visit us at www.scoresouthflorida.net

 

 

 

 

Financial Troubles? 5 Ways to Improve Your Situation

 

If you are having trouble paying your debts, it is important to take action sooner rather than later. Doing nothing leads to much larger problems in the future, whether it's a bad credit record or bankruptcy resulting in the loss of assets and even your home. If you're in financial trouble here are some steps to take to avoid financial ruin in the future.

If you've accumulated a large amount of debt and are having difficulty paying your bills each month, now is the time to take action--before the bill collectors start calling.

1. Review each debt. Make sure that the debt creditors claim you owe is really what you owe and that the amount is correct. If you dispute a debt, first contact the creditor directly to resolve your questions. If you still have questions about the debt, contact your state or local consumer protection office or, in cases of serious creditor abuse, your state Attorney General.

2. Contact your creditors. Let your creditors know you are having difficulty making your payments. Tell them why you are having trouble-perhaps it is because you recently lost your job or have unexpected medical bills. Try to work out an acceptable payment schedule with your creditors. Most are willing to work with you and will appreciate your honesty and forthrightness.

Tip: Most automobile financing agreements permit your creditor to repossess your car any time you are in default, with no advance notice. If your car is repossessed you may have to pay the full balance due on the loan, as well as towing and storage costs, to get it back. Do not wait until you are in default. Try to solve the problem with your creditor when you realize you will not be able to meet your payments. It may be better to sell the car yourself and pay off your debt than to incur the added costs of repossession.

3. Budget your expenses. Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and health care) and optional expenses (such as entertainment and vacation travel). Stick to the plan.

4. Try to reduce your expenses. Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Consider taking public transportation or using a car sharing service rather than owning a car. Clip coupons, purchase generic products at the supermarket and avoid impulse purchases. Above all, stop incurring new debt. Leave your credit cards at home. Pay for all purchases in cash or use a debit card instead of a credit card.

5. Pay down and consolidate your debts. Withdrawing savings from low-interest accounts to settle high-rate loans or credit card debt usually makes sense. In addition, there are a number of ways to pay off high-interest loans, such as credit cards, by getting a refinancing or consolidation loan, such as a second mortgage.

Tip: Selling off a second car not only provides cash but also reduces insurance and other maintenance expenses.

Caution: Be wary of any loan consolidations or other refinancing that actually increase interest owed, or require payments of points or large fees.

Caution: Second mortgages greatly increase the risk that you may lose your home.

You can regain financial health if you act responsibly. But don't wait until bankruptcy court is your only option. If you're having financial troubles, don't hesitate to call us. We can help you get back on your feet.

 

Barry Eisenberg,  SCORE Counselor email: barrye003@aol.com

Visit us at www.scoresouthflorids.net

 

Exporting 101

If your customer won't pay you in advance for a an order from a foreign country, follow the procedure below. It is the safest way to receive payment from overseas.

Ideally, asking for payment in advance is most secure. But that won't work in 99% of cases.
Your customer will want to safeguard that they receive what was ordered and you will want to get paid when you ship.

The solution is the Irrevocable Confirmed Letter of Credit. In effect what happens is the customer puts in escrow the funds for the value of their order with their bank. The customer's bank holds these funds to be paid to you when proof of shipment is presented.

Let's look at the words: "Confirmed" means the customers' bank has actually deposited the escrow money with your bank here in the U.S. "Irrevocable" means the customer cannot change their mind about payment. You ship - you get paid by your bank.

The controlling paper work are the shipping forms prepared by the logistics company who ships your merchandise to the customer's destination. Generally it is the Bill of Lading. A Bill of Lading is a form just like the one you complete when you send a parcel via UPS or FEDEX.

What assures your customer that they are getting what they ordered is the description of the merchandise on the Bill of Lading. Your bank receives the Bill of Lading, confirms that the goods are in accordance with the order and pays your invoice. Done deal!
Hank Samuel, SCORE Counselot

If you need help Exporting, e-mail your question to: hank.samuel@comcast.net

Contact us at: www.scoresouthflorida.net

So You Are an Entrepreneur

Every year, at the SCORE South Palm Beach Annual December Luncheon, an award is presented to our Entrepreneur of the Year, a client who, through his/her determination, ingenuity, and plain hard work, earns the honor. This year, as with other recent years, the Luncheon was held at Gleneagles Country Club in Delray Beach, and was attended by 100+, including dignitaries, industry leaders, and supporters of SCORE.

For the first time, 2012 brought us 3 very special entrepreneurs.

 

Mona Straub, (Justfurfunonline.com), a prize winner a few years back, refashioned her business, and in so doing won the award as 2^nd Runner-up.

 

Fred Pollino, was the June 2012 recipient of a 40,000.00 grant from the Veterans Pathway To Success Foundation. Fred, a wounded veteran of the Iraq/Afghanistan wars, started a business (Better Escalator Co.) to clean escalators. He is assisted in the business by his partner Tom Story. Fred was honored as 1^st Runner-up.

 

Jose Danois, (ASE Carcare), another Iraq/Afghanistan veteran, with several tours of combat duty, returned to the States in 2012, where he purchased a Fort Lauderdale car care business. While Jose was initially rejected for a grant application, because of severe debt load, he displayed incredible determination and “can do” attitude, so typical of our brave servicemen and servicewomen, that, working with SCORE Counselors for several months, he was rewarded when his business began to show a profit . Jose was elected our Entrepreneur of the Year 2012

How about you?

Check us out at: www.scoresouthflorida.net

 

The Value of Service and Support

After talking with Customer Support two times via the telephone and ordering what was described as the correct replacement part, the wrong part was received twice (each time taking weeks). Upon the third attempt at getting this right, this time via email, Customer Support replied: ‘I am sorry to say that we have no replacement parts for that particular product. I apologize for the inconvenience of the miscommunication. If you choose to purchase the Model C, just let me know”

Model C was priced four times the original unit, which was about 2 years old, and except for a minor part was functioning well.

A search for the company information turned up an address for the small corporation. The following letter addressed to the listed principal was sent:

“Your Customer Service and Support organization has been working with me with regard to your products as noted in the attached communication. Unfortunately, there appears to be no viable solution. I find this situation unreasonable. How do you expect to keep customers under these circumstances? You should know what it costs to get new customers? How do you expect me (and others) to recommend your company or its products? In the past I have recommended your products and have three, myself.  If you do not care you will allow this situation to continue to exist and you will very likely go out of business. Long term customers help a business grow. Cut them off and you lose. I started with a long standing national firm and moved to your products, but will likely return to them because they service and support their products.”

The letter was attached to an email addressed to Customer Service (the only email address that could be located) and asked that it be forwarded to the principals of the firm. It was also sent via hard copy mail to a name and address for the firm that could be located. This hard copy mail was returned as “undeliverable”.

The customer’s email was saturated with ads for the new products from this firm for a month. No other communication has occurred and the customer has not purchased a replacement product.

Some companies provide a referral to a third party parts supplier, who may pay them a royalty. Others offer to “trade in” the old product for a new one. Some maintain access to replaceable parts and make money on these opportunities.

If this was your business what would you do? How do you handle product transitions?

Hopefully you will not have an angry customer as represented above.

 

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net