Business entities are organizations formed to conduct business or engage in a trade. There are multiple business entity types, including corporations (C-Corporations and S-Corporations), limited liability companies (LLCs), partnerships (general partnerships, limited liability limited partnerships, and limited partnerships), and sole proprietorships.
Medical bills are tax-deductible if the taxpayer itemizes and does not elect to take the standard the deduction. In 2019, the IRS allowed all taxpayers to deduct the total qualified unreimbursed medical care expenses for the year that exceeds 7.5% of their adjusted gross income. Beginning in 2020, the threshold amount increases to 10% of Adjusted Gross Income (AGI).
Officers of corporations can receive payment in the form of a salary. Shareholders that are employees can also receive a salary for their work.
Like officers in C-Corps, the salary received must be reasonable and not disguised as other forms of assets or dividends.
In either case, wages paid as a salary can’t exceed the amount that someone outside of the C-Corp will receive as a wage. If so, there can be problems that violate reasonable compensation.
If the IRS determines that you receive an excessive amount of income, it can administer a reasonable compensation test. This can result in the excess salary paid to officers and shareholders converted to dividends that will experience double taxation.
Accountants assist clients in the process of setting up the payroll with the respective states. Once completed, there are specific quarterly and yearly forms that need to be filed in order to stay compliant. The accountant will assess the client of any changes and timely file all required forms on a timely basis.
Corporations must file a tax return each year, regardless of whether their taxable income is zero or $1 million. A corporation may face penalties for not filing, even if it doesn’t have a single transaction to report. A regular corporation, referred to as a C corporation, would file Form 1120.
An entity that is taxed as an S corporation must always file its initial tax return with the IRS, even if it had no business activity to report.
An entity that is taxed as an S-Corporation files its Federal return on Form 1120S.
Whether an LLC has no activity and has to file depends on the tax return being filed. If the LLC is a single-member filing a Schedule C or, has elected to file as a partnership, if there is no activity then no Federal return would be required to be filed. You would only file a return if you claiming tax deductions on a return, even if there was no income to report. Certain states may require an LLC return filing, even if there was no activity. The state of California would be an example of a state that would require the filing of a return and the payment of the LLC fee.
The need to make estimated tax payments is solely based on the taxpayer facts and circumstances. If your income is entirely comprised of wages, there will be withholding taxes taken out on your wages, so there should be no need to make quarterly estimated tax payments.
If there is material income from other sources and no withholding taxes are taken out, then the need to make estimated tax payments has arisen. Tax projections can be prepared to determine the level of estimated taxes that are necessary for you to make.
The quarterly estimated tax payment dates are April 15th, June 15th, September 15th and January 15th of the succeeding calendar year.
Insofar as the use of the term “declare my entity”, it is assumed you are referring to the filing of an S corporation election or, a C corporation election. Generally speaking, there is a seventy-five day rule that applies to each tax election.
If you want the S -election to be effective from the date the entity was formed (entities are formed at the state level either by filing LLC Articles of Organization and corporate Articles of Incorporation), then you have 75 days from the date of formation to file the appropriate Federal election form.
There is late filing relief available for both elections. There are IRS Revenue Procedures issued to cover the requirements for late filing relief. Revenue Proclamation 2013-30 and 2009-41 deal with the S-election and the C election respectively.
While it’s not a requirement to have a website for your business, you’ll benefit from having a website for several reasons.
Small businesses with websites benefit from transparency. Having a website can allow you to add more information about your business, its history, and what you’re trying to advertise.
If you’re willing to invest in SEO, your website could potentially reach a much wider audience than you would if you didn’t use one.
A small business website will also help owners create another method of sales. If your small business would like for customers to contact you, having a website will help you. It will also facilitate advertising your small business products.
Invoicing can be done via email or, as an additional step, can also be mailed to the specific individual or company department responsible for the payment of all vendors. Of course, this will depend on the size of your client.
Some additional tips:
Take your billing completely online, as opposed to mailing invoices.
Whatever procedures one may employ, take into account that the goal is to timely bill customers or clients and collect the money due to your company certainly within 60-90 days.
Before sending an invoice, double-check all the information to ensure it’s correct and clear. Let your client know how to make a payment and the due date. Make sure you send out the invoice on time. If you mail the invoice, ensure that your client’s correct address is on file. If you email the invoice, include a hyperlink to the payment system. This makes the process as easy as possible.
Estimated taxes are calculated by gathering all up to date sources of income from the taxpayer (W-2, 1099, retirement, business income etc.) and providing an early projection of how much will be due at tax time.
Learn more about estimated taxes.
You can calculate cash flow in three ways:
Your net worth is the value of all your assets minus the value of all your liabilities. Assets (cars, homes, boats, cash, investments) are owned by a person or company. Liabilities (credit card debt, student loans) are what a person or company owes. To calculate your net worth, subtract your liabilities from your assets.
To calculate payroll tax, you’ll:
Calculate federal tax withholding
Determine amount withheld for Social Security
Determine amount withheld for Medicare
Determine federal and state unemployment taxes
Depending on your requirements, you’ll report the payroll tax amount on:
If you want to start your business at a state level, you’ll need a license and permit in many states. For more information about state licenses and permits, you’ll need to contact your city or county governments.
The Secretary of State’s office typically oversees state licenses and permits. Depending on your industry, you may need a federal license or permit to operate your business.
In order to start a successful small business, you should first conduct market research. Your brilliant idea may already exist and therefore act as a barrier for you to enter the market. If you still feel you have a good opportunity after you do some research, you will need to create a business plan.
Next, you will need to procure funding for the business. You can either provide funding yourself, obtain a small business loan, reach out to friends and family, or look into crowdfunding online. After funding is secured, you will need to decide on a location for your business. A home office in a garage or basement can help fulfill this function until you’re comfortable finding a separate office location.
You will also need to decide on the entity structure, i.e., corporation, limited liability company/partnership, etc. Last but not least, you will need to decide on a name for your business and register with the IRS and state authorities.
To draft a valid check that will be accepted in the course of conducting business, certain information is required on the document. Assuming you are using the printed check provided by your bank, the check date is written in the top right corner of the check. The company or individual to whom the check is being paid should be entered on the payee line. The actual amount of the check should be written both in numbers and words, If course, the check must be signed by an authorized signer.
Small businesses undergo several steps to prepare their taxes. First, you need to determine what forms you’ll need to file your taxes. The forms depend mostly on your business type and whether or not shareholders will pay taxes of their own.
Next, find out when the deadline is for your business type.
After determining your tax deadline, you should gather your records, look for tax credits and deductions, and deduct any estimated tax payments. Finally, if you’re unable to pay taxes, consider filing for an extension to pay or research alternatives to pay taxes.
Tax deductions help reduce your tax liability from your taxable income. In other words, the amount of income that you are taxed on will be reduced by the deduction.
Taxpayers can claim either the Standard Deduction or itemized deduction, whichever is higher, to lower their adjusted gross income (AGI). In 2020, the Standard Deduction for single filers and married filers filing separately are $12,400, married filers filing jointly are $24,800 and heads of household are $18,650. Itemized Deductions comprise a variety of expenses, including expenses for health care that exceed 10% of your AGI, state and local taxes, real estate taxes, home mortgage interest, gifts to charity and casualty and theft losses.
Learn more about tax deductions.
Gross profit is determined by subtracting the costs of sales or cost of goods sold from total revenues. The gross profit percentage is obtained by dividing the gross profit amount by total revenues. This is also called a Gross Margin.
“Net profit margin is the percentage of revenue left after all expenses have been deducted from sales. The measurement reveals the amount of profit that a business can extract from its total sales. The net sales part of the equation is gross sales minus all sales deductions, such as sales allowances. The formula is:
(Net profits ÷ Net sales) x 100 = Net profit margin
This basically should be viewed as a barometer as to how a business is functioning. Are business profit goals being met? Are there sufficient funds being earned to allow for business expansion or investment, along with the maintenance of operations? This is a basic starting point for analyzing how your business is doing.”
Unless you’re in a sole proprietorship, where the owner is the same individual that operates the business, you’ll choose a business entity that offers the most for your needs. There are a few things that you’ll consider, such as how many people will join your business, if the business will be incorporated, if there will be liability, if there will be taxes as a pass-through or double taxation, or if there are shareholders.
There are five steps to creating a balance sheet. The first step is to determine the reporting date and reporting period for your balance sheet. In most cases, the reporting period is a financial quarter, and the reporting date is the last day of a particular financial quarter.
The second step is to identify your assets. You’ll do this line by line, starting with your current assets and then your noncurrent assets.
Current assets include accounts receivable, cash and cash and cash equivalents, inventory, other existing assets, and short-term marketable securities.
Noncurrent assets include goodwill, intangible assets, long-term marketable securities, other noncurrent assets, and property. After you subtotal these amounts, you’ll add them for a later step.
The third step in creating a balance sheet is to arrange your liabilities. You’ll do this line by line, starting with your current liabilities and then your noncurrent liabilities.
Current liabilities include accounts payable, accrued expenses, the current portion of long-term debt, deferred revenue, and other current liabilities.
Noncurrent liabilities include noncurrent deferred revenue, long-term debt, long-term lease obligations, and other noncurrent liabilities. After you subtotal these amounts, you add them for a later step.
The fourth step in creating a balance sheet is to calculate shareholder equity. This step can vary depending on the stock that your business issues. Typically, you’ll add either common stock, preferred stock, retained earnings, or treasury stock to this balance sheet area.
Finally, you’ll add your total liabilities to the total of shareholder equity. This is the number that you’ll compare to your assets.
To create a chart of accounts, you’ll create three columns.
The first column will have your accounts containing your account names. You’ll name this column Account.
In the column to the right, you’ll have a column containing the name Type. This column will list the account name, which can either be an asset, cost of goods sold, equity, expense, income, or liability.
To the right of the Type column, you’ll create a third column with the name Description. This column will contain a description of the transaction that you’ll record.
If you aren’t using a computer to create your accounts chart, you can implement a number system to keep track of your accounts. Asset accounts range from 1,000 to 1,999; liability accounts range from 2,000 to 2,999; equity accounts range from 3,000 to 3,999; cost of goods sold range from 4,000 to 4,999; and, expense accounts range from 5,000 to 6,999.
Accounting software also uses this system, which will make it easy if your company plans to use accounting software at a later date.
First, it should be understood that the credit card charges are recorded on the books of the company. The charges are recorded as a Debit to the appropriate expense account or balance sheet account if buying fixed assets, as an example. A short term liability would be recorded to the Credit Card Payable account. When paid, there will be a posting of a Credit to the Operating account- Cash and a Debit to the Credit Card Payable account.
Everyone has their own way to approach starting a new business. However, everyone living in the U.S. is also obligated to align these procedures within the jurisdiction of the state the business is starting in. Business owners must follow federal, state, and local rules.
Some simple steps to follow include:
Invoices are billing statements sent to a business client for the billing of either services rendered or, for goods that are sold to a customer.. There are a considerable number of software programs available to generate invoices. Typically, accounting software will have this ability. Basically, an invoice will contain the following information:
How to create an invoice step by step:
Double-entry bookkeeping works during business transactions. You’ll write both the debits and credit whenever a customer buys a product. Debits will appear on the left of the general ledger, and credits will appear on the right side. This will result in two equal amounts for the same transaction. Your goal is to have balanced books.
The standard deduction is a specific amount of your income that you don’t have to count toward your AGI. People can either claim the standard deduction or itemize. The most beneficial or higher option will be taken, but you cannot do both. The Standard Deduction in 2020 is:
Itemized deductions are basically expenses allowed by the IRS, such as mortgage interest, medical expenses, or charitable donations, that can decrease your taxable income.
Learn more about the Standard Deduction.
For a Partnership or S-Corporation tax returns, the extension gives an additional 6 months to file from March 15 until September 15. For Individual, Sole Proprietorship, or C-Corporation returns, the extension gives an additional 6 months to file from April 15 until October 15.
Making sure that you send an invoice on time is a vital part of reasonable credit control, and helps business cash flow. Until you send a timely invoice, you won’t get paid. So the sooner you invoice, the better. However, some small businesses struggle to get their invoices out in good time.
You come to do your monthly or year-end accounts and realize you haven’t invoiced a customer for a job you completed several months ago, or perhaps even longer than. Can you send an invoice now?
The short answer is yes unless more than six years have passed. As for any invoice, you need to make sure you still have all the information on record required to get the invoice signed off. That means:
This way, although the debtor may question the lateness of the invoice, they cannot dispute its legitimacy.
In accordance with the Fair Labor Standards Act (FLSA), payroll records should be maintained for no less than three years. Wage computation records such as time cards or timesheets should be retained for two years. The IRS has already gone on record to state that business records, in general, should be maintained up to seven years.
It should be noted that the actual filing of an extension is not necessarily a laborious project because it can be filed electronically. However, an individual return may also require the preparation of tax projections to determine tax Federal and state tax liability due. Obtaining the information and preparing the calculations will take some time, but must be done so a valid extension can be filed.
The filing of an extension application for a C corporation may also involve projections and calculations to determine the tax liability, which must be paid upon the filing of the extension, both at the Federal and state level.
The tax returns filed by S-Corporations and partnerships are informational returns, so no tax liability exists at the Federal level. The state extensions may require a payment, as this depends on the individual state. As an example, if the estimated payment for the year was not made, the $800 LLC fee should be paid to California upon the filing of the extension.
A solid business plan should cover the span of five years. The business plan should provide an overview of the business’ goals both from an operational standpoint as well as revenue. This will be important for a variety of reasons as most investors will want to see a business’ five-year plan to show that there is a clear trajectory of where the business is heading and how it will achieve profitability.
Learn more about business plans.
If you’re in a sole proprietorship, you must file a tax return regardless of whether you had a profit or a loss. For C-Corps, owners must pay taxes once for their salary and again because they are also shareholders. For S-Corps, shareholders that have made a profit or loss must file a tax return. Individually owned LLCs must file tax returns, whether there is a profit or a loss.
The exact cost to start a website will depend on a few factors, such as the level of customization you desire, the features you want, and if you plan to hire a designer and copywriter. If you are capable of it, creating a website on your own can be very low-cost or free.
Many small business owners are willing to invest in their website so they can have custom-made logos, website graphics, and unique imagery.
The amount of time that small business owners spend on bookkeeping depends on a few factors. Small business owners can have different amounts of transactions to record in their bookkeeping documents, therefore increasing the amount of time allocated for these records. Additionally, how small business owners organize their bookkeeping transactions plays a role in the amount of time needed for bookkeeping.
Single-entry bookkeeping doesn’t require as much time as double-entry bookkeeping because there is only one transaction to track per purchase. Double-entry bookkeeping, on the other hand, will require much more time because there are at least two transactions that occur in one purchase.
The number of employees at a small business affects how much time owners will spend on bookkeeping. Small business owners with fewer employees will have less bookkeeping duties to complete compared to small business owners with more employees and more transactions to record.
First, the extension applications go to the software provider who then forwards the extensions electronically to the Federal and state taxing authorities. After a relatively short time period, usually within 72 hours of the extension submission to the software provider, you check the system to see if the extension(s) were accepted. There is also the ability to generate a confirmation letter.
If an extension that is electronically filed is rejected, the reason is generally provided as an error. An error code is provided so you can determine the issue causing the rejection.
Debit and credit are two business transaction types. You’ll also hear both terms in double-entry accounting.
Debits increase assets or expenses but decrease equity or liability. On an accounting entry, you’ll write debits on the left-hand side.
Credits decrease assets or expenses but increase equity or liability. On an accounting entry, you’ll write debits on the right-hand side.
Debits are transactions that will increase assets or are an expense. When you use double-entry accounting, you’ll write debits on the left-hand side of the entry.
Assets include accounts receivable, bank accounts, or cash. Expenses include the cost of operating your business, such as paying rent, utilities, or wages.
Credits are transactions that decrease assets and decrease expenses. When you use double-entry accounting, you’ll write credits on the right-hand side of the entry.
Debits and credits must equal each other for your accounts to remain balanced.
The term employer payroll taxes will refer to both the employee taxes withheld on payroll, as well as payroll taxes that are borne by the employer. This will involve registration as an employer at both the Federal and state level. As far as the Federal taxes withheld from an employee paycheck, the reporting of this will be done by the quarterly filing of Federal Form 941, the annual filings of Form 940 and Form W-2. These forms have already been previously discussed herein, Federal Form 941 is item number 40 and Federal Form 940 is item number 25. There are also, depending on the state, state reporting requirements insofar as state taxes withheld, state unemployment taxes and other payroll-related matters. This could include the requirement to have disability insurance coverage as well as worker’s compensation insurance. As noted in item number 52, it is advisable to consider engaging a payroll service to handle the payroll function as well as tax return reporting side of payroll.
Estimated Taxes are a pre-estimation of a taxpayer’s tax liability. For high earning taxpayers, the IRS requires that they pay their tax liability in quarterly installments throughout the current tax year instead of waiting to pay it all at once on their income tax returns. This is heavily impacted by taxpayers who have a significant source of self-employed income thus why it is recommended to business owners.
Learn more about estimated taxes.
There are multiple funding options available for small businesses. Most commonly, you can receive funding in the form of a grant or a loan. Choosing this option may be practical, but there will be a lot of time involved with the application process.
You can also seek funding for your small business by trying crowdfunding (making a pitch to potential lenders) or using your own personal assets. If you plan to use your personal assets, make sure you have a large savings account to rely on before opening your small business.
The final, and perhaps the riskiest funding option for small businesses, involves angel investing. This consists of a person viewing an elevator pitch of your small business with the goal of offering an investment for a percentage of your company.
A pay stub comes with your paycheck. It includes a list explaining your pay, wages earned for that pay period, and year-to-date payroll. It also shows taxes and other deductions such as health care and 401(k) contributions taken from your paycheck. In most cases, a pay stub can be viewed electronically.
Payroll taxes are a percentage of income withheld by an employer. The money withheld goes to federal or state government programs on your behalf, for programs such as:
In addition to FICA, employers have other payroll taxes to keep in mind:
Tax schedules are the forms used to determine estimated taxes owed. It provides several rates that taxpayers will pay according to their filing status. You’ll also hear the term tax schedule used as the term rate schedule or tax rate schedule.
Tax schedules will increase annually according to the cost-of-living increases and inflation.
There are four tax schedules that the IRS uses:
The IRS uses other tax schedules, which supplement the information from the four main tax schedules. These are:
You’ll use those tax schedule forms with Form 1040 as you file your taxes.
A C-Corp has several benefits. First, C-Corps offer limited liability protection to directors, officers, and shareholders. C-Corps are also separate entities from their owners. If the company makes changes in management or ownership, the corporation will operate normally.
There isn’t a limit on the number of shareholders that a C-Corp can have. Shareholders can be from any country, and the corporation can issue more than one type of share.
A Limited Liability Company (LLC) is just one of several business structures available. The unique factor is simplicity, pass-through taxation, and the limited liability of a corporation. Unlike a corporation, LLCs are relatively easy to form and maintain with little paperwork. The second most appealing factor is the pass-through taxation. An LLC’s profits go directly to the LLC owners, who then report their share of the profits on their tax returns. As a result, it removed the double taxation found in corporations. The last and more important factor is the legal protection. Provided there is no fraud or criminal behavior, the owners of an LLC are not personally responsible for the LLC’s debts or lawsuits.
S-Corps offer benefits in the form of loss deductions, protection, and taxation. If an S-Corp experiences any losses during a tax year, a shareholder can claim those losses as a deduction for their personal tax return.
Another benefit of an S-Corp regards its structure. S-Corps offer limited liability for their members, called shareholders. This means that if the corporation experiences a lawsuit, your personal assets aren’t at risk.
Finally, S-Corps are pass-through entities meaning that the corporation undergoes taxation only once. Shareholders pay taxes personally instead of the company also experiencing taxation.
The main types of entities are Sole Proprietorship, General Partnership, Limited Partnership, C-Corporation, S-Corporation and Limited Liability Company (LLC). Each of these has different benefits to the taxation of the company. Some feature pass-through taxation, which means that the taxes fro the company “pass-through” to the income tax return(s) of the individual(s) running the business.
There are three payroll tax deadlines. You’ll use Line 12 of Form 941 to determine the amount and the deadlines:
If you paid less than $50,000 for the lookback period, you’d deposit payroll taxes monthly.
If you paid more than $50,000 for the lookback period, you’d deposit payroll taxes semiweekly.
For monthly depositors, you’ll have until the 15th of the next month following employee payment to make a payroll tax deposit.
For semiweekly depositors, you’ll use two schedules:
Payroll taxes paid on a Saturday, Sunday, Monday, or Tuesday require additional payments by the following Friday.
Payroll taxes paid on a Wednesday, Thursday, or Friday require additional payments by the following Wednesday.
The final payroll tax deadline is next-day deposits for employers who paid more than $100,000 in the lookback period. You’ll deposit payroll taxes the next day for both the current year and next year.
There are a few rules for debit and credit. A debit is always on the left side of a journal entry, and credit is always on the right. More rules include:
There are five steps in the market research process:
The first step, determining the problem, will allow you to discover a question you seek to resolve. How you’ll resolve this problem is the next step, developing your research plan. This step will also provide you with strategies to conduct research.
The third step of market research is to conduct the research. You’ll collect data that you’ll use in further efforts to determine your findings. Depending on what research strategy you use, this step may take the most time.
The fourth step of market research is to analyze your data. This is where you’ll compare the collected data to sort out any discrepancies. You’ll also focus on what your findings will be, which comprises the last step.
The last step of market research is reporting your results. As you report your findings, try to focus on the problem and how your solution will create changes to current policies and protocols.
There are two types of bookkeeping methods: single-entry bookkeeping and double-entry bookkeeping:
The single-entry bookkeeping method allows bookkeepers to record transactions. However, this bookkeeping system focuses primarily on tracking expenses and revenue.
The double-entry bookkeeping method contains more information than the single entry method. This method allows bookkeepers to track:
With this system, you’ll also monitor decreases and increases to the above categories as either a credit or debit.
Traditional bookkeeping is performed by using one of two types: a single-entry system and a double-entry system. The single-entry system is used for businesses that have a minimal amount of transactions. This system generally accounts for cash sales and expenses as they are paid and is not ideal for businesses that have accounts receivables, accounts payables, or capital transactions. Tracing revenue and expenses under this system is more difficult.
The double-entry system is ideal for businesses that have more complex transactions. Businesses that generally purchase on account or collect income through receivables are best suited to use this system. This system uses the accounting methods of recording debits and credits and is the industry standard.
Business data about your customers contains basic information, such as their name and address. There is also business data about your employees and their performance. Business data about risk can help you learn about the viability and vulnerabilities of a product.
Industry data can help you learn more about market share for your industry. Market data can help you discover data about your competitors, such as pricing. Supply chain data is another form of business data that can help you track your inventory.
The exact business tax form you’ll need for filing taxes depends on the type of business you have and whether you operate it as an individual or within a corporation.
Business owners operating C-Corps or S-Corps should file using:
You may have to complete forms related to employment taxes which include:
Excise tax payments may also apply, which include:
Business owners operating a single-member LLC should file using:
An LLC can also elect to complete Form 8832, Entity Classification Election, changing their filing status to a corporation or a partnership.
Business owners operating partnerships should file using:
You may have to complete:
Individuals in partnerships may be responsible for their own estimated tax, income tax, and self-employment tax.
Business owners operating sole proprietorships should file using:
The expenses that are deductible on a tax return that is filed to report the activities of a trade or business are defined in the Internal Revenue Code as those expenses that are ordinary, necessary and reasonable for carrying on that trade or business.
The types of expenses that one can deduct will depend on the nature of the business being conducted. Expenses could include salaries and payroll taxes, rent telephone, internet and hosting costs, utilities, advertising, certain taxes and licenses, bank charges, office expenses, printing charges, and postage are examples of deductible expenses. If fixed assets are acquired by the business, then depreciation charges to recover the cost of these assets would be deductible. These are examples of deductible expenses but is not an all-inclusive listing.
Generally, since S-Corporations and partnerships have a tax year ending on December 31st, the original due date for the filing of the Federal tax return is March 15th of the following calendar year. If March 15th falls on a weekend, the return would be due on the next business day following the 15th. If an extension is filed on or before the due date, the due date is extended for six months. The extended due date would be September 15th.
If a business files their tax returns as a C-Corporation, the tax return for this type of corporation would be due on the 15th day of the fourth month following the year-end of the corporation. If a valid extension is timely filed, the due date is extended for six months. A corporation with a December 31st year-end would have an April 15th due date. The extended due date would be October 15th.
A Sole Proprietorship files a Schedule C as part of its individual income tax return, Form 1040. As such, the due date is April 15th of the following calendar year.
There are various steps one can take and the steps you ultimately do take will be a function of the amount owed as well as your past relationship with a customer or client. Here are some steps that can be taken:
But remember, it’s best to try to avoid this kind of situation where possible.
The primary foundation of a new business is the business plan. Taking the time to write your business plan, forecasting, and conducting market research is an effective way to stay focus through inception. The same will prevent any possible roadblocks along the way by being proactive and having a written plan of action. More importantly, it will enable you to select the most efficient business entity for tax purposes. This will affect your business for years to come.
An accountant is in charge of leveraging the tax laws and regulations to keep businesses compliant and ensure it is efficiently operating. This is achieved by determining the best business and tax structure, creating a business plan, compiling, and analyzing financial statements. Most importantly, an accountant would assess the overall health and make recommendations and planning strategies to be more efficient by leveraging the tax laws and regulations.
The IRS will let you know if you are being audited by mail initially, and they may audit by mail or through an in-person interview. This letter would request for additional information about certain items on your tax return such as income, expenses, itemized deductions, etc. to substantiate the item in question. The IRS may also send out a questionnaire for you to complete as well.
In the letter that you receive from the IRS, the details of the letter will indicate what areas of the return that the IRS agent will be examining.
Then, it is a question of gathering the applicable documentation to support information that was reported on your tax return.
As an example, you may have itemized your deductions and claimed a material amount of un-reimbursed medical expenses. You would gather the documentation that supports your payment of the expenses claimed. The amount of charitable deductions claimed may have to be supported by canceled checks or letters from the charitable organizations that document the amount contributed.
These are examples of what might be asked and how they would be addressed on an audit exam.
Individual taxpayers must timely file Form 4868 and pay any tax balance due with the extension filing. The extension would need to have the taxpayers’ name and social security number(s) as well as their address. The extension would have to be timely filed on or before April 15th. The timely filing of the extension and payment would extend the due date for six months. The state rules vary and need to be reviewed upon filing the Federal extension.
Form 7004 is the form used to file for an automatic extension of time, also for six months, to file your business tax return for a partnership, an LLC filing as a Partnership, a regular corporation, and an S-Corporation. The extension would include the business name, address, and employer identification number. Any taxes due or estimated to be due must be paid by your tax return due date when the extension application is filed.
The due date for the extension would be on or before March 15th for the partnership and S-Corporations and April 15th for the C-Corporation filing on a calendar year basis. C-Corporation returns are due by the 15th day of the fourth month following the end of its fiscal year. Stats may have different rules-some states accept the Federal extension application and some, if a payment is due, will require the filing of a state extension application.
Form 2290 is a requirement for truck drivers whose trucks have a gross weight of 55,000 pounds or more. Truck drivers in this category will have to file and pay taxes.
Truck drivers whose vehicles meet the weight limit but don’t drive their trucks for 5,000 miles (or 7,500 for agricultural vehicles) must file a return. However, they don’t have to pay taxes.
If you file for 25 or more vehicles, you must e-file your Form 2290.
A balance sheet is a statement that reflects a company’s assets, liabilities, and capital at a specific point in time. This statement is typically used in the tax world for showing the book basis of company assets and liabilities, while also laying out the owner’s capital accounts. The snapshot of a Balance sheet can represent the financial status of a business. However, businesses that have gross receipts of under $250,000 are not required to file a balance sheet with their tax returns.
A bank statement is a record of the balance in your bank account, which includes the amounts that have been deposited and withdrawn. They should also show your current balance. Bank statements are usually provided monthly and can be viewed electronically through apps. They can also be printed on paper and mailed to you or your company.
A balance sheet is a financial statement that lists the assets, liabilities, and owner equity during a specific period. It provides details as to how a business is doing financially. Business balance sheets also provide a framework for how a company can classify future costs.
A business entity is an organization formed by at least one person. There are several types of business entities: corporations, limited liability companies (LLCs), limited liability partnerships, partnerships, and sole proprietorships. Each of these business entities offers benefits regarding ownership, potential liability, and taxation.
A business entity is an organization formed by an individual or a group of individuals to conduct business. The same is extremely important because it dictates the structure of the organization and how it will be treated for tax purposes. The main types of entities are Sole Proprietorship, General Partnership, Limited Partnership, C-Corporation, S-Corporation and Limited Liability Company (LLC).
A business plan should be a realistic outlook of the potential for your company. It should include short- term and long-term objectives along with the framework that will be used to achieve these objectives.
A traditional business plan will include:
Company Description: Provide detailed information including the business organization, as well as the markets that your company plans to serve.
Market Analysis: you will have researched your industry and provided the details on reaching your target market.
Organization and Management: how your company will be structured and the individuals who will run the business. Also, describe the legal structure- will your business be formed as a corporation or an LLC. Describe whether any tax elections will be made regarding operating as an S corporation or partnership for tax purposes, as an example.
Service or Product Line: describe what you will be selling or what service you will be offering. If intellectual property is involved, describe the patent filings or copyrights. Discuss ongoing research and development.
Marketing: describe how you will attract and retain your customers.
Funding: if you are asking for funding, outline your requirements.
A business plan can take on two forms: the one for the owner (longer version) and the one submitted for official registration (shorter version). The shorter version must include a mission statement, the date the business began, names of the founders and their positions within the company, the number of employees, a description of facilities, any products manufactured/distributed, banking relationships, information regarding current investors, and a summary of future plans.
A business plan is a document that you’ll make to guide you through every stage of growing, managing, structuring your business. There are two types of business plans: a lean business plan and a traditional business plan. Lean plans aren’t as standard, but they highlight important elements within businesses.
A lean business plan focuses on the following components: key partnerships, key activities, key resources, value proposition, customer relationships, customer segments, channels, cost structure, and revenue streams.
Traditional business plans are more common for new businesses and are useful if you plan to seek financing from lenders.
Traditional business plans require either some or all of the following:
A C-Corp is a business entity that taxes the corporation separate from its members, called shareholders.
A cash flow statement shows the cash that’s flowing into and out of the company. It helps owners and shareholders understand how cash is being spent and how much cash is still in circulation.
A chart of accounts, or COA, contains the financial listing of every account. Arranged into subcategories, a chart of accounts contains your general ledger accounts and every transaction your business makes. A COA typically includes assets, equity, expense, liability, and revenue accounts.
The first area of your chart of accounts will have your balance sheet information. This will include your assets, liability, and equity. The second area of your chart of accounts will have your income statement information. This will consist of your expenses and revenue.
A CMS is a content management system. This software can be used to change, create, and manage digital content. You can use a CMS to help you index, retrieve, and search for your data in qualifiers such as keywords, name of the author, and publication date.
A CMS can also help you format and upload documents and revise documents before publication. Finally, you can use a CMS to create templates as another way to change written content.
A commercial invoice is a document created between a company and a client that describes the products or services, costs, and precise denomination and quantity of products or goods, normally used for foreign transactions. An invoice would normally be used for all business transactions where there are services being provided for payment or, goods are being sold.
A Certified Public Accountant (CPA) is an accountant that has met state licensing requirements and passed the CPA Exam. They mainly act as consultants and advisors to individuals and businesses on many issues, including tax preparation, accounting, auditing and review, financial planning, and litigation consultation. The CPA designation shows that an accountant has met the highest professional standards of competence and achievement within the financial industry.
Financial statements are a collection of summary-level reports about an organization’s financial results, financial position, and cash flows. The statements would include a balance sheet, an income statement and a cash flow statement.
A general ledger contains your business transactions. These transactions are part of what you’ll have in even more detail in other parts of your accounting journal.
General ledgers provide data needed to form balance sheets, cash flow calculations, income statements, and trial balances. Trial balances contain every general ledger account and its respective balance, which will facilitate spotting errors and correcting them quickly.
A partnership is a business agreement with two or more members. There are three partnership types: a general partnership, a limited liability partnership, and a limited partnership. You’ll find differences in the number of liability partners have and the partner types that each partnership has.
All partnerships consist of a general partner and a limited partner. General partners are partners that operate as a manager (or managers) of a partnership. General partners also have unlimited liability, meaning that personal assets are at risk if the partnership experiences any legal trouble.
Limited partners aren’t active in the partnership. Limited partners have no management role in a partnership. They also have limited liability, meaning that they are only liable to the amount that a limited partner invested in the partnership.
A point of sale system (POS) is where a customer makes a payment for products or services at your business.
A profit and loss statement includes the revenue and expenses generated by the company for a particular period of time. This statement is necessary to get a good picture of the business’s profitability at different levels. It helps creditors and investors determine the level of risk involved in extending capital to a business.
A sales funnel is a process used to convert potential customers into customers. A potential customer will go through four phases in the sales funnel process: awareness, interest, decision, and action.
The awareness phase comprises a potential customer finding a product, service, or website that you’ve offered that catches their interest. At this stage, the potential customer will learn about the basics of your product, service, or website.
The interest phase comprises a more active role in discovery. At this stage, the potential customer will begin searching for a solution to their problem. It is also the stage where what you offer as a business can engage them to become an actual customer.
The decision phase occurs when a potential customer decides to invest in your product. They can do so by browsing your website to purchase what you’re offering but not completing the purchase.
Finally, the action phase is the point in which a customer invests in your product, service, or website.
Schedule C is a tax form that allows you to report your profit or revenue during the previous tax year. You’ll also hear a Schedule C referred to as a Profit or Loss Form. You’ll file using a Schedule C Form if you’re a small business owner or a sole proprietorship.
You can also complete a Schedule C if you’re a single-member LLC but decided not to pay your income taxes as a corporation.
A small business is either an LLC (limited liability company) or a corporation (inc.) that usually has either singular ownership or ownership by a relatively small group of taxpayers as opposed to a large corporation. Small businesses tend to start small in terms of business activity and revenue but then gradually will expand throughout the subsequent years.
A sole proprietorship would be considered the simplest form of business structure. It is an unincorporated business that is owned and run by one individual. Also, in this type of structure, there is no legal distinction between the owner and the business entity.
The exception to one owner would be where a married couple would be considered as the owner- this is a joint venture. A sole proprietor would report business income and deductions on their personal tax returns.
A tax deduction is a deduction that reduces the taxpayer’s tax liability by reducing the taxable income. It differs from a tax credit, which is a dollar-for-dollar reduction on the amount of taxes you owe.
Deductions for business are industry-specific expenses that taxpayers incur during the year. All of the basic expenses necessary to run a business are generally tax-deductible. For example, car and truck expenses, salaries and wages, contract labor, supplies, depreciation, rent on business property and machinery and equipment, utilities, taxes and licenses, insurance, repairs, advertising, home office, legal and professional fees, meals, and employee benefit programs and qualified retirement plans.
Learn more about tax deductions.
Accounting software is a term used to describe a type of application that logs and processes accounting transactions. Various reports can also be generated including aged accounts receivable, accounts payable schedule, and payroll summaries, as examples. Businesses can develop their own accounting software or buy a version from another company, depending on their needs.
Our online portal is an example of accounting software. It has organizational capabilities that help companies keep accounting data organized, including their overdue items, payable bills, accounting notes, contacts’ data, and standard accounting operations.
Accounting is the systematic process of recording financial transactions of a business. The accounting process includes recording, classifying, summarizing, interpreting, and communicating financial information.
Accounting is extremely important because it is the language of business, and it is at the root of making informed business decisions. It helps to reveal profit or loss for a given period, and the value and nature of a firm’s assets, liabilities, and owners’ equity.
Accounts payable is a general ledger account where a company will record the amounts it owes to vendors or suppliers for goods or services received on credit. Companies sometimes have departments dedicated to accounts payable, where employees make payments owed by the company to suppliers and creditors. Accounts payable is usually categorized under “current liabilities” on a balance sheet because it’s a short-term debt.
Accounts receivable is money owed for goods or services purchased in the past. It can take some time for this money to arrive. On your balance sheet, accounts receivable is an asset in the current assets section. You can also find accounts receivable in the current assets area on your chart of accounts.
Accounts receivable is the general ledger account where a business will record the sale of goods or services on credit. The account is a current asset on the balance sheet of the business.
An EIN is a nine-digit number used to identify a business. You’ll need an EIN for all business entities except if you want to operate a sole-proprietorship.
You can apply for an EIN by using Form SS-4, Application for Employer Identification Number. You can submit Form SS-4 in several ways, by fax, by mail, telephone (in some instances), or online.
No matter which option you choose, there’s no cost to apply for and receive an EIN.
An executive summary is a short document or section of a document produced for business purposes. It summarizes a longer report or proposal or a group of related reports in such a way that readers can rapidly become acquainted with a large body of material without having to read it all. It should include the basic information about your business, that being the business name, location(s) of your business and contact information, as well as a description of the nature of your business. If you are manufacturing and are selling a product, a description should be included. If you provide services, a description of the service should be included. Other items of information would include:
Also, take into account who your audience is going to be. An executive summary as described herein is a document summary to be used when seeking new partners, obtaining a business loan or, if in a startup venture mode, you are looking to obtain your initial funding. So essentially, your purpose will be to obtain capital and this needs to be kept in mind when putting a summary together.
An income statement is a financial statement used to measure a company’s financial performance. You’ll also hear an income statement referred to as the profit-and-loss statement.
By using an income statement, you’ll be able to see your company’s financial trajectory regarding its revenue, gains, expenses, and losses.
An invoice would be a request for payment, generated by an accounts receivable department or, a bookkeeper or owner in a small business setting. While typically sent to a customer or client after the completion of a transaction, invoices can also be sent for partial payments. This is common in the construction industry and related specialized trades, where you may do partial billings based on the percentage of completion on specific jobs.
A Limited Liability Company (LLC) is just one of several business structures available. The unique factors are simplicity, pass-through taxation, and the limited liability of a corporation. Unlike a corporation, LLCs are relatively easy to form and maintain with little paperwork. The second most appealing factor is the pass-through taxation. An LLC’s profits go directly to the LLC owners, who then report their share of the profits on their tax returns. As a result, it removed the double taxation found in corporations. The last and more important factor is the legal protection. Provided there is no fraud or criminal behavior, the owners of an LLC are not personally responsible for the LLC’s debts or lawsuits.
An S-Corp is a business structure designed to pass corporate credits, deductions, income, or losses through to their members, known as shareholders. Shareholders will report the income on their personal tax returns. The loss or profit of their income will be assessed using their individual tax rates.
An S-Corp can include only allowable shareholders, such as trusts, estates, and individuals. However, corporations, non-resident shareholders, or partnerships are excluded.
S-Corps can have only one class of stock, a maximum of 100 shareholders, and must be domestic.
Bank reconciliation is a document that compares the balance on a company’s balance sheet to the balance in the company’s bank statement. The goal of bank reconciliation is to ensure that all of your transactions match and are error-free.
There are two ways to do bank reconciliation: analytics review and documentation review. For analytics review, businesses will estimate the amount of funds that should be in their bank account. The process of documentation review will require you to evaluate every transaction for errors.
Bank reconciliation is the process of making sure a company’s cash account is consistent with the bank statements provided by the financial institution it uses. This would include the review of all account deposits and charges.
Bookkeeping is the logging, maintaining and retrieving of financial transactions for a business. Bookkeeping helps organize financial data, i.e. sales, purchases, payments, etc., to help prepare the financial statements. Company officers and owners use financial statements to review business information and make key operational and financial decisions. Bookkeeping helps ensure that financial records are up-to-date and comprehensive.
Business data is digital data that facilitates business decisions, business operations, and business strategies.
It’s the process of keeping track of the cash that is going in and out of your business. This helps predict how much money will be available and the amount of funds needed to cover debts. It also helps with projections for future cash on hand, or if there will ever be a shortfall of cash. This is why the statement of cash flows is a required basic financial statement, because cash management is such an important managerial function.
Cash flow is the total amount of money transferred into and out of a business; in other words, the amount of liquidity that a company has. Cash flow can happen in the present or the future in the form of a forecast.
There are three types of cash flow:
Customer research is a part of market research that allows people to identify their clientele. This is similar to finding the demographics of a potential target audience.
Consumer research is common in marketing. You can use customer research to look beyond an audience’s demographic. Instead, you can use it to determine the behaviors which persuade a group of people to react to things as they do. Similarly, you can also use customer research to determine what motivates people to respond to certain things.
You can also use customer research to see which needs remain unmet. If your business attempts to create a new product, you’ll use customer research to see how your idea, item, or product can fill a need.
Double-entry bookkeeping is a bookkeeping type that tracks both credits and debits in a balance sheet, general ledger sheet, or income statement. Double-entry bookkeeping also tracks assets and expenses, which increase with debit entries, and liabilities and revenue, which increase with credit entries. The total amount of debits with double-entry bookkeeping must always equal the total amount of credits to have a balanced book.
An EFT, or electronic funds transfer, refers to a transaction that takes place over a computerized network. This transfer can occur among accounts at the same bank or, to different accounts at separate financial institutions. EFTs can include wire transfers, direct deposits into your account, a withdrawal from an ATM as well as online bill pay services and the use of a debit card.
FICA tax is a type of federal payroll tax. FICA comprises two different taxes:
A Medicare tax of 1.45%
A Social Security tax of 6.2%
There’s a third tax, an additional Medicare tax, of 0.9% that employers must pay if employees earn either:
$250,000 (married, filing jointly)
$125,000 (married, filing separately)
An employee and their employer will each pay the total percentage, of 7.65%, on income, but only up to a certain amount.
Financial management includes various tasks involved with planning, organizing, directing as well as controlling the financial activities of an ongoing business or individual or the management of investments. An accountant, for example, may be involved in the reporting of the business financial affairs through the preparation of financial statements and notes to said statements or, he or she may be involved in the management of finances and the investment of funds.
Form 1099-MISC, which stands for miscellaneous income, is an information form that is required to be filed by employers who engage independent contractors or other persons who are nonemployees that are generally paid at least $ 600 or more during the calendar year. The types of payments this is issued for would include payments for rent, prizes and awards, other income payments, fishing boat proceeds, medical and health care payments, crop insurance proceeds, payments to an attorney and also to each person from whom you have withheld federal income tax under the backup withholding rules. The 1099-MISC informational returns are due by January 31st of the following calendar year. A new form for reporting of nonemployee compensation has been created beginning with the 2020 tax year. This new form is Form 1099-NEC, the NEC standing for nonemployee compensation. Any Federal or state withholding relating to this compensation will also be reported on this form. It will also be due by January 31st of the following calendar year.
Form 2290 is a Heavy Highway Vehicle Use Tax Return, and is a Federal Excise Tax imposed on large vehicles that operate on highways. Large vehicles, in this case, are defined as having a gross weight of 55,000 pounds or more. If you operate a heavy vehicle with that weight or heavier, you need to file Form 2290 – no matter your business structure. The taxes collected from that form are used for highway construction and maintenance.
Form 433-D, or Installment Agreement, is an IRS form that allows taxpayers to set up a direct debit agreement. This form is an alternate way to set up the payment process for a debt owed to the IRS.
The terms of Form 433-D will remain until the debt is paid. You’ll also have to pay interest and penalties associated with the debt. There’s a statute of limitations of 10 years to pay off the debt with Form 433-D.
Business owners, out-of-business sole proprietors, and self-employed filers can file Form 433-D. Individual taxpayers can file Form 433-D, or taxpayers can file this form jointly with a spouse.
To complete Form 433-D, you’ll provide:
After filing and submitting Form 433-D, the IRS will deduct payments from the bank account in their records. Payments will begin anywhere from two to three months from the date of form submission.
FUTA is an acronym for the Federal Unemployment Tax Act. FUTA, along with state unemployment, allows employees to receive unemployment benefits and workers’ compensation if employees become unemployed.
Employers must pay the FUTA tax by using Form 940. The FUTA tax isn’t a requirement for employees in any business.
Gross profit refers to total revenues less the costs associated with making and shipping its products or providing its services.
There are five main principles of inventory management.
Demand forecasting. You want to think ahead and figure out how much inventory you’re going to need. Undersupply or oversupply can have critical costs.
Warehouse flow. You want to make sure your warehouse is organized and systemically cleaned. Inventory turn. Make sure your old inventory is sold before your move to the new inventory.
Cycle counting. Count subsets of your inventory to make sure what you have on paper is what you actually own.
Process auditing. You want to make sure you audit early and often. This should be done at each transactional step.
Form 1040 is the U.S Individual Income Tax Return lead form that is used by individual taxpayers when filing their annual income tax returns with the IRS. The return is due April 15th of the following calendar year. The filing of a timely extension and payment of the appropriate balance due with the extension request will extend the due date of your individual tax return to October 15th.
Form 1065, U.S Return of Partnership Income, is the Federal tax return form that is used by an entity that is categorized as a partnership for tax reporting purposes. The income, deductions as well as tax credits attributable to the conduct of the partnership’s trade or business is reported on Form 1065. The return is due on or before the 15th day of the third month following the end of the partnership’s tax year.
For taxpayers who pay foreign taxes on income earned overseas or, who invest in certain mutual funds or securities where foreign taxes have been withheld, Form 1116, Foreign Tax Credit, can be filed with Form 1040 by individual taxpayers and with Form 1041 for estate and trust taxpayers. The filing of this form and, of course, completing the appropriate sections of the form, will prevent double taxation of the same income by the U.S. and a foreign country. Depending upon how the calculations work out, the amount of the foreign taxes paid can be used to offset and reduce the Federal income tax liability. The foreign tax credit is a nonrefundable credit. This means that any credit that cannot be used, based upon the relationship of your foreign income to your total income, can be carried back and forward to future years to reduce your Federal income tax liability. You are allowed a carryback of the unused foreign tax credit for one year and then carry forward for 10 years the remaining unused foreign tax credit.
Form 1120S, U.S. Income Tax Return for an S Corporation, is the federal tax form used by entities that have made an election to be taxed as an S corporation. The entity is question, which could be an LLC or a regular corporation, would make the election by filing a properly executed Form 2553 with the IRS. Generally, this requires that you accept December 31st as the end of your tax year, although you can be granted a fiscal year-end if you apply for it and have a valid business purpose, such as your natural business year ends on a different date other than December 31st. The tax form is used to report the income, deductions and credits experienced by the S corporation in the conduct of it trade or business. Like a partnership, the income, deductions and credits pass through to the shareholders’ individual income tax returns.
Individual taxpayers can be charged a penalty for the underpayment of their estimated taxes unless one of the exceptions to the penalty is met. Form 2210 is the applicable form and is included with your Form 1040 Federal individual income tax filing.
Form 4506-T, Request for Transcript of Tax Return, is used to request tax information for a particular calendar year or years. The transcripts that the IRS provides will be modified to display only partial taxpayer personal information. As an example, only the last four digits of the social security numbers will be provided. Full financial and tax information, such as wages or other components of taxable income, will be shown on the transcript. Basically, the information that the IRS has on record will be provided. This information is based on filings of W-2 forms, 1099 forms and K-1 forms and forms relating to deductions, such as Form 1098 for mortgage interest and real estate taxes paid.
Form 4868 is the application submitted to the IRS when a individual income tax return such as Form 1040, cannot be timely filed on or before April 15th, the due date for the filing of the calendar year return in question. Timely filing of Form 4868 and payment of the tax balance due will extend the tax return due date for six months until October 15th. It should be noted that an extension of time to file your 2019 individual income tax return will also extend the time to file Form 709, Gift Tax return, for 2019.
Form 5329 is an IRS document used to report additional taxes on IRAs (and other qualified retirement plans). Form 5329 is most commonly used to report the premature distribution penalty when ones takes a distribution from an IRA or other qualified retirement plan prior to the year in which the individual turns 59 1/2 years old. The amount of the penalty is 10% of the premature distribution. There are exceptions to the imposition of the penalty, so this should be checked to see if one qualifies. Form 5329 is included with your Form 1040 filing. It’s also used for modified endowment contracts, Coverdell educational savings accounts (ESAs), qualified tuition programs (QTPs), Archer medical savings accounts (MSAs), health savings accounts (HSAs), and Achieving a Better Life Experience (ABLE) accounts. These additional taxes include early distributions, excess contributions, and excess accumulation.
Businesses subject to excise taxes are required to file and pay these four times a year using Form 720. Excise taxes apply to alcoholic beverages, tobacco, firearms, airfares, telephone service and various other products and services. The information on this IRS form includes the total earnings accumulated from a business or client you worked for during the calendar year. Here’s how to fill out Form 720.
The IRS requires that you fill out and file Form 8594 when you’re buying or selling a business. Both the purchaser and the seller must file the form with their individual tax return. Here’s more information about Form 8594.
Form 940 is an annual report form used to calculate your business’s taxes imposed by the Federal Unemployment Tax Act (FUTA). The money from this payroll tax is used to fund federal and state workforce agencies that help compensate unemployed individuals in between jobs. Here’s how to fill out Form 940.
Starting with the first quarter that a company pays wages, the business is required to file certain quarterly payroll tax returns. Form 941, Employer’s Quarterly Tax Return, is filed based on the calendar year divided into fourth quarters. The due dates are April 30th, for the first quarter, July 31st for the second quarter, October 31st for the third quarter and January 31st for the fourth quarter. The return summarizes the wages paid, the Federal taxes withheld and the social security and medicare taxes withheld. If you go out of business or stop paying wages to your employees, you must file a final return, which is indicated by checking the appropriate box on the form.
Form 9465 is used to request an installment agreement for paying tax liabilities. Taxpayers who owe less than $50,000 in taxes may be able to complete an online payment agreement. Form 9465, Installment Agreement Request, can be included with your Form 1040 filing, if certain repayment conditions are met. The maximum term for repayment using this form would be 72 months.
Form SS-4, Application for Employer Identification Number (EIN), is used to apply for a nine-digit number. The IRS Assigns the EIN to sole proprietors, corporations, partnerships, estates, trusts and other entities for tax filing and reporting purposes. The information provided on this form will establish your business tax account. The IRS will send a letter to the taxpayer confirming the assignment of the EIN. Certain applicants can obtain an EIN online.
A W-2 form, also known as the Wage and Tax Statement, is the document an employer is required to send to each of their employees and the Internal Revenue Service (IRS) at the end of the year. The W-2 form reports the employee’s annual wages and the amount of taxes withheld from his or her paychecks. The W-2 forms are typically distributed to employees in the month of January of the following calendar year.
Form W-4, Employee’s Withholding Certificate, is completed by a newly engaged employee and after completing, signing and dating, is given to your employer. Your employer will use the information provided on the W-4 so the employer can withhold the correct Federal income tax from your paycheck. The information provided to your employer would include your marital status and the number of allowances or dependents you claim. You can submit a revised W-4 when changes to your personal or financial situation occur that could affect your withholding.
Any individual who is not eligible to get a social security number but who must furnish a taxpayer identification number for U.S. tax purposes or, to file a U.S. federal tax return must apply for an ITIN using Form W-7.
Individuals or businesses that hire freelance workers or, independent contractors are required to file Form 1099-Misc to report the amounts paid that exceed $600 during the calendar year. Form W-9 is given to each independent contractor for completing and returning to the payor, so the necessary information is in the records for the 1099-MISC filings after the calendar year.
One of the most critical stages of a business plan is market research. Market research is the process of gathering and analyzing information about your selected market. The same will provide a clear picture of the product or service to be offered and the potential customers for the product. The same will shape the needs of your business target or selective marketing.
For a business, net income is the residual amount of earnings after all expenses, both cost of goods sold and general and administrative costs, have been deducted from sales. The costs would include taxes and depreciation expense
When a business hires employees and begins the process of paying salaries, that would be the commencement of the payroll process. This process involves:
Product development consists of six steps, starting with ideation and ending with costing. Ideation for a new product occurs when we think of answers to current problems, most often with a modification to an existing product. Research is the next step. In this step, you’ll seek feedback from others via in-person and online communication about your idea or product. It’s essential to neither undervalue or overvalue feedback during this step.
The third step of product development is planning, which will further illustrate your product. A hand-drawn sketch will suffice in this step, with a plethora of details providing additional details about your product. Fourth, you’ll develop prototypes of your product until you have a satisfactory version. Fifth, you’ll source all of the materials needed to manufacture your product. The last step of product development is costing, or determining what your cost of goods sold (COGS) is to provide a gross margin and retail price.
Rental income is any payment you receive for the use or occupation of a property. You must report rental income for all your properties. In addition to the amounts you receive as regular rent payments, other amounts may be rental income and must be reported on your tax return.
A business retention rate or retention ration refers to the proportion of earnings kept in the business as retained earnings and reinvested for future growth. This would be as opposed to paying out earnings as dividends to the shareholders.
The retention formula is: Net Income – Dividends/Net Income.
If net income was $ 100,000 and $25,000 was paid out as dividends with the remainder retained for growth, the retention rate would be 75%.
Sales tax is a tax charged for the sale of goods, items, or services. The exact sales tax you’ll pay depends on different factors. There are multiple sales taxes, which can compound, making you pay more as a final price. Common sales taxes include:
County sales tax
Municipal sales tax
State sales tax
Schedule 1 is an IRS tax form that you’ll complete if your income isn’t directly on Form 1040. You’ll attach this form to Form 1040.
There are two parts of Schedule 1: Part I is for additional income, and Part II is for adjustments to income.
In the Additional Income section, you can provide amounts for the following categories:
In the Adjustments to Income section, you can provide amounts for the following categories:
The amounts you’ll add to this section will decrease the amount you’ll pay in income tax.
Schedule A is an IRS tax form that you’ll use to itemize your tax-deductible expenses. This tax form is an optional attachment that allows taxpayers to add the costs of tax-deductible items.
Whether you choose schedule A or decide to take the standard deduction, the itemized deductions will be subtracted from your adjusted gross income to determine your taxable income. This is the income that you’ll pay to the IRS.
Schedule B, Interest, and Ordinary Dividends is an IRS tax form that allows you to list the interest and ordinary dividends during the current tax year.
Within Schedule B, there are three parts:
There are also two columns: the required information on the left and an amount column on the right.
You’ll list the names of each payer in the interest section. This payer can be a bank or investment firm. You’ll also provide the amount paid to you in the Amount column. In this section, if the total is $1,500, you must complete the Foreign Accounts and Trusts section.
In the Ordinary Dividends section, you’ll also list the name of payers and the amount. Like the interest section, if the total is $1,500, you must complete the Foreign Accounts and Trusts section.
The final part of Schedule B, Foreign Accounts and Trusts, is for those who received more than $1,500 in either taxable interest or ordinary dividends. You must also complete this section if you received a distribution, a grantor, or a transferor to a foreign trust.
Understand that the self-employment tax is an add-on Federal tax that is in addition to the regular Federal income tax. It is solely a Federal tax concept.
The IRS defines self-employment income as income earned from the carrying on of a “trade or business” as a sole proprietor, as an independent contractor, or as a general partner in a general or limited partnership.
When calculating self-employment income, one would also factor in the allowable deductions. Therefore, the actual self-employment tax would be calculated on your net self-employment income.
The actual self-employment tax calculation is reflected on Schedule SE of the Form 1040 package. The actual calculation has a social security tax component and a medicare tax component to it.
For 2019 then, the tax is calculated on 15.3% of the first $ 132,900 of net self-employment income plus 2.9% on the net self-employment income in excess of $ 132,900. In other words, the social security portion of the tax has a cap at $ 132,900. There is no cap on the Medicare portion of the tax. Before applying the tax rates to your net self-employment income, your total income is multiplied by 92.35%. The tax rates are then applied against this subtotal you have calculated.
Financial reporting includes the objective of providing both timely as well as relevant financial information in a prescribed format (including the basic financial statements). The information provided is used by the business owners to make decisions relating to the business operations, including – for example – acquisition of plant and equipment and the timing of inventory purchases. Potential investors would review the financial information before making the decision to invest in a company. The banks’ review could involve the extension of credit or the factoring of accounts receivable.
Invoices are a document that allows a buyer and a seller to agree upon payment for a service. They allow you to list the services you’ll provide and the costs associated with the services.
Beyond having a document, invoices can help you in two important ways:
The textbook definition for the Standard Deduction is the dollar amount that non-itemizers may subtract from their income before income tax. In simpler terms, the standard deduction is the amount of income you can earn before being taxed. The standard deduction in 2019 is $12,200 for single filers, $24,400 for Married Filing Jointly filers, and $18,350 for Head of Household filers. Taxpayers that have earned less than their respective Standard Deduction (and less than $300 from self-employment) in a given tax year are not required to file a tax return.
Learn more about the Standard Deduction.
Working capital is calculated as current assets minus current liabilities. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.
A working capital ratio that is above one (1) means that your business current assets exceed the current liabilities. Generally speaking, the higher the ratio the better, as it gives a stronger indication that a business can fund both its operating costs and the cost of its debt service that is maturing in the short-term.
The right blog name should capture several goals that you have in mind. Consider the type of content your blog should cover and the demographics of your primary audience. A good blog name is concise, memorable, and easy to pronounce.
You may have to apply for state permits with your city government, county government, or Secretary of State.
Your business may need a federal permit to create, sell, or use a product regulated by a federal agency. This is applicable if your business deals with:
You should include the following in an invoice:
The word invoice and an invoice number
Company name and address
Your contact information
Date of when you created invoice (known as an issue date)
Date of payment (known as a due date)
Date of when you provided goods or services (known as a supply date)
Other things you’ll include are:
Description of items (it can be one item or multiple items)
The amount you’re charging for each item
What you’re owed
Estimated Income tax payment deadlines for the tax year 2020:
There are several differences between Form 1099 and Schedule C.
Form 1099 is Form 1099-MISC or Miscellaneous Income. There are three copies of this form: one for use at the Internal Revenue Service Center, one for the State Tax Department, and one for the recipient.
You’ll use this form to report miscellaneous income paid to others during a tax year. You’ll file Form 1099-MISC if you’ve paid at least $10 in broker payments or royalties, and at least $600 in:
A Schedule C Form is either a Form 1040 or Form 1040-SR. You’ll use this form to report your profits or losses from your business. Sole proprietors use this form to determine their profits or losses in the current tax year.
You’ll use a Schedule C to report tax-deductible business expenses. This can encompass many things, such as advertising costs, business supply costs (including home office costs), vehicle expenses, and more.
To complete a Schedule C, you’ll need information about your business expenses (insurance, supplies, wages), business income (including allowances and return), and costs of goods sold (inventory).
Form 2290 serves multiple purposes for heavy highway vehicle users to figure and pay taxes.
First, you’ll use Form 2290 to figure and pay taxes on highway motor vehicles with a taxable gross weight of 55,000 pounds or more.
Second, you’ll use Form 2290 to figure and pay taxes on the taxable gross weight that increased and is now in a new category.
Third, you’ll use Form 2290 to claim suspension from a tax if you’ll use the vehicle for under 5,000 miles or 7,500 miles for agricultural vehicles.
Fourth, you’ll use Form 2290 to claim a credit for taxes if your vehicle was destroyed, sold, stolen, or used for under 5,000 miles or 7,500 miles for agricultural vehicles.
Fifth, you’ll use Form 2290 to report the acquisition of a used taxable vehicle that previously had suspended taxes.
Finally, you’ll use Form 2290 to figure and pay taxes on a used taxable vehicle you’ve acquired and used during the period you’ll submit taxes.
Bookkeeping is recording and properly classifying transactions. Accounting is the act of reviewing, analyzing, interpreting, and reporting these transactions into meaningful data.
Your Federal individual income tax return, the basic summary form being Form 1040, is due, along with any other required schedules or forms on April 15th of the year following the calendar year you are filing. If the 15th falls on a weekend, the due date is the next business day.
Taxes are always due by the original deadline, regardless of any extensions. If you know you owe or think you will owe, you must pay your tax liability by the April tax deadline, or you could face a late payment penalty of the taxes due. On the other hand, if you requested an extension, your tax return filing is due six months from the original filing deadline. If you are the business owner of a pass-through entity, it is crucial that you know if your business will have a tax liability at the end of the year. If that is the case, you may still have to pay taxes by the original due date of your personal tax return, given that any business earnings from your business will flow through automatically onto your personal tax return.
You’ll need payroll as soon as you hire employees and start to pay them a salary, or when you begin to pay yourself a salary (as S-Corp or C-Corp). Filing payroll tax returns can be very time-consuming and tricky to handle so it’s important to get organized as soon as you take either of these big steps.
Four business types will have to file using a Schedule C.
Owners of a sole proprietorship will have to file a Schedule C. Business owners who have their companies registered as a single-member LLC will also need to file a Schedule C.
If you operate your business with your spouse as a partnership, without other owners, and file a joint tax return, you can use a Schedule C. You can do this by declaring the business a qualified joint venture (QVJ).
If you and your spouse meet the above qualifications, you’ll both complete a Schedule C. You’ll divide your expenses and income according to both shares in your business.
Independent contractors that work as employees for tax purposes will also need to complete and file a Schedule C.
Another group of people that will need to file a Schedule C is small business owners that own multiple businesses. A small business owner that owns multiple small businesses will need to file an individual Schedule C for each small business they own.
You’ll file Schedule A if you want to itemize individual tax deductions. You can do this with Schedule A instead of taking the standard deduction.
Schedule A contains seven categories for you to fill:
Filing using Schedule A may save you money compared to taking a standard deduction. There are other tax deductions that you can claim by completing Schedule A:
You can save money if the total of your itemized deductions is more than the standard deduction.
You’ll file a Schedule B if any of these conditions apply to you:
A business needs a website for several reasons. It’s beneficial for companies to have a website to bolster their credibility in their industry. A website can market products and extend the reach of your business relatively easily. A business can also use a website to gather feedback from customers.
It’s also possible to use a website to advertise in the form of different media. Blogs, pictures, and videos uploaded to a website can help your business distinguish itself from competitors.
Starting your own business may be a challenge, especially if you do not know what you are doing on the business side. The easiest way to avoid that is to hire an expert who will keep you compliant with the law and assess the health of your business periodically. Managing your own business may sound like a great way to cut costs, but doing it incorrectly can hurt you and your business not only now but in the long run. An accountant can help you determine the best business structure, create an accounting plan, create and interpret financial statements, close your books at the end of the year, and, most importantly, keep you away from IRS audits. One more thing that very few business owners think about when starting a business, an accountant is someone you can call when something goes wrong and so not having one may be a mistake during the early stages of your business.
Blogs allow business owners to market and promote their products. You can attract new customers and visitors to your business, both in-person and online by using blogs. You can also provide news and updates to your customers more privately and uniquely compared to traditional ways of marketing. Finally, blogs can bolster your business’s reputation by building trust with customers over time.
General ledgers provide information that you’ll need to produce several financial reports. If there are any errors in your accounting, you can consult the general ledger and trial balance to determine where the error occurred and how to correct it.
Bank reconciliation is essential because it allows you to compare your financial records. If there are errors during your bank reconciliation process, you’ll know what transaction created the error and when the error occurred.
You can prevent cases of fraud or administrative problems by doing bank reconciliation often.
Customer research allows you to discover customers’ behaviors and needs. You can do this through interviews, research, or surveys. You should ask questions that determine the likelihood that a potential customer may buy an item.
The information collected will allow you to learn more about a customer or demographic before you market products.
The idea of an audit may be scary, but with audit defense, there can be a peace of mind. The accountant or audit specialist assigned to you will be able to speak with the IRS on your behalf, compile supporting documents and provide expert guidance to resolve the audit as seamlessly as possible.
Payroll is a complicated and timely process with many nuances, which is why we recommended having it done by a professional. For example, there are payroll tax filings with the IRS and state that need to be done throughout the year and need to be filed quarterly. In addition, there are monthly tax deposits and annual information returns (W-2s) that need to be sent to employees before January 31st. Because tax withholdings are submitted to the IRS and state on behalf of the employees, if the returns are filed late and/or there are errors, significant penalties can occur. In addition, it is very difficult to calculate the correct amount of withholdings for each employee as every employee will have unique situations. Some will be filing single, some will be married and filing jointly, and others will have dependents. If calculating manually, it can be very time-consuming.