Month: May 2019

Start on the Right Track with an Entrepreneur Express Workshop

Wow is it June already? That means it’s almost time for my next FREE workshop to help entrepreneurs understand and get control over their business finances. On Wednesday, June 12th, the Virginia Department of Small Business and Supplier Diversity (SBSD), the City of Falls Church Economic Development Authority and the Falls Church Chamber of Commerce are hosting the Entrepreneur Express – Moving Your Business Forward workshop. 

The workshop is designed to help small business owners take their business to the next level by providing interactive discussions covering key elements of business practices. I am excited to be one of three presenters to discuss topics where small businesses can get into expensive problems – HR Issues, Insurance and Tax Requirements. It’s free but advance registration is required at this link: https://www.sbsd.virginia.gov/event-directory/

Here’s an overview of my portion of the Entrepreneur Express Workshop, “Small Business Tax Requirements” –

Income Tax Basics

Entrepreneurs can file their taxes as one of the three different types of tax entities, a sole proprietor, a partnership, or a Subchapter S Corporation. One person in business by her or himself could choose to operate for tax purposes as a sole proprietor or a Sub S. Two or more people must operate as a partnership or a Sub S. Many other rules apply. Setting things up right the first time will save time and money over the long run.

Non-Income Tax Considerations

In addition to federal and state income taxes, entrepreneurs also need to consider self-employed Social Security taxes, even if the small business has no employees. Sole proprietors and other pass-through businesses pay self-employment taxes equal to 15.3% of net profits. Small businesses also need to register for a local business license and report business assets (e.g., computers and equipment). Both require a small fee.

2017 Tax Law Highlights for Small Business

Recent tax law updates had some really good news for businesses, including small business. Higher asset depreciation limits and the new Qualified Business Income Deduction provide opportunities to invest in equipment and to deduct a portion of profits to reduce tax liabilities. Small businesses need to be aware of tax laws and how they impact business financial decisions.

The Entrepreneur Express – Moving Your Business Forward workshop is from 9:00 AM – 12:00 PM in Falls Church, VA. If you can make it, please come up and say hello afterward. Want to register? Here’s the link https://www.sbsd.virginia.gov/event-directory/

Any questions? Contact Chris Ley at [email protected]

Bankruptcy and Your Taxes

You may have wondered what tax professionals do after the filing deadline. What? You’ve never wondered about that? Well, I’ll tell you anyway. Tax professionals use “down time” to keep up with tax law changes with continuing education. Last week, I got one of my 2019 continuing education hours by taking a free IRS webinar, all about what an individual or business taxpayer should know about taxes when filing for bankruptcy.

Hopefully, none of you (or any of my clients) will be in this situation. But, just in case, I’m sharing a few tips I learned from the IRS webinar, “Understanding Bankruptcy from an IRS Perspective”:

Notify the IRS

Anyone who has filed for bankruptcy, or who is in the process of filing for bankruptcy, should contact the IRS’ Centralized Insolvency Operations (CIO) Unit to report the filing. The bankruptcy could be related to unpaid taxes or not. The CIO will place a “hold” on any federal tax collection activities for the duration of the bankruptcy case. They also coordinate the IRS’ representation if there are any unpaid federal taxes.

Check Your Status

For individuals, the most common type of bankruptcy is a Chapter 13, although they sometimes file under Chapter 7 or Chapter 11. Chapter 13 bankruptcy is only available to wage earners, the self-employed and sole proprietors. To qualify, a taxpayer must have regular income, have filed all required tax returns for the four years prior to the bankruptcy filing and meet other requirements in the bankruptcy code.

Meet All Deadlines

During the bankruptcy case, the taxpayer must continue to file, or get an extension of time to file, all required income tax returns. All current taxes must be paid as they come due. Failure to file returns and/or to pay current taxes for the duration of the bankruptcy case may result in the case being dismissed with no discharge of tax debt.

What Else to Expect

Tax refunds can be received while in bankruptcy. However, refunds may be delayed or used to pay down tax debts. Successfully completed bankruptcy plans result in a discharge of debt, releasing the debtor from personal liability for the discharged debts. Some taxes may be discharged, depending on the facts and circumstances of the case.

You now have an idea of what to do about taxes when filing for bankruptcy. Plus, you’ve learned what tax professionals do after the filing deadline – keep up with tax law changes with continuing education.

Preventing Fraud

It’s been over six months since I last blogged about fraud risk in small businesses and nonprofits. Tax season and the new tax law must have distracted me. But fraud has not stopped lurking, robbing organizations of their hard-earned funds.

In case you forgot, fraud is an illegal act involving deceit, concealment, or a violation of trust. Fraud doesn’t involve physical threats of violence or force. Fraud is committed to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business advantage.

Fraud is not unique to any one type of organization. The opportunity to commit fraud exists everywhere, including public and private businesses and nonprofits. Small businesses and nonprofits are even more susceptible to fraud because of typically lower levels of staffing and technology. Plus, the environment at nonprofits and small businesses espouses trust that could be exploited by people who are unscrupulous or experiencing extreme financial pressures.

First — recognize that fraud can happen. Second — implement an action plan to help prevent fraud from happening. How? Minimize the chances that fraud will happen at your organization with these three tips:

  • Separate Tasks – The most powerful weapon against fraud is separating tasks or duties that should not be performed by the same person, like separating expense approval and payment from the person who reconciles the bank account. Separating duties prevents one person from having too much control over financial activities so that she or he could take funds without detection.
  • Investigate Anomalies – Identify anomalies, or exceptions, from expected conditions or results. Is your cash flow within a normal expected range? Are your sales returns higher than usual? Investigate performance and results that fall outside the expected range and take action. Looking into unusual activity could draw attention to and end fraudulent activities. Even if no fraud has occurred, you can take corrective action as needed.
  • Independent Monitoring – Periodic independent monitoring by a knowledgeable party is another way to safeguard financial assets. Methods include supervisor reviews, periodic audits and effective governance. Exception reports or anomalies should ideally be investigated by someone who is independent of the original activity. Nonprofits with limited staff can involve the Board Treasurer in the monitoring process.

Important steps for preventing fraud are to recognize that fraud can happen and to implement an action plan to mitigate the risk of loss. Powerful weapons like separating tasks, investigating anomalies and independent monitoring all reduce the risk of losing money, property, services or reputation. Trust is great; implementing fraud prevention tips is priceless.

Financial Basics for YEA! Entrepreneurs

Last week, I was thrilled to discuss business finances with the 2019 Class of the Arlington Chamber of Commerce Young Entrepreneur Academy, also known as YEA! In the YEA! Program, entrepreneurs grades 8-12, develop their ideas into robust business plans and launch their business. YEA! Entrepreneurs also pitch their business plans to an investor panel and compete for funding.

YEA! Entrepreneurs, like all business owners, need to know about planning and managing their finances. We only had an hour, so we covered three basic areas that support every entrepreneur’s success, regardless of age:

Separate Business Accounts and Financial Records

Open a separate business account soon as possible to avoid commingling personal and business funds. Apply for a business credit card to support cash flow needs and to avoid putting business expenses on your personal credit card. Establish separate financial records from records used to maintain your personal income and expenses. Separating personal and business finances gives you an isolated view of your business so you can better track your progress. Separate records also help to establish that you are operating business, not a hobby.

Track and Monitor Financial Activity

Keep a record of all business income and expenses up-to-date. Updated records allow you a clear view of your financial situation at any point in time. Expenses should be tracked by category, such as rent and advertising, so you know where your funds are going. No particular system or format is required for your financial records. The IRS just requires that financial records are accurate, complete, and provide enough detail to identify the underlying source documents. Produce and review monthly financial reports.

Adjust as Needed

A budget is a plan for your income and expenses, to prioritize your activities and provide a baseline to monitor your progress toward achieving your goals. Assess the significant variances between your monthly financial reports and your budget. Focus on the income and expense variances that relate to the most critical areas for achieving your business goals. Didn’t meet your budget? Don’t see it as a failure; see it as an opportunity to assess your plan, adjust your activities and try again.

My time discussing business finances with the 2019 Class of the Arlington Chamber of Commerce YEA! was fun. The YEA! Entrepreneurs asked sophisticated questions and shared experiences in their own business that I learned from. I’m so glad that the future business world is in these YEA! Entrepreneurs’ capable hands!

Organizing your Tax Documents

Piece of paper that says "TAX" with hand holding pen
Photo by rawpixel on Unsplash

One of the most challenging aspects of working with my tax clients is organizing their tax documents. Disorganized or incomplete tax records can mean paying a higher tax bill because IRS rules state that all deductions must be supported by documentation. Lacking documentation is a problem, but organizing all those documents can present a problem, too.

If the pain of tax filing season and gathering all those documents is still fresh in your mind, why not prepare now and avoid the pain of gathering all your tax documents? Luckily, I co-presented a workshop last month called Tips and Tools to Efficiently Manage Financial Information and Get Back to Your Clients. My co-presenter, Alexandra Suchman of AIS Collaborations, and I shared a lot of useful information to save time and create efficiencies.

Alexandra has developed a free downloadable guide to inspire business owners and nonprofits to take action and get organized. The guide provides a step-by-step roadmap to create a customized organizing system for electronic files and folders. I’ve looked at it, and this guide addresses common problem that wastes the time of individuals, teams, and whole businesses — searching for important documents. All of those five or ten minutes of searching really add up.

Alexandra generously gave me permission to share the link to the landing page where anyone who is interested can download a copy. She also shared, “I created a short video where I talk about why this is such an important process improvement.” How wonderful to get a free, handy guide for how to create a folder and file management system that works for you, plus a video to walk you through the process!

Having a system for organizing your tax documents lets you stay in control over the mountains of information that come your way, eliminating confusion, wasted time, and stress. Alexandra’s guide to organizing electronic files and folders is the perfect starting point for overcoming the challenge of organizing tax documents. Organized and complete tax records really can mean paying a lower tax bill.