Top 20 Things Every Business Owner Needs to Know

Admin Books out of Morgan Hill, California had a great list of Top 20 Things Every Business Owner Needs to Know, which I share below:

1. Receipts: You are required to have a receipt for every expense. It must be readable. It can be the original or a copy of the original. Copies of a credit card statement with the expense listed is NOT acceptable. 2. Auto Miles: You are required to keep a mileage log. This includes the date, starting odometer reading, ending odometer reading and business purpose. You are allowed to recreate the log using your calendar and receipts. 3. Meals and Entertainment: These two categories are highly scrutinized. You need to track who you had the meal with/entertainment with and the business purpose. You are required to have a quiet business conversation before, during or after the event. 4. Home Office: You can deduct expenses related to an area in your home that you use for business. This specific square footage area can ONLY be used for business, no personal use. It must also be regularly used for business. 5. Officers: ALL Officers are required to be paid via a W-2. If there are no wages processed for the year, you are not fulfilling the corporation requirement. No wage amount is “red flag” to the IRS. 6. Bad Debt: If you file your return on an accrual basis and find that any invoice goes unpaid by your client/customer, you can write off that amount on your return by calling it “bad debt” because you paid taxes on that income in a previous year. If you file your return on a cash basis, there is never any bad debt to expense because you never paid taxes on the income. The amount is non-deductible, like a suspense account to close out the accounts receivable. 7. Credit Cards: Make sure you enter ALL expenses thru the end of the year. Most credit card statements cut off in the middle of the month and many people forget to enter expenses the last few weeks of December. 8. 1099’s: You are required to send out 1099-MISC forms to anyone you paid more than $600 in a calendar year for services. If you do not, you can be penalized for each 1099 not completed. 9. Reconciling bank and credit card accounts: Make sure you reconcile the entire year for every bank and credit card account you have for business. Then, once you reconcile, make sure there are not any un-cleared transactions. If you do have these un-cleared transactions, you will be either overstating your income (and paying higher taxes) or overstating your expenses (and underpaying taxes). Double and triple check this! 10.Gifts: Gifts are deductible up to $25 per person in a calendar year. Any amounts paid over this amount is considered not deductible. The only exception is any gifts given to a business (not individual) that is a corporation. 11.Assets: When you purchase larger items for business, you are required to depreciate them over a period of years. For example, if you purchase a computer for $1200, you need to show this asset on your balance sheet. However, if you purchase a printer, say for $129, it is typical to expense it all in one year. 12.Corporate Minutes: As a corporation, you are required to have annual corporate minutes. You need two documents: Minutes of Shareholders and minutes of Board of Directors. If you do not have these annual documents and are in a legal battle, the other party can “pierce the corporate veil” and your personal assets can be at risk. 13.Loans to Owners: If you loan money to your business, you are required to have a promissory note, schedule of repaying and if the loan is over $10,000, the business must pay interest on the loan. 14.QuickBooks Files: If you track your income and expenses in QuickBooks, make a copy of your file annually. The IRS is now asking for copies of the QuickBooks files. If you have a back up, you can condense the previous year and not have any data for the years after the year to be audited. 15.Life Insurance: Life insurance can be deductible to the business and non-taxable to the employee for any amount $50,000 or less. Any premiums over $50,000 is taxable to the employee. 16.Auto Use: The IRS allows you to take the higher of two deductions when it comes to your auto. You can deduct the business miles driven at the IRS rate for that year OR you can deduct actual costs, like gas, repairs, insurance, and the amount allowed for depreciation. What most business owners miss is the percentage of business use. Usually the percentage is less than 100%. Each owner needs to determine the business percentage for the year. 17.Hiring Independent Contractors: The IRS has 20 factors to determine if a worker is an independent contractor or an employee. You need to know these factors and make sure if you are paying someone a straight check that, if audited, the IRS will not deem them as an employee. If they feel the person hired is an employee, there are high penalties and interest. 18.100% Deductible Meals: We know that when a meal is purchased, it is 50% deductible, however, there are several situations when meals are 100% deductible. • If you distribute food to the general public to advertise or create good will • Require employees to work overtime on the employer’s premises • Company picnics or annual Christmas parties • Coffee, soft drinks or water on the employer’s premises 19.Non-deductible Entertainment Expenses: The following are NOT deductible: country club dues, golf or athletic club dues, skybox or luxury boxes, hunting lodge or yachts. 20.Paying Children in Sole Proprietorship: If you file a schedule C return, you can pay your children wages under the age of 18. There is no FICA or FUTA taxes paid on these wages. The work must be reasonable and age-appropriate. Great deduction for the business and nice earnings to help pay for personal expenses. For more info: Admin Books, Inc. 125 Lindo Lane, Morgan Hill, CA 95037 P: 408.782.9640 | F: 888.459.1117

5 Tax Tips to Save You Money in 2011

This month’s guest article is contributed by attorney Linda A. Winslow, J.D.

1. Investment Income: The capital gains and dividend tax rate will stay at 15% until at least the end of 2012. For any non-tax deferred investing you plan on doing, make sure you take advantage of the low 15 percent capital gains tax rate now, because the chances of it staying this low past 2012 are not great. If you are planning to reduce your real estate holdings taking advantage of this low capital gains rate will substantially increase your return on investment (ROI).

2. Small Business Capital Asset Deduction: Small businesses can benefit greatly from a few tax changes in 2011 by investing in fixed assets and equipment before December 31st, 2011. The Small Business Jobs Act signed this past September doubled the expense limitation from $250,000 to $500,000. The major advantage here is that these expenses can be fully deducted from the business' taxes if they are purchased within the year 2011. Eligible investments include office furniture and equipment, machinery, and computer software. If you flip properties, this deduction is available for any equipment you purchase. This deduction is not available for purchases of appliances for real property but can be used for such independent incomes as coin laundry equipment.

3. Roth IRA Conversion: A new change in 2011 tax laws will let anyone (no matter their income) convert a traditional IRA to a Roth IRA. In the past, there were income restrictions on who was allowed to convert a traditional to a Roth, but that has changed in 2011. If you believe that you'll be in a higher tax bracket at retirement, then converting now definitely makes sense because a Roth IRA takes in taxable money, which is then not taxed when withdrawn at the retirement age. This is a fairly complex decision, however, requiring both a good financial planner and a qualified tax professional.

4. Estate Planning: The new tax cuts and changes for 2011 can significantly save your estate money if you complete the correct estate planning. Starting in 2011, couples can add the unused estate tax exemption of their spouse (up to $5 million) to their own estate tax exemption (also up to $5 million), meaning they can transfer up to $10 million tax-free to family and heirs. For individuals with significant assets this can allow them to save big time. Remember the exemption is not automatic, individuals must plan their estate to take advantage of these exemptions before they expire. A qualified estate planning attorney can assist you with drafting your wills and trusts but the best result occurs when the estate planning attorney and your tax advisor work together.

5. Health Savings Accounts (also know as “HSAs”): HSAs are a great tool, which allow individuals and families to cover the cost of medical and health care expenses that would otherwise not have been covered by their health insurance plan. Best of all if you don’t use all the funds in any year you can keep the funds in the account until you need them. In effect, these Health Savings Accounts are tax advantaged medical savings accounts that you own. The funds that you contribute to an HSA are contributed on a pre-tax basis; that is they are not subject to federal taxes when you deposit them. Like an IRA accounts, you can contribute to your HSA account during any calendar year, through April 15th of the following calendar year.
The IRS Contribution Limits for 2010 and 2011, to a HSA plan, are $3,050 for a single individual and $6,150 for a family. If an individual account holder or the owner of a family HSA is age 55 or older, an additional “catch-up” contribution of $1,000 is also allowed.

Because any funds in your Health Savings Account not used during the calendar year, can be rolled over into the following year and continue to roll over, the balance in your HSA account can grow significantly over time.