Like it or not, tax season is approaching fast. The annual deadline for most individuals and business owners to file federal income tax returns and pay any other taxes owed is April 15. With this deadline looming in the not-so-distant future, it’s important to be aware of the potential late filing fees and penalties you may encounter if you don’t submit your tax information and/or payment on time.
Failure-to-Pay and Failure-to-File Penalties
If you have not paid all of the taxes you owe by tax deadline, you may be subject to a failure-to-pay penalty. Similarly, if you do not file by the tax deadline, you may have to pay a failure-to-file penalty. Generally, the failure-to-file penalty is more than the failure-to-pay fine—the failure-to-file penalty is usually 5 percent of the unpaid taxes for each month that the return is late, while the failure-to-pay penalty ranges from 0.5 percent to 1 percent of your unpaid taxes. Neither of these penalties can exceed 25 percent of the net amount of your due taxes.
Since the failure-to-file penalty is greater than the failure-to-pay penalty, you should make sure to file your taxes on time each year even if you will not be able to pay everything you owe at once. If you pay as much as you can when you file your taxes, you will be able to reduce the additional interest and penalties. The IRS will also be able to help you set up a payment plan or explore other payment options.
If you fail to pay your taxes on time, interest will accrue at a rate of at least 3 percent (interest rates are variable, as they are reset quarterly). Your interest will be assessed based on the unpaid tax amount in addition to any late filing or late payment fees.
2013 Penalty Relief
For the year 2013, the IRS is offering select penalty relief programs. For taxpayers whose 2012 return contains any one of 31 forms that were released late in the tax season, the IRS will forgive any failure-to-pay penalties. However, the taxpayer must be able to prove that they filed an extension, filed the return and paid their due taxes by the extended date.
In addition, the IRS will waive failure-to-file and failure-to-pay fees for any taxpayers impacted by the Boston Marathon explosion and the recent severe storms in the Midwestern and southern areas of the U.S. Neither of these penalty relief programs will waive interest, however.
If your ecommerce business is growing, at a certain point you may decide it is time to hire an ecommerce accountant. An ecommerce accountant will generally have a solid understanding of the ecommerce market and embrace technology, making them an ideal fit for your business.
Outsourcing accounting services for your ecommerce business has many advantages. First, it allows you to hand-pick an accountant with specialized skills and, if necessary, their own specialized software or other equipment. Second, if you would prefer to use an accountant’s services seasonally (primarily during the tax season, for example) or only part-time throughout the year, it may be preferable to hire an ecommerce accountant for the needed dates rather than hiring an in-house accountant for work that tends to scale up and down quickly. Using this method, you will be able to hire an expert to perform the necessary tasks without committing to them in the long-term.
In addition, outsourcing your ecommerce accounting services may save your business money. Even if the accountant charges a higher hourly fee, you may still end up paying less for a seasonal accountant than you would for a full-time employee’s salary and benefits.
However, you may choose to hire an in-house accountant if your business is growing rapidly and you need help managing finances on a day-to-day basis. An ideal in-house accountant will be able to monitor sales, cash flow status and business profitability.
When selecting an ecommerce accountant for your business, keep in mind that he or she should be able to provide several basic core services: reconciling your financial transactions, monitoring all sources of income, managing accounts payable, taking care of payroll, managing and configuring sales tax processes for your shopping cart, monitoring the tax collected and filing sales tax returns.
It is also wise to seek out an accountant who embraces newer technology. Your accountant will likely need to log in to your marketplace, shopping cart, credit card gateway and processor in addition to your bank accounts. A good ecommerce accountant will also use cloud accounting systems, such as Xero.com or Bill.com.
Whether you choose to hire an in-house ecommerce accountant or outsource the service on a seasonal or part-time basis, think of the decision to hire an ecommerce accountant as a business investment. Bringing in this extra service will allow you to shift your focus to other important business matters, encouraging your business to grow and succeed.
Are you considering self-funding a startup business? As a first-time entrepreneur, focusing on your investment strategies is important. The decisions you make from the beginning will have a significant impact on your company’s financial future and, importantly, your personal income tax obligations. Keep the following tips in mind when you’re ready to get started.
Consider your investment options.
When you’re ready to invest in your new company, you can choose to do so in the form of a loan or equity, or a combination of the two. Investing in the form of a loan may be preferable if you’re concerned with repayment liquidity. If you are able to steadily pay back your loan, it will reduce your overall investment risk.
Investing in the form of equity is a more common method used to “capitalize” on a new company. However, this option is hindered by a lack of liquidity, which many see as a disadvantage. Different rules apply to each type of investment, so it is wise to consult an accountant who understands tax rules associated with each option.
Price your shares carefully.
When a corporation is formed, founders set the price-per-share “par value.” Since this amount is usually quite low, many entrepreneurs choose to purchase some of the shares at the par value after making their first investment.
When a company is new, it can be difficult to determine an appropriate share price and overvaluation is common. If you plan to charge independent investors a share price that is significantly higher than the par value shares you purchased, make sure you can defend your choice.
Invest in tranches.
If you’re considering investing in a start-up company, understand that it’s rare to invest all of your allotted capital in a single deal. Instead, consider investing in two or more “tranches” based on the company’s demonstrated progress and need for capital. Generally, each tranche offers a different degree of risk.
Consider the risks.
While entrepreneurship can have big payoffs, it also carries considerable risks. Using personal funds to start a business can make it easy to forget that the venture should be treated just like any other small business investment. The best way to lower your risk is to diversify your investment portfolio.
Investing as a couple?
Many successful entrepreneurial ventures are started by married couples. However, this carries its own set of risks and should be carefully considered. Keep in mind that separate business ownership can be a good thing, and if you decided to go in that direction, remember to pull investment funds from your own personal account rather than a joint account.
You have decided to look for a bookkeeper for your business. Great! Good choice. But this leaves you wondering, “What am I supposed to be looking for in a bookkeeper?” There are many bookkeeping services out there who can crunch the numbers, but you need to find someone who works with you, your personality, your level of organization (or lack thereof!), and your particular business model. Here are five traits that I would recommend you look for when selecting a bookkeeper for your business.
1. Compassion – I know that this is an odd one to throw in, especially at the top of the list. I put it here, because I feel it is really important. The skill of keeping the books doesn’t change. It is very black and white, but the humans that come with the numbers need attention too. You want to work with a bookkeeper that you feel comfortable with. Handing over your books to someone is personal. Look for a bookkeeper who will treat this act of trust with the respect that it deserves.
2. Education – Is this a trait? I am making it one. You want someone working on your books with a higher level of education and experience. They may have lower-level people working with them, but your team should be led by a professional. You get what you pay for comes to mind here. I am kept in business by cleaning up books for businesses that hired a lower level person because they were cheaper. Believe me, that isn’t cheaper.
3. Honesty – I know that this one is a given. You want your bookkeeper to be honest and boring! I know there are many jokes out there about how boring we are in our industry. Believe me; you want us to be boring and nitpicky. You want us to annoy you at times because that is what you are paying us to do. You don’t want us to be creative, that is your job.
4. Patience – A bookkeeper who works with a growing businesses needs to wear a few hats. One of them should be teacher. You should work with a bookkeeper that is able to help you as a business owner feel more comfortable with the tasks that you retain on your own plate. Are they available for questions? Do they explain things in a way that you can understand what you need to? Are they a good support system to you? Your relationship with your bookkeeper should work as a partnership. You should not be left feeling stupid.
5. Humor – This is not really necessary, but makes life a little easier. Work with someone that has a good sense of humor. There are bumps in the road and “stuff” happens. Throwing a little laughter into the mix usually helps.
Congratulations on taking the next step for your growing business and finding a bookkeeper. I have confidence that if you focus on these five traits, you will find the right one for you. Please contact Kristina’s Abacus if you have any questions or if you think we may be the right fit for your business!
Invoicing is an important part of running a business of any size. These days, there are many free or affordable invoicing programs available for small businesses to use. However, not all of these programs remain useful as a business grows. The following list includes some of the best invoicing software options designed to keep up with a company’s changing needs.
BillQuick offers billing and invoice software for individual consultants or small businesses. One of the distinct advantages of this program is its ability to adjust as the business grows, making it impossible to outgrow. Other appealing features include a library of more than 120 invoice templates, easy batch processing and PDF creation, billing wizards and a built-in spell checker. One potential downside, however, is BillQuick Pro’s absence of free telephone support.
kBilling excels when it comes to billing and payment, making it easy to set up recurring billing and send email statements to customers with open balances. The program boasts other exciting features such as the ability to work with a variety of international currencies, password protection, batch billing and free email and telephone support.
Express Invoice 2.8
Express Invoice has a web and mobile access mode that can support more than one user, making it ideal for growing businesses. Like kBilling, it supports multiple currencies, and also supports varying tax rates for different areas. It features an easy-to-use interface and label, envelope printing and automatic/recurring billing. However, Express Invoice’s technical support is limited and can be costly.
This software is more complex than many other basic options, but offers more advanced features as a result. For example, invoiceit! Pro can handle tasks like inventory control, multiple-person scheduling and task reminders. Invoices can be fully customized with adjustable columns, easy-to-add line items and stylized headers and logos, and the templates can be saved for later use. While this software may be more difficult to use, it can support a wider variety of tasks if you are willing to invest some extra time in learning.
Invoice Manager 2.1
Invoice Manager offers an easy-to-use interface and the ability to accurately track inventory, manage vendors and print barcodes. One of the more advanced features it offers is barcode scanning, which is rarely seen in software designed for smaller businesses. As part of the program’s inventory tracking option, when an item meets a preset minimum level Invoice Manager will automatically create and send purchase orders to the vendor. This program is ideal for businesses that place more emphasis on inventory modules and vendor tracking than things like automatic customer billing.
If you’re a new business owner, it’s important to choose an accounting system that suits your company’s specific needs. Contrary to popular belief, it might not be necessary to purchase expensive business accounting software when cloud accounting services — software that is stored and accessed online — often provide the basic accounting functions you need.
There are a number of great solutions out there for small businesses, including the following:
FreshBooks is a simple application that allows users to accept online payments, track expenses and time, produce accounting reports and organize taxes. It also includes options for customizing and tracking invoices, payment reminders, project rates, profit or loss reports and automatic and recurring expenses. The program also includes a helpful wizard that allows users to learn how to perform new tasks. FreshBooks is free for the first 30 days, with basic plans beginning at $19.95 per month.
2. QuickBooks Online Simple Start
QuickBooks has been used as a go-to program for small business accounting for years. For brand-new businesses, the solution may present the best value at only $12.95 per month. This includes all of the basic features — invoice creation, sales and expense tracking, access to banking and business data, check printing and the option to export to Microsoft Excel. If these features aren’t enough, users may choose from a list of downloadable add-ons.
Kashoo is a simple accounting application priced at $16/month. While a free version of the program is available, it limits users to 20 transactions per month. Kashoo’s features include the ability to connect to online bank accounts and credit cards, the option to categorize income and expenses for tax reporting purposes and the ability to share business data with an accountant online. In addition, the solution offers double entry accounting for bank reconciliation and financial statements.
Outright is especially suited to small ecommerce businesses. This program allows users to organize and keep track of sales, view customers and review profit and loss statements. In addition, business owners can link the program to bank accounts, credit cards, PayPal, eBay and other accounts. Once the accounts are linked, it updates the data each day. Finally, this application automatically organizes data into IRS-approved tax categories. Outright offers a free account, but the Plus version offers more features at only $9.95 per month.
One of the most appealing features of Xero is the option to collaborate online with other employees. Data may be shared with a business’s accountant and bookkeeper, for example. While the primary user may invite an unlimited number of people to use the platform, he or she is also in control of what any additional users are allowed to see or do. Pricing for this application starts at $19 per month.
With these solutions and the various others that are out there, it’s easier than ever for small businesses and start-ups to obtain an affordable yet effective bookkeeping solution to help them manage cash flow.
This site really does have the feel of peering into someone’s personal notebook. Most of the posts have a personal, encouraging tone. There is plenty of encouraging and motivating leadership information that would apply to any business.
When tax season comes around, small business owners are faced with the choice of which tax filing method to use. Whether you choose to hire a CPA or prepare your own return, you may be vulnerable to fraudulent tax scams. Before you begin the business tax filing process, make sure you’re prepared to identify and avoid the various scams that are out there.
Watch out for phishing through phony emails
Phishing is one of the most common types of tax scams, and often leads to identity theft. It’s typically accomplished through misleading emails in which the author adopts a false identity and demands personal information from email recipients. Sometimes the emails contain links that install destructive viruses on the recipient’s computer.
Most often, the authors of these emails imitate IRS agents informing recipients of supposed problems with their tax returns and asking for Social Security numbers or bank account information. Because many people fear the IRS, this tactic is often effective. However, this scam is fairly easy to identify because the IRS never contacts people through email.
Occasionally, phishing emails bear the names of legitimate tax preparers. These emails usually contain promises of large payouts, regardless of the recipient’s financial situation. If you receive one of these emails, it is best to contact the tax preparer whose name the email author used.
Beware percentage-based fees and ghost preparers
Sometimes tax preparers charge preparation fees based on a percentage of the overall return rather than a flat fee based on the complexity of the return. Although the IRS has not prohibited this practice, these methods are still considered fraudulent.
Taxpayers should also be suspicious of ghost preparers — tax preparers that don’t work for licensed CPAs or have any type of certification. The same caution should be exercised if the tax preparation company you’re considering cannot provide proof that its CPAs are licensed and have Preparer Tax Identification Numbers. Before choosing a tax preparer, be sure to do your research.
Don’t trust ‘refund anticipation’ loans
After filing a tax return, the taxpayer is often given the choice to pay the tax preparer an extra fee to receive the return right away rather than waiting several weeks for the IRS to mail a check. This is referred to as a refund anticipation loan, which is defined as a short-term loan backed by an anticipated tax refund. This practice is not technically illegal, but many view it as a scam nevertheless. While it might be tempting to get your tax return back sooner, keep in mind that refund anticipation loans are based on anticipated returns, not actual returns. If your return ends up being smaller than expected, you will still owe the same amount and may incur extra fines if you are not able to pay off the loan in time.
Tax time can be tough for small business owners, so be aware of these common scams to ensure you stay protected this spring.
If you’re a small business owner, tax season can be hectic and overwhelming. While there’s not much that can be done to change the tax filing process, there are actions you can take to make it less of a burden. The following are some simple tips for easing stress and staying motivated through even the busiest of tax seasons:
Understand the process
Filing your taxes will seem much less intimidating if you take it upon yourself to learn as much about the process as possible. Seek online resources or consult friends or acquaintances who are experts in the field. The more you understand, the more you will feel prepared to take on whatever challenges may arise.
While it might be tempting to postpone the unpleasant tax-filing-process until the last minute, it will only magnify your stress and anxiety. Set a deadline for yourself that’s at least one or two weeks earlier than the actual deadline. That way, if any problems come up, you’ll have plenty of time to deal with them. The sooner you complete the process, the sooner you can direct your attention to other areas of your business.
Take small steps and set goals
In the business world, it’s likely that your tax situation is somewhat complicated. If that’s the case, it can be helpful to break up the project into smaller parts and tackle them one at a time. For example, you might assign yourself one small task to work on each night over the course of a week or two, rather than being forced to surrender an entire day to working on the project all at once. For some, it might feel more satisfying to achieve several small goals rather than a single large one.
Make it fun
Yes, even doing your taxes can be fun! After setting your goals, decide on a reward for reaching each milestone. It might be more effective to reward yourself with small treats for each task you complete, or you might prefer to do something bigger — say, going out of town for the weekend — as soon as you finish the entire project. Taking pride in each accomplishment, no matter how small, will help keep you motivated.
Get help from an expert
For those with more complex tax situations, the best option might be to hire a CPA to prepare your taxes. While this will not completely eliminate the work on your end, it will significantly minimize it. The extra relief will likely be worth the additional expense, and the money spent on hiring an accounting professional may be offset or completely eclipsed by the money you save through expert-recommended deductions you might have missed on your own.
We all know that the Internal Revenue Service (IRS) is the organization that enforces tax laws. But how much do you know about the organization itself? The IRS — or at least one of its earlier forms — actually dates back to the mid-1800s! Yes, there is quite a history to this ever-so-popular federal agency.
Beginnings and growth
Until the U.S. Civil War, individual states were responsible for collecting their own taxes. When President Abraham Lincoln instituted the nation’s first income tax, however, it became clear that an agency was required to enforce and collect these taxes. This was how the first federal tax collection agency, the Bureau of Internal Revenue (BIR), was born.
Income tax had disappeared again by 1872, but was reinstituted in 1913 along with a tax on corporations. The BIR grew along with the tax increases and implementation of payroll withholdings and quarterly tax payments. In the 1950s, the BIR was reorganized and renamed the Internal Revenue Service.
As the agency grew, it struggled with corruption. The organization’s restructuring in the 1950s was part of a far-reaching effort to instigate reform. These reforms purged the agency of many officials, eliminated patronage in hiring and dramatically decentralized the organization of the agency. The new name was created to emphasize the agency’s focus on being a service provider to the taxpayer.
Another reform effort took place in the 1990s as part of the IRS Restructuring and Reform Act, aimed at modernizing and automating tax processing.
Organization and enforcement
The IRS is estimated to be the largest federal bureaucracy, employing about 115,000 people. The agency falls under the Department of the Treasury. Although its national headquarters is in Washington, D.C., much of the collections and auditing happens in regional offices across the country. Since its reorganization, the IRS has been divided into four main operating divisions: Wage and Investment, Small Business/Self-Employed, Large/Midsize Businesses and Tax-Exempt/Government Entities.
When confusion and disputes arise, the IRS also manages the IRS Appeals Office, which attempts to provide an impartial resolution to tax disputes without having to go to court. There is also the National Taxpayer Advocate Office, which assists taxpayers when it comes to IRS problems, and the Criminal Investigation Unit, which investigates violations of the tax code.
The IRS collects more than $2 trillion in revenue every year. Much of the tax system relies on people’s willingness to voluntarily comply. If failure or suspected failure to comply with tax laws has occurred, the IRS uses audits — which are thorough examinations of tax records — to investigate.
If it’s clear you have failed to pay all you owe or claim that you cannot afford to pay your tax debt, the IRS may send tax collectors to your home or place of business. These collectors will assess your situation and decide whether or not to take a lien on something of value you own to settle your debt. Generally, if you cannot afford to pay, collectors are willing to negotiate to find a plan that works.