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Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | What is considered a business expense on a business trip? | The IRS Guidance pertaining to the subject. In general the best I can say is your business expense may be deductible. But it depends on the circumstances and what it is you want to deduct. Travel Taxpayers who travel away from home on business may deduct related expenses, including the cost of reaching their destination, the cost of lodging and meals and other ordinary and necessary expenses. Taxpayers are considered “traveling away from home” if their duties require them to be away from home substantially longer than an ordinary day’s work and they need to sleep or rest to meet the demands of their work. The actual cost of meals and incidental expenses may be deducted or the taxpayer may use a standard meal allowance and reduced record keeping requirements. Regardless of the method used, meal deductions are generally limited to 50 percent as stated earlier. Only actual costs for lodging may be claimed as an expense and receipts must be kept for documentation. Expenses must be reasonable and appropriate; deductions for extravagant expenses are not allowable. More information is available in Publication 463, Travel, Entertainment, Gift, and Car Expenses. Entertainment Expenses for entertaining clients, customers or employees may be deducted if they are both ordinary and necessary and meet one of the following tests: Directly-related test: The main purpose of the entertainment activity is the conduct of business, business was actually conducted during the activity and the taxpayer had more than a general expectation of getting income or some other specific business benefit at some future time. Associated test: The entertainment was associated with the active conduct of the taxpayer’s trade or business and occurred directly before or after a substantial business discussion. Publication 463 provides more extensive explanation of these tests as well as other limitations and requirements for deducting entertainment expenses. Gifts Taxpayers may deduct some or all of the cost of gifts given in the course of their trade or business. In general, the deduction is limited to $25 for gifts given directly or indirectly to any one person during the tax year. More discussion of the rules and limitations can be found in Publication 463. If your LLC reimburses you for expenses outside of this guidance it should be treated as Income for tax purposes. Edit for Meal Expenses: Amount of standard meal allowance. The standard meal allowance is the federal M&IE rate. For travel in 2010, the rate for most small localities in the United States is $46 a day. Source IRS P463 Alternately you could reimburse at a per diem rate |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Claiming business expenses for a business with no income | Yes you can claim your business deductions if you are not making any income yet. But first you should decide what structure you want to have for your business. Either a Company structure or a Sole Trader or Partnership. Company Structure If you choose a Company Structure (which is more expensive to set up) you would claim your deductions but no income. So you would be making a loss, and continue making losses until your income from the business exceed your expenses. So these losses will remain inside the Company and can be carried forward to future income years when you are making profits to offset these profits. Refer to ATO - Company tax losses for more information. Sole Trader of Partnership Structure If you choose to be a Sole Trader or a Partnership and your business makes a loss you must check the non-commercial loss rules to see if you can offset the loss against your income from other sources, such as wages. In order to offset your business losses against your other income your business must pass one of these tests: If you don't pass any of these tests, which being a start-up you most likely won't, you must carry forward your business losses until an income year in which you do pass one of the tests, then you can offset it against your other income. This is what differentiates a legitimate business from someone having a hobby, because unless you start making at least $20,000 in sales income (the easiest test to pass) you cannot use your business losses against your other income. Refer to ATO - Non-commercial losses for more information. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Transferring money from One business checking to another business checking | You should have separate files for each of the two businesses. The business that transfers money out should "write check" in its QB file. The business that receives money should "make deposit" in its QB file. (In QB you "write check" even when you make the payment by some other means like ACH.) Neither business should have the bank accounts of the other explicitly represented. On each side, you will also need to classify the payment as having originated from / gone to some other account - To know what's correct there, we'd need to know why your transferring the money in the first place and how you otherwise have your books established. I think that's probably beyond the scope of what's on-topic / feasible here. Money into your business from your personal account is probably owner's equity, unless you have something else going on. For example, on the S Corp you should be paying yourself a salary. If you overpay by accident, then you might write a check back to the company from your personal account to correct the mistake. That's not equity - It's probably a "negative expense" in some other account that tracks the salary payments. |
Share your insights or perspective on the financial matter presented in the input. | Having a separate bank account for business/investing, but not a “business account?” | Having a separate checking account for the business makes sense. It simplifies documenting your income/expenses. You can "explain" every dollar entering and exiting the account without having to remember that some of them were for non-business items. My credit union allowed me to have a 2nd checking account and allowed me to put whatever I wanted as the name on the check. I think this looked a little better than having my name on the check. I don't see the need for a separate checking account for investing. The money can be kept in a separate savings account that has no fees, and can even earn a little interest. Unless you are doing a lot of investment transactions a month this has worked for me. I fund IRAs and 529 plans this way. We get paychecks 4-5 times a month, but send money to each of the funds once a month. You will need a business account if the number of transactions becomes large. If you deposit dozens of checks every time you go to the bank, the bank will want to move you to a business account. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Having a separate bank account for business/investing, but not a “business account?” | You don't specify which country you are in, so my answers are more from a best practice view than a legal view.. I don't intend on using it for personal use, but I mean it's just as possible. This is a dangerous proposition.. You shouldn't co-mingle business expenses with personal expenses. If there is a chance this will happen, then stop, make it so that it won't happen. The big danger is in being able to have traceability between what you are doing for the business, and what you are doing for yourself. If you are using this as a "staging" account for investments, etc., are those investments for yourself? Or for the business? Is tax treatment on capital gains and/or dividends the same for personal and business in your jurisdiction? If you buy a widget, is the widget an expense against business income? Or is it an out of pocket expense for personal consumption? The former reduces your taxable income, the latter does not. I don't see the benefit of a real business account because those have features specific to maybe corporations, LLC, and etc. -- nothing beneficial to a sole proprietor who has no reports/employees. The real benefit is that there is a clear delineation between business income/expenses and personal income/expenses. This account can also accept money and hold it from business transactions/sales, and possibly transfer some to the personal account if there's no need for reinvesting said amount/percentage. What you are looking for is a commonly called a current account, because it is used for current expenses. If you are moving money out of the account to your personal account, that speaks to paying yourself, which has other implications as well. The safest/cleanest way to do this is to: While this may sound like overkill, it is the only way to guarantee that income/expenses are allocated to the correct entity (i.e. you, or your business). From a Canadian standpoint: |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Having a separate bank account for business/investing, but not a “business account?” | If it makes your finances easier, why not? My wife and I had his/hers/our since before we were married. I also have an account to handle transactions for my rental property, and one extra for PayPal use. I was paranoid to give out a checking account number with authorization for a third party to debit it, so that account has a couple hundred dollars, maximum. All this is just to explain that your finances should be arranged to simplify your life and make you comfortable. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Having a separate bank account for business/investing, but not a “business account?” | When I was younger I had a problem with Washington Mutual. Someone had deposited a check in to my account then ran my account negative with a "dupe" of my debit card. WaMu tied up my account for three months while they investigated because it wasn't simply a debit card fraud issue, this was check fraud (so they claimed). At the time all the money I had in the world was in that account and the ordeal was extremely disruptive to my life. Since the, I never spend on my debit card(s) and I keep more than one checking account to disperse the risk and avoid disruption in the event anything ever happens again. Now one of the accounts contains just enough money (plus a small buffer) to pay my general monthly expenses and the other is my actual checking account. There's no harm in having more than one checking account and if you think it will enhance your finances, do it. Though, there's no reason to get a business account unless you've actually formed a business. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Business Expense - Car Insurance Deductible For Accident That Occurred During a Business Trip | As a general rule, you must choose between a mileage deduction or an actual expenses deduction. The idea is that the mileage deduction is supposed to cover all costs of using the car. Exceptions include parking fees and tolls, which can be deducted separately under either method. You explicitly cannot deduct insurance costs if you claim a mileage deduction. Separately, you probably won't be able to deduct the deductible for your car as a casualty loss. You first subtract $100 from the deductible and then divide it by your Adjusted Gross Income (AGI) from your tax return. If your deductible is over 10% of your AGI, you can deduct it. Note that even with a $1500 deductible, you won't be able to deduct anything if you made more than $14,000 for the year. For most people, the insurance deductible just isn't large enough relative to income to be tax deductible. Source |
Share your insights or perspective on the financial matter presented in the input. | Starting a new online business | Most US states have rules that go something like this: You will almost certainly have to pay some registration fees, as noted above. Depending on how you organize, you may or may not need to file a separate tax return for the business. (If you're sole proprietor for tax purposes, then you file on Schedule C on your personal Form 1040.) Whether or not you pay taxes depends on whether you have net income. It's possible that some losses might also be deductible. (Note that you may have to file a return even if you don't have net income - Filing and needing to pay are not the same since your return may indicate no tax due.) In addition, at the state level, you may have to pay additional fees or taxes beyond income tax depending on what you sell and how you sell it. (Sales tax, for example, might come into play as might franchise taxes.) You'll need to check your own state law for that. As always, it could be wise to get professional tax and accounting advice that's tailored to your situation and your state. This is just an outline of some things that you'll need to consider. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | “Business day” and “due date” for bills | I don't believe Saturday is a business day either. When I deposit a check at a bank's drive-in after 4pm Friday, the receipt tells me it will credit as if I deposited on Monday. If a business' computer doesn't adjust their billing to have a weekday due date, they are supposed to accept the payment on the next business day, else, as you discovered, a Sunday due date is really the prior Friday. In which case they may be running afoul of the rules that require X number of days from the time they mail a bill to the time it's due. The flip side to all of this, is to pick and choose your battles in life. Just pay the bill 2 days early. The interest on a few hundred dollars is a few cents per week. You save that by not using a stamp, just charge it on their site on the Friday. Keep in mind, you can be right, but their computer still dings you. So you call and spend your valuable time when ever the due date is over a weekend, getting an agent to reverse the late fee. The cost of 'right' is wasting ten minutes, which is worth far more than just avoiding the issue altogether. But - if you are in the US (you didn't give your country), we have regulations for everything. HR 627, aka The CARD act of 2009, offers - ‘‘(2) WEEKEND OR HOLIDAY DUE DATES.—If the payment due date for a credit card account under an open end consumer credit plan is a day on which the creditor does not receive or accept payments by mail (including weekends and holidays), the creditor may not treat a payment received on the next business day as late for any purpose.’’. So, if you really want to pursue this, you have the power of our illustrious congress on your side. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | “Business day” and “due date” for bills | You definitely have an argument for getting them to reverse the late fee, especially if it hasn't happened very often. (If you are late every month they may be less likely to forgive.) As for why this happens, it's not actually about business days, but instead it's based on when they know that you paid. In general, there are 2 ways for a company to mark a bill as paid: Late Fees: Some systems automatically assign late fees at the start of the day after the due date if money has not been received. In your case, if your bill was due on the 24th, the late fee was probably assessed at midnight of the 25th, and the payment arrived after that during the day of the 25th. You may have been able to initiate the payment on the company's website at 11:59pm on the 24th and not have received a late fee (or whatever their cutoff time is). Suggestion: as a rule of thumb, for utility bills whose due date and amount can vary slightly from month to month, you're usually better off setting up your payments on the company website to pull from your bank account, instead of setting up your bank account to push the payment to the company. This will ensure that you always get the bill paid on time and for the correct amount. If you still would rather push the payment from your bank account, then consider setting up the payment to arrive about 5 days early, to account for holidays and weekends. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | “Business day” and “due date” for bills | It's likely that your bill always shows the 24th as the due date. Their system is programmed to maintain that consistency regardless of the day of the week that falls on. When the 24th isn't a business day it is good to error on the side of caution and use the business day prior. It would have accepted using their system with a CC payment on the 24th because that goes through their automated system. I would hazard a guess that because your payment was submitted through your bank and arrived on the 23rd it wasn't credited because a live person would have needed to be there to do it and their live people probably don't work weekends. I do much of my bill paying online and have found it easiest to just build a couple days of fluff into the schedule to avoid problems like this. That said, if you call them and explain the situation it is likely that they will credit the late charge back to you. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | New business owner - How do taxes work for the business vs individual? | Through your question and then clarification through the comments, it looks like you have a U.S. LLC with at least two members. If you did not elect some other tax treatment, your LLC will be treated as a partnership by the IRS. The partnership should file a tax return on Form 1065. Then each partner will get a Schedule K-1 from the partnership, which the partner should use to include their respective shares of the partnership income and expenses on their personal Forms 1040. You can also elect to be taxed as an S-Corp or a C-Corp instead of a partnership, but that requires you to file a form explicitly making such election. If you go S-Corp, then you will file a different form for the company, but the procedure is roughly the same - Income gets passed through to the owners via a Schedule K-1. If you go C-Corp, then the owners will pay no tax on their own Form 1040, but the C-Corp itself will pay income tax. As far as whether you should try to spend the money as business expense to avoid paying extra tax - That's highly dependent on your specific situation. I'd think you'd want to get tailored advice for that. |
Share your insights or perspective on the financial matter presented in the input. | How to deposit a cheque issued to an associate in my business into my business account? | Have the check reissued to the proper payee. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | How to deposit a cheque issued to an associate in my business into my business account? | Just have the associate sign the back and then deposit it. It's called a third party cheque and is perfectly legal. I wouldn't be surprised if it has a longer hold period and, as always, you don't get the money if the cheque doesn't clear. Now, you may have problems if it's a large amount or you're not very well known at the bank. In that case you can have the associate go to the bank and endorse it in front of the teller with some ID. You don't even technically have to be there. Anybody can deposit money to your account if they have the account number. He could also just deposit it in his account and write a cheque to the business. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Hobby vs. Business | Miscellaneous income -- same category used for hobbies. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Hobby vs. Business | You can list it as other income reported on line 21 of form 1040. In TurboTax, enter at: - Federal Taxes tab (Personal in Home & Business) - Wages & Income -“I’ll choose what I work on” Button Scroll down to: -Less Common Income -Misc Income, 1099-A, 1099-C. -The next screen will give you several choices. Choose "Other reportable Income". You will reach a screen where you can type a description of the income and the amount. Type in the amount of income and categorize as Tutoring. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Personal checks instead of business ones | I'll assume you are asking about a check for some kind of work or service that you provided them, that they hired your company to do. No large business will do that. In their records they have a contract with your company to provide services. If they write you a personal check it won't match with the contract, and when the auditors see that they will scream blue murder. Whoever wrote the check will have to prove that you are legitimately the same thing as the company (that doesn't mean taking your word for it). They may also have to show they weren't conspiring with you to commit tax fraud ( that wasn't your intention of course, was it?) . |
Share your insights or perspective on the financial matter presented in the input. | Does U.S. tax code call for small business owners to count business purchases as personal income? | I am going to keep things very simple and explain the common-sense reason why the accountant is right: Also, my sister in law owns a small restaurant, where they claim their accountant informed them of the same thing, where a portion of their business purchases had to be counted as taxable personal income. In this case, they said their actual income for the year (through their paychecks) was around 40-50K, but because of this detail, their taxable income came out to be around 180K, causing them to owe a huge amount of tax (30K ish). Consider them and a similarly situated couple that didn't make these purchases. Your sister in law is better off in that she has the benefit of these purchases (increasing the value of her business and her expected future income), but she's worse off because she got less pay. Presumably, she thought this was a fair trade, otherwise she wouldn't have made those purchases. So why should she pay any less in taxes? There's no reason making fair trades should reduce anyone's tax burden. Now, as the items she purchased lose value, that will be a business loss called "depreciation". That will be deductible. But the purchases themselves are not, and the income that generated the money to make those purchases is taxable. Generally speaking, business gains are taxable, regardless of what you do with the money (whether you pay yourself, invest it, leave it in the business, or whatever). Generally speaking, only business losses or expenses are deductible. A purchase is an even exchange of income for valuable property -- even exchanges are not deductions because the gain of the thing purchased already fairly compensates you for the cost. You don't specify the exact tax status of the business, but there are really only two types of possibilities. It can be separately taxed as a corporation or it can be treated essentially as if it didn't exist. In the former case, corporate income tax would be due on the revenue that was used to pay for the purchases. There would be no personal income tax due. But it's very unlikely this situation applies as it means all profits taken out of the business are taxed twice and so small businesses are rarely organized this way. In the latter case, which is almost certainly the one that applies, business income is treated as self-employment income. In this case, the income that paid for the purchases is taxable, self-employment income. Since a purchase is not a deductible expense, there is no deduction to offset this income. So, again, the key points are: How much she paid herself doesn't matter. Business income is taxable regardless of what you do with it. When a business pays an expense, it has a loss that is deductible against profits. But when a business makes a purchase, it has neither a gain nor a loss. If a restaurant buys a new stove, it trades some money for a stove, presumably a fair trade. It has had no profit and no loss, so this transaction has no immediate effect on the taxes. (There are some exceptions, but presumably the accountant determined that those don't apply.) When the property of a business loses value, that is usually a deductible loss. So over time, a newly-purchased stove will lose value. That is a loss that is deductible. The important thing to understand is that as far as the IRS is concerned, whether you pay yourself the money or not doesn't matter, business income is taxable and only business losses or expenses are deductible. Investments or purchases of capital assets are neither losses nor expenses. There are ways you can opt to have the business taxed separately so only what you pay yourself shows up on your personal taxes. But unless the business is losing money or needs to hold large profits against future expenses, this is generally a worse deal because money you take out of the business is taxed twice -- once as business income and again as personal income. Update: Does the business eventually, over the course of the depreciation schedule, end up getting all of the original $2,000 tax burden back? Possibly. Ultimately, the entire cost of the item is deductible. That won't necessarily translate into getting the taxes back. But that's really not the right way to think about it. The tax burden was on the income earned. Upon immediate replacement, hypothetically with the exact same model, same cost, same 'value', isn't it correct that the "value" of the business only went up by the amount the original item had depreciated? Yes. If you dispose of or sell a capital asset, you will have a gain or loss based on the difference between your remaining basis in the asset and whatever you got for the asset. Wouldn't the tax burden then only be $400? Approximately, yes. The disposal of the original asset would cause a loss of the difference between your remaining basis in the asset and what you got for it (which might be zero). The new asset would then begin depreciating. You are making things a bit more difficult to understand though by focusing on the amount of taxes due rather than the amount of taxable gain or loss you have. They don't always correlate directly (because tax rates can vary). |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Does U.S. tax code call for small business owners to count business purchases as personal income? | It sounds like something is getting lost in translation here. A business owner should not have to pay personal income tax on business expenses, with the caveat that they are truly business expenses. Here's an example where what you described could happen: Suppose a business has $200K in revenue, and $150K in legitimate business expenses (wages and owner salaries, taxes, services, products/goods, etc.) The profit for this example business is $50K. Depending on how the business is structured (sole proprietor, llc, s-corp, etc), the business owner(s) may have to pay personal income tax on the $50K in profit. If the owner then decided to have the business purchase a new vehicle solely for personal use with, say, $25K of that profit, then the owner may think he could avoid paying income tax on $25K of the $50K. However, this would not be considered a legitimate business expense, and therefore would have to be reclassified as personal income and would be taxed as if the $25K was paid to the owner. If the vehicle truly was used for legitimate business purposes then the business expenses would end up being $175K, with $25K left as profit which is taxable to the owners. Note: this is an oversimplification as it's oftentimes the case that vehicles are partially used for business instead of all or nothing. In fact, large items such as vehicles are typically depreciated so the full purchase price could not be deducted in a single year. If many of the purchases are depreciated items instead of deductions, then this could explain why it appears that the business expenses are being taxed. It's not a tax on the expense, but on the income that hasn't been reduced by expenses, since only a portion of the big ticket item can be treated as an expense in a single year. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Does U.S. tax code call for small business owners to count business purchases as personal income? | Expenses are where the catch is found. Not all expenditures are considered expenses for tax purposes. Good CPAs make a comfortable living untangling this sort of thing. Advice for both of your family members' businesses...consult with a CPA before making big purchases. They may need to adjust the way they buy, or the timing of it, or simply to set aside capital to pay the taxes for the profit used to purchase those items. CPA can help find the best path. That 10k in unallocated income can be used to redecorate your office, but there's still 3k in taxes due on it. Bottom Line: Can't label business income as profit until the taxes have been paid. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | How can I register a UK business without providing a business address? | You don't have to provide your personal home address per se. You can provide a legal address where Companies house can send across paper correspondence to. Companies house legally requires an address because directors are liable to their shareholders(even if you are the only shareholder) and to stop them from disappearing just like that with shareholder's money. Moreover your birth date will also be visible on websites which provide comapnies information. You can ask these websites to stop sharing your personal information. Every company must have a registered office within the UK which is the official legal address of the company. It must be a physical address (i.e. not a PO Box without a physical location) as Companies House will use this address to send correspondence to. To incorporate a private limited company you need at least one director, who has to be over 16 years of age. You may also have a secretary, but this is optional. The information you will need to supply for each officer includes: You may also have officers that are companies or firms, and for these you will need to supply the company or firm name, its registered office address, details of the legal form of the company, where it is registered and if applicable its registration number. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | What are 'business fundamentals'? | From http://financial-dictionary.thefreedictionary.com/Business+Fundamentals The facts that affect a company's underlying value. Examples of business fundamentals include debt, cash flow, supply of and demand for the company's products, and so forth. For instance, if a company does not have a sufficient supply of products, it will fail. Likewise, demand for the product must remain at a certain level in order for it to be successful. Strong business fundamentals are considered essential for long-term success and stability. See also: Value Investing, Fundamental Analysis. For a stock the basic fundamentals are the second column of numbers you see on the google finance summary page, P/E ratio, div/yeild, EPS, shares, beta. For the company itself it's generally the stuff on the 'financials' link (e.g. things in the quarterly and annual report, debt, liabilities, assets, earnings, profit etc. |
Share your insights or perspective on the financial matter presented in the input. | Can I send a money order from USPS as a business? | Sure you can. You can fill in whatever you want in the From section of a money order, so your business name and address would be fine. The price only includes the money order itself. You can hand deliver it yourself if you want, but if you want to mail it, you'll have to provide an envelope and a stamp. Note that, since you won't have a bank record of this payment, you'll want to make sure you keep other records, such as the stub of the money order. You should probably also ask the contractor to give you a receipt. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Business Investment Loss from prior year | You need to give specific dates! In the United States, you have three years to file an amended tax return. https://www.irs.gov/uac/Newsroom/Ten-Facts-about-Amended-Tax-Returns Did the restaurant fail in 2012? If so, that's probably the year to take the loss. If you need to amend your 2012 return, which you filed in 2013, you should have until 2016 to file this. The exact date may be based on when you filed 2012 taxes! |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Income tax exemptions for small business? | Yes, you should be able to deduct at least some of these expenses. For expense incurred before you started the business: What Are Deductible Startup Costs? The IRS defines “startup costs” as deductible capital expenses that are used to pay for: 1) The cost of “investigating the creation or acquisition of an active trade or business.” This includes costs incurred for surveying markets, product analysis, labor supply, visiting potential business locations and similar expenditures. 2) The cost of getting a business ready to operate (before you open your doors or start generating income). These include employee training and wages, consultant fees, advertising, and travel costs associated with finding suppliers, distributors, and customers. These expenses can only be claimed if your research and preparation ends with the formation of a successful business. The IRS has more information on how to claim the expenses if you don’t go into business. https://www.sba.gov/blogs/startup-cost-tax-deductions-how-write-expense-starting-your-business Once your business is underway, you can deduct expenses, but the exact details depend on how you organized. If you're a sole proprietor for tax purposes, then you'll deduct them on Schedule C of your Form 1040 on your personal tax. If you are a partnership, C-Corp, or S-Corp, they will be accounted at the business level and either passed on to you on a Schedule K (partnership and S-Corp) or deducted directly by the company (C-Corp). In any case, you will need good records that justify your expenses as business related. It might be well worth at least an initial meeting with a CPA to make sure that you get started on the right foot. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | 1 EIN doing business under multiple business names | You're confusing a lot of things here. Company B LLC will have it's sales run under Company A LLC, and cease operating as a separate entity These two are contradicting each other. If B LLC ceases to exist - it is not going to have it's sales run under A LLC, since there will be no sales to run for a non-existent company. What happens is that you merge B LLC into A LLC, and then convert A LLC into S Corp. So you're cancelling the EIN for B LLC, you're cancelling the EIN for A LLC - because both entities cease to exist. You then create a EIN for A Corp, which is the converted A LLC, and you create a DBA where A Corp DBA B Shop. You then go to the bank and open the account for A Corp DBA B Shop with the EIN you just created for A Corp. Get a better accountant. Before you convert to S-Corp. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | How can I estimate business taxes / filing fees for a business that has $0 income? | Is the business an S-Corp, LLC or Sole Prop? I am going to guess based on the question that it is an LLC that you never closed with the state and you live in a state (NY) that charges a fee for having an LLC in the state in which case you owe those fees to the state. I am not aware of any taxes on the mere existence of a business by the IRS. I think you are going to find out that the are no taxes owed to the IRS for this nonexistent activity. |
Share your insights or perspective on the financial matter presented in the input. | How can I estimate business taxes / filing fees for a business that has $0 income? | You need to hire a tax professional and have them sort it out for you properly and advise you on how to proceed next. Don't do it yourself, you're way past the stage when you could. You're out of compliance, and you're right - there are penalties that a professional might know how to mitigate, and maybe even negotiate a waiver with the IRS, depending on the circumstances of the case. Be careful of answers like "you don't need to pay anything" that are based on nothing of facts. Based on what you said in the question and in the comments, it actually sounds like you do have to pay something, and you're in trouble with the IRS already. It might be that you misunderstood something in the past (e.g.: you said the business had filed taxes before, but in fact that might never happened and you're confusing "business filed taxes" with "I filed schedule C") or it might be the actual factual representation of things (you did in fact filed a tax return for your business with the IRS, either form 1120 of some kind or 1065). In any case a good licensed (CPA or EA) professional will help you sort it out and educate you on what you need to do in the future. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Would the purchase of a car for a business through the use of a business loan be considered a business expense? | You don't say what country you live in. If it's the U.S., the IRS has very specific rules for business use of a car. See, for starters at least, http://www.irs.gov/publications/p463/ch04.html. The gist of it is: If you use the car 100% for business purposes, you NEVER use it to drive to the grocery store or to your friend's house, etc, then it is a deductible business expense. If you use a car party for business use and partly for personal use, than you can deduct the portion of the expense of the car that is for business use, but not the portion that is for personal use. So basically, if you use the car 75% for business purposes and 25% for personal use, you can deduct 75% of the cost and expenses. You can calculate the business use by, (a) Keeping careful records of how much you spent on gas, oil, repairs, etc, tracking the percentage of business use versus percentage of personal use, and then multiplying the cost by the percentage business use and that is the amount you can deduct; or (b) Use the standard mileage allowance, so many cents per mile, which changes every year. Note that the fact that you paid for the car from a business account has absolutely nothing to do with it. (If it did, then everyone could create a small business, open a business account, pay all their bills from there, and all their personal expenses would magically become business expenses.) Just by the way: If you are going to try to stretch the rules on your taxes, business use of a car or personal computer or expenses for a home office are the worst place to do it. The IRS knows that cars and computers are things that can easily be used for either personal or business purposes and so they keep a special eye out on these. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Deducting last years (undocumented) side business loss | You should speak to a good tax adviser. The less documentation you have the more problems IRS are going to cause you. Generally you can deduct business losses (in the year they occurred, which is 2011), but you have to show that that was a valid business, not just a way to reduce your tax bill with personal expenses. Thus lack of documentation reduces your ability to prove that you're entitled to the deduction. The burden of proof is generally on you. You can not deduct it from 2012 taxes, but you can still amend 2011. Keep in mind though that amended returns have higher chance of audit, and a significant business loss on a business that only existed that year is a major red flag which will raise the probability of an audit to very high percentage. Theoretically, if the business was real and just failed - you can definitely deduct this. But practically, lack of documentation may cause too big a problem, and a tax adviser might suggest you giving it up if he doesn't think you have a real chance to convince the IRS. Definitely don't do that without a professional advice. It is worth fighting for, its quite a loss, but don't do it on your own as you will definitely lose. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | 30% share in business | Keep in mind a good lawyer will have the contract cover the five D's: Its really best to lay these things out ahead of time. I watched, first hand, two friends start a business. When they were broke and struggling the worked very well together. Then the money started rolling in. Despite exceeding their dreams they were constantly at each other's throats fighting and bickering over stupid stuff. In the end, because they had decent legal docs, they both were able to pull money out of the business. Had that not been worked out they would have destroyed the business so that no one would have profited. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | 30% share in business | Get involved a lawyer and Accountant. Without it you may not be sure what you are getting. What exactly will 30% mean for me? It will mean exactly what gets written in contract. It can mean you are owner of 30% of the company. If this is structured as partnership, it would also mean you are party to 30% loss. It can mean by current valuation, you get x fixed shares. In future if the directors creates more shares, your % ownership can get diluted. Or anything else. It all depends on what is written in contract and how the contract is structured. Is there anything I should I be aware of before agreeing? Get a draft and talk to a Lawyer and Accountant, they should be able to tell you exactly what it means and you can then decide if you agree to it or not; or need this contract worded differently. |
Share your insights or perspective on the financial matter presented in the input. | Claiming business expense from personal credit card | or just input it in my accounting software along with receipts, and then when I'm doing taxes this would go under the investment or loses (is it somewhere along that line)? Yes, this. Generally, for the long term you should have a separate bank account and charge card for your business. I started my business (LLC) by filing online, and paying a fee for a registration, and that makes it a business cost right? Startup cost. There are special rules about this. Talk to your tax adviser. For the amounts in question you could probably expense it, but verify. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Claiming business expense from personal credit card | There is no law that requires you to have a separate bank account for your business, or to pay all expenses from a business bank account. It is a GOOD IDEA to have a separate bank account and pay all business expenses from that account and all personal expenses from your personal account, because that makes sorting out what is what much simpler, both in case of an audit and for your own accounting. Whether a particular expenditure is a deductible business expense has nothing to do with what account you pay it from. If you pay advertising expenses for your business from your personal account, that's still (almost certainly) a deductible business expense. If you buy groceries from your business account, that's almost certainly not a deductible business expense. In your case, there are all kinds of rules about when and how much travel is deductible. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Applying for and receiving business credit | I'm afraid the great myth of limited liability companies is that all such vehicles have instant access to credit. Limited liability on a company with few physical assets to underwrite the loan, or with insufficient revenue, will usually mean that the owners (or others) will be asked to stand surety on any credit. However, there is a particular form of "credit" available to businesses on terms with their clients. It is called factoring. Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business. Factoring differs from a bank loan in three main ways. First, the emphasis is on the value of the receivables (essentially a financial asset), not the firm’s credit worthiness. Secondly, factoring is not a loan – it is the purchase of a financial asset (the receivable). Finally, a bank loan involves two parties whereas factoring involves three. Recognise that this can be quite expensive. Most banks catering to small businesses will offer some form of factoring service, or will know of services that offer it. It isn't that different from cheque encashment services (pay-day services) where you offer a discount on future income for money now. An alternative is simply to ask his clients if they'll pay him faster if he offers a discount (since either of interest payments or factoring would reduce profitability anyway). |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Applying for and receiving business credit | Banks will usually look at 2 years worth of tax returns for issuing business credit. If those aren't available (for instance, for recently formed businesses), they will look at the personal returns of the owners. Unfortunately, it sounds like your friend is in the latter category. Bringing in another partner isn't necessarily going to help, either; with only two partners / owners, the bank would probably look at both owners' personal tax returns and credit histories. It may be necessary to offer collateral. I'm sorry I can't offer any better solutions, but alternative funding such as personal loans from family & friends could be necessary. Perhaps making them partners in exchange for capital. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Using business check to pay at retail | You can just buy the items personally and then submit an expense report to the company to get reimbursed. Keep all the receipts. Paying with a company check is also fine, but you might run into problems with stores not accepting checks. |
Share your insights or perspective on the financial matter presented in the input. | Tax whilst starting a business in full time employment | With a limited company, you'll have to pay yourself a salary through PAYE. With income from your other job taking you over the higher-rate threshold, you should inform HMRC of this and get a tax code of DO for the second job, meaning 40% tax (and also both employer's and employee's National Insurance) will be deducted from the whole amount of the salary. See here. Dividends should be like any other dividend -- you won't pay extra tax when you receive them, but will have to declare them on your tax return and pay the tax later. See the official information here. You'll get a £5,000 tax allowance for dividends, but they'll still count as income for purposes of hitting the higher-rate threshold. I think in practice this means the first £5,000 will be tax-free, and the rest will be taxed at 32.5%. But note that you have to pay yourself at least the minimum wage as salary, not as dividend. I can't see IR35 being an issue. However, I'm not a professional, and this situation is complicated enough to need professional advice. Talk to an accountant or a tax advisor. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Do I need a business credit card? | It can certainly help build a credit score, but remember that businesses gain credit differently from individuals. Depending on the country, there isn't usually a national register of business credit ratings the way there is for individuals. The credit record you'd be gaining is with your own bank only. Banks will usually base your business credit record on revenue and transactional loads rather than merely on having and holding a credit card. That said, it isn't always that easy to get a business credit card and so it is a useful thing to have for credibility with clients (depending on the type of work you do). A credit card can also sometimes work out cheaper (and faster) for financing small overdrafts than a regular business overdraft facility. That said, I've found that larger loans over a five-year term can work out much cheaper for an established business than they would for an individual, even where the business itself has no history of using credit. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Do I need a business credit card? | I would try to avoid mixing business expenditure with personal expenditure so a second credit card might be a good idea. That said, I did get a business credit card for my company in the UK as I didn't want to be personally liable for the money that was spent on the business card (even though I owned 100% of the business) in case things went horribly wrong. As I didn't fancy signing a personal guarantee, this meant that the limit was quite low but it was good enough in most cases. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Do I need a business credit card? | I would suggest at least getting a personal card that you only use for business expenses, even if you don't opt for a business card. It makes it very clear that expenses on that card are business expenses, and is just more professional. The same goes for a checking account, if you have one of those. It makes it easier to defend if you are ever audited, and if you use an accountant or tax preparer. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Do I need a business credit card? | I finally got one to separate my business and personal expenses. It will make accounting at the end of the year a lot easier. |
Share your insights or perspective on the financial matter presented in the input. | Can I pay off my credit card balance to free up available credit? | Is it possible to pay off my balance more than once in a payment period in order to increase the amount I can spend in a payment period? Yes you can pay off the balance more than once even if its not due. This will get applied to outstanding and you will be able to spend again. If so, is there a reason not to do this? There is no harm. However note that it generally takes 2-3 days for the credit to be applied to the card. Hence factor this in before you make new purchases. I just got a credit card to start rebuilding my credit. Spending close to you credit limit does not help much; compared to spending less than 10% of your credit limit. So the sooner you get your limit on card increased the better. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Can I pay off my credit card balance to free up available credit? | Banks only send your balance to credit bureaus once a month; usually a few days after your statement date. Thus, as long as your usage is below 10% in that date range, you're ok. Regarding paying it off early: sure. Every Sunday night, I pay our cards' charges from the previous week. (The internet makes this too easy.) |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Can I pay off my credit card balance to free up available credit? | Is it possible to pay off my balance more than once in a payment period in order to increase the amount I can spend in a payment period? Yes, but you should only do that if you expect an expense that is larger than your limit allows. Then, provide an extra payment before your expense occurs since it will take longer for the issuer to apply it to the outstanding balance. For instance, when going on holiday you could deposit additional money to increase your balance temporarily. That said if your goal is to improve your credit score I would recommend using the card, staying within your limit and pay it off every month. The 2 largest factors going into calculating your credit score are: By paying off the balance each month you After 6-9 months you can probably get a bigger limit, to improve your score. I wouldn't change to a different card or get a second one, as some issuers will run a check on your creditscore that lowers it temporarily. Also: you're entitled to a free credit report each year. I'd recommend asking for one every year so you can keep track on how your credit score improves. It also gives you the opportunity to check for mistakes on your report. Check here for more information: http://www.myfico.com/crediteducation/whatsinyourscore.aspx |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Can I pay off my credit card balance to free up available credit? | The card you have is one where you had to deposit an amount equivelent to your card limit -a secured limit credit card. Capital One is one if the primary cards of this type. The typical rules of credit card usage and building your credit, do not apply. So, yes, you want to use the card as much as possible and pay off your balance as often as is necessary to keep your limit freed up. You can actually pay the full balance plus 10%, and gain a little extra limit. Use your card as much as possible and call them and ask for a limit increase every three months. usually about 4 - 5 months in, they will increase your limit and do so without asking for a corresponding security deposit. This is really cool, because it means you are becoming credit-worthy. I know so much about this because I applied for this card for my son and am helping him in his attempt to repair his credit. His score increased by almost 200 points last year. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Starting a side business slowly | This is a great question! I've been an entrepreneur and small business owner for 20+ years and have started small businesses in 3 states that grew into nice income streams for me. I've lived off these businesses for 20+ years, so I know it can be done! First let me start by saying that the rules, regulations, requirements and laws for operating a business (small or large) legally, for the most part, are local laws and regulations. Depending on what your business does, you may have some federal rules to follow, but for the most part, it will be your locality (state, county, city) that determines what you'll have to do to comply and be "legal". Also, though it might be better in some cases to incorporate (and even required in some circumstances), you don't always have to. There are many small businesses (think landscapers, housekeepers, babysitters, etc.) that get income from their "business operations" and do so as "individuals". Of course, everyone has to pay taxes - so as long as you property record your income (and expenses) and properly file your tax returns every year, you are "income tax legal". I won't try to answer the income tax question here, though, as that can be a big question. Also, though you certainly can start a business on your own without hiring lawyers or other professionals (more on that below), when it comes to taxes, I definitely recommend you indeed plan to hire a tax professional (even if it's something like H&R Block or Jackson Hewitt, etc). In some cities, there might even be "free" tax preparation services by certain organizations that want to help the community and these are often available even to small businesses. In general, income taxes can be complicated and the rules are always changing. I've found that most small business owners that try to file their own taxes generally end up paying a lot more taxes than they're required to, in essence, they are overpaying! Running a business (and making a profit) can be hard enough, so on to of that, you don't need to be paying more than you are required to! Also, I am going to assume that since it sounds like it would be a business of one (you), that you won't have a Payroll. That is another area that can be complicated for sure. Ok, with those generics out of the way, let me tackle your questions related to starting and operating a business, since you have the "idea for your business" pretty figured out. Will you have to pay any substantial amount of money to attorneys or advisors or accountants or to register with the government? Not necessarily. Since the rules for operating a business legally vary by your operating location (where you will be providing the service or performing your work), you can certainly research this on your own. It might take a little time, but it's doable if you stick with it. Some resources: The state of Florida (where I live) has an excellent page at: http://www.myflorida.com/taxonomy/business/starting%20a%20business%20in%20florida/ You might not be in Florida, but almost every state will have something similar. What all do I need to do to remain on the right side of the law and the smart side of business? All of the answers above still apply to this question, but here are a few more items to consider: You will want to keep good records of all expenses directly related to the business. If you license some content (stock images) for example, you'll want to document receipts. These are easy usually as you know "directly". If you subscribe to the Apple Developer program (which you'll need to if you intend to sell Apps in the Apple App Stores), the subscription is an expense against your business income, etc. You will want to keep good records of indirect costs. These are not so easy to "figure out" (and where a good accountant will help you when this becomes significant) but these are important and a lot of business owners hurt themselves by not considering these. What do I mean? Well, you need an "office" in order to produce your work, right? You might need a computer, a phone, internet, electricity, heat, etc. all of which allow you to create a "working environment" that allows you to "produce your product". The IRS (and state tax authorities) all provide ways for you to quantify these and "count them" as legitimate business expenses. No, you can't use 100% of your electric bill (since your office might be inside your home, and the entire bill is not "just" for your business) but you are certainly entitled to some part of that bill to count as a business expense. Again, I don't want to get too far down the INCOME TAX rabbit hole, but you still need to keep track of what you spend! You must keep good record of ALL your income. This is especially important when you have money coming in from various sources (a payroll, gifts from friends, business income from clients and/or the App Stores, etc.) Do not just assume that copies of your bank deposits tell the whole story. Bank statements might tell you the amount and date of a deposit, but you don't really know "where" that money came from unless you are tracking it! The good news is that the above record keeping can be quite easy with something like Quicken or QuickBooks (or many many other such popular programs.) You will want to ensure you have the needed licenses (not necessarily required at all for a lot of small businesses, especially home based businesses.) Depending on your business activity, you might want to consider business liability insurance. Again, this will depend on your clients and/or other business entities you'll be dealing with. Some might require you to have some insurance. Will be efforts even be considered a business initially until some amount of money actually starts coming in? This might be a legal / accountant question as to the very specific answer from the POV of the law and taxing authorities. However, consider that not all businesses make any money at all, for a long time, and they definitely "are a business". For instance, Twitter was losing money for a long time (years) and no one would argue they were not a business. Again, deferring to the attorneys/cpas here for the legal answer, the practical answer is that you're performing "some" business activity when you start creating a product and working hard to make it happen! I would consider "acting as" a business regardless! What things do I need to do up-front and what things can I defer to later, especially in light of the fact that it might be several months to a couple years before any substantial income starts coming in? This question's answer could be quite long. There are potentially many items you can defer. However, one I can say is that you might consider deferring incorporation. An individual can perform a business activity and draw income from it legally in a lot of situations. (For tax purposes, this is sometimes referred to as "Schedule-C" income.) I'm not saying incorporation is a bad thing (it can shield you from a lot of issues), but I am saying that it's not necessary on day 1 for a lot of small businesses. Having said that, this too can be easy to do on your own. Many companies offer services so you can incorporate for a few hundred dollars. If you do incorporate, as a small business of one person, I would definitely consider a tax concept called an "S-Corp" to avoid paying double taxes.) But here too, we've gone down the tax rabbit hole again. :-) |
Share your insights or perspective on the financial matter presented in the input. | Why is “cheque cashing” a legitimate business? | This answer is based on my understanding of the US banking system. We have check cashing businesses here too, which are just like what you describe, except for the spelling :-) Let's consider what "cash it for free at the bank" really means, and why it might not be an option for everyone. One key issue is "which bank?" As an example, suppose that I have an account at ABC Bank. I take out my checkbook for that account and write you a check for $500. (Terminology: In this case, I am the drawer or maker of the check, ABC Bank is the drawee bank, and you, user54609, are the payee. Disclaimer: "You" here is meant as a generic pronoun and I do not mean to insinuate that anything here actually applies to you personally.) There are two common things you might do with the check: If you have an account at some bank, say XYZ Bank, you might take the check to XYZ Bank and deposit it in your account. (You might be able to do this through an ATM, mobile app, or by mail, instead of in person.) XYZ Bank does not have a way to verify with certainty that the check is valid (e.g. they don't know what my signature looks like, nor whether I actually have $500 in my account at ABC), so they send it to ABC Bank, which verifies the check and transfers $500 to XYZ. (This is usually done through a central clearinghouse, such as the Federal Reserve in the US, and in some cases an image of the check may be sent electronically, instead of the physical check.) This process takes some time, so XYZ may not make the $500 available to you right away - there may be a hold period before you can withdraw that $500 from your account. You could take the check to ABC Bank, in person. They will verify on the spot that the check is valid and that you are in fact user54609. If everything looks good, they will hand you $500 in cash (perhaps subtracting a fee of a few dollars). Now we can see some possible problems with each of these approaches. For 1: Maybe you don't have a bank account at all. There are many possible reasons: You don't have enough money to meet the minimum balance that a bank account would require. You used to have an account, but you overdrew or otherwise misused an account, so the bank closed it. They then entered you in a registry such as ChexSystems which ensures that other banks know about this, and so no other bank will open a new account for you. You immigrated to the country illegally and cannot get the documents (driver's license, social security number, etc) that a bank normally requires to open an account. You simply don't like the idea of keeping your money in a bank. Maybe you do have an account at XYZ Bank, but it's in another town. You need the cash today, so you can't use mail or a mobile app, and third-party ATMs usually don't accept deposits. Maybe you need to spend the money today, and XYZ Bank would place a hold. For 2: ABC Bank may not have a branch you can conveniently visit. Maybe the nearest one is a long way away, in another city or across the country. Or maybe ABC is an online bank with no physical branches at all. Maybe it's in the same city, but you don't have transportation to get you there. Or maybe it's simply less convenient than the check-cashing business on the corner. Maybe it is after usual banking hours, or a weekend, and ABC Bank is closed, but you need cash now. In any of these situations, "cash it at the bank" might not be a viable option, and so you might reasonably turn to a check cashing business instead. As you say, you will pay a much higher fee there, but maybe it is worth it to you, or you just don't have any choice. Another possibility, of course, is that you are poorly educated about the banking system, and you don't really understand that 1 and 2 are options, or how to go about them. But there's this storefront on the corner that says "Check Cashing", so this seems like a low-stress, uncomplicated way to exchange this piece of paper for money. As such, there certainly are people who legitimately might want to cash a valid check at a check-cashing business. Check cashing business do of course take some risk of fraud, since they can't necessarily verify the check. There are sometimes steps they can take to minimize this risk. Sometimes they can call ABC Bank and check that I have sufficient money in my account. Maybe they'll only accept certain kinds of checks, such as payroll checks from well-known companies for which you can produce a matching pay stub. And they can demand identification from you (perhaps allowing more flexible options than a bank), which helps ensure that you are the payee, and would make you easier to track down if you did commit fraud. But they will probably lose some money this way, so they will have to make their fees high enough to cover those losses. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Why is “cheque cashing” a legitimate business? | In my experience (in the US), the main draw of check-cashing businesses (like "CheckN2Cash" is that they will hold your check for a certain period of time. This is also known as a "payday loan". Rather than bringing them a check someone else has written you, you write them a check yourself, postdated, and they pay you the amount on the check less their fees, and agree not to cash the check until a future date. So if you don't have the money right now but you need it before your next payday, you visit a check-cashing business and get the money, and it'll be withdrawn from your account after your next paycheck. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Why is “cheque cashing” a legitimate business? | How does this get any business? You'd be surprised on how much profit these type of businesses can bring in and the number of people who cash their checks this way. They make profit off people who want their checks cashed ASAP. Usually cheques written to "cash" or something can just be cashed for free at the bank right? Yes, most banks cash your check for free. Some may not cash it right away and may require a few days to process. Some charge a small fee if the check is not from the same bank. Some personal checks may not even be processed the same day as well. Wouldn't the only cheques that people would cash at these places be bad cheques? Yes and no. Yes because it may be "easier" to try to cash a fraudulent check at these type of check cashing places. However, some places may only cash business checks and require your ID in which they write down the information in order to possibly track you down in the future. Also some places only cash a check to a certain amount. And wouldn't this mean that the business will lose a lot of money since it pays out cash but then has the cheque bounce? Of course the business loses money if the check bounces or is fake. That is why they try to minimize their losses with certain requirements that needs to met before the check can be cashed. Who uses these services exactly? Just about anyone who needs their check cashed ASAP or like ChrisW stated in his answer is trying to keep their money on the low. There is a demand for this service even though it may seem shady to you. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Is business the only way to become a millionaire? | Not at all. The Millionaire Next Door offers a book full of anecdotes on couples that earned money and saved their way to being millionaires. I believe about 1/3 or so had businesses, but the rest were employed and simply saved wisely. $3860/yr saved for 40 years at 8% will return $1M. Adjust the numbers to hit a million sooner or reach a higher goal. The Author might be accused of survey bias. This is the phenomenon of studying the final results without looking at the pool of people years prior. Little Adv' is correct that while 1/3 of millionaires may have gotten that way by starting a business, that says nothing about how many businesses need to start to find the one millionaire that resulted. I view the book more as a lesson of "spend beneath your means" and focus on his anecdotes of the dual income couples who saved their way to this status. If you are in no rush, get this book from your library and spend the few hours to read it. In response to my Friend Dilip's comment, MoneyChimp offers a good look at compound growth (for the S&P) over time. The 40 years ending 2012, which obviously include the 'lost decade,' returned a CAGR of 9.78%. Not to be confused with the average 11.43%. When I pull the numbers for each year's return and apply an annual $3860 deposit, the 40 years ends with $2.2M. A 1% fee, or 1% lower return resulted in $1.6M. If 8% isn't conservative, of course you can run the numbers you wish. The 40 years contained both a lost decade and two great ones. Will the 3 decades post-lost average to get the Quad-Decade period to 8%+? I don't know. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Is business the only way to become a millionaire? | That's actually a pretty good way to get bankrupt quick. You can get rich quick through lottery, gambling, mere saving or investing wisely, or marrying someone from the Kennedy or Bush clans. Starting a business is one of the ways to become a millionaire, but definitely not the only one. |
Share your insights or perspective on the financial matter presented in the input. | 401k Transfer After Business Closure | You should probably consult an attorney. However, if the owner was a corporation/LLC and it has been officially dissolved, you can provide an evidence of that from your State's department of State/Corporations to show that their request is unfeasible. If the owner was a sole-proprietor, then that may be harder as you'll need to track the person down and have him close the plan. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Valuing a small business to invest in | There is nothing fair / unfair in such deals. It is an art than a science. what kind of things should be considered, to work out what would be a fair percentage stake A true fair value is; take the current valuation of the company [This can be difficult if it is small and does not maintain proper records]. Divide by number of shares, that is the value of share and you should 20K worth of such shares. But then there is risk premium. You are taking a risk that an small start-up may do exceedingly well ... or it may close off. This risk premium is what is negotiated. It depends on how desperate the owner of the small company is; who all are interested in this specific deal ... if you want 30% share; someone else is ready to offer 20K for 15% of share. Or there is no one willing to lend 20K as they don't believe it will make money ... and the owner is desperate, you may even get 50%. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Valuing a small business to invest in | It should be pretty obvious that without knowing what sort of assets the company owns, and what sort of net earnings are being generated it's impossible to say what a $20k equity investment should get you in terms of ownership percentage. With that said, you want to look at a few to several years of books, look for trends. Some things to understand that might be subtle red flags: It's extremely common for early stage investors to essentially make loans rather than strictly buying shares. In the worst case scenario creditors get to participate in liquidation proceedings before shareholders do. You may be better off investing in this business via a loan that's convertible to equity at your discretion. Single owner service companies are difficult because all of the net earnings go to the proprietor and that person maintains all of the relationships. So taking something like 5 years of net earnings as the value of the company doesn't make much sense because you (or someone else) couldn't just step in and replace the owner. Granted, you aren't contemplating taking over the business, but it negates using an X years of net earnings valuation method. When you read about valuation there is a sort of overriding assumption that no single person could topple the operation which couldn't be farther from the truth in single employee service companies. Additionally, understand that your investment in a single owner company hinges completely on one person's ability and willingness to work. It's really vital to understand the purpose of the funds. Someone will be hired? $20,000 couldn't be even six months of wages... Put things in to perspective with a pad, pen and calculator. Don't invest in the pipe dream of a friend of yours, and DEFINITELY don't hand this person the downpayment for their new house. The first rule of investing is "don't lose money," this isn't emotional, this is a dollars and cents pragmatic process. Why does the business need this money? How will you be paid back? Personally, I think it would be more gratifying to put $20k in a blender and watch it blend, this is probably a horrible investment. The risk should just be left to credit card companies. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Starting a large business with a not so large income? | There are three (or four) ways that a company can grow: (Crowdfunding is a relatively new (in mainstream businesses) alternative financing method where people will finance a company with the expectation that they will benefit from the product or service that they provide.) Obviously a startup has no prior income to use, so it must either raise money through equity or debt. People say that one must borrow contingent on their salary. Banks lend money based on the ability to pay the loan back plus interest. For individuals, their income is their primary source of cash flow, so, yes, it is usually the determining factor in getting a loan. For a business the key factor is future cash flows. So a business will borrow money, say, to buy a new asset (like a factory) that will be used to generate cash flows in the future so that they can pay down the debt. If the bank believes that the use of the money is going to be profitable enough that they will get their money back with interest, they'll loan the money. Equity investors are essentially the same, but since they don't get a guaranteed payback (they only get paid through non-guaranteed dividends or liquidation), their risk is higher and they are looking for higher expected returns. So the question I'd have as a bank or equity investor is "what are you going to do with the money?" What is your business strategy? What are you going to do that will make profits in the future? Do you have a special idea or skill that you can turn into a profitable business? (Crowdfunding would be similar - people are willing to give you money based on either the social or personal benefit of some product or service.) So any business either starts small and grows over time (which is how the vast majority of businesses grow), or has some special idea, asset, skill, or something that would make a bank willing to take a risk on a huge loan. I know, again, that people here tend to turn blind eyes on unfortunate realities, but people do make giant businesses without having giant incomes. The "unfortunate reality" is that most startups fail. Which may sound bad, but also keep in mind that most startups are created by people that are OK with failing. They are people that are willing to fail 9 times with the thought that the 10th one will take off and make up for the losses of the first 9. So I would say - if you have some great idea or skill and a viable strategy and plan to take it to market, then GO FOR IT. You don't need a huge salary to start off. You need something that you can take to market and make money. Most people (myself included) either do not have that idea or skill to go out on their own, or don't have the courage to take that kind of risk. But don't go in assuming all you need is a loan and you'll be an instant millionaire. You might, but the odds are very long. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Starting a large business with a not so large income? | For example, Biff Spoiles started an animation studio and production developing company to produce animations -- something in the ballpark of $12,000,000.00 U.S.D. -- and he had a $12K/yearly salary. I have no clue what you mean, as others have mentioned. (I'm not sure what the "12 million" refers to? Do you mean "total cost of animations created by the company in a year" or? If so, "12 million" would amount to say 5 to 20 major, brand name TV commercials, for example. Do you mean the "cost of plant" - so, for a "TV commercial production company" you mean purchasing desks, drawing pads, Porsches, and so on?) Your specific example of a "film or TV-commercial production company" is a bad example, it's not really a "business" - that is to say, it does not rely on capital and return on capital. The way famous "film or TV-commercial production companies" happens is precisely like this: A young guy/girl G (perhaps a designer or filmmaker) is working, just as you say, for a menial wage at a film company. (G got that first job perhaps out of art school.) G gets a chance at doing a photo shoot, animation, or helping direct a TV commercial. G does a fantastic job. Later that year, a large important animation or commercial job arrives at the company; due to the earlier excellent result, G is allowed to work on the new one. G again he does a fantastic job. Soon, within that company, G is a highly-regarded animator or director and has attracted fame amongst colleagues and clients. Eventually, G hears of a company (XYZ Hotel) that needs a TV ad made. (Or an animation, or whatever.) G says to XYZ, look, you could spend $230,000 with a production company, and in reality they'd have me direct it anyway. I'm leaving to work independently, so I will do your job for only $190,000. In a word, XYZ says "Yes" and hands over a cheque for $190,000. G spends $160,000 on the usual actors, cameramen, editing, etc, and uses 2 months of G's own time, and pockets $5000 after tax. G then doesn't get a job for a couple months, and then gets three more in the new year. Because the commercial for XYZ was so good, XYZ gave him another couple to do, for another product line. Eventually G has just enough money coming in that he "hires" a few freelance people for a few weeks here and there ... a cameraman, illustrator, gopher, and so on. Eventually G has enough TV ads solidly booked G can risk actually hiring long-time friend P as a producer. P spends most of her time actually bringing in more work - and it builds from there. Eventually. You have a very busy, well-known in the industry, TV commercial production company with many staff and endless clients (example, say, http://rsafilms.com) It might be at some point in there (say, around year three), G would like to borrow the odd million bucks to basically "help with cashflow." The answer to that is nothing more than "through business contacts, G knows a wealthy dentist/whoever who is prepared to do that." But note carefully that at that point, G's company is already very firmly established, famous for doing 20 spectacular animations/commercials, and so on. (Note too that 999 times out of 1000 when this happens, the money evaporates and the dentist D never sees a penny back. In that case G "apologizes".) Only much much later once the company has many, many staff and great cashflow, could the production company actually borrow from a bank, or perhaps from "actual investors", which is more what you have in mind. regarding your four categories. Numbers 1 and 3 are totally wrong; they do not work at all like you are asking. indeed the very simple answer is: "borrow money" to start a category 1 or 3 type of business. It's totally inconceivable. (The only exception would be if you literally just have an extremely rich Uncle, who loans you a few million to "start an animation studio" - which would be completely whacky. Because in that example: company XYZ could not care less if you "have" an animation studio (ie: your Uncle has given you a platinum card, and you bought a building, some drawing pads, and a few dozen Macs). XYZ just couldn't care less. All they care about is your folio of work. In this example, RSA would get the job :) ) My guess is you're thinking people somehow magically go around "borrowing money" to get businesses like that started. (Your examples 1 and 3.) The simple answer is they don't and can't - your fears are assuaged! :) |
Share your insights or perspective on the financial matter presented in the input. | Requirements for filing business taxes? | While she can certainly get an LLC or EIN, it isn't necessarily required or needed. She can file as a sole-proprietor on her (or your joint) taxes by filling out a schedule-C addition to the 1040. Any income or losses will pass through to your existing income situation (from W-2's and such). The general requirement for filing as a business in this regard has nothing to do with any minimum income, revenue, or size. It is simply the intent to treat it as a business, and unlike a hobby, the overall intent to earn a profit eventually. If you're currently reporting the 1099-MISC income, but not deducting the expenses, this would be a means for you to offset the income with the expenses you mentioned (and possibly other legitimate ones). There is no "2% AGI" restriction for schedule-C. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Personal credit card for business expenses | Early on, one might not be able to get credit for their business. For convenience, and the card perks, it makes sense to use the personal card. But for sake of a clean paper trail, I'd choose 1 card and use it exclusively, 100% for the business. Not one card here, one card there. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Personal credit card for business expenses | Do you have a separate bank account for your business? That is generally highly recommended. I have a credit card for my single-member LLC. I prefer it this way because it makes the separation of personal and business expenses very clear. Using a personal credit card, but using it for only business expenses seems to be a reasonable practice. You may be able to do one better though... For your sole proprietorship, you can file a DBA which establishes the business name. The details of this depend on your state. With a DBA, I believe you can open a bank account in the name of your business and you may also be able to open a credit card account in the name of the business. I'm not sure what practical difference it makes, but it does make the personal/business distinction clearer. Though, at that point, you might as well just do the LLC... |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Personal credit card for business expenses | You should be careful about mingling your personal money and that of the business, even if it is a sole prop right now. It is a good habit to keep separate business and personal bank/credit accounts just so that when you change to an LLC, it is simpler for you to separate what belongs to the company and what is yours personally. What you're doing makes it more difficult (although only marginally so) to itemize business deductions that were paid with an ostensibly personal credit account. The better habit to get into now is keeping that distinct separation between personal and business. That being said, there's nothing illegal in what you're doing, but it would make an accountant cringe, that's for sure. (chuckle) Hope this helps. Good luck! |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Personal credit card for business expenses | If you are just starting out, I would say there is no disadvantage to using a personal card for business expenses. In fact, the advantage of doing so is that the consumer protections are better on personal cards than on business cards. One possible advantage to business credit cards, is that many (but not all) will not show up on your personal credit report unless you default. This might help with average age of accounts if you have a thin credit file, but otherwise it won't make much difference. Issuers also expect higher charge volumes on business cards, so as your business grows might question a lot of heavy charges on a personal card. Whether this would ever happen is speculation, but it's worth being aware of it. |
Share your insights or perspective on the financial matter presented in the input. | IRA for work and my business | Yes, you can have both. You'll need business income to contribute to a SEP IRA though. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | What are the ins/outs of writing equipment purchases off as business expenses in a home based business? | Most items used in business have to be depreciated; you get to deduct a small fraction of the cost each year depending on the lifetime of the item as per IRS rules. That is, you cannot assume a one-year life for an electronic item even if it will be obsolete in three months. Some items can be expensed; you get to deduct the entire cost in the first year but then if you don't stay in business, e.g. you get a job paying wages and are no longer self-employed, you have to recapture this and pay taxes on the amount recaptured in the later year. With respect to consumer-type electronics such as an iPad or laptop, it helps to have a separate item for personal use that you can show in case of an audit. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | What are the ins/outs of writing equipment purchases off as business expenses in a home based business? | First of all, Dilip's answer explains well how the business deductions generally work. For most (big) expenses you depreciate it. However, in some cases you need to capitalize it, which is another accounting method. When you capitalize your expense, it becomes part of the basis of the product you're creating. Since you're an engineer, this might be relevant for you. Talk to your tax adviser. How exactly you deduct/depreciate/capitalize things, and what expense goes which way depends greatly on the laws and jurisdictions. Even in the US, different states have different laws, and the IRS and State laws don't have to conform (unfortunately). For example, the limitations on Sec. 179 deduction in 2010-2011 were 20 times higher on Federal level than in the State of California. This could have lead to cases where you fully deducted your expense on your Federal tax return, but need to continue and depreciate it on your State return (or vice versa). Good tax adviser is crucial to avoid or manage these cases. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | What are the ins/outs of writing equipment purchases off as business expenses in a home based business? | Keep this rather corny acronym in mind. Business expenses must be CORN: As other posters have already pointed out, certain expenses that are capital items (computers, furniture, etc.) must be depreciated over several years, but you have a certain amount of capital items that you can write off in the current tax year. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Advice on money transfer business | As soon as I see the word "friends" along with money transfer I think scam. But ignoring that red flag.... You will have American companies reporting to the IRS that you are a Canadian Vendor they have hired. Then you are transferring money to people in Bangladesh. Assuming also that you fill out all the regulatory paperwork to establish this Money transfer business you may still face annual reporting requirements to 3 national taxing authorities. In the United states there are situations where the US Government hires a large company to complete a project. As part of that contract they require the large company to hire small businesses to complete some of the tasks. In a situation where the large company is imply serving as a conduit for the money between the government and the sub-contractor; and the large company has no other responsibilities; the usual fee for providing that function is 8% of the funds. This pays for their expenses for their accounting functions plus profit and the taxes that will trigger. Yet you said "At the end of the day, I will not earn much, but the transactions will just burden my tax returns." The 8 percent fee doesn't include doesn't include having to file paperwork with 3 nations. Adding this to all the other risks associated with being an international bank, plus the legal costs of making sure you are following all the regulations...No thanks. |
Share your insights or perspective on the financial matter presented in the input. | Borrow money to invest in a business venture with equity? | It's clearly a risk, but is it any different than investing in your own business? Yes, it is different. If you own a business, you determine the path of the business. You determine how much risk the business takes. You can put in extra effort to try to make the business work. You can choose to liquidate to preserve your capital. If you invest without ownership, perhaps the founder retains a 50% plus one share stake, then whomever controls the business controls all those things. So you have all the risks of owning the business (in terms of things going wrong) without the control to make things go right. This makes investing in someone else's business inherently riskier. Another problem that can occur is that you could find out that the business is fraudulent. Or the business can become fraudulent. Neither of those are risks if you are the business owner. You won't defraud yourself. Angel investing, that is to say investing in someone else's startup, is inherently risky. This is why it is difficult to find investors, even though some startups go on to become fabulously wealthy (Google, YouTube, Facebook, Twitter, etc.). Most startups fail. They offer the possibility of great returns because it's really hard to determine which ones will fail and which will succeed. Otherwise the business would just take out the same loan that Jane's getting, and leave Jane out of it. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | How to transfer personal auto lease to business auto lease? | I'd approach the lender that you're getting the lease from, but be prepared for them either saying 'no' to putting the lease into the name of an LLC without any proven track record (because it hasn't been around for a while) or require you to sign a personal guarantee, which partially defeats the purpose of putting the car lease into the LLC. I'd also talk to an accountant to see if you can't just charge the business the mileage on your vehicle as that might be the simplest solution, especially if the lender gets stroppy. Of course the mileage rate might not cover the expense for the lease as that one is designed to cover the steepest part of the depreciation curve. Does your LLC generate the revenue needed so it can take on the lease in the first place? If it's a new business you might not need or want the drain on your finances that a lease can be. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | How to transfer personal auto lease to business auto lease? | See what the contract says about transfers or subleases. A lease is a credit agreement, so the lessor may not allow transfers. You probably ought to talk to an accountant about this. You can probably recognize most of the costs associated with the car without re-financing it in another lease. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Tutoring Business Payroll Management | This is going to depend on the tax jurisdiction and I have no knowledge of the rules in Illinois. But I'd like to give you some direction about how to think about this. The biggest problem that you might hit is that if you collect a single check and then distribute to the tutors, you may be considered their employer. As an employer, you would be responsible for things like This is not meant as an exhaustive list. Even if not an employer, you are still paying them. You would be responsible for issuing 1099 forms to anyone who goes above $600 for the year (source). You would need to file for a taxpayer identification number for your organization, as it is acting as a business. You need to give this number to the school so that they can issue the correct form to you. You might have to register a "Doing Business As" name. It's conceivable that you could get away with having the school write the check to you as an individual. But if you do that, it will show up as income on your taxes and you will have to deduct payments to the other tutors. If the organization already has a separate tax identity, then you could use that. Note that the organization will be responsible for paying income tax. It should be able to deduct payments to the tutors as well as marketing expenses, etc. If the school will go for it, consider structuring things with a payment to your organization for your organization duties. Then you tell the school how much to pay each tutor. You would be responsible for giving the school the necessary information, like name, address, Social Security number, and cost (or possibly hours worked). |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | As a small business owner, should I pay my taxes from my personal or business checking account? | Payment of taxes for your personal return filed with the IRS always come from your personal account, regardless of how the money was earned. Sales tax would be paid from your business account, so would corporate taxes, if those apply; but if you're talking about your tax payments to the IRS for your personal income that should be paid from your personal account. Also, stating the obvious, if you're paying an accountant to handle things you can always ask them for clarification as well. They will have more precise answers. EDIT Adding on for your last part of the question I missed: In virtually all cases LLC's are what's called a pass through entity. For these entities, all income in the eyes of the federal government passes directly through the entity to the owners at the end of each year. They are then taxed personally on this net income at their individual tax rate, that's the very abridged version at least. The LLC pays no taxes directly to the federal government related to your income. Here's a resource if you'd like to learn more about LLC's: http://www.nolo.com/legal-encyclopedia/llc-basics-30163.html |
Share your insights or perspective on the financial matter presented in the input. | Should my husband's business pay my business? | It depends on the finances involved, but particularly if you're not billing anything right now and may have no revenue this year, it's probably a good idea to bill his company. This is in part because some deductions or other tax treatments are only allowed if you have revenue and/or income. The biggest example I can think of is the Solo 401k - you can only contribute up to your self employed income. If you're planning to contribute to one (and you should, they're amazingly powerful tools for saving for retirement and for reducing your tax burden), you will have to have some revenue in order to have something to pay yourself with. I don't believe you have to charge him, though, if it makes more tax sense not to (for example, if his business is operating at a loss and cannot benefit from expensing it, but you'd then have to pay taxes on your own income from it). |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Should my husband's business pay my business? | Is it worth it for me to "charge" him? I can think of two reasons why you might want to charge your husband: |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Should my husband's business pay my business? | I agree with some of the points of the other answers but why not avoid all the guesswork? I highly recommend you not charge him now. Wait until the end of the year when you have much more information about both of your companies and then you can run the numbers both ways and decide if it would benefit you (collectively). If either of your businesses runs on a cash basis and you decide to invoice, just make sure the check is deposited before Dec 31. Update: If you want to do this for 2016, at least your husband's business would have to be using an accrual basis (since it's too late to take the deduction on a cash basis). Simply run the numbers both ways and see if it helps you. If it doesn't help enough to warrant it for 2016 you could rerun the numbers near the end of 2017 to see if it helps then. Diclaimer: I think it's OK to do this type of manipulation for the scenario you described since you have done (or are doing) the work and you are charging a reasonable fee, but realize that you shouldn't manipulate the amount of the invoice, or fabricate invoices. For example, you shouldn't ever think about such things as: "If I invoice $50K instead of $3K, will that help us?" |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Should my husband's business pay my business? | Just from my own experience (I am not an accountant): In addition to counting as 'business income' (1040 line 12 [1]) your $3000 (or whatever) will be subject to ~15% self-employment tax, on Schedule SE. This carries to your 1040 line ~57, which is after all your 'adjustments to income', exemptions, and deductions - so, those don't reduce it. Half of the 15% is deductible on line ~27, if you have enough taxable income for it to matter; but, in any case, you will owe at least 1/2 of the 15%, on top of your regular income tax. Your husband could deduct this payment as a business expense on Schedule C; but, if (AIUI) he will have a loss already, he'll get no benefit from this in the current year. If you do count this as income to you, it will be FICA income; so, it will be credited to your Social Security account. Things outside my experience that might bear looking into: I suspect the IRS has criteria to determine whether spousal payments are legit, or just gaming the tax system. Even if your husband can't 'use' the loss this year, he may be able to apply it in the future, when/if he has net business income. [1] NB: Any tax form line numbers are as of the last I looked - they may be off by one or two. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Why can't online transactions be completed outside of business hours? | Generally, unless you're doing a wire transfer, bank transactions are processed in batches overnight. So the credit card company won't be able to confirm your transfer until the next business day (it may take even longer for them to actually receive the money). |
Share your insights or perspective on the financial matter presented in the input. | Full-time work + running small side business: Best business structure for taxes? | You should look into an LLC. Its a fairly simple process, and the income simply flows through to your individual return. It will allow you to deduct supplies and other expenses from that income. It should also protect you if someone sues you for doing shoddy work (even if the work was fine), although you would need to consult a lawyer to be sure. For last year, it sounds like your taxes were done wrong. There are very, very few ways that you can end up adding more income and earning less after taxes. I'm tempted to say none, but our tax laws are so complex that I'm sure you can do it somehow. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Full-time work + running small side business: Best business structure for taxes? | A tax return is a document you sign and file with the government to self-report your tax obligations. A tax refund is the payment you receive from the government if your payments into the tax system exceeded your obligations. As others have mentioned, if an extra $2K in income generated $5K in taxes, chances are your return was prepared incorrectly. The selection of an appropriate entity type for your business depends a lot on what you expect to see over the next several years in terms of income and expenses, and the extent to which you want or need to pay for fringe benefits or make pretax retirement contributions from your business income. There are four basic flavors of entity which are available to you: Sole proprietorship. This is the simplest option in terms of tax reporting and paperwork required for ongoing operations. Your net (gross minus expenses) income is added to your wage income and you'll pay tax on the total. If your wage income is less than approximately $100K, you'll also owe self-employment tax of approximately 15% in addition to income tax on your business income. If your business runs at a loss, you can deduct the loss from your other income in calculating your taxable income, though you won't be able to run at a loss indefinitely. You are liable for all of the debts and obligations of the business to the extent of all of your personal assets. Partnership. You will need at least two participants (humans or entities) to form a partnership. Individual items of income and expense are identified on a partnership tax return, and each partner's proportionate share is then reported on the individual partners' tax returns. General partners (who actively participate in the business) also must pay self-employment tax on their earnings below approximately $100K. Each general partner is responsible for all of the debts and obligations of the business to the extent of their personal assets. A general partnership can be created informally or with an oral agreement although that's not a good idea. Corporation. Business entities can be taxed as "S" or "C" corporations. Either way, the corporation is created by filing articles of incorporation with a state government (doesn't have to be the state where you live) and corporations are typically required to file yearly entity statements with the state where they were formed as well as all states where they do business. Shareholders are only liable for the debts and obligations of the corporation to the extent of their investment in the corporation. An "S" corporation files an information-only return similar to a partnership which reports items of income and expense, but those items are actually taken into account on the individual tax returns of the shareholders. If an "S" corporation runs at a loss, the losses are deductible against the shareholders' other income. A "C" corporation files a tax return more similar to an individual's. A C corporation calculates and pays its own tax at the corporate level. Payments from the C corporation to individuals are typically taxable as wages (from a tax point of view, it's the same as having a second job) or as dividends, depending on how and why the payments are made. (If they're in exchange for effort and work, they're probably wages - if they're payments of business profits to the business owners, they're probably dividends.) If a C corporation runs at a loss, the loss is not deductible against the shareholders' other income. Fringe benefits such as health insurance for business owners are not deductible as business expenses on the business returns for S corps, partnerships, or sole proprietorships. C corporations can deduct expenses for providing fringe benefits. LLCs don't have a predefined tax treatment - the members or managers of the LLC choose, when the LLC is formed, if they would like to be taxed as a partnership, an S corporation, or as a C corporation. If an LLC is owned by a single person, it can be considered a "disregarded entity" and treated for tax purposes as a sole proprietorship. This option is not available if the LLC has multiple owners. The asset protection provided by the use of an entity depends quite a bit on the source of the claim. If a creditor/plaintiff has a claim based on a contract signed on behalf of the entity, then they likely will not be able to "pierce the veil" and collect the entity's debts from the individual owners. On the other hand, if a creditor/plaintiff has a claim based on negligence or another tort-like action (such as sexual harassment), then it's very likely that the individual(s) involved will also be sued as individuals, which takes away a lot of the effectiveness of the purported asset protection. The entity-based asset protection is also often unavailable even for contract claims because sophisticated creditors (like banks and landlords) will often insist the the business owners sign a personal guarantee putting their own assets at risk in the event that the business fails to honor its obligations. There's no particular type of entity which will allow you to entirely avoid tax. Most tax planning revolves around characterizing income and expense items in the most favorable ways possible, or around controlling the timing of the appearance of those items on the tax return. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Full-time work + running small side business: Best business structure for taxes? | I have a very similar situation doing side IT projects. I set up an LLC for the business, created a separate bank account, and track things separately. I then pay myself from the LLC bank account based on my hours for the consulting job. (I keep a percentage in the LLC account to pay for expenses.) I used to do my taxes myself, but when I created this arrangement, I started having an accountant do them. An LLC will not affect your tax status, but it will protect you from liability and make things more accountable come tax time. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | New vending route business, not sure how to determine taxes | You're not paying taxes three times but you are paying three different taxes (or more). Sales tax is a business expense, just like costs of goods sold or interest on a loan. Then, depending on how you structure the business, the net income of the business just hits you personally and you pay income taxes. You can work with a tax person to lend some efficiency to this on a long term basis, but it's not like you pay all the taxes against your gross receipts. Whether or not you can make this profitable is a whole different issue. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | New vending route business, not sure how to determine taxes | Actually, calculating taxes isn't that difficult. You will pay a percentage of your gross sales to state and local sales tax, and as a single-owner LLC your profits (after sales taxes) should pass through to your individual tax tax return (according to this IRS article. They are not cumulative since they have different bases (gross sales versus net profit). That said, when determining if your future business is profitable, you need to ask "what aspects of the business can I control"? Can you control how much each item sells for? Increasing your prices will increase your gross margins, which should be higher than your fixed and variable costs. If your margins do not exceed your costs, then you will note be profitable. Note that as a vendor you are at a slight disadvantage to a retailer, since tax has to be baked in to your prices. A retailer can advertise the pre-tax price, and pass-through sales tax at the point of sale. However, people expect to pay more at a vending machine, so the disadvantage is very small (you aren't directly competing with retailers anyways). |
Share your insights or perspective on the financial matter presented in the input. | Finding a good small business CPA? | Ask your colleagues! I know that sounds obvious, but just go to where people who do your sort of business hang out (or better, find some venture capital firms and ask their portfolio companies). It's not something people would keep secret from you... |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Finding a good small business CPA? | Check your local better business bureau. They can tell you who is in business, who's bonded, and who has had a lot of complaints levied against them for shoddy practices. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Finding a good small business CPA? | People to ask: Granted I live in a small town, but when the same guy's name comes up more than once that's who you should hire... |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Finding a good small business CPA? | Ask for at least 10 references. Ask for 10 because it will be harder for them to refer you to ringer references like their family or friends. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Finding a good small business CPA? | I have had better experiences with accountants in smaller towns. It seems they are used to working with small businesses and their reputation is very important to them. |
Share your insights or perspective on the financial matter presented in the input. | Finding a good small business CPA? | The first place to look for an accountant is the American Institute of Certified Public Accountants which has a directory of CPAs, accounting companies, and local accounting societies. I was also looking for one for my own small firm. It really helps. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Finding a good small business CPA? | Consult your local Small Business Administration office - they may have resources that can help you find what you're looking for. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | Finding a good small business CPA? | Look for an accountant who brings not only expertise in number crunching, but consulting and business planning - a full package. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | Taxable income on full-time job + business earnings | In Australia, any income you earn is taxable despite where it came from. Using your example your taxable income is $70,000. Keep in mind that with a business even as a sole trader any business expenses that contribute to the earning of your business income is deductible, reducing the final amount of tax you'll have to pay. The ATO website has lots of good information and examples to look at including tax rates. If your total income is pushing into a higher tax bracket over 30c tax per $1 earned, it may be worth looking at shifting your business to operate under a company structure that just has a fixed tax rate around 30c per $1. That said, for me, I don't want the paperwork overhead of a company yet so I'm running my side business as a sole trader too. I'd rather do that and keep it easy for now while my business gets profitable that waste time on admin structures for tax reasons even if in the shortterm it may mean slightly higher tax. In the end, you only pay tax on profit (income minus expenses) as opposed to raw/gross income. For more info there are good books in the bookshops or local library (to read free) on starting a business on the side while still working. They discuss these issues too. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Taxable income on full-time job + business earnings | I'm not sure I am fully understanding the nuance of your question, but based on your answer in the comments you and your business are not separate legal entities. So your income is the full $70K, there is no distinct business to have income. If you clarify your question to include why you want to know this I might be able to give a more meaningful answer for your situation. |
Share your insights or perspective on the financial matter presented in the input. | Taxable income on full-time job + business earnings | Possible alternative: In my case, the part-time locksmithing is a small enough portion of my I come that I just submit it as hobby income, rather than trying to track it as a separate entity. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | What's “wrong” with taking money from your own business? | I'm no expert on this, but I would say that, if you own the business entirely yourself, there is nothing terribly wrong with using it for your own purposes as you would any other asset that you own. What is wrong is not keeping accurate records that distinguish between your money and the business's. As you say, this is wrong strategically, but it can also be dangerous legally, because if you mix your money and the business's money and don't keep track, you could find, for instance, that you've failed to pay the taxes you were supposed to. There is also a concern that might not fall under what people refer to as "ethics" but more "good corporate citizenship". Basically, people tend not to like companies that just shovel all their gains into the owners' pockets. This is especially true if there are ways the money could be used to improve the business. In other words, if you're able to live high on the hog with the profits while paying all your employees a pittance, the public may not look favorably on your business. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited. | What's “wrong” with taking money from your own business? | If you are the only owner: then morally there is nothing wrong with this, as long as you make sure that everything is tracked so that you pay the proper taxes from the correct entity. The danger for you and your business is if the transfers aren't planned. Because you may not be re-investing enough of the profits back into the company. That means that the equipment may be aging but you aren't replacing it, it can also mean that you aren't spending enough on business development. If you pay yourself so much that you bankrupt the company that isn't good. If you live the good life but starve the employees and they realize it, or if you starve the business and the employees realize it; then you might have a problem motivating and retaining employees. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. Reply as normal question answering | What's “wrong” with taking money from your own business? | It's wrong in several situations: One, the business owner counts this as a business expense, which it is not, and therefore reduces the company's profit and taxes. That would be tax avoidance and probably criminal. Two, someone who is not the sole owner counts this as a business expense, which it is not, reduces the company's profit and when profits are shared, the company pays out less money to the other owners. That's probably fraud. Third, if the owner or owners of a limited liability company draw out lots of money from the company with the intent that the company should go bankrupt with tons of debt that the owners are not going to pay, while keeping the money they siphoned off for themselves. That would probably bankruptcy fraud. Apart from being wrong, there is the obvious risk that you lose control over your company's and your own expenses, and might be in for a nasty surprise if the company has to pay out money and there's nothing left. That would be ordinary stupidity. If you have to tell your employees that you can't pay their salaries but offer them to admire your brand new Ferrari, that's something I'd consider deeply unethical. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open. | Can a entrepreneur hire a self-employed business owner? | Yes. I can by all means start my own company and name myself CEO. If Bill Gates wanted to hire me, I'll take the offer and still be CEO of my own company. Now, whether or not my company makes money and survives is another question. This is the basis of self-employed individuals who contract out their services. |
Share your insights or perspective on the financial matter presented in the input. | How can I lookup the business associated with a FEIN? | I think much of that info is hidden behind pay-walls. Here is one site I've found. http://www.feinsearch.com/ Another that is for non-profits only is guidestar. http://www.guidestar.org/rxg/products/nonprofit-data-solutions/product-information/guidestar-premium/advanced-nonprofit-search.aspx |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | How can I lookup the business associated with a FEIN? | In most cases you cannot do "reverse lookup" on tax id in the US. You can verify, but for that you need to have more than just the FEIN/SSN. You should also have a name, and some times address. Non-profits, specifically, have to publish their EIN to donors, so it may be easier than others to identify those. Other businesses may not be as easy to find just by EIN. |