Archive for December, 2011

10 Not-So-Simple Tax Deductions & More

December 28th, 2011

The more tax deductions your business can legitimately take, the lower its taxable profit will be. Also, in addition to putting more money into your pocket at the end of the year, the tax code provisions that govern deductions can also yield a personal benefit: a nice car to drive at a small cost, or a combination business trip and vacation. It all depends on paying careful attention to IRS rules on just what is, and isn’t, deductible. And sometimes that’s more complex than you think. Still, don’t overlook these important business tax deductions.

1. Auto Expenses
If you use your car for business, or your business owns one or more vehicles, you can deduct some of the costs of keeping it on the road. Mastering the rules of car expense deductions can be tricky, but well worth your while.

There are two methods of claiming expenses:

• Actual expense method. You keep track of and deduct all of your actual business-related expenses.
• Standard mileage rate method. You deduct a certain amount (the standard mileage rate) for each mile driven, plus all business-related tolls and parking fees. In 2011 the standard mileage rate is 51 cents per business mile driven from January through June, and 55.5 cents per business mile driven from July through December.

As a rule, if you use a newer car primarily for business, the actual expense method usually provides a larger deduction at tax time. If you use the actual expense method, you can also deduct depreciation on the vehicle. To qualify for the standard mileage rate, you must use it the first year you use a car for your business activity. Moreover, you can’t use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle. (For more on Section 179, see “New Equipment,” below.)

If your auto is used for both business and pleasure, only the business portion produces a tax deduction. That means you must keep track of how often you use the vehicle for business and add it all up at the end of the year. Certainly, if you own just one car or truck, no IRS auditor will let you get away with claiming that 100% of its use is related to your business.

2. Expenses of Going into Business
Once you’re running a business, expenses such as advertising, utilities, office supplies, and repairs can be deducted as current business expenses, but not before you open your doors for business. The costs of getting a business started are capital expenses, and you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs for a business started in 2011; any remainder must be deducted in equal amounts over the next 15 years.

If you expect your business to make a profit immediately, you may be able to work around this rule by delaying paying some bills until after you’re in business, or by doing a small amount of business just to officially start. However, if, like many businesses, you will suffer losses during the first few years of operation, you might be better off taking the deduction over five years, so you’ll have some profits to offset.

3. Bad Debts
If your business has uncollectable invoices from customers or clients, then bad debt may or may not be deductible. It depends on the kind of product your business sells.

• If your business sells goods, you can deduct the cost of goods that you sold but were not paid for.
• If your business provides services, no deduction is allowed for time you devoted to a client or customer who doesn’t pay.

4. Business Entertaining
If you pick up the tab for entertaining present or prospective customers, you may deduct 50% of the cost if it is either:

• directly related to the business and business is discussed at the event,  for example, a catered meeting at your office; or
• associated with the business, and the entertainment takes place immediately before or after a business discussion.

On the receipt or bill, always make a note of the specific business purpose, for example, “Lunch with Doug Boswell  of Solid Growth Accounting Services to discuss the monthly financial reports.”

5. Travel
When you travel for business, you can deduct many expenses, including the cost of plane fare, costs of operating your car, taxis, lodging, meals, shipping business materials, cleaning clothes, telephone calls, faxes, and tips.

It’s OK to combine business and pleasure, as long as business is the primary purpose of the trip. However, if you take your family along, you can deduct only your own expenses.

6. Interest
If you use credit to finance business purchases, the interest and carrying charges are fully tax-deductible. The same is true if you take out a personal loan and use the proceeds for your business. Be sure to keep good records demonstrating that the money was used for your business.

7. New Equipment
Some small businesses can write off the full cost of some assets in the year they buy them, rather than capitalizing them and then deducting their cost over a number of years.

Section 179 of the Internal Revenue Code allows you to deduct up to $500,000 of the cost of new equipment or other assets in 2011. This is subject to a phase-out if you place more than $2 million of equipment in service. Some assets don’t qualify for this Section 179 deduction, including real estate, inventory bought for resale, and property bought from a close relative. The annual deduction amount goes down to $125,000 in 2012.

There is also a first-year bonus depreciation deduction in effect for 2010 through 2012. This special deduction allows taxpayers to depreciate an additional 50% or 100% of the adjusted basis of qualified property during the first year the property is placed in service. This deduction can be taken in addition to the Section 179 deduction and offers tremendous tax savings. For the calendar year 2011, the first-year bonus depreciation is 100%. For calendar year 2012, the first-year bonus depreciation amount is 50%.

8. Taxes
Taxes incurred in operating your business are generally deductible. How and when they are deducted depends on the type of tax:

• Sales tax on items you buy for your business’s day-to-day operations is deductible as part of the cost of the items; it’s not deducted separately. However, tax on a big business asset, such as a car, must be added to the car’s cost basis; it isn’t deductible entirely in the year the car was bought.
• Excise and fuel taxes are separately deductible expenses.
• If your business pays employment taxes, the employer’s share is deductible as a business expense. Self-employment tax is paid by individuals, not their businesses, and so isn’t a business expense.
• Federal income tax paid on business income is never deductible. State income tax can be deducted on your federal return as an itemized deduction, not as a business expense.
• Real estate tax on property used for business is deductible, along with any special local assessments for repairs or maintenance. If the assessment is for an improvement — for example, to build a sidewalk — it isn’t immediately deductible; instead, it is deducted over a period of years.

9. Education Expenses
You can deduct education expenses if they are related to your current business, trade, or occupation. The expense must be to maintain or improve skills required in your present employment. The cost of education that qualifies you for a new job isn’t deductible.

10. Advertising and Promotion
The cost of ordinary advertising of your goods or services, such as business cards, yellow page ads, and so on, is deductible as a current expense. Promotional costs that create business goodwill, for example, sponsoring a peewee football team, are also deductible as long as there is a clear connection between the sponsorship and your business. For example, naming the team the “Solid Growth Accounting Dodgers” or listing the business name in the program is evidence of the promotion effort.

Here are some additional routine deductions that many business owners miss. Keep your eye out for them.

• DVDs, CDs, audiotapes and videotapes related to business skills
• bank service charges
• business association dues
• business gifts
• business-related magazines and books
• casual labor and tips
• casualty and theft losses
• coffee and beverage service
• commissions
• consultant fees
• credit bureau fees
• moving expenses
• office supplies
• online computer services related to business
• parking and parking meters
• petty cash funds
• postage
• promotion and publicity
• seminars and trade shows
• taxi and bus fare
• telephone calls away from the business

Note: Just because you didn’t get a receipt doesn’t mean you can’t deduct the expense, so keep track of those small items.

5 Ways to Improve Your Biz in 2012

December 7th, 2011

It’s a new year, a new cycle and a new beginning. And that means it’s a good time to put into place the strategies, techniques and tactics that will move your company’s position forward. You know you want to make it happen, so get ready to make some changes. Here are five good ways to make 2012 the best year ever.

1. Stop multitasking. The fact is that multitasking causes you to be less productive, not more. Your brain can only do one thing really well at a time, and being good at multitasking is really only just being good at switching back and forth quickly. Focus all your attention on the one task at hand and only switch to the next when it’s completed.  Try turning off everything that distracts you in your office for at least part of the day, and then don’t just get busy, get working.

2. Stop doing everything yourself. Change your organizational structure from a wheel to a hierarchy. Your business can’t grow if everyone works for you, and all decisions need to come through you.  Create an organizational chart with you at the top and your employees, contractors and consultants below you in a tree-structured hierarchy. Who are your “captains” and who are your “soldiers”? But remember, no matter what title you bestow, everyone is “hands-on”, because after all this is small-business.

3. Once your business has grown to the point of needing employees, you will want to continue to grow it by establishing a superior team. Only hire the best people, and pay them well. This is your best place for leverage so plan on paying more. If you want to get the best people, typically, you need to pay in the top 10%. And to keep them you’ll have to challenge them, motivate them and demonstrate your appreciation. Yes, you will be a manager.

Take your time hiring the best person for the job. If an employee is not working out, fire them in the first month. With proper training, few people’s general effectiveness changes after a month. Remember the old adage, “Be slow to hire and fast to fire”.

4. Stop trying to use social media to sell your products or services. Use social media for customer service and to build prospect relationships by answering questions in your company’s area of expertise. Use your social media properties to establish yourself as the go-to authority in your niche. The business will search you out. Then put on your salesperson-hat and close the deal. Don’t expect anything more.

5. Do not outsource the math. Commit to understanding every number in your three key financial reports; the profit and loss statement, balance sheet and cash flow statement. Insist that your accountant explain and review them with you every month. If you do not understand where your business has been, you can’t forecast where it is going. It’s better to make all your business decisions based on the hard facts of you company’s performance, not a hunch or your “feel” for where you are. 

10 Great Business New Year’s Resolutions

December 2nd, 2011

The New Year is soon approaching and now is the time for you as a small business owner to reflect back on the year and make an objective evaluation of the state of your company. Determine what you want to pull forward into the New Year and what you want to leave behind. Then, let go of 2011, no matter how tough or how successful a year it was. What’s done is done, and the only thing to do is to move forward and onto greater success, even if you need to make some course corrections to improve operations and change your fortunes. Make 2012 the best year possible; personally and professionally.

Many business-related New Year’s resolutions encourage one to set goals, plan, prioritize, delegate, follow through and follow up. Others tell you to improve your marketing strategy, re-focus your sales tactics, improve your customer service, provide for more employee inclusion, and provide for your own improvement. And your accountant is advising you that these resolutions need to include staying current with your record keeping, analyze your financials, create budgets and projections, and understand your financial statements. And of course, everyone wants to make more sales and generate more revenue.

So out of all that, here are ten great areas to focus on to make you a successful entrepreneur in 2012: 

1. Set goals and prioritize
When you set your business goals for 2012, make sure they are specific, measurable, attainable and trackable. Once you have them in your sight, you must create a hierarchy to your projects, dividing them up by A, B, C, etc., priorities and then break them down further into the tasks to do weekly and daily to make them happen. It will keep you on track and make you successful.

2. Focus and delegate
Focus your time on making money. Be wiser at how you spend your time. Stop doing work that does not generate income and focus your time on activities that generate income and growth for your company. This means delegating non-income producing work to other employees (or outsourced contractors) and focusing your time on activities that will grow your company, such as publicity, marketing, and sales.

3. Only market to prospects that can actually pay for your product
Stop trying to sell your products or services to people that do not have the money to buy. You can waste a lot of time on prospects that show inconsistent interest. Separate out the “tire kickers” from the buyers by determining the customer’s budget, who the decision makers are, and the time-frame for their purchase. Generating new sales is expensive, so fill your funnel with people that will actually buy from you. Have you been working on prospects that no longer return your phone calls or emails? Cut them from your hot list and put them back into your marketing funnel to be contacted at a much later date. Only call on prospects whose pain you can relieve, whose budget is clear to you, and who can make the buying decision.

4. Meet with customers and vendors face to face
Stop relying on email and the phone as an exclusive way to talk with customers. Even in a social media world, deep and long lasting business relationships are still built in real life.

5. Embrace networking as a key marketing strategy
People sometimes say that business success depends on who you know. But those that embrace business networking as a marketing strategy understand that it is much more a factor of who knows you that will bring success to your business.

Make it your practice to regularly attend business networking events, make new contacts, follow up with them and keep an eye out for “power-partners”, those people who sell to the same pool of potential clients or customers that you do. There is synergy in those relationships that will benefit you both. But don’t go into a networking event looking to sell people on your product or services. Make it a point to spend more time asking about their business than telling them about yours. Strive to become a trusted source for referrals. When it comes to building long term relationships, few things are better than helpful information provided out of a genuine concern for the other person.

6. Invest in yourself and learn at least one new skill
“Old dogs can learn new tricks.” You are probably already investing in training for many of your employees. This year look at becoming proficient in an area where you are weak or afraid. Learn something new. What you choose to learn may be directly related to your business, or completely unrelated. Learning something new will add to your skills and add a new dimension of interest to your life, an important part of achieving a healthy work-life balance. Depending on how you choose to learn, you may meet new and interesting people, who may become customers, colleagues, or friends. How will you find the time to learn something new? By delegating, remember New Year’s Resolution number two above?

7. Drop what’s not working for you and move on
All products aren’t going to be super sellers, all sales methods aren’t going to work for everyone, and all suppliers or contractors aren’t going to be ideally suited to your business. If a technique or a product or a business relationship isn’t working for you, stop using it. Don’t invest a lot of energy into trying to make the unworkable workable. Move on. Something better will turn up.

8. Stop letting your money sit in someone else’s pocket
Commit to strict accounts receivable practices. Establish a credit limit for each account and enforce it. Process ALL invoices immediately; take action on late accounts right away. Start with a polite but firm personal call and don’t get off the phone without a commitment for payment by the end of the next business day. A few days improvement in collections will substantially increase your cash flow. Take your accounts receivable seriously. Protect your business, yourself and the ones you love

9. Learn to understand what your financial statements are telling you each month
Many business owners are too busy to check, or don’t understand, their financial statements. Make a commitment to learn what the profit and loss, balance sheet and cash flow statements mean to your business and use them as a guide for future action. Delegate the work of putting them together, but do not delegate the understanding to your bookkeeper, manager or professional.

10. Get over your fear of growth
In my work with entrepreneurs, I see a paralyzing fear of growth, of expanding beyond controlling everything yourself. What to do? Plan your course of action and then mindfully move through it and expand. Determine the areas that must grow, in resources, staff, product development, sales, etc., and invest in what will generate the biggest bang for your buck. You can’t make the living you want if you don’t grow beyond doing everything yourself. Make this your year to grow!

So, with all the things you know you can do to improve your business; these are some of the key areas that you can put your efforts into that will boost your operations past their present state and into new and exciting territory. See your vision. Set your goals. Make a plan. Work the plan. Be relentless. And resolve to have your BEST year ever!