Every year, at least one of my clients will surprise me with something they did that will drastically affect their taxes and they didn’t tell me about it. Usually they did something like selling or buying a house, or they got married or divorced. That could mean they’ll get a nasty surprise when filing their taxes.
This year was no different, except it has much harsher consequences than even I had anticipated. This year one of my clients started a small business and didn’t tell me about it. By the time they called me to get their taxes done, there was nothing I could do to help them plan for the coming tax bill. A surprise tax bill of $5,000.00 is never fun, but this one cost them over $20,000.00!
Another client changed his LLC to an S-corp, just because his best friend had an S-corp, too. So he thought he should change his. What he didn’t realize was that it meant he had to do payroll. Again, he had a big tax bill that he was not prepared for.
You know I like surprises to a certain extent, but I don’t like ones that have a negative impact and could have been prevented. One simple phone call would have kept both clients from lots of pain simply because I could have prepared them for it and shown them ways to lower their tax bills. You cannot plan for something after the fact. It is best to be done before the event even occurs. But with the proper notice, we can often mitigate the surprises by simply putting a plan in place before the end of the year.
So, the next time you go out and buy a Big Red Semi Truck or plan to do something that affects your business, or when a life change such as getting married and buying a house happens, or even if something that you didn’t plan for happens, let me know as soon as possible. I would rather help you plan now for the tax consequences than give you another big surprise when we file your taxes.
We all know that putting all your eggs in one basket can be disastrous. I mean dropping the basket could mean you have egg on your face, or worse no eggs at all. This adage is often used in the area of financial advisors and retirement plans. When talking to most investment advisors, they are going to tell you that having too much of your money in one stock or fund could be a problem in the long run and therefore you should spread your risk by diversifying your portfolio.
Well the same applies to your business. You don’t want all your income coming from one client or one industry. If over half of your income comes from one client and that client either goes out of business or decides to purchase from someone else, you’ll find yourself scrambling to keep your business afloat. If all your income is from one industry, and if that industry is threatened by a new technology your business will be at the same risk of survival as theirs.
This is complicated by all the marketing gurus trying to get you to choose a niche which is basically relying on one industry to hold up your business.
So, what do you do about it. First you do need to identify a niche to give your marketing a focus but that doesn’t mean when someone outside of that niche asks about your services you turn them down simply because they are not in your niche. It also means that you must keep up on the industries that you service as well as your own – let’s say you work with paper manufactures who use only wood fiber to make their paper. Right now, those businesses are being threatened by the manufactures who use alternatives to wood for making paper such as hemp. Now you need to reposition your business to work with both those using wood and those using hemp. By doing so you now have not only widened your horizons, but you can also offer alternatives to your clients who are struggling by introducing them to how they can also start using these alternative means of making paper and possibly save their business at the same time you are saving yours.
How do you know if you need to start looking for other clients or industries to work with? The answer is that you never stop looking in the first place. But a good rule of thumb is to never have more than one quarter to one third of your income from one source. Several years ago, about half of my income was coming from one client. I didn’t realize that because that one client encompassed several different projects. When they closed their business, I was in trouble. It took about a year to recover from that but I learned a valuable lesson that forced me to look at other means of reaching new clients and new industries. That meant by the end of that year I had not only replaced that client, but also doubled the income I had from that one client.
This week you need to analyze your client list and see if you would be able to handle losing your top clients. If so, you are in good shape; but if not, what can you do now to diversify?
Have you ever considered what something costs you? Let’s consider a service plan; it doesn’t matter what kind of service plan; it can be for a vehicle, a website, accounting services or even for your computer. Often, we don’t want to pay the cost of a service plan at all, I mean how could anything we have possibly stop working?
Let’s use a computer plan for an example. My Computer Service Tech, Chris is the most amazing person, (he is also a great friend). Often, it seems the only thing I have to do is tell my computer I am calling him and the machine starts doing what it was supposed to. Sometimes though, I really do have to call him in. At first I figured I would save money by just paying him on an hourly basis when I needed him. But that meant that I would wait until I had no choice but call him and then it would take twice as much time and at an hourly rate that could cost me at least $300.00 per visit and even if that was only twice a year. Doing that, I was spending $600.00 a year or more, minimum. Now Chris offers a service plan that he will come do maintenance once a quarter automatically – I just make an appointment and he comes – no extra fees or anything – and it is way less then what I was paying before and it keeps me from throwing my computer out the window.
Just this week my husband came across this issue with one of his clients – the client had purchased a website hosting package before consulting with the one building his website and had chosen the cheapest hosting plan available. The problem was, that the one they had chosen was very limited. The client wanted a blog and they needed the ability to use a contact us page on their website – these are both very basic needs, but the package they had chosen would not support either of those because they wanted a cheap option. It turned out that the option they had chosen because it was cheap was costing them $20 a month or $240 a year. After evaluating all the options, it turned out that the package they needed was $30 a month or $360 but if it was purchased for three years you received a discount. That discount brought it down to a total of $450 for all three years making the monthly cost only $12.50. That made the more expensive plan the cheapest and gave them the options they needed to build a website they could be proud of.
Remember the phrase, “Penny wise and pound foolish?” Every business is obligated to save as much money as possible, but don’t let being frugal stand in the way of your business goals – spend the money required to make your business run as smooth as possible and you will find it growing. You can also make your business go stagnate by not spending the money necessary to keep your technology up to date. Any time you need to analyze which option is not only best for what you need but also the best bang for your buck give us a call we can help.
Throughout the year, I give you updates of new software I have found. Well it’s been a while so I’m going to go through all the software I use to run my business and why I use it. I’m not going to go through the tax software and boring stuff – just the software that I use to keep my business running smoothly. Many of these are software we set up or recommend for our clients in our Light Keeper CFO Services program.
- Xero – this is an accounting software that allows me to do everything from keeping track of my checking account, doing payroll for my employees, knowing which of my clients owes me money and what bills I need to pay. It also keeps track of my budget and spending, which is one of the most important parts of running a successful business. If you haven’t set goals and restrictions on your budget, you will never know if you are keeping your plans in motion.
- HubDoc – this is my favorite program. Why? That’s easy. I really am bad at keeping track of receipts because I hate having paper all over the place. This allows me to take a picture of the receipt, categorize it, push it into my Xero accounting software, and I don’t have to remember where I stashed the receipt. It also pulls all my bank and credit card statements so they are in one place. I can have invoices that I need to pay sent to my HubDoc automatically so I only have one location to find all my bills and other financial records.
- MileIQ – this keeps me out of trouble with the IRS! It keeps track of my mileage and I don’t have to remember to write anything down. This app lives on my smartphone and when my phone is moving it tracks the distance. No more paper logs that get tossed in the trash or blows out the window of my vehicle, no more recreating where I was all week because it will remember for me. And best of all, at the end of the year I pull one report and I’m done.
- Google Calendar and TimeTrade – these two work together. My Google calendar of course keeps track of where I need to be but when combined with TimeTrade it allows my clients to schedule their own appointments with me. No more playing phone tag or emailing clients back and forth just to see if I’m available to meet next week. They can go to my website, click on Schedule an Appointment and it will show them when I’m available, they can choose a time that works for them, and presto! Their appointment is on my Google calendar. And even better, TimeTrade will check my google calendar before showing when I’m available so no more double booking just because I forgot to write something down.
- Jigsaw Planet – why would I include a puzzle game in my business apps? Because I use this every day. Every morning this is how I get my mind ready to concentrate. We all need something that helps focus us – I also use Spotify if I lose my focus during the day – music can cut out the other noises and distractions bring me back into focus. Find something that can help you focus and relax your mind so it is ready to attack the next project. You will be more productive, I guarantee it.
- Zoom – this online video chat app allows me to have in person meetings with both my clients and employees (all of whom work virtually) without having to travel around the world every day.
How about sharing your apps and other software that you use every day to organize your life and your business?
I enjoy working with all my clients but some of the most fun are the ones that are in the cannabis industry. Most of you are going to say well of course, they are also high and more laid back. That is not true – these guys are true business owners and they are very serious about their businesses. What makes them fun to work with is not the product they sell, but the way they approach running a business. These are things that every business owner should embrace to grow their company.
- They are open to changing what they are doing to make their business better. By this, I mean that when I show them a new app that will make it easier to keep track of receipts they jump on it – they don’t question the necessity or price they just want to make their job and mine as smooth and simple as possible.
- They don’t try to pass off personal expenses as business expenses. I will not work with clients who try to write off things like their dog, or who refuse to keep a mileage log. These businesses work very hard to obtain their license, and they do not want to jeopardize that in any way – because of that, when they are told they need a mileage log they don’t fight about it – they just do it. They keep every receipt and they follow the rules.
- They take their business seriously but they don’t’ take themselves too seriously. They are not annoyed when someone plays a joke on them and they are great at finding fun things to do with their personal time. But when it comes to business, they want to learn as much as possible to make their business the best it can be. They are also not opposed to having fun in the workplace as long as the work is done on time and correctly – that means having music in the background or getting a new tattoo is not going to get you in hot water with your boss.
The bottom line is to take your business seriously but not so much that you are afraid to try new things. Not every app out there or new idea is going to be fruitful or work for you, but if you just keep the status quo you will never grow and neither will your business.
It was the night before Christmas when all through the house not a creature was stirring except…Wait, why am I still at the office?
Ever feel like you are the only one working; or for that matter, the only one who cares about your business and if it is successful? I know I have felt that way, and I know I will be working on Christmas Eve (at least in the morning). The thing is, I know I need to learn how to delegate to my employees and trust that they will get the job done. That is very hard for me as I know it is for most business owners. It is not because we don’t want to trust, it is just because i haven’t learned that I can, yet.
When you first start a business, it is like a baby that needs to be nurtured along. I find the hardest part of delegating is that it is my baby. When my oldest son got married it was very difficult for me to accept that he didn’t need me to keep track of things any more. I didn’t have to go to his doctor appointments or make sure he had a winter coat. When my youngest got married I think he was disappointed that I had learned those things from his older brother and was not as inclined to continue babying him. I am hoping that will rub off in my business now that I have employees. Granted one of those employees is my youngest son, so it is still difficult at times to not revert to nagging him like I use to do with his homework; but I think I am learning.
The second issue is the illusion of time. I know that I can do things faster than I can train someone else to do it. However, that is a trap. If I don’t take the time to train them how will they ever be able to take on a project without me being worried that they will miss something? Not only that, would it actually be a disaster if they did miss something? I mean, most mistakes can be fixed fairly easily, and I would know what I still need to train my people on.
I know this blog post is mostly for me- a reminder that I don’t have to do everything myself, and I’ve recently hired a business coach to help me find more ways to improve my business and give me more time. My goal is that next year I can take a week or two off and know that everything is still chugging along. What do you see as the problems with delegating? Oh, and go home. It’s Christmas! Your business will still be there on Monday.
Most people think it is impossible to be completely debt free without winning the lottery, and let’s face it, most of us are not winning the lottery this week. So how do you pay off debt and still have money for groceries?
There are two main philosophies for paying off debt. The first is called the Debt Snowball – this is the one that is supported by Dave Ramsey (http://www.daveramsey.com). To do this, you pay the minimum payment on everything except the smallest loan amount. This is normally a credit card, but could be any type of loan. On the lowest one you put as much as possible towards that one loan, even if it is only $50 over what the amount due is. So if you have a loan of $500 and the minimum payment is $10 + your additional $50, you will have that debt paid off in 8 – 9 months depending on the interest rate. Once that debt is paid off, you start on the next lowest debt. This one works the same way; you are going to pay the minimum balance plus the amount you were paying on the previous loan. So if the minimum payment is $15 then you will be paying that $15 plus the $60 you were paying on the other card amounting to $75. If this started at $1,000 you will have already paid $135 by paying the minimum payments for the 9 months you were working on paying off the other card – now you are at $865, you will have this one paid off in about 12 – 13 months. That is 1 year and two of your debts are gone. You continue doing this until everything is paid off. The idea is to gain momentum and see results quickly.
The other philosophy, called a Debt Drilldown, is to take the card with the highest interest rate and pay it off first. You then do the same as above. Pay off the highest interest rate first then take the amount you were using to pay it and start tackling the next one. This one may not show the results as quickly, but it will mean you will pay less in interest overall.
The key to either of these methods is, that you can’t incur more debt while paying off the debt you already have. That would defeat the purpose and you could end up in a worse situation than before. For both of these methods to work, you need to first save up an emergency fund so you don’t have to rely on debt when the car breaks down or your child breaks their arm. We suggest saving a minimum of $500.00 to $1000.00 in your emergency fund. Ideally, you should have three to six months of normal expenses in your emergency fund.
Getting and staying out of debt is not easy but eventually it will give you the freedom to buy a new car or even a new house with cash because you can save money easier when you are not paying interest on debt. No, I am not debt free yet, but I am working on it.
Do you ever accept cash as a payment in your business? Well legally, you have to accept any legal tender which includes cash. However, most people do not carry $200 cash with them let alone $1,000. Or what happens when someone pays you $10,000 in cash, well now you have a problem. It is called an 8300 form that must be e-filed through the BSA e-filing system within 15 days of receiving the cash.
The thing is, that the definition of cash also includes things like money orders and traveler’s checks. This applies to every business. This is most common in casinos and cannabis businesses, but really, this applies to every business. Most of the time it is a single transaction that is paid in cash – the business receiving the cash must file the form.
So what information do you need for the form? Basically everything. The name of the individual you receive the money from – even if it is a courier, you have to have all their info including social and date of birth. The person or business that actually purchased the product. The kind of currency and even the number of $100 bills, type of transaction and then finally the business that received the cash – you even have to mark if it was for a suspicious transaction.
I don’t know about you but I can’t wait to go by a car in cash someday, if nothing else to educate the person that this form has to be filled out. However, for the safety of your business, make sure you have a written procedure for how to receive a cash payment including filling this form 8300 out. If you need guidance in these procedures just give us a call.
All of us shop on Amazon at some point, mostly because it is easy to find things and often what we are looking for can’t be found elsewhere. We also think isn’t it great that we don’t pay sales tax on most of those purchases. Well that is where use tax comes into play. Anytime you don’t pay sales tax, or pay under the amount for your area, you are required to pay use tax.
The State normally does not pursue individuals for use tax; however, they can and they have, in the past. It is usually businesses the State audits for sales tax. This is especially common on certain industries, especially those that are cash intensive such as the cannabis businesses. For individuals you are supposed to file an annual return and remit the use tax. For businesses, it is due every month on the 20th of the month, for the prior month, with several exceptions. Normally it is filed on the same form as your sales tax each month. Some states have different requirements and some just put it on the income tax forms, so make sure to check your state regulations or give us a call if you need help figuring it out.
To calculate the use tax, just add up all your purchases of material goods that are used in your household or business. If they are re-sold or are used to make something else such as a flavoring for a candy, then you back those out because when the product is actually sold to the end user it will be due.
But how do you prove you paid sales tax and are not subject to use tax? That is easy – KEEP YOUR RECIEPTS. The receipt will have sales tax listed separately proving it was already paid. The tricky ones are those items bought on your behalf by someone else such as a contractor. In that case, make sure your contractor either gives you copies of all the receipts, or breaks out the sales tax portion on his invoice to you. In other words, KEEP YOUR RECIEPTS.
Do you have a right to privacy? Well, according to the Bill of Rights Amendment 4 you have the right “to be secure in their persons, houses, papers and effects against unreasonable search and seizures” and the 5th Amendment states that you cannot be a witness against yourself. So how do those amendments effect you when dealing with non-judicial branches of the government, such as the IRS?
Well, the bottom line is none of it means a thing when going against the IRS. You are required to keep records and report them to the IRS. This was held up by the Supreme Court in 1927 in US v. Sullivan when a man refused to file a tax return on the ground it could incriminate him. The problem in interpreting how you get your case handled by the IRS are the words “unreasonable” and “criminal”. Amendment 5 only applies to criminal law, while most IRS tax cases fall under civil law. And we all know that “unreasonable” is open to interpretation.
The only option when it comes to taxes is to always have your records available. Remember, that the IRS does not need your cooperation to obtain some records, such as bank statements, because they can always get them directly from the bank. Short of creating your own country on a deserted island (remember other countries require tax returns also), your only option is to make sure you are paying the least amount legally possible to the IRS. Give us a call and we can help you put a strategy in place to keep more of your money in your own pocket. And we won’t be unreasonable about it!