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Author: Jake Snelson

File Last Year’s Taxes Online

How Do I File Last Year’s Taxes Online?

It’s never too late to file overdue tax returns. Of course, filing all of your taxes by the April 15th (April 18 for 2016) deadline is always the best way to keep yourself out of hot water with the IRS. But, if you still haven’t filed a previous year’s tax returns, you still can and should to take care of it as soon as possible.

Here are a few quick steps to file last year’s taxes online:
  1. Gather your documents. Same process as any other year, you’ll need all of your documentation before you can file last year’s taxes online. Gather W-2s, 1099s, and any other tax paperwork you received for the year you missed. If you have deductions you plan to claim, you’ll also need your receipts and documentation of those items. If you’re missing any W-2s or 1099s, you can request them from the IRS by filling out a Form 4506-T. Keep in mind that it can take the IRS up to 45 days to process your request.
  2. Download previous year’s tax forms. In order to file last year’s taxes online, you must use the original tax forms from the year you missed. You can search for and download those from the IRS website.
  3. Prepare back tax returns. As you’re preparing last year’s taxes, you cannot use this year’s tax instructions. Because tax laws change every year, you’ll want to make sure you are following the correct year’s instructions as you’re inputting your data. Online accounting software like Turbotax can walk you through your taxes and help you file last year’s taxes online. Vyde also offers catch up tax preparation and virtual bookkeeping.
  4. Submit your tax forms. Send your forms to the address listed on the Form 1040 instructions. If you’re filing online, most tax softwares can submit your tax forms for you. If you owe taxes, try to send as large of payment as possible to avoid additional penalties and interest. After the IRS receives your taxes, they will notify you of the exact penalty you must pay for being late.

For more information on how to file last year’s taxes online, visit the IRS website.

Forming a Small Business Partnership

The Pros and Cons of Forming a Small Business Partnerships

The Pros and Cons of Forming a Small Business Partnerships

There are currently about 2.2 million business partnerships in the US, which forms about 8% of all small businesses. While not the most common type of business entity, (S Corps make up about 73% of small businesses), partnerships are a popular choice among entrepreneurs. Before structuring a small business partnerships, you’ll need to consider the pros and cons of this type of entity.

Pros of Forming a Partnership

  • Partnerships are easy to form. In fact, they’re one of the only type of business agreements that can be formed with a handshake.
  • Partnerships are inexpensive to form. There is not a lot of paperwork and state filing to do with a partnership so they are relatively inexpensive. Business partners can draft the agreement themselves, or they can hire an attorney which normally costs anywhere from $500 to $2,000.
  • Partnerships offer favorable taxation to most smaller businesses.
  • Business partners have more say in the activities and management of their business.
  • Partnerships often do not have to pay minimum taxes that are required of LLCs and corporations.
  • Well-formed partnerships are often profitable and organized. If one partner decides to leave the business, they can do so without much consequence, if it was written into the agreement.
  • Each business partner brings a fresh perspective to the business and is able to share responsibilities, rather than running the business by themselves.

Cons of Forming a Partnership

  • Owners in a small business partnership are subject to unlimited personal liability for the debts, losses and liabilities of the business (except in cases of limited partnerships and limited liability partnerships).
  • Individual partners must take the responsibility of the other partner’s actions–even if they are unfavorable.
  • Poorly organized partnerships often lead to legal disputes and lawsuits. Partnerships can quickly become expensive when it comes to solving disagreements.
  • Because partnerships are jointly owned, each partner must share the successes and profits of their business with the other partners. An unequal contribution of time, effort, or resources can cause discord among business  partners.

Pros of Forming a Partnership

Discuss the pros and cons of forming a partnership with your partner before settling on an agreement. Talk through even the awkward “what if” situations to get a feel for whether the partnership is a good fit. It’s best to consult a professional before entering into a partnership if you think there is a possibility you might regret the agreement somewhere down the road.

FAQs on Small Business Partnerships:

How easy is it to form a partnership? Forming a partnership is relatively easy and can even be established with a handshake, making it one of the simplest business agreements.

2. What are the key advantages of partnerships? Partnerships offer favorable taxation, shared responsibilities, and more say in business activities, fostering profitability and flexibility.

3. What are the risks associated with partnerships? Partnerships entail unlimited personal liability for debts, potential conflicts, and the obligation to share profits, possibly leading to discord among partners.

4. Can partners exit a business without consequences? Well-drafted agreements allow partners to leave without severe consequences, but poorly structured partnerships can lead to disputes and legal issues.

5. How crucial is professional advice before forming a partnership? Consulting professionals is highly recommended to navigate potential regrets and ensure clarity on the terms and possible scenarios within the partnership agreement.

Interested in Learning More?

Schedule a free consultation with our team!

Structure a Small Business Partnership

How to Structure a Small Business Partnership in 3 Steps

How to Structure a Small Business Partnership in 3 Steps

A partnership is a business form created automatically when two or more persons engage in a business enterprise for profit. It is the only business structure that can be created by an oral agreement, though an oral agreement is not recommended. As a business runs its course, owners are sure to have differing opinions which can quickly escalate into disputes--especially if the duties and responsibilities of each partner are not outlined in a specific written agreement.

In order to form a legal, binding, and secure small business partnership, there are a few steps you can take to ensure the happiness and satisfaction of both business partners.

1. Decide which type of partnership you plan to form. There are a few common types of partnerships you can create when starting your small business venture.

  • The General Partnership: This is the simplest of all partnerships and is almost always the case with oral agreements. In a general partnership, all partners share in the management of the entity, in the entity’s profits, and in the liability of the business. Matters relating to the ordinary business operations of the partnership are decided by a majority of the partners. In this type of partnership, the two partners may own different percentages of the business and have more or less say in things.
  • The Limited Partnership: In this case, the partners contribute capital and share in the profits but normally do not participate in the management of the enterprise. Limited partners incur no liability for debts beyond their capital contribution. The limited partnership is commonly used in the restaurant business, with the founders serving as general partners and the investors as limited partners. A limited partnership generally requires more paperwork and official filings with the state to be recognized. Many businesses choose to form an LLC rather than a Limited Partnership.
  • Joint Venture: This acts as a general partnership, but for only a limited period of time or for a single project. Partners in a joint venture can be recognized as an ongoing partnership if they continue the venture, but they must file as such.

2. Discuss these important points. You’ll need to make decisions on the following:

  • How decisions will be made
  • How ownership will be shared
  • How and when business owners will be paid
  • Develop an exit strategy
  • Other details including any personal preferences, employee management, vacation time, office schedules, investments, etc.

3. Hire a professional to take care of the paperwork. While it is legal and perfectly normal for business partners to write up their own documentation of partnership, it is not advised. It’s best to bring in an attorney to draw up the agreement, check with the state on any legal filings that need to take place, and remind the partners of any points that may be missing from their agreement. It generally costs anywhere from $500 to $2,000 to have an attorney draft a partnership agreement for small business owners, depending on the complexity of the arrangement.

Structuring a small business partnership doesn’t have to be complicated, but it is important to be thorough in the agreement in case problems arise in the future. The partnership agreement can be revised as the business evolves, at the consent of both partners.

Take the stress out of partnership documentation. Partner with Vyde, your accounting professionals offering more than tax filing. Access a team dedicated to saving you money, providing insights, and proactive advice for your business finances. Let us identify deductions that bring significant savings to your business. Reach out today!

FAQs for Structuring a Small Business Partnership:

  1. What are the main types of partnerships for small businesses?

    The main types include General Partnership, Limited Partnership, and Joint Venture. Each has distinct features regarding management, liability, and participation.

  2. What key aspects should be discussed when forming a partnership?

    Important discussions involve decision-making processes, ownership shares, payment methods, exit strategies, employee management, and other preferences impacting the business.

  3. Is it necessary to hire a professional for partnership paperwork?

    While partners can draft their agreement, it’s advisable to involve an attorney for legalities, ensuring completeness, and filing requirements. Attorney fees typically range from $500 to $2,000 based on the agreement’s complexity.

  4. Can a partnership agreement be altered as the business grows?

    Yes, partnership agreements can be revised with both partners’ consent as the business evolves. It’s crucial to update the agreement to accommodate changes and prevent future disputes.

  5. What risks are associated with forming an oral partnership agreement?

    • An oral agreement lacks legal protection and clarity. Disputes can escalate quickly, as duties, responsibilities, and profit-sharing might not be explicitly defined, leading to potential conflicts.

Interested in Learning More?

Schedule a free consultation with our team!

Succession Plan for My Small Business

How do I Create One A Succession Plan for My Small Business?

 

When you start a small business, it’s important to consider and anticipate possible changes in the future. A well thought out succession plan can ease the process of change as your business evolves.

What is a Succession Plan?

How Do I Create a Succession Plan

A succession plan is basically a written plan that outlines how one leader will replace another within a business in the future. Positions of leadership are often–though not always– filled internally, with people who have the potential to improve upon their current position and assume a leadership role.

How a leader exits a business and how that change is managed reveals the character and effectiveness of the business as a whole. As a small business owner, you’ll want these transitions to go as smoothly as possible. A clearly defined succession plan in any small business not only reduces potential conflict, but it increases the availability of capable employees that are prepared to assume leadership positions. It also helps with employee retention and motivation, especially if employees see a clear path to advancement in their future.

How Do I Create a Succession Plan for My Small Business?

  • Assess internal candidates first. These are the people who know your business best. It doesn’t always mean they are the best fit for the job, but it’s a good idea to start analyzing a group of people you already know and trust to possibly fill leadership positions within your company. Try to view all employees objectively in this process. Note the positive characteristics that could make each candidate a leader, while also taking notice of the characteristics that could hinder their ability to take on a larger role within your business.
  • Develop a written criteria.
  • Consider all stakeholders. As you are developing a succession plan for your small business, consider how a change in the leadership will affect the other employees that work for you, as well as your business partner if you have one. Ponder these questions as you develop your succession plan:
    • Is there an emergency candidate who could take the reins if you were to leave tomorrow?
    • Who do I need to invest in today so that he or she will be prepared to take on a leadership role in the future? How do I best prepare this person?
    • Is the company organized enough to ease the transition of a new leader?
    • Is there a seasoned leader in place who is willing to coach a potential successor?
  • Prepare the potential leadership candidates. Perhaps the most neglected step in the succession planning process is to prepare the candidate after he/she has been chosen. There is no such thing as a “ready now” candidate; all will need mentoring and training to assume a leadership role. Make sure the candidate for the position has the support they need to learn, grow, and stretch their capabilities to assume a role that will include more stress and responsibility.
  • Refresh as needed. Your succession plan should be a living document that is changed and modified as market conditions and/or strategy change. It should go beyond the traditional position description and delve deeply into both the competencies and experiences required for the next leader. The succession plan can then be used as a tool in grading succession candidates objectively.

Your succession plan should be a living document

When in doubt, consult a professional. An accountant or attorney can provide a fresh, objective viewpoint and can advise you on the potential profitability of certain candidates. Developing a solid succession plan now can help ease the transition of changing roles later on.

FAQs for Small Business Succession Planning:

What is a Succession Plan?

A succession plan outlines how leadership transitions will occur within a business in the future, often internally, to ensure smooth changes.

How Do I Create a Succession Plan for My Small Business?

Start by assessing internal candidates objectively, develop written criteria, and consider all stakeholders to prepare potential leaders effectively.

Why is Succession Planning Important for Small Businesses?

It reduces conflict, boosts employee retention, and ensures a pool of capable leaders for future growth, fostering a smoother transition.

How Do I Prepare Potential Leadership Candidates?

After selection, provide mentoring and training to prepare candidates for increased stress and responsibility, ensuring they’re ready for leadership roles.

When Should I Refresh My Succession Plan?

Regularly update your succession plan to reflect changes in market conditions or strategy, ensuring it remains an effective tool for identifying and grooming future leaders.

 
 
 
IRS Payment Plan

How to Set Up an IRS Payment Plan

The IRS offers installment agreements to taxpayers who are unable to pay their tax payment all at once. If you cannot meet your tax obligation currently or in the near future, you are not alone. Fortunately, you can request to make monthly payments to the IRS until you are paid in full. Here’s how:

Depending on the amount of taxes you owe and how quickly you are able to pay, there are a few different ways to set up an IRS payment plan :

Set Up an IRS Payment Plan

  1. IRS Payment plan for individuals who owe less than $50,000 in federal taxes: The Individual Agreement Installment is the most common type of IRS payment plan for taxpayers in this category. Payments are made monthly, usually through a debit card. However, this type of IRS payment plan also accepts check or money order, credit cards online or by phone, EFTPS, payroll deduction from your employer, or an online payment agreement. To apply for this type of IRS payment plan, you’ll need to fill out a IRS Form 9465 (Installment Agreement Request). You can also apply through the IRS.gov website with the Online Payment Agreement Application.
  2. IRS Payment Plan for individuals who owe $50,000 or more in federal taxes: Individuals in this category must also fill out an IRS Form 9465 (Installment Agreement Request), as well as a Form 433-F (Collection Information Statement). The Form 433 will ask you to list your accounts and lines of credit, plus real estate and other assets. You will be asked to provide your monthly income, in addition to your monthly living expenses. Fill out both of these forms and mail them together to set up an IRS payment plan.
  3. IRS Payment Plan for Business Owners who owe less than $25,000 in federal taxes: Business owners can request a “In-Business Trust Fund Express” installment agreement (IBTF-Express IA). To be eligible, the business must have employees. This plan provides a 24-month period to pay the outstanding tax debt. If the amount owed is greater than $10,000 (and below $25,000), the business must set up a Direct Debit installment agreement.

Additional Information from the IRS website

Additional Information from the IRS website: It costs $120 to set up a standard agreement or payroll deduction agreement with the IRS, and $52 to set up a Direct Debit agreement. If your income is below a certain level, the fee for setting up an installment agreement is $42. To request this reduced fee, submit Form 13844 (Application for Reduced User Fee for Installment Agreements). The charge for reinstating or restructuring an existing installment agreement is $50.

Ready to make your federal tax payment to the IRS? Visit this post to learn where and how to send your payment.

Federal Tax

How to Pay the IRS if You Owe Money on Your Federal Taxes

If you’re not receiving a refund on your federal taxes this year and just found out that you’ll actually owe money to the IRS, you’ll need to get that payment in as soon as possible. This is a common scenario for small business owners, self-employed taxpayers, and those who have held too little money withheld from their regular paychecks for the past year.

If you owe money on your federal taxes and need to pay the IRS, there are a few ways to go about this:
  • IRS Direct Pay: The simplest and quickest way is to visit the IRS website and choose the Direct Pay option. This will pull money directly from your bank account at no additional cost to you. The Direct Pay option also allows you to pay your federal taxes with a credit or debit card.
  • EFTPS: You can also use The Electronic Federal Tax Payment System (EFTPS) to pay your federal tax bill. This secure government website allows taxpayers to submit their payments electronically. To enroll, or for more information on enrollment, visit EFTPS or call EFTPS Customer Service to request an enrollment form: 1-800-555-4477
  • Pay by Check or Money Order: If you choose to mail your federal tax payment, make your check or money order out to the US Treasury. Do not use staples or paperclips to attach the check to your return. You’ll also need to include your name, address, daytime phone number, Social Security number or EIN, tax period and related tax form or notice number on your form of payment. Mail your payment to the address listed on the notice or instructions.
  • Same Day Wire Payment: Same-Day Taxpayer Worksheet to complete your transaction. If you are paying for more than one tax form or tax period, complete a separate worksheet for each payment.
  • Auto-Pay through your tax preparation software: Many tax preparation software programs give you the option of making the federal tax payment to the IRS for you. Turbotax and TaxAct both offer this option when you reach the end of your tax forms.

If you are unable to make your payment in full, visit this post for information on setting up a payment plan with IRS.

Still confused? We can help you make your Federal Tax Payment to the IRS if you are unable to use any of the methods listed above. If you owe money to the state, this post will direct you to the proper place to submit your payment.

Bookkeeping for your Business

10 Quick Steps to Catch Up on Last Year’s Bookkeeping for your Business

10 Quick Steps to Catch Up on Last Year’s Bookkeeping for your Business

Let’s assume you haven’t done your small business bookkeeping in…a while. If it’s been several months, you’ve probably got some major catch up bookkeeping to do. We’ve compiled a quick to-do list to catch yourself up before last year’s taxes are due.

  1. Start with your receipts. As a small business owner, your receipts may come in many forms. You’ll need to look for receipts in the form of customer invoices that have or have not been paid, any business expenses put on a credit card, business expenses paid in cash, vehicle expenses, vendor accounts, monthly payments, and so on. Don’t try to reconcile your bank account as you go; you’ll have better luck if you gather all receipts first and reconcile later.
  2. Grab those bank statements. Print off the month’s of bookkeeping you need to catch up on and start comparing with your receipts. This will help you identify any errors on your part, find deductions you missed, and catch any mistakes in your bank records. Your end balance in your bank account should match your balance in your bookkeeping records. You’re better off to have your bank accounts reconciled before heading to your accountant.
  3. Separate business and personal expenses. If you’re not using a separate business bank account, things can get messy. You’ll need to go through every transaction and determine if the expense was personal or professional. Steps 1 and 2 above should help with this part. There will likely be some overlap in these expenses.
  4. Calculate portions of personal expenses that can be used as deductions. If you’re maintaining a home office, some of your personal expenses can be deducted such as a portion of your mortgage, electric bill, and internet. If you use your phone or car for business (who doesn’t?) portions of those bills are deductible as well, depending on the percentage of use.
  5. Create digital records as you go–and from now on. You’ll need to keep all your records for at least 7 years, as that is how long the IRS can audit your company after a tax return has been filed. Fortunately, they accept digital records so snapping quick photos of receipts as you go will save you a lot of time and space. Create an organized system on your computer of yearly folders, with monthly folders within those to store digital copies of receipts.
  6. Collect and send 1099-Miscs, W9s, and W2s. If you paid a contractor more than $600 last year, you’ll need to send them a W9 and Form 1099. (Unless you paid them via PayPal or credit card; more on that here.) A W9 requests a tax payers information, so it’s best to send them that form right when they start working for you. A Form 1099 is used to report how much you paid them during the year. Your company employees will need W2s which state how much they earned in a year.
  7. Factor your net profit and your total expenses for the year. Review your income and subtract all expenses (deductions, payroll, business space rental, etc.) Determine your taxable income for the year.
  8. Browse for common small business deductions you may have missed. You may be missing deductions and not even know it! Learn about commonly missed business deductions here, here, and here.
  9. Hire an accountant. If you’re feeling overwhelmed and confused, call in a professional. (You may need one even if you’re not!) An accountant can help you reconcile your accounts, determine missed deductions, and make sure you’re paying the right amount of taxes.
  10. Don’t let it happen again! Everyone gets behind sometimes, but creating an organized small business bookkeeping system will help you avoid costly mistakes in the future. Whether you hire a bookkeeper, use Quickbooks or your own Excel spreadsheet, or have your grandma do your taxes, be sure to set aside time each week to take care of these tasks. Staying on top of bookkeeping now is the best way to save yourself time during tax season.

 

Hire an accountant

Frequently Asked Questions: 

What should I prioritize if my small business bookkeeping is behind?

Start by organizing your receipts and comparing them with your bank statements to reconcile transactions accurately.

How can I manage personal and business expenses effectively?

Separate your personal and professional expenses meticulously. Reviewing receipts and bank statements will aid in distinguishing between the two.

Are there specific deductions I can claim for my small business?

Yes, deductions include expenses for home offices, phone or car usage for business, and more. Consult with a tax professional for personalized advice.

How should I handle tax forms for contractors and employees?

Send W9s and 1099-Miscs to contractors paid over $600, and W2s to employees. Ensure accurate records and timely submissions to avoid penalties.

When is it advisable to hire an accountant for small business bookkeeping?

If overwhelmed or uncertain, seeking professional help is wise. An accountant can streamline processes, identify missed deductions, and ensure compliance with tax laws.

Interested in Learning More?

Schedule a free consultation with our team!

1099 Forms to Contractors

Do I Have to Send 1099 Forms to Contractors Paid Via Credit Card or PayPal?

paypal-hands2The deadline for mailing 1099s to contractors for your small business is February 2nd this year, a few days later than the usual January 31st deadline. Before you prepare all of those forms just yet, you’ll want to read up on the regulations concerning contractors paid by credit card or PayPal.

You actually do not have to send 1099 Forms to contractors paid this way. The IRS does not require you to send a form to independent contractors or unincorporated LLCS, even if you paid them more than $600 last year.

Of course, that money is still accounted for and taxed somewhere, right? In fact, the credit card companies and PayPal will handle all the required reporting for these contractor payments. These companies issue a specific kind of 1099 form, called the 1099-K instead.

Instructions for IRS 1099-MISC form can be found here (PDF).

Should I Send a 1099 Form Anyway?

When in doubt, send it out. You may still want to send a 1099-Misc form for contractors you paid more than $600 last year, and that’s completely fine. Your accountant may encourage you to do so, even though it is not technically required.

What if I am the Contractor or Freelancer Receiving the 1099 Form?

If you’re on the other end of the spectrum, and you receive a 1099 from the employer and a 1099-K from PayPal, things can get tricky. When preparing your income tax return, you’ll need to be careful to not double report the income. If you know payment from a received 1099-Misc form was actually paid through a credit card, you’ll just make sure not to add the total of both forms. If you don’t receive a 1099-K from PayPal or a credit card company, you’ll still need to report the income. The key is to not add your 1099-K income to your 1099-Misc income to avoid any discrepancies.

Income Tax Checklist: What Your Accountant Needs to File Your Income Taxes

It’s everyone’s favorite season! TAX TIME! No more going through your small business bookkeeping and scrambling to find all of the important financial documents you need to file your income taxes, only to have your accountant call and tell you he needs just this one more thing. Here’s a comprehensive checklist of everything you’ll need to take to your accountant to get the job done accurately and on time.

IncomeTaxChecklist-01

Tracking and Separating Your Personal and Small Business Expenses

5 Tips on Tracking and Separating Your Personal and Small Business Expenses

It can be all too easy to allow your personal expenses get tangled up in your small business expenses. You’re shopping at Costco, getting things for your family, when you remember you need a couple things for the office. Before long it all ends up in the same cart and on the same receipt. In the moment, it may seem like the easier route to take. However, not separating business expenses from personal expenses can cause quite a headache for small business accounting, especially when tax season comes.

Here are 5 tips on tracking and separating business expenses for your small business:
    1. Set up separate bank accounts. As a small business owner, your first order of business should be to set up a separate bank account. To learn how to do that, visit this post. If you are diligent about keeping expenses separate, you should only need to review your business bank account statements during tax season to find deductions. If you have multiple charges for your business on your personal account, it can be hard to remember which ones were business expenses. Which makes it easier to miss important business deductions. Separating your business bank account from your personal account adds a layer of protection. Which is especially useful if the IRS audits your business.
    2. Learn to use a business credit card. Credit card statements can act as a proof of purchase when you don’t have a receipt. We do not recommend going into credit card debt on your business credit card. However, any interest you pay on the card is tax deductible. Building up a line of credit, earning points for travel, and receiving cash back on purchases for your business are added benefits of using a business credit card.
    3. Keep track of expenses–both separate and shared. You don’t have to write down every cent you spend each day, but  you do need to keep track somehow. Track business expenses using a simple spreadsheet once a week, or use a budgeting app like Mint for instant updates on where you’re at with your budget. Some business expenses will inevitably overlap with personal expenses. Cell phone bills, portions of your mortgage/rent, utilities, internet, etc. are all examples of overlap. Choose one account to pay these bills from and be consistent. Keep track of bank statements and receipts to refer to during tax season. The most important part of small business accounting is to set aside time each week to take care of small business bookkeeping tasks. Letting too much time pass between purchases and recording them in your budget increases error.
    4. Set your salary as a small business owner. This can be difficult to do if your business’ profit fluctuates significantly from month to month. However, setting a salary to pay yourself as a small business owner helps you know how much money you’ll be bringing home each month, and how much money you’ll have to run the business. Just because you set a salary doesn’t mean it’s carved in stone. You can revisit your salary and adjust it quarterly, bi-annually, or once a year.
    5. Consult a professional. As your business grows, you’ll likely need to hire a professional accountant or bookkeeper to help you keep track of business expenses and finances, pay taxes, and invest your money wisely. Vyde offers free small business accounting advice from professional CPAs who can help you navigate your business finances and answer any questions you may have.

 

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Vyde is a licensed accounting firm (CPA) based in Provo, Utah, and members of the AICPA. We provide professional accounting services to businesses and individuals, with a focus on small business bookkeeping and taxes.

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