Business Accounting - Vyde

Top Year End Tips for Small Businesses

Every small business owner wears dozens of different hats. One of those includes the hat of accountant and bookkeeper. Here at Vyde we help dozens of small business owners build their businesses, because we appreciate the passion they have for their clients and their product and/or services they provide. Because we spend a lot of time with “the books” and because we’re certified CPAs we’re sharing our top year end tips that will help guide you to a successful tax season.

You can watch the complete webinar where we cover our top tips, or read the summary below. We’ve put in start times for each section so you can watch the webinar in it’s entirety or just listen to the year-end tips you’re most interested in. Here are a few things we look for while working on our client’s books and things we think you should look at too:

Unclassified transactions / Miscellaneous transactions

(start watching at 1:30)

One of the biggest questions we get asked by clients is if their unclassified or miscellaneous transactions can be an audit flag. And the simple answer to that question is yes. Unclassified or miscellaneous transactions are simply those that aren’t categorized or tagged with additional information. Simply put, you’re bookkeeper or accountant isn’t sure what the money was spent on because there’s not enough information to identify it. It’s not bad to have these transactions, but for our client’s books we try to keep this category to $3,000 or less. Obviously, this rule is scalable. If your total revenue is significantly larger, then the amount you have in this category could be more than $3,000. That said, it’s probable that large expenditures, especially those that aren’t categorized clearly, are going to run the risk of throwing an audit flag.

TIP: take a look at your unclassified or miscellaneous transactions. Review your books or bank statements now and identify as many of them as you can. If you do your own books, make notes and gather receipts for these or provide them to your accountant or bookkeeper. Working on this before year-end is easier than trying to remember right before the tax deadline and already working/spending for another year.

Loans

(start watching at 3:30)

Loans are treated differently than general income. Because of this, it’s crucial that you note when loan money comes into your account and notify your bookkeeper/accountant about all loans. Loans aren’t taxable income, and it’s important to make sure the interest expense is broken out from the principal payment, so you’re sure you’re getting all the deductions you deserve come tax time. The reason we suggest this as a year-end “to-do” is because it’s easy to gather the information at that time, with your year-end loan statement.

TIP: Many banks send out paper forms for year-end statements and others are completely paperless. Regardless, find out where you can access your year-end loan statement for all of your current loans and put them together in one place. You may even want to pass these off to your bookkeeper or accountant if you have one, or hold a short meeting to make sure they’re up to date on the specifics of your loans.

Equity

(start watching at 7:50)

If you’re been in business for very long, or even if you haven’t, you’ve probably heard the advice to keep your business and personal accounts separate. It’s a great rule to follow, but it’s not always as easy to implement. Plus, there is always the action of pulling a salary or paying yourself from your business that falls into the grey area of this rule of thumb. Your accountant or bookkeeper will probably use words like owner’s distributions or owner’s draws – simply put, the money that falls into this area includes when you write yourself a paycheck, transfer money to your personal account from your business account or even make personal transactions with your business account or business card. You’ll want to listen to the webinar where we outline this fully and talk about putting money into your business, which falls under owner’s contributions.

TIP: because this is a detailed process, we’d highly recommend watching this section of the webinar or asking your accountant or bookkeeper about it directly. If you know that you’ve purchased personal items/services from your business account, take a few minutes to write them down and included exact dates and numbers if possible. This will make searching your bank statements easier for either you or your accountant.

Health Insurance

(start watching at 17:03)

Health insurance is something that’s highly specific because of the variety of plans but also because the rules are written just a bit differently by the IRS. What you pay for health insurance shows up differently than a normal expense on your tax return, and filing is different based on the type of business entity you run.

TIP: take a few minutes and make sure you know the type of business entity you run, plus the forms you’ll need to file for it. Then make sure you’re including what you pay for health insurance correctly by reading through the IRS rules or reviewing this information with your accountant or bookkeeper. Year-end is a great time to ask questions and make changes if needed, because it’s open enrollment.

Hopefully you’ve gleaned a few great tips to help you finish the year strong. If you have additional questions, we’d love to chat with you.

FAQs for Year-End Tax Tips for Small Business:

Are unclassified transactions a potential audit flag?

Yes, unclassified transactions can raise red flags during audits. It’s advisable to categorize them properly, aiming to keep this category to $3,000 or less, facilitating easier tax preparation.

How should small business owners handle loans for tax purposes?

Loans aren’t taxable income, but it’s essential to segregate interest expenses from principal payments. Collect year-end loan statements and ensure your accountant or bookkeeper is aware of all loans for accurate tax reporting.

What does managing equity entail for small business owners?

Maintaining separate business and personal accounts is crucial. Properly categorize owner’s distributions or draws, including salaries and personal transactions, to avoid complications during tax filing.

How does health insurance impact taxes for small businesses?

Health insurance expenses have specific tax treatment, varying by business entity and IRS regulations. Ensure proper filing and documentation, consulting with your accountant or bookkeeper for clarity.

Why is year-end an opportune time for tax-related inquiries and adjustments?

Year-end allows for review and preparation before tax deadlines. It’s an ideal period for clarifying tax rules, gathering necessary documentation, and making strategic adjustments for optimal tax management.

How Volunteering Helps Build Your Business & Supports Your Bottom Line

Pay it forward. It’s good for the soul and for those you help. But did you think that by volunteering you’d get payback as well? It might not come in the form of dollar and cents, but lending a helping hand can actually save you money by providing you with tax write offs. Here’s a few questions that might get you thinking about the volunteer work you do and if it can do more than just give you the warm fuzzies.

Do you travel to volunteer?

If so, you’re in luck. The following items can be used as deductions come tax time as long as you’ve kept a log and/or have receipts:

Tolls, parking fees, or money spent on Uber, train, or city bus fares (keep receipts)
Log the number of miles you drive while volunteering
If your volunteer efforts require a lengthy trip you can also include airfare, living accommodations and the cost of meals.

Do you wear a uniform?

If you’re required to wear jeans and t-shirt that doesn’t hit the mark, because you can wear it for everyday use. However, if you’re required to wear a hard hat, or some type or uniform that you wouldn’t just wear to work in the yard or to the mall, then it meets the requirement.

What do you spend money on when you volunteer?

Do you make calls asking for donations or to set up board meetings for your organization? If so you can count the minutes on the phone towards a deduction. But if your plan provides unlimited minutes, no deduction can be made because it wasn’t an added expense. Other ways that you might spend money to volunteer might include mailing out packages of information, creating fliers, or purchasing space at a job fair or bazaar to get the word out about your volunteer opportunity. This one is a little bit more detailed, but if you’re wondering whether it counts or not, make a note and then ask your accountant about it the next time you meet.

Do you make donations?

If you have clothing, furniture, toys or other household items that are still good but that you don’t use anymore, consider donating them. Charitable thrift stores are glad to get used goods and you can use organizing your home and closet as a way to procure a tax writeoff. There’s no need to have original receipts for any of the items, the tax deduction is calculated off of the current value of the items. Just remember to ask for a receipt when you drop your used items off at your donation site.

Making a cash donation is just as effective for both those in need and your bottom line. All you need is a canceled check, bank statement, or a receipt from the receiving charity. If you’re attending a charity event, make sure that any benefits you receive (dinner, entertainment, golf tournament etc.) are deducted from the total amount you donated.

Not everything can be counted as a deduction. Here are a few to keep in mind:

Not all nonprofit organizations are created equal. They may do good work, but they also have to meet the qualifications of the IRS for it to be a deduction for you. Double check the the charity before you donate by searching for them on the IRS website.
Giving blood is a great way to help, but there’s no tax deduction here – you just get to feel good about saving a life.
If you purchase supplies to do volunteer work, the cost of those items can be counted as a deduction. The number of hours you spent volunteering (or the wages you’d have made if you’d put those hours in at work) don’t count.

Have questions about your volunteer efforts and if they qualify? Want to talk to an accounting professional about your taxes, possible writeoffs and keeping your business in tip top shape?

The Important Documents You’ll Want to Save to Prepare Your Taxes

Are you hoping that the shoebox of receipts, bank statements and other random papers in your closet is enough documentation for your taxes? There is always a lot of confusion around what important documents need to be kept for taxes. We’re here to help you keep what you need and throw away the rest. Our quick guide will help you determine what’s important for your personal and business taxes. We even have a few storage method suggestions because heaven help you if anything happens to that shoebox!

Important Documents for Personal Taxes

There are quite a few documents you’ll want to save for your personal taxes. The top of the list is going to include statements that you get on a regular basis.

Bank Statements
Credit Card Statements
Mortgage Statements
Investment Statements

You’ll get most of these on a monthly or quarterly basis – don’t throw these out! Keep them because you’ll want them when it comes time to prepare your taxes. Most of these can be obtained electronically. This is a great option if you’re prone to losing random pieces of paper, which, let’s be honest, who isn’t. Download those statements and save them in a file on your computer and then you will know where they are come tax season.

Next, you’ll want to keep track of how you spent money that could be tax deductible.

Charitable Donations
IRA Contributions
Health Care Costs
Life Insurance Payments

You should keep receipts or statements regarding these expenses to help your accountant find the most deductions for you.

Finally, you’ll want to hold onto any important documents that show you had a major life event.

Marriage Certificate
Divorce Papers
Birth Certificate for children
Home Purchase Documents

All of these are significant life events that can change your tax bill. Make sure you let your accountant know about them so they can file your taxes correctly.

Important Documents for Business Taxes

Business taxes also require documentation for any tax deductions you wish to take. You’ll need to save basic documents, just like you did for your personal taxes.

Bank Statements
Credit Card Statements
Bills

These are all important for your tax returns, so save them in a safe place in your office.

Next, you’ll want to make sure you save receipts for things you plan to take a deduction on.

Travel Expenses
Business Meals
Gifts
Giveaway Purchases
Transportations Costs
Petty Cash Receipts
Advertising Costs
Office Supplies

All of these are tax-deductible, but you need to be able to prove that you used them for business. It’s really helpful to make a note of what the receipt was for. For instance, if you took a client out to lunch, then you could make a note of the client’s name and what you discussed. A great way to do this is to tape the receipt to a piece of paper and write what you did on the paper. Then scan the paper into your computer and file it away so you have it when it’s time to do your taxes.

Finally, you’ll want to keep track of these expenses that are specific to businesses.

Payroll Records
Asset Records
Property Costs (Rent or Mortgage)

These are all very important for business taxes because they can help keep your tax bill lower. The assets can roll over from year to year, so make sure you keep your records up to date.

How Long Do I Need to Keep Important Documents For?

We recommend keeping your important records for a minimum of three years. The IRS requires that you keep records for at least three years after the due date of the tax return or the date you filed the tax return, whichever is later. The period of limitations to file an amendment is three years; however, the IRS can audit you up to six years later.

You can either bookmark (or pin) this post, The Important Documents You’ll Want to Save to Prepare Your Taxes, so you know what you’ll need when it comes time to prepare your taxes.

Salon Accounting: Top 5 Accounting Tips for Hair Stylists & Salon Owners

As a stylist, you’re the expert when it comes to knowing what tools to use when and whether or not bangs works for your client. However, when it comes to salon accounting and taxes - like for hair stylists, barber shops and salons - we’ve got the expert status covered.

To make things simple, we’ve pulled together some of our best advice for keeping things organized and keeping your accounting on point.

Top 5 Tips for Setting up the Record-keeping Side of Your Biz:

Get your books set up before you open up shop. There’s no need to worry if you’ve already booked a slew of clients or have a thriving business – just start now if you haven’t already. You can always take care of past tracking at a later point, but for now, just start. Our best advice is to keep it simple, and have it be something that’s fairly easy to complete on a routine basis.

Create a ledger. It doesn’t have to be expensive accounting software, or even a fancy spreadsheet. It could be as simple as a small notebook where you jot down all the financial stuff for your business. Pick whatever works best for you. Just remember that some kind of record keeping is better than none at all.

Keep track of receipts. Especially when you pay cash! Purchase a expandable file folder, grab an envelope or go digital (some clients scan receipts, or snap pictures of them with their phone and store them in a digital folder). If you have a credit card/bank account for your business (you should!) you can even annotate the monthly bank statements and keep them in the same place as your receipts. Just make sure to keep that paper trail!

Keep your business & personal accounts separate. We mentioned this briefly in #3, but it goes without saying that keeping things separate, keeps things simple. By having your personal and business assets (and expenditures) in different places you make paying taxes, paying yourself, and putting money back into the business so much easier.

Set a plan and stick to it. There’s a reason that we’ve mentioned making things simple from the start. That’s because running the business-side of any business takes consistent effort and when it’s confusing or technical, it’s all the less appealing to sit down and stay on top of it. We suggest keeping track of things monthly or even bi-monthly if your client base is fairly large. When things are kept up to date, it takes a lot less time to manage the money.

TIP: Wondering what all goes into that ledger we mentioned in #2? We thought you might ask, so here’s what we tell our clients:

Start with recording the current balance of your business account (make sure to add a date to this line and every line you insert into your ledger)
Keep track of the revenue ($$ coming in) – cash or card payments for services or products. Don’t forget tips, especially those paid in cash!
Make a list of expenses ($$ going out) – purchasing products for your clients, rental fees for your booth or building, tools of the trade, etc.
Put a star next to any expenses that are recurring – rent, utilities, insurance and product purchases. This way you’ll be able to keep tabs on the average you spend each month and get a better idea of what it takes to run your business.

Have more questions? Want the nitty gritty details from a professional? Looking to find a great accounting service that can take care of the bookkeeping side of your salon so you can get back to what you do best? Contact us at https://vyde.io/get-started/ We’d love to chat!

FAQs about Setting Up Accounting for Hair Stylists and Salons:

1. Do I need to set up accounting before opening my salon?

Yes, it’s essential to have your books set up before opening your salon. Start now if you haven’t already. Keeping it simple and consistent is key.

2. What’s the simplest way to keep track of finances for my salon?

Create a ledger. It can be a basic notebook or a digital folder. Any form of record-keeping is better than none at all.

3. How should I manage receipts for my salon expenses?

Keep track of receipts, especially cash purchases, using an expandable file folder, envelopes, or digitally. Annotate monthly bank statements for credit card transactions.

4. Why is it important to keep personal and business accounts separate?

Separating personal and business accounts simplifies tax filing, paying yourself, and reinvesting in your salon. It also helps maintain financial clarity.

5. How often should I update my salon’s financial records?

Aim to track finances monthly or bi-monthly, especially if your client base is large. Consistent updates make managing money much easier and less time-consuming.

Interested in Learning More?

Schedule a free consultation with our team!

How an External Accountant Can Help Your Business Through a Natural Disaster

Trying to recover after a natural disaster is incredibly overwhelming. But, trying to get your business to recover can be a whole new headache. Using an external accountant, an accountant that doesn’t work from your office, can be beneficial because it’s one less thing on your plate. An external accountant can help take some of the load off and help you get your business back on track.

Here are a few ways an external accountant can help you and your business through a natural disaster.

An External Accountant Will Have Your Records

Damage to your office can mean that you lose a lot of important documents. As you know, documentation is an important part of taxes and bookkeeping. If you’ve lost your documentation, you may be in trouble when you need to claim a tax deduction; however, an external accountant can come to the rescue.

When you use an external accountant, you normally send them documents showing purchases, income, and more. Which means there is a backup of all of your documents in another location. Because of this your accountants can replace those lost documents.

If you’re in the opposite situation, where your accountant’s office is in a natural disaster, then you are still covered. The IRS grants you a filing extension, which we’ll go into more in depth later.

Accountants Can Help You Find Natural Disaster Tax Credits

Tax credits are available to business that have suffered from natural disasters. In order to qualify for tax credits or deductions, the president has to declare your area as a “federally declared disaster area.”

One of the credits available to business owners in a natural disaster is the natural disaster casualty loss break. The casualty loss break allows people who have been affected by a natural disaster to file an amended tax return on the previous year’s taxes. This is helpful so that people can get a refund quickly, instead of waiting until the next tax season. The rules for casualty loss differ between business and personal property, so make sure you talk with your accountant and find out exactly what your business needs to do to use the tax credit.

You will need to assess and document the following areas in order to take advantage of disaster tax credits.

Determine and list all of your property that was destroyed or damaged in the disaster.
Find out the original cost (or the adjusted cost) or each damaged item.
Learn the fair market value of the items before the disaster struck. (What were they worth?)
Determine the current worth of the property.
Add up the reimbursements and/or other payments you have received, or plan to receive, from insurance.

External Accountants Can Help You File Taxes on Time

To ease the burden on victims of a natural disaster the IRS can extend tax filing dates. When IRS does extend filing dates, it only applies to areas designated as federal disaster zones. The IRS has already issued tax extensions for victims of Hurricanes Harvey and Irma.

After a federally-declared natural disaster, the IRS allows businesses more time to send in payroll taxes and returns. As long as you send them in before the new deadline, the IRS will wave any penalties or interest that may have accrued.

Whether the IRS has granted your natural disaster a tax extension or not, an external accountant, like Vyde, can help you get your taxes in on time.

FAQs

What are the benefits of using an external accountant after a natural disaster?
An external accountant helps reduce your stress by managing your financial recovery. They can access and replace lost records, help you claim disaster-related tax credits, and ensure timely tax filing even during challenging circumstances.

How can an external accountant assist if my business records are lost in a disaster?
External accountants typically store digital copies of your records. If your physical documents are destroyed, they can provide replacements, ensuring you have the necessary paperwork for taxes and insurance claims.

What natural disaster tax credits can my business claim, and how can an accountant help?
Your business may qualify for tax credits like the casualty loss break if your area is declared a federal disaster zone. An external accountant can guide you through the process, helping you assess damages, document losses, and file for tax credits.

What happens if my accountant is also affected by the natural disaster?
If your accountant is impacted, the IRS typically grants tax filing extensions for federally declared disaster zones. An external accountant can still manage your tax filing to ensure compliance, even with extended deadlines

Can an external accountant help me meet tax deadlines during a disaster?
Yes, they can. External accountants stay updated on IRS extensions and ensure you meet revised deadlines. They’ll manage the filing process so you can focus on recovering your business.

4 Questions Before Making a Big Purchase for Your Small Business

No matter how big or small your business is, at some point in time you’ll have to make a big purchase for your business. When the time comes, there are a lot of points to consider, but these four questions should be at the top of your list.

How will this big purchase fulfill the needs of my small business?

Obviously, as a small business owner, you’re making your money go as far as it can. So when a big purchase comes up, you may think the answer to this question is obvious, but it’s still an important question to answer. Make sure that the big purchase you’re about to make is worth the investment. This means that it should help you make more money than it will cost you.

You should also evaluate how long the purchase will last. Will you need to make the same purchase next year or will it last a couple of years? If it is something that is only going to last a short time, then it might not be worth the investment. Make sure that your big purchase is going to be worth the time, energy and money that you’re about to spend on it.

After you’ve answered this question you can move on and determine how to purchase your new business tool.

How will I pay for this item?

Once you’ve determined that you need to make a big purchase for your business, the real question is where will the money come from to pay for it?

In the best case scenario, you would be able to save for your big purchase and then pay cash for it. However, big purchases usually pop up before you’re 100 percent ready. In that case, you still have a few options for payments.

The first option is to put your new purchase on a credit card. This isn’t a terrible option, but we don’t recommend putting purchases that you don’t have the cash for on a credit card. If you do, you will have to make payments on it while paying interest, at an extremely high rate. You can get better interest rates through a business, or even personal loan.

Which leads up to the next option: loans. Securing a business loan from a financial institution is a great way to get the money for your big purchase. You should meet with several different lenders to determine which loan is going to be right for you and your business before you make a decision. If you can’t get a business loan, talk to your bank about a personal loan.

When you are factoring in the costs of your big purchase, you’ll want to make your own payment plan. Make sure your payment plan matches the lender’s required payments. With a small business, your funds often fluctuate, so make sure that you can afford your payments, even in the low months. Don’t get something out of your budget, or you will pay for it later.

Will my vendor be there for me after the purchase?

When you’re making a big purchase, you’re probably going to meet a lot of vendors who are determined to sell you his or her products. They may schmooze you now in order to make the sale, but what is their goal long-term? Big purchases usually are something you’re going to be using on a daily basis. You want a vendor who is going to be there for you when you’re using the product, not just for the sale of it.

You should also consider the following things when choosing a vendor:

Best Price (obviously)
Customer Service and Support
High-Quality Products
Delivery Times (Can they get the product to you by the time you’ll need it?)
Can they help you recycle or get rid of the equipment your big purchase is replacing?

A vendor can make or break a purchase, and even your relationship with a company. Make sure your vendor will look out for you and will do everything they can to help you.

What costs are hiding in this big purchase?

The dollar amount listed on a website, or what a salesperson is telling you, isn’t always an accurate representation of how much an item is going to cost you. With bigger business purchases, there are a lot of hidden costs. These costs aren’t always up front either. They can come into play down the road.

Some costs you should consider at the time of purchase are:

Shipping and Delivery
Installation
Taxes
Training Classes

All of these things could increase the cost of your big purchase, so make sure that you can fit them into your budget. If you can’t, then you’ll either need to find a new vendor or negotiate the costs down.

One of the biggest mistakes small business owners make when they are making a big purchase is not budgeting for routine (or surprise) maintenance costs. This is where your purchase can end up costing you a lot more. Talk to your vendor about what they handle maintenance. Will you be responsible for all the costs? Is there a warranty on your item?

The more you know up front the better decision you can make and with a big purchase, you can never to be too informed.

Frequently Asked Questions

1. How will this big purchase fulfill the needs of my small business?

Ensure the purchase adds value by evaluating its ability to generate profit and its longevity. Assess whether it justifies the investment of time, energy, and money.

2. How will I pay for this item?

Consider saving or explore financing options like business loans or credit cards. Craft a payment plan aligned with your budget and revenue fluctuations.

3. Will my vendor be there for me after the purchase?

Prioritize vendors offering competitive prices, excellent customer service, quality products, prompt delivery, and ongoing support post-purchase.

4. What costs are hiding in this big purchase?

Consider hidden expenses like shipping, installation, taxes, and training. Budget for routine or unexpected maintenance costs and inquire about warranties or vendor maintenance.

5. How should I choose between vendors?

Evaluate vendors based on pricing, reliability, customer service, product quality, delivery timelines, and their commitment to assisting with equipment disposal or recycling.

5 Most Commonly Overlooked Business Tax Deductions

At Vyde, we have a lot of experience with business taxes. Ben Sutton, one of Vyde’s founders and a Certified Public Accountant (CPA), recently hosted a webinar on the most commonly missed business tax deductions. Ben’s experience as a CPA has helped him learn what business tax deductions business owners are missing out on. In the webinar, Ben discusses what business tax deductions are the most lucrative for small businesses. You can watch the webinar below.

Business Tax Deduction 1: Set up a Business Entity Structure

Entity structuring can be confusing and overly complicated. At Vyde, we found that setting up your business as an S Corp can be the most tax-efficient because S Corps usually pay the least amount of taxes.

We always check with our clients to see if they qualify to structure their business as an S Corp. If you structure your business as an S Corp, you, the business owner, have to be on the payroll and you have to pay yourself a reasonable salary .S Corps don’t have double taxation like C Cops do, so the only thing that is taxed is the salaries the shareholders take. So, as the business owner, you only pay social security and Medicare taxes on the salary you take out. Other business entities require you to pay taxes on your total profits and on any salary you take.

Changing your business entity to an S Corp can result in $5,000-10,000 in tax savings.

Business Tax Deduction 2: Automobile Expenses

If you are using your personal car for your business, then you should be taking business tax deductions! Automobile tax deductions are especially helpful for realtors and insurance agents because those professions require a lot of driving. There are two ways you can get automobile tax deductions.

Mileage: The IRS offers a standard mileage deduction for business owners. The mileage deduction is based on the number of miles driven for business, but the cash value of the deduction changes from year to year. A lot of people overlook or forget about mileage deductions because it isn’t tracked on a monthly basis, like other bookkeeping tasks. Instead, mileage is reported at the end of the year. However, you should always be keeping track of your mileage so you can take the deduction. You can learn more about mileage deductions in our post, What Are My Mileage Deduction Options?
Actual Costs: Instead of taking the standard mileage deduction, you can add up all the expenses included in using your car for business and deduct those on your taxes. The actual costs include gas, insurance and repairs that you pay for throughout the year. If you lease your car, you can also deduct your lease payment. If you own your vehicle, then you should depreciate the vehicle, typically over five years. In the end, you’re getting a lot more than just gas expenses deducted. But, you must keep track of all of the expenses you want to deduct, which can be a lot of work.

The auto deduction can save you $3,000-8,000 in business tax deductions.

Business Tax Deduction 3: Retirement Plans

We’re going to focus on the SEP-IRA. While a SEP-IRA is very inexpensive to set up, you will want to meet with a financial advisor to cover your bases.

Your business is the contributor to the SEP-IRA. Companies can contribute 25% of the employee’s compensation or up to $54,000 a year. The only catch is that the company has to contribute the same rate for all employees.

If you set up your business as a S Corp, then a SEP-IRA is a great option. Because you are an employee with a salary, you can have the business contribute to your IRA. You can still set up a SEP-IRA even if you don’t have an S Corp. LLCs and Sole Proprietors can have SEP-IRAs, the requirements are just different.

All of the money you put in your SEP-IRA counts as a business tax deduction, so the savings depend on your contributions. However, you will have to pay taxes on that money when you pull it out of your retirement account.

Business Tax Deduction 4: Self Employed Health Insurance

For non-business owners, health insurance costs and medical expenses are only deductible when you do an itemized deduction. The problem with that is, in order to deduct any insurance or medical expenses, the total you spent must exceed ten percent of your adjusted gross income. Which makes it hard to qualify for.

However, if you are self-employed you can deduct 100% of your insurance costs and medical expenses on your taxes, without itemizing. This isn’t a business tax deduction, it’s a personal tax deduction that only applies to business owners. There isn’t a threshold you have to meet for this deduction like there is for non-business owners. This only applies to people who purchase insurance. If you use a health share ministry, which is exempt from the marketplace fines, then you can’t deduct it because they aren’t considered premiums.

Business Tax Deduction 5: Previously Personal Expenses

When you own a business, you use a lot of personal items for your business. Normally you wouldn’t get a tax deduction for personal expenses, but because you own a business, and use these items for your business, they are now deductible, The following items all qualify as previously personal expenses:

Cellphones
Computers and equipment
Office expenses
Home Office
Supplies

These expenses won’t get you a huge deduction, but all together they can add up to a few thousand dollars each year. While the savings are still moderate, it’s still well worth the time to count them.

Bonus: Plan Ahead to Pay Taxes

While no one enjoys paying taxes, but it’s a simple fact that if you make money, you must pay taxes. There isn’t a way around it. If you are doing your best to take advantage of all the business tax deductions you can, then you need to have a plan for saving money to pay your taxes.

Six to eight months before you file your taxes, meet with an accountant to determine what you’re going to owe in taxes. At Vyde, we like to schedule a tax discussion call with our clients. We look at how much money you’ve made and what you plan to make for the rest of the year. Then we look at what tax deductions you’re going to take advantage of. Once we know all of this, we can determine how much you’re going to owe in taxes.

A tax discussion is also helpful so that you aren’t surprised when tax season rolls around and all of a sudden you owe the IRS a big chunk of money. Instead, you can put money aside throughout the year so that you’ll have plenty of money to pay the tax man.

FAQs About Business Tax Deductions

What is the most tax-efficient business structure for small business owners?
- The most tax-efficient business structure for many small business owners is an S Corporation (S Corp). This structure helps reduce taxes because it avoids double taxation, unlike a C Corporation. As an S Corp, the business owner only pays taxes on the salary they take, not on the entire business profits. This can result in significant tax savings, ranging from $5,000 to $10,000. However, you must ensure you qualify for an S Corp and meet requirements, like paying yourself a reasonable salary.
Can I deduct my automobile expenses if I use my personal vehicle for business?
- Yes, if you use your personal car for business purposes, you can deduct automobile expenses. There are two main ways to do this:
  - Mileage deduction: The IRS offers a standard mileage rate for business driving, which changes yearly. It’s important to track your business miles accurately.
  - Actual expenses: Alternatively, you can deduct the actual costs associated with your car, including gas, insurance, repairs, and lease payments. Keep detailed records of all related expenses for this method.
How does a SEP-IRA work as a business tax deduction?
- A SEP-IRA is a retirement plan that allows businesses to contribute up to 25% of an employee’s compensation or $54,000 (whichever is lower). For business owners with an S Corp, the business can contribute to their own SEP-IRA, and the contributions are tax-deductible. The money in the SEP-IRA grows tax-deferred, but taxes will be due when the funds are withdrawn in retirement. You can also set up a SEP-IRA if your business is structured as an LLC or Sole Proprietorship, though the contribution rules may differ.
Can self-employed individuals deduct their health insurance premiums?
- Yes, self-employed individuals can deduct 100% of their health insurance premiums, including medical expenses, from their taxes. Unlike for regular employees, there is no requirement to itemize these deductions or meet a minimum threshold. This deduction applies only to business owners who purchase health insurance; however, it does not apply if you use a health share ministry, as these are not considered insurance premiums by the IRS.
What are “previously personal” expenses that can now be deducted as business expenses?
- As a business owner, you can deduct costs for items that were previously personal but are now used for business purposes. Common examples include:
  - Cellphones and computers
  - Office supplies and equipment
  - Home office expenses
    These deductions may not be large individually, but together they can add up to significant savings, potentially a few thousand dollars per year. It’s important to keep track of these expenses and ensure they are used for business-related activities.

Get the Money You Need to Grow Small Business Today Through Factoring

We invited Bjorn Peterson, Owner of Flex Business Capital to share his thoughts on small business financing, specifically an alternative to traditional bank loans – factoring.

Today your business doesn’t need to rely on bank loans or struggle with cash flow – factoring is the smart alternative to traditional small business financing through banks. For example, a trucking company was in a huge growth stage yet was short on cash to make payroll. We worked with them to quickly provide cash based on the many invoices they were waiting to collect, rather than them waiting for customers to pay. Success! The trucking company met their payroll obligations and were able to hire additional employees to meet their growth needs.

What is factoring?

Call it factoring, invoice factoring, factoring financing, asset based financing or accounts receivable financing – these all describe using your account receivables, your customer invoices, to quickly and simply improve cash flow. Basically, your company receives money now for invoices that will be due in the next 30, 60 or 90 days. Factoring financing can quickly provide your company immediate cash from $5,000 to $10,000,000.

This cash flow infusion from factoring financing can be used for anything, such as:

Paying outstanding bills and taxes
Buying additional equipment or inventory
Taking on new business opportunities and customers
Hiring new employees and making payroll
Expanding into new markets

What types of companies use factoring? No matter what a company’s industry or situation, factoring is a great resource for funding. Factoring helps companies that:

need cash immediately and can’t wait for a bank loan to be approved
have outgrown their banking relationship and are looking into different financing options
are unable to obtain sufficient financing from their bank due to bad credit
are new start-ups who have no credit history and aren’t able to qualify for bank loans (Banks typically require a company to be in business for 2 years before they will extend a line of credit!)

Oil and gas, trucking, business services, staffing agencies, manufacturing, wholesale, technology, telecom, digital businesses and online enterprises – all types of industries use factoring financing.

Invoice factoring can particularly help small and mid-sized firms because it offers flexibility and immediate working capital. Large companies can also benefit from invoice factoring, but the additional cash flow is often more needed for start-ups and growing businesses.

So, how quickly can you get cash with factoring financing? Today. Yes, that’s right, with factoring you can receive funding today or within a very short period of time, rather than waiting 30, 60, or 90 days for payment from customers. No credit history, like with a start-up, or bad credit are okay because approval is based on the credit of your clients, not your credit. Even if you’ve had trouble qualifying for other forms of financing, factoring is a viable option.

Introducing Your Factoring Partner – Flex Business Capital. Ready to see what factoring can do for your cash flow situation? The process is simple and can be done online by visiting FlexBusinessCapital.com. You’ll enter some information about your business and receive approval for your funding the same day. Our goal is to be your partner in growth for the entire life of your business.

Say goodbye to strict bank requirements and long credit applications. Small business factoring provides you instant cash with zero debt and more flexibility. Try factoring financing for your business today at FlexBusinessCapital.com.

Bjorn Peterson is the Owner of Flex Business Capital. Flex Business Capital offers small businesses factoring financing to solve cash flow problems without debt, so they can focus on growth and success.

FAQs about Factoring Financing with Flex Business Capital

What is factoring?

Factoring, also known as invoice factoring or accounts receivable financing, is a financial solution where businesses sell their accounts receivable (invoices) to a factoring company like Flex Business Capital to improve cash flow.

What types of companies benefit from factoring?

Factoring is advantageous for companies that need immediate cash, have outgrown traditional banking relationships, struggle with bad credit, or are startups with no credit history. Various industries like oil and gas, trucking, staffing agencies, and technology firms utilize factoring.

How can businesses use cash obtained from factoring?

The cash obtained from factoring can be used for various purposes such as paying bills and taxes, purchasing equipment or inventory, seizing new business opportunities, hiring employees, and expanding into new markets.

How quickly can businesses access funds through factoring?

Unlike traditional bank loans, factoring provides quick access to funds, often on the same day. Approval is based on the creditworthiness of clients, not the business itself, making it suitable for startups and businesses with poor credit history.

Why choose Flex Business Capital for factoring financing?

Flex Business Capital offers a seamless online process for businesses to obtain factoring financing. With a focus on providing instant cash without accumulating debt, Flex Business Capital aims to be a long-term growth partner for businesses across various industries.

An Accountant’s Secret to Making Your Business Credit Cards Work For You

Credit cards get a bad rap. They are intertwined with massive debt, but that doesn’t have to be the case. Learning how to use business credit cards can help you move your business forward.

We don’t recommend getting into credit card debt. That is not going to make your business credit card work for you. Instead, we recommend using business credit cards to make purchases that you know you can afford.

The only way to effectively use business credit cards is to pay them off, in full, each month. If you can’t do that, then you can’t make credit cards work in your favor and you’ll be a slave to the credit card company.

If you can pay off your credit cards each month, then you can take advantage of these benefits.

Build Credit with Your Business Credit Cards

The most important thing you can do with your credit cards is to build credit. A lot of people want to pay cash to avoid going into debt, but when you own a business that’s just not possible. Your business must have established credit.

One of the best reasons to build credit through business credit cards is so that you can make future purchases. Business who don’t have any credit have higher loan rates, if they can even qualify for a loan. However, if your business has a solid credit history you will be able to get loans to grow your business.

Earn Rewards from Your Cards

Who doesn’t love earning rewards? Earning rewards from your business credit cards is like getting free money (or travel, or whatever reward your card offers.)

The key to this “free money” is to pay those credit cards off in full! Like we discussed before, this is the only way to get the most out of your cards.

When you’re choosing business credit cards look at all the different rewards options and choose which will benefit you and your business the most. If you travel a lot, then choose a card with reward miles; then you can save money on flights, and maybe even get in-flight perks! If travel isn’t a big deal for you, cash back rewards are always great. You can use your rewards in countless ways.

Track Your Business Expenses

First and foremost, we want to emphasize that you need a business credit card. You shouldn’t be using a personal credit card for business purchases. This causes a lot of headache when it comes time to reconcile accounts. As bookkeepers, we beg you to separate your personal and business expenses!

Second, credit card statements are a great way to keep track of your business’ expenses. The Internal Revenue Service (IRS) allows you to use credit card statements as proof of purchase, so if you lose a receipt but have a credit card statement, you can still prove that you made a business purchase. Most credit card companies keep records of purchases for years. If you have an online account, you can access those anytime.

Monitor Business Finances

As long as we’re talking about business expenses, we might as well mention monitoring your business’ finances.

Employers can hand out company cards to employees, which has a lot of benefits (like not having to run to the store to pick up a birthday cake yourself.) But, there’s always a risk involved with handing out a card. If you want to make sure your employees aren’t abusing the credit card, you can monitor all the purchases.

Another common scenario, as employees move up in the company they get company cards. Managers need to have access to company money and a credit card is a great way to get them that access. If this is the case in your company, look for business credit cards that allow you to give your employees their own cards free of charge. Some cards will even allow you to set spending limits for each card. This can help you monitor who is keeping to their budgets.

Don’t let your business credit cards get the best of you. Learn how to use them and make them work for you!

Claiming Travel Expenses on Your Business Trip (Plus How You Can Afford to Bring the Whole Family)

Business travel expenses add up quickly when you’re trying to impress clients or even just need to stay a couple nights in a new city. Hotels, food and transportation costs add up quickly. Luckily, the Internal Revenue Service (IRS) counts business travel expenses as deductible items. Claiming travel expenses can help you save money whenever you have to leave town on business.

When you’re claiming travel expenses you want to make sure that you’re doing it correctly, so that you can avoid a tax audit. Knowing what constitutes a business travel expense and how to claim them will keep you safe.

What Constitutes a Business Travel Expense?

The IRS allows you to claim travel expenses when you leave the general area of your tax home for longer than a day’s work. Your tax home is wherever you do your work. That means if your tax home is in Salt Lake City, but you have to travel to San Diego for business, claiming travel expenses would be acceptable.

However, if your tax home is in Salt Lake City, but you live in Las Vegas and you travel to Salt Lake during for the week for work, where you stay in a hotel and eat out at restaurants but return to Las Vegas every weekend, you cannot claim travel expenses. Salt Lake would be the tax home so any expenses to get to and from your tax home would not be deductible.

What Expenses can I Claim?

After you’ve determined if your expenses qualify as business travel, it’s time to determine what is deductible. As with all business expenses, claiming travel expenses must be necessary and ordinary. You cannot claim any travel expenses that are lavish, extravagant or personal.

The IRS allows you to claim the following travel expenses:

Travel by plane, bus, car or train.
Taxi fare between your hotel and the train/bus station or airport. Transportation between your hotel and the work location. Travel from customer to customer or from your work to a customer. Ubers or other ride sharing services are also deductible.
Shipping of baggage and other necessary business tools. This can include, but isn’t limited to, displays and sample materials.
Use of a car, for business purposes. This includes a car rental. You can deduct mileage for business trips only; you must subtract any personal use. Any tolls or parking fees can also be claimed as travel expenses.
Meals and lodging
Dry cleaning or laundry services
Business calls, or other forms of communication, such as faxes.
Any tips paid on these services.
Entertainment costs when you’re doing business.

Other expenses can be claimed, but it’s best to consult your accountant with any questions.

How does Claiming Travel Expenses Work?

If you plan on claiming travel expenses we have one piece of advice: keep your receipts. The fastest, easiest way to prove how much you can deduct on a business trip is by knowing what you paid. Save all of your receipts from meals, hotels, cab rides, absolutely any time you pay someone ask for a receipt. (When you’re tipping keep track of how much you pay and where you paid it so that you have a record of it.)

When you file your tax return you’ll fill out an IRS from for business trips and submit with your tax return.

How Can I Turn My Business Trip into a Vacation?

Business trips can be incredibly boring if you go back to your hotel alone and watch TV every night. However, if you plan it out right, you could bring the whole family along and turn your business trip into a memorable family vacation.

If you are in charge of the plans for your business trip, then it makes it a lot easier to add some family time. Because you need to focus on business while you’re on your trip, try find a way to extend the trip so you can spend a few days with your family. The IRS isn’t usually too keen about adding days to the end of your trip, so try to schedule meetings late in the week (Thursday or Friday) and at the beginning of the week (Monday or Tuesday.) That way you can spend the weekend doing fun family activities.

Just because you’re bringing your family on a business trip doesn’t mean that their expenses are business related. You must keep your family’s expenses separate from your business expenses. You can’t deduct anything that you do for your family as business expenses. However, as long as the trip is mostly business your travel to and from the destination is still considered a business expense.

Resources

Category: Business Accounting