Business Accounting - Vyde

Small Business Payroll 101: What is Payroll?

Simply put, payroll is the total amount of wages and salaries paid to employees by a company. While the term can be summed up in a single sentence, the work behind payroll can be extensive and a little confusing at times.

Many companies pay their employees in different ways. Some employees are paid salary (a set amount of money per year, divided into equal amounts for each pay period), some are paid hourly, and others are paid by the numbers of goods produced or items sold. Each employee’s payroll must be calculated and their paychecks distributed, depending on the job they do and the way they are paid.

Payroll accountants are responsible for calculating and keeping track of employee’s hours and multiplying that by their pay rate. This gives an accountant the gross income for the employee. They then deduct federal and state taxes, medical insurance, retirement contributions, and other withholdings from the gross amount before issuing a check to employees, which then becomes the net pay.

Payroll specialists and accountants are also responsible for identifying employers and employees by a federal code and keeping a running tally of total income and deductions for the company’s fiscal year.

When a business is in its early stages, keeping enough cash to pay all employees is a high priority, and often a challenge. Even if the business is not yet profitable, employees must still be compensated for their time. Often times when small businesses reach a level of profitability, they outsource payroll services in order to save time and maintain accuracy in their records.

Visit more posts in our Payroll 101 series:

The 1099-Misc Explained

Setting Your Own Salary as a Business Owner

The W-2 Explained

How Often Should You Pay Employees?

What are the Costs Associated with Payroll?

5 of the Best Benefits to Offer Employees

The Power of the Employee Pay Stub

5 Must Know Facts To File A Tax Extension This Year

1. Who can get a tax extension?

If you’ve never filed a tax extension before, it probably seems like an elusive, I wouldn’t qualify for something like that, sort of thing. But the truth is, anyone can get a tax extension. Your boss, your grandma, your next-door neighbor and even you! And the process is actually a lot easier than you might think.

To get a tax extension on your federal income return, all you have to do is submit a Form 4868 to the IRS by April 15th. The tax form you submit says “Automatic Extension,” and by filling this, the IRS will automatically grant you extra time to file. You do not need to do anything else to file an extension.

However, don’t be confused with what a tax extension grants you. The extension is extra time to file the return, it is not an extension to pay the taxes due. You need to know how much tax you owe and be ready to submit payment by April 15th, regardless of your tax extension request. When you submit your Form 4868, you must include payment for taxes due to avoid interest, penalties, and late fees.

2. Who typically requests a tax extension?

Most working Americans receive all of the documents they need to file income taxes by the first week in February and are able to file their taxes on time. However, certain groups of people often file tax extensions:

Those with complicated financial situations who need more time to assemble their return.
Taxpayers who have invested in partnerships or S Corporations. They do not receive their K-1s from these entities until after April 15th. Their returns are due on September 15th with a tax extension.
Men and women serving in the military
Those who are out of the country for extended periods of time or who live part-time in another country

3. What are the first steps I need to take to get an extension?

If the tax deadline looks like a big, red, nearly impossible task marked on April 15th of your calendar, it’s time to take action. Be aware of your personal situation and file an extension sooner rather than later. If you know you cannot pay the amount owed in April, it is best to act early and file an extension as soon as you know you will not make the original deadline. You may want to seek professional advice or contact the IRS about your situation.

If you know you’ll be filing an extension this year there are two ways to file:

Retrieve the Tax Form 4868 from IRS.gov and file online
Print the Tax Form 4868, fill it out, and send it by mail

You can then pay all or part of your expected income tax due with a credit or debit card through the Electronic Federal Tax Payment System.

4. If I get a tax extension, when do I actually have to file my income taxes?

A tax extension grants you six months. This extends your due date to October 15th instead of April 15th.

5. Should I file a tax extension? Or should I just go ahead and file normally if I can?

There are always benefits to filing taxes early. We’ve discussed the increased risk of identity theft and tax scams (links) when you wait to file taxes. Not only does filing on time check a big item off your to-do list, it takes care of an inevitable bill that will have to be paid sooner or later. Just ask Mr. Ben Franklin. In this world nothing can be said to be certain except death and taxes.

However, extensions definitely serve a purpose. They allow the taxpayer extra time to gather all the necessary information so they can file accurately and on-time without paying a penalty.

Whether you need time to get your information in order or you’ve procrastinated and would just rather not file until October, the extension is an option for you, if you take the proper steps. The most important task in avoiding having to pay late fees is to estimate your tax bill and make that payment on time.

FAQs about Tax Extensions

1. Who is eligible for a tax extension? Anyone can request a tax extension using Form 4868. It’s a straightforward process accessible to all taxpayers, granting extra time to file their federal income tax return.

2. Who commonly requests tax extensions? Individuals with complex finances, investors in partnerships or S Corporations, military personnel, and those living abroad often seek tax extensions to ensure accurate filing.

3. What are the initial steps to obtaining a tax extension? To file an extension, obtain Form 4868 from IRS.gov, then either file online or by mail. Additionally, payment can be made through the Electronic Federal Tax Payment System.

4. When is the deadline for filing taxes with an extension? Tax extensions grant a six-month extension, pushing the filing deadline from April 15th to October 15th, providing taxpayers with additional time to prepare their returns accurately.

5. Should I opt for a tax extension or file on time? Filing taxes early offers benefits like reducing the risk of identity theft and addressing financial obligations promptly. However, extensions provide time for accurate filing. Deciding depends on individual circumstances and readiness to file accurately.

10 Ways To Use Your Tax Refund To Improve Your Work Life

If you’re among the 54% of Americans who will receive a tax return this year, you’ve probably already spent it ten times over in your head. However, if you’re not quite sure what to do with that bit of extra cash, here are a few ideas of how to put that money back into your business and improve your work life.

10 Ways To Use Your Tax Refund To Improve Your Work Life

Buy an ergonomic chair.
Have an occupational therapist set up your work area to your specific height.
Invest in a larger computer screen or side-by-side screens.
Buy an ergonomic split screen keyboard to go with your new screen.
Treat yourself to a foot rest.
Or, if you’re still sticking to your New Years resolution, buy an exercise bike pedal or pedometer to keep you moving, even at the office.
Grab an exercise ball to sit on to engage your core muscles while working at your desk.
If you’re a road warrior, have your car detailed.
Consolidate your rewards points and refund and plan a once in a lifetime trip with your family.
Take your employees to lunch.

How are you using your tax refund this year? Share with us on our Facebook page.

Do I Have To Report My Blogging Income? What If I Chance It?

“Do I have to eat all my dinner?” My kids ask me this frequently. So frequently that it has actually has made me ponder on the question…What in life do we actually have to do? Taken literally, I suppose there really isn’t anything in life we are forced to do…it’s just that the consequences can be so bad if we don’t, that we feel it’s required. For my kids, eating all of their dinner is a requirement if they want to have dessert…which usually works for all but one…but we’ll save that for a different post.

Do I Have To Report My Blogging Income?

Likewise, we ask the question, “Do I have to report my business activity on my tax return?” It really is more of a moral question and depends on whether you want to face the consequences of not reporting it.

There is no minimum amount of income that has to be earned before it must be reported on the tax return. Once the IRS has determined you are running a business, you are required (there’s that word again) to report it on your tax return. Even if you lose money, it is supposed to be reported, and in fact will be a tax benefit to you by doing so.

Now, here is the natural question that follows…”Really? Even if I only make one dollar I still have to report it?” My response connects back to the beginning of this post…”You don’t have to do anything…You only have to be willing to face the consequences of your choice.” The consequences of not reporting one dollar of income are certainly different from the consequences of not reporting $1,000 of income.

So What If I Chance It?

Since the IRS’ tax law enforcement methods are a little more effective than copyright enforcement methods, it is good to at least be aware of what the consequences are. The following potential penalties are applied to the amount of tax you end up owing if/when the IRS finds out that you didn’t report:

Late Filing: 5% per month that you are late in getting your return filed

Late Payment: 1% per month that you are late paying taxes owed

Negligence: 20% for not doing your due diligence to inform yourself of what was required of you (sorry, now that you have read this post, you probably won’t fall under this category, but closer to the “F” word one below …just kidding, there is some wiggle room still)

Substantial Understatement: 20% for understating what the IRS considers a “substantial” amount of your income

Fraud: 75% for willfully, intentionally not reporting your taxes accurately

If you get audited, an IRS agent will go through your records, transaction by transaction in some cases, and find out how much income you should have reported on your tax return. Any of the above penalties that apply to you will be added together and multiplied by the amount of taxes you should have paid.

So I guess this is really a subjective question. After all, 100% of ten bucks isn’t much of a consequence. So if you are in that boat, the pill may be easy to swallow. The uneasiness comes when you don’t know how big the pill might be. Vyde’s hassle-free accounting service helps with that, but you can also put in the time and energy to figure it out. The next post in our series will give you some help for running your own numbers.

If you have any questions about your circumstance, don’t hesitate to contact us.

Disclaimer: We know our readers aren’t dummies, but have to say this just in case… The information provided above is for reference only and not for your specific situation. It does not cover every scenario and may not apply to yours. Please consult us or another professional before executing any of the above advice.

How Does The IRS View Sponsored Posts?

Another question we hear often is “If a company gives me something for doing a review for them, do I have to report it on my tax return?” For any established blogger this can be a real issue. When you start adding up everything that you’ve received for doing reviews…trips, electronics, gift cards, appliances, etc. it may become a significant amount.

Tax reporting for bartering is pretty straight forward. The quick, unwanted answer to the question, is: Yes, the IRS does expect you to report the “fair market value” of goods or services received in a business related exchange. And what is “fair market value”? Basically the price you would have paid for it if you bought it off the company’s shelf, or what they would have sold it for to a regular customer.

I know this kind of takes the glam out of being a blogger, but that’s the IRS’ specialty…putting a damper on things. Did you know that until the early 1900s there was no income tax in the United States at all!? Nevermind, we won’t go down that road…

Know this about bartering: it only applies to business transactions. So if you aren’t technically providing a business related service or good in return, you may be able to justify not having to report it on the tax return. Let us know if you would like to bounce your situation off of us.

Remember, Vyde doesn’t charge by the hour…that’s so old fashioned.

Is My Blog A Business?

We’ve worked with a lot of bloggers in the last few years and we hear a lot of the same questions over and over again from talented and tech-savvy wordsmiths blogging on everything from gardening to exercise. We’re tackling your blogging business questions, one at a time, starting with the question all bloggers wonder at some point: Is My Blog A Business?

Why did you start your blog? The reasons probably range from “for fun” to “to make some extra money.” Unfortunately, the reason you started the blog doesn’t matter when it comes to whether your Uncle Sam considers it a business.

There are technically two ways your blog, or any home based hobby, becomes a business.

First: Without consulting you, and without your consent, the IRS designates your activity as a business if you have a “reasonable expectation to earn a profit.” For a little more clarity on how that is defined, ask yourself these questions:

Does the time and effort I put into my blog indicate an intention to make money?
Do I depend on the income from the blog?
Do I run ads on my blog?

There are other considerations, but you get the idea. If you answer “yes” to any of these questions you’ve got a business on your hands, baby! Whether you like it or not.

Second: With your consent (they’re a little nicer), the State will designate you as a business if you apply to set up a business entity, like an LLC or S Corp. (Though, the caveat here is that if the IRS designates you as a business for tax purposes, the State does too.) But by setting up one of these entities, the State formally recognizes your activity as a business activity, separate and apart from your personal activities.

Why does it matter?

Big whoop, the IRS thinks you’re a business! So what?

Unfortunately, that means they expect to see the activity reported on your tax return…and for most bloggers or home based, hobby type, businesses, that means potential self employment tax, which can be an extra 15% surprise at tax time! A little planning can go a long way to make this a little easier to swallow.

For non tax, State purposes, having an LLC or S Corp will make a big difference if in the terrible chance you get sued for something your business did.

Feel free to contact us if you would like more information about your circumstances…and don’t worry about a bill. We don’t charge you a dime unless you sign up for our monthly services.

File Your Taxes Early to Protect Against Fraud and Identity Theft

Your taxes may not be due until April 15^th, but there are certainly benefits to filing early. One of them being greater protection against tax fraud and identity theft.

According to an estimate by the IRS, they paid over 5 billion dollars in fraudulent identity theft in 2013.

Basically, that means criminals use your name and Social Security number to file a false return and get your big whopper of a return in their pocket instead of yours. Obviously, this can’t be done if your taxes have already been filed so filing early is the easiest way to prevent this from happening to you.

Not expecting a return this year? You’re still at risk for identity theft. If a criminal gets ahold of your Social Security number, they can give it to an employer to avoid being taxed on wages, and the opposite effect can happen: you get stuck with the tax bill.

The risk of having your identity stolen during tax season is greater than the rest of the year, but still not something to lose sleep over. The IRS is constantly working to stop and prevent as many false returns as possible and they’re getting better and better at catching those sneaky little criminals before disaster strikes.

A new regulation put into place in the 2014 filing season is that only three refunds can be deposited into a single bank account. They’re also providing taxpayers with personal identification numbers–in addition to the Social Security number they’re required to provide–to prove their identity when filing tax returns. The number of taxpayers requesting these PIN numbers is nearly doubling every year.

Filing your taxes early can prevent the identity theft catastrophe and we’ll even reward you with cool Vyde gear. Send your tax documents to us by February 28^th and receive a $10 Amazon gift card and a trendy Vyde t-shirt.

FAQs about Filing Taxes Early to Protect Against Fraud and Identity Theft

1. Why should I file my taxes early? Filing taxes early offers greater protection against tax fraud and identity theft. Criminals may use your information to file false returns, but if you’ve already filed, it prevents them from doing so.

2. How does filing taxes early protect me from identity theft? By filing early, you reduce the risk of criminals using your Social Security number to file false returns and claim your refund. This proactive approach helps safeguard your identity and finances.

3. Am I still at risk for identity theft if I’m not expecting a tax return? Yes, even if you’re not expecting a refund, your Social Security number can still be used for fraudulent purposes. Criminals might use it to avoid taxes on wages, leaving you with unexpected tax bills.

4. How is the IRS combating tax fraud and identity theft? The IRS is actively implementing measures to prevent fraudulent returns. Initiatives include limiting the number of refunds to a single bank account and providing taxpayers with personal identification numbers for added security.

5. Are there any incentives for filing taxes early? Yes, some organizations offer incentives for early filers. For example, Vyde offers a $10 Amazon gift card and a trendy t-shirt for submitting tax documents by February 28th. Filing early not only protects against identity theft but also comes with rewards.

A Dozen Deductions for Your Small Business

It’s every business owner’s favorite time of year again! Tax season! Kidding…we know you may not love it as much as we do. But hey, if you’re already signed up with Vyde, we’ve got you covered.

Here are a dozen common and not-so-common tax deductions to get you started on your taxes:

Home Office. There are a few guidelines that go along with this deduction, but it is almost always worth the extra sorting and record keeping to get it right on your taxes. Uncle Sam says the space you claim as your “home office” must be devoted solely to your business and absolutely nothing else. If you sit on your couch and work on a laptop while watching TV, it won’t fly with the IRS. If you do have a legitimate home office, you can even write off a portion of your mortgage, insurance, and utility bills, based on the size of the space.

Office Furniture. 100% of office furniture, carpet, paint, and any improvements you’ve made to the space are tax deductible in the year you buy them. You can go that route or you can depreciate them over a course of seven years (meaning as their value lessens, you can still deduct a portion of the amount you bought them for each year.) You can use the IRS Tax Form 4562 to calculate these amounts.

Office Supplies. Even if you don’t have a home office, you’ve likely still bought supplies for your business. Think ink, paper, pens, scissors, tape, shipping supplies and notepads, highlighters, and the like. Keep your receipts; these things will help offset your taxable income.

Hardware and Software. There’s hardly a small business in existence that operates without a computer in this day and age. But this also includes other equipment like a camera, scanner, printer, laptop, webcam, Photoshop, Microsoft Office, Catch-up Bookkeeping, etc. Like office furniture, you can deduct the full amount of these things up front or you can depreciate them over five years.

Mileage. If you traveled at all for your business this year, you can deduct the costs incurred. You can either add up your mileage, parking, oil changes, tires, and other expenses and decide how much you use your car for business vs. personal use and then calculate your deduction; or you can take the standard mileage rate, which is simpler, and deduct .56 per mile for 2014.

Travel. Things get tricky tax-wise when you travel. It’s great to have a business trip/vacation, but you have to be careful. Hotel stays are 100% deductible (live it up!), but eating out is only 50% deductible (McDonald’s it is!). The cost of travel—airplane tickets, train rides, tips for a taxi driver are all 100% deductible as well.

Client Gifts. If you were an especially generous business owner this year, take those client gift receipts and use them to your advantage. The IRS allows you to deduct up to $25 per client in gifts.

Phone Charges. If you use your cell phone for business, you can claim that as a business expense. If you use your phone 50% of the time for business, you can deduct 50% of your monthly bill.

Advertising and Marketing. If you spent any money at all on advertising your business and its services, you can deduct those expenses. These usually include business cards, promotional flyers/campaigns, yellow page ads, graphic design services, marketing services, Internet ads, and the like. You can also deduct promotion costs for publicity, like sponsoring a local sports team.

Professional Fees. Accountants, lawyers, consultations, etc. are all tax deductible.

Service Fees. If you sell goods in an online story like Etsy or use Paypal to receive payments, all of those fees are tax deductible. This also includes bank fees, credit card fees, and check deposit fees.

Educational Expenses. If you took a course or bought research material to learn more about your industry, these fees are 100% tax deductible. Also consider books, manuals, local college courses, seminars, and professional publications that you may have purchased within the last year.

What tax deductions are most useful to your business? We’d love for you to share them with us!

The 3 Big Reasons Businesses Should Outsource Payroll

Few business owners cite payroll as their favorite business task. In fact, it generally tops the list of least favorites. At what point does it make sense to leave it to the experts?

Here are three big advantages of outsourcing payroll:

Access to expertise and knowledge. Employers have to deal with almost 10,000 federal, state and local taxing jurisdictions across the United States. In addition, employers today rely on technology to operate more efficiently. As a business grows, employers have more employee records to keep and also need more reporting. The lack of technology becomes a hindrance to scaling for growth of the business. When you’re doing payroll in-house, you’re more likely to make mistakes that not only upset employees, but the government as well. Payroll service providers may be less likely to make big mistakes, and when they do, it’s easier to approach them about it than if the same mistake were made by one of your own employees.
Minimize costs and risks. Outsourcing payroll can also assist with cutting costs and limiting risks. On average, businesses are overpaying employees by about 4 percent because of differences between the employee’s time and an accurate time record. Larger businesses often have the means to employee an entire accounting/payroll department, but businesses with fewer than 20 employees often find that outsourcing payroll saves them money. A quick way to determine if outsourcing payroll would save your business money is to figure out how many hours your employees are devoting to payroll-related activities, calculate how much you’re spending and compare the amount to the plans offered by several payroll-services providers. Also, be sure to factor in the money your business spends on tasks like printing and distributing checks, creating tax documents, and the like. You’ll probably be surprised by amount of time and money spent on these tasks.
More focus on your core business. Doing payroll yourself can take a lot of time and focus from the money-making aspects of your business. Payroll may not directly increase sales, but done incorrectly, it can put your business in a world of hurt. To be in accordance with the laws and legal requirements of payroll takes a considerable amount of time and detail. Outsourcing payroll will help you save time and allow you to spend more money on the profitable parts of your business.

FAQs:

1. When should I consider outsourcing payroll for my business?

It’s advisable when payroll tasks become burdensome or prone to errors.
As business grows, managing payroll in-house may hinder scalability.
Expertise of payroll service providers reduces mistakes and ensures compliance.

2. How does outsourcing payroll help minimize costs and risks?

Reduces overpayment errors, averting financial losses.
Especially beneficial for small businesses with limited resources.
Comparing costs of in-house payroll tasks against outsourcing can reveal significant savings.

3. What are the benefits of focusing more on my core business by outsourcing payroll?

Saves time and resources for revenue-generating activities.
Ensures legal compliance and minimizes risks of payroll mistakes.
Allows business owners to prioritize growth and profitability.

4. What advantages does outsourcing payroll offer in terms of expertise and technology?

Access to specialized knowledge on complex tax regulations.
Integration of efficient technology for payroll management.
Service providers offer reliable support and troubleshooting for payroll issues.

5. How can I evaluate if outsourcing payroll is cost-effective for my business?

Assess time and resources spent on payroll-related activities.
Compare costs of outsourcing against in-house payroll management.
Factor in expenses like check printing, tax document creation, and distribution for accurate comparison.

Vyde’s Holiday Business Gift Giving Guide: Part 3, Do’s and Don’ts of Client Gift Giving

If you’re planning on holiday customers, employees or client gift giving, this year, we’ve got you covered! We covered what to give and who to give it to, what’s tax deductible, and now we’re talking Do’s and Don’ts of holiday gift giving.

DO:

-Give. Don’t promote. You have all year to promote your business; allow the holidays to be a time to focus on your clients and let them know how grateful you are for them.

-Send a card. A handwritten card or personal email can be meaningful and memorable. Gift giving has lost its personal touch over the years and your client will love getting a special note from yours truly, with or without a gift.

-Keep an ongoing list of employees, clients, service providers, and others who make your business great throughout the year. The holidays are a busy time of year, making it easy to forget someone. Keeping a small list throughout the year will ease your holiday stress and keep you from overspending at the last minute.

-Set a budget. Not all client gifts are equal, but you do need to have a budget in place before you start shopping. Using a small business bookkeeping system can help you keep to a budget. Check out our post on tax deductible gifts (link) and amounts here before deciding how much to spend.

-Check into a company’s gift giving and receiving policy before shipping your presents. The larger the company, the more likely a specific policy is in place. You don’t want to spend unnecessary cash on a contact who is not allowed to accept your gesture. However, a hand written card will almost always suffice and show your genuine appreciation!

DON’T:

-Don’t wait until the last minute. Keep in mind many people take a lengthy break from work to travel during the Christmas season, so sending a gift to a client’s office on December 23^rd may not work. Try to have your gifts sent out early in December to ensure on-time delivery.

-Don’t feel pressure to run out and buy a nice gift for everyone who sends you one. Again, a quick way to go over budget and not always necessary. However, be sure to send a nice thank you card expressing your gratitude or a holiday card, and add that person to the list for the next year, if need be.

-Don’t send gifts that are too personal or religious. Keep it professional in the work place and avoid gifts like clothing, perfume, and other items people have personal (and sometimes very strong!) opinions about.

-Don’t be a brown-noser. Give gifts because you’re grateful for your client, employee, boss, etc. and keep it at that. Don’t try to out-do another employee or company and keep in mind that as long as your gift is genuine and sincere, the recipient will appreciate the gesture.

The best holiday gift to give comes from the heart. Be genuine and sincere and your clients and employees are sure to appreciate the heartfelt gesture.

FAQs for Holiday Gift Giving to Clients, Customers, and Employees

1. What’s the primary approach during the holiday season for gift giving to clients? Focus on giving rather than promoting your business. Use the holidays as a time to show gratitude and appreciation for your clients’ support.

2. Is sending a card a meaningful gesture in holiday gift giving? Absolutely! A handwritten card or personal email adds a memorable personal touch, making your client feel valued, even without a physical gift.

3. How can I avoid last-minute holiday stress while planning gifts? Maintain an ongoing list throughout the year of employees, clients, and contributors. This helps prevent oversights and last-minute rushes during the busy holiday season.

4. Should I have a budget in mind when selecting client gifts? Yes, setting a budget is crucial. Consider using a small business bookkeeping system to manage expenses and ensure gifts are within a reasonable range.

5. What are some things to avoid when gifting during the holiday season? Avoid waiting until the last minute for gift sending, feeling obliged to reciprocate every gift received, selecting overly personal or religious gifts, and trying to impress with extravagant gifts. Keep the gesture genuine and sincere.

Resources

Category: Business Accounting