Business Taxes - Vyde

Small Business Owner’s Guide to Year-End Employee Bonuses & Holiday Gifts: Part 1

There is no one right way to show gratitude for your employees during the holiday season, other than to not show it at all. If you were to ask 20 small business owners what they do for their employees as a year-end reward, you’re likely to get 20 different answers. Many offer a cash bonus, some take the team to a nice dinner, some give individualized holiday gifts, and others throw a party for employees and their families. Small business owners can make their employees feel valued and appreciated, even on the smallest budget.

3 Ways to Give Year-End Employee Bonuses

If you’re planning to offer a cash bonus to employees, there are a few ways you can go about it. Here are three types of year-end cash bonuses to consider for your small business:

Performance Bonuses. Many employers are turning to performance-based bonuses to save themselves money and keep employees from expecting a given amount at the end of the year. The best way to do this is to give each employee individual goals to work toward at the beginning of the year, and then evaluate their performance based on those goals and other factors at the end of year. Goals may need to be adjusting quarterly, according to the employee’s progress. Scheduling a year-end interview with each employee will help you evaluate their performance and decide on an amount that works for you. This may end up being a percentage of their salary, or perhaps a flat dollar amount that is contingent upon them reaching their goals. This will motivate employees to work hard and give them some incentive to carry out their goals to the end of the year. This method can reduce hurt feelings if the bonuses are not even because employees know up-front how the amount is decided.

Non-performance bonuses. Some small business owners prefer to award year-end cash bonuses just to show their appreciation, without basing them on performance. Non-performance cash bonuses can also be a portion of the employee’s salary or a flat dollar amount. With non-performance bonuses, you’ll just need to make sure that everyone gets a fairly distributed amount to avoid contention and hurt feelings among employees who may not have been awarded as much.

Longevity bonuses. U.S. Bureau of Labor Statistics, people 35 years and younger change jobs every 18 months, and people of all age groups do so every three years, which motivates some companies to offer employees an incentive to stay put. Many employers offer bonuses for employees who have been with their 5, 10, 15, or 20 years, with a set amount for each milestone of employment. This can end up being less or more expensive for employers at the end of the year, based on how many awards must be given out and the years of service being rewarded. However, with this method, not everyone will get a bonus every year.

A Few Tips on Giving Year-End Employee Bonuses

Before you let yourself get overwhelmed with which type of bonus to offer, consider if offering a cash bonus is even in your accounting budget this year. If it’s not, choose another way to reward employees for a job well done. Many small business owners change their year-end bonus policy every year, based on the profits of the company during that year–and that’s completely fine. If your accounting and small business bookkeeping is up-to-date, you’ll likely have an easier time deciding how much to give.

If your company offers employee bonuses every year, but is unable to this year, be sure to let employees know as soon as possible so they don’t feel start prepping for their backyard swimming pool, like Clark Griswold in National Lampoon’s Christmas Vacation.

Be as fair as possible. While the actual dollar amount doesn’t have to be the same for each employee, bonuses do need to be distributed evenly and fairly. Make sure all employees are recognized during the holiday season–not just some. Bonuses should be consistent and unbiased.

FAQs about Year-End Employee Bonuses & Holiday Gifts:

What are common methods for giving year-end cash bonuses?
Employers often opt for performance-based bonuses, non-performance bonuses, or longevity bonuses to reward employees at year-end.
How do performance-based bonuses work?
Employees are given individual goals to achieve throughout the year. Their performance is evaluated against these goals, determining the bonus amount.
What are non-performance bonuses?
Non-performance bonuses are awarded without specific performance criteria. They can be a portion of the employee’s salary or a flat amount distributed evenly among employees.
What are longevity bonuses and how are they earned?
Longevity bonuses reward employees for their tenure with the company, typically after 5, 10, 15, or 20 years of service. The amount varies based on the milestone reached.
How should employers approach year-end bonuses when faced with budget constraints?
Employers should assess their financial situation and consider alternative forms of recognition if cash bonuses are not feasible. Transparency and communication about bonus policies are essential to managing expectations effectively.

The Business Standard Mileage Rate and How Do I Use it for My Small Business?

If you own a small business, you’ve likely heard the term “Standard Mileage Rate.” Some business owners spend a great deal of time behind the wheel, logging up to 20,000 miles in a year. Most of the time, they’re using their personal vehicle for business travel which can end up being quite expensive. The IRS has provided a Standard Mileage Rate to ensure those miles driven for business are tax deductible.

Here’s how it works:

Standard Mileage Rate Explained

Rather than adding up every mile driven, gas tank filled, oil changed, car wash and window cleaning, tire rotation, and other vehicle expenses in a year, the IRS offers the Standard Mileage Rate which provides a 57.5 cent deduction (2015) for every mile driven for business in a year. That way, business owners only have to track miles driven, and not every other cent they spend on their car. To figure a standard mileage rate, simply take the number of miles driven and multiply it by the current standard mileage rate (which changes every year).

Example: Jenny, a realtor, drove his car 15,000 miles for business during 2015. To determine her car expense deduction, she simply multiplies her business miles by the applicable standard mileage rate of 57.5 cents per mile. This gives her a total deduction for the year of $8,625 (.575 × 15,000 = $8,625).

Standard Mileage Rate vs. Actual Expense Method

Most business owners find it quicker, more efficient, and financially advantageous to use the Standard Mileage Rate. However, it doesn’t hurt to keep track of receipts and expenses and see which method gives them a better deduction for the year.

To use the actual expense method, a small business owner must keep track of every purchase made for their vehicle. These expenses include:

gas and oil
repairs and maintenance
depreciation of your original vehicle and improvements
car repair tools
license fees
parking fees for business trips
registration fees
tires
a portion of insurance premiums
car washing
a portion of lease payments

The Actual Expense Method can offer a larger deduction at the end of the year, but it require diligent and meticulous record keeping.

Which method is better?

Determining which method is better for a small business owner requires calculating both ways to see which offers the bigger deduction. Keep in mind that smaller cars usually get better gas mileage and may not require as much as maintenance as larger vehicles. In this case, the Standard Mileage Rate is almost always the better option. After you calculate both ways for the first year of using your vehicle for business, you’ll likely stick with the same method year after year. However, you are allowed to switch back and forth between the methods from year to year, but with some restrictions. Ultimately, most small business owners elect to use the Standard Mileage Rate, but both are important in tracking business expenses and deductions.

Vyde’s Year-End Business Accounting Checklist

As December approaches, it’s time to start thinking about your small business bookkeeping and closing out the year for your small business. While that may sound like an overwhelming feat to accomplish in addition to a busy holiday season, we’ve made the accounting part easy with our quick, printable year-end business accounting checklist. Click here to download.

FAQ – What If I do Business Outside of My Home Office?

If you read our last post, you know that in order for a home office to be claimed on taxes, it must be used exclusively and regularly for business use. However, that doesn’t mean it has to be the one and only place you do business. Here’s how to keep your home office status as an entrepreneur and still be able to conduct business where you need to.

You can still claim a home office if any of the following apply:

Other people conduct administrative or management activities for your business at their business location. Ex: Your accountant does your small business bookkeeping from their office.
You conduct administrative or management activities at places that aren’t fixed locations of the business, like in a car or a hotel room.
You conduct a substantial amount of these non-administrative and non-management business activities at a fixed location outside your home, like meeting clients for lunch or traveling to conferences.
You have suitable space to conduct administrative or management activities outside your home, like at your regular business office. However, you choose to use the home office for those activities.

If you own multiple businesses and work on them both at home AND at an office:

Follow IRS guidelines to find out if your home office is the principal place of business for each. It might be for one and not the other.
A home office might be the main place of business for more than one activity. However, each activity you conducted in the office must meet all requirements for the deduction. Otherwise, you won’t meet the exclusive-use test for any activity.

Essentially, your home office doesn’t have to be the only place you do business. Your daily business activities as an entrepreneur will undoubtedly take you further than the walls of your home. However, the regular and exclusive use guidelines are most important when determining if your home office is tax deductible.

Vyde’s Updated Holiday Gift Giving Guide for Small Businesses and Entrepreneurs

The holiday season is the perfect time to show your clients and employees just how much you appreciate them. However, figuring out what to give, when to give it, and what’s tax deductible can be a daunting task. Vyde has made it easy with our comprehensive, deductible-focused Business Holiday Gift Giving Guide.

To get the most bang for your buck, you’ll want to give gifts that are tax deductible. While the IRS doesn’t list specific client gifts that you can or cannot deduct, there are limits on how much you can deduct for each client receiving gifts from you. So how do you know what is tax deductible when purchasing a holiday gift to a client or employee?

Purchasing Business Gifts that are Tax Deductible

Currently, the limit is $25 per recipient per year. There is no limit on how many people you can give business gifts to in a year, but the deductible portion for each recipient is $25. That means if you splurge on a $50 gift basket, only half of that amount is actually deductible. If you’ve already sent your clients a gift this year, be mindful of that running total and the $25 yearly limit.

The actual gift isn’t the only tax deductible portion of business holiday gift giving. Wrapping paper, cards, scissors, tape, ribbons and bows are all tax deductible so fancy it up before shipping it out! And when you get to that mile-long post office line this December, keep your receipts because shipping and stamps are deductible as well. These costs are an addition to the $25 per recipient limit, so the actual gift itself can be valued at $25 and these expenses are still deductible.

If the $25 limit feels restrictive to you, there is a way that can help you deduct even more—and probably cut your work in half, too. According to the IRS, if you give a gift of “entertainment,” you can deduct 50% of the cost.

Examples of entertainment gifts are concert tickets, sporting event tickets, movie passes, restaurant gift cards, vacations, hotel stays, etc. Clearly that $25 limit per recipient can quickly be surpassed in these categories, so your deductions may actually be greater than $25 each if you spend $50 or more. Your clients are sure to love the gift of entertainment and you won’t have to bother with the ribbons and bows. In fact, most of this shopping can be done online and sent to your client electronically.

Who to Send Business Gifts to this Holiday Season

Start making a list of those you’d like to give a holiday gift from your business this year and your list may be as long as Santa’s in no time. Here’s a little tip: focus your holiday gift giving on the people who make your company great.

Your business certainly wouldn’t be what it is without the people who support it–your clients. And if you’re not a one-man band, don’t forget about your employees either. Both of these lists of people are essential on your business holiday gift giving list. Other people you may consider sending business gifts to may include some service providers, potential clients, resources, consultants, contract workers, guest speakers, or those who have referred clients to you.

When it comes to client gift giving, things get complicated in a hurry. Maybe you have a lot of clients who pay only a small amount of money to your business each year. In this case, you’ll want to give smaller, more general items as gifts to your clients. That doesn’t mean a pen and notepad with your logo on it, or something cheap bought in bulk from Oriental Trading. This isn’t about promoting your business, it’s about strengthening that relationship you’ve worked so hard to form. Even if you’re on a tight budget for a lot of people, you can still send a thoughtful, meaningful gift.

If you’ve got too many clients to manage individualized gifts and would rather not send an actual item (inexpensive or not), a handwritten card is a genuine gift that shows your client that you care about them as an individual. Think about the message you want to convey, make it personal, express your gratitude, and hand write it. A personal message directly from you to a client occupies a larger space in their mind than a plastic yo-yo with your company name on it.

Or perhaps you have only a few clients with large accounts. In this case, you may want to invest more money in holiday gifts that show you care and value the business relationship you’ve formed.

Regardless of your situation, cost is undoubtedly on the forefront of your mind when it comes to gift giving. We’ve compiled a list of ideas, categorized by cost, to get you thinking.

Holiday Gift Giving Ideas for Clients and Employees

Gifts Under $15

Candy, such as a small box of chocolates, peanut brittle, gourmet butterscotch hard candies, or fudge
Refillable water bottle or insulated mug
Page-a-day desk calendar
Your favorite business book
A small bouquet of flowers or holiday arrangement, hand-delivered (maybe even handmade!)
A desk toy such as a kinetic motion toy or a clock
A small potted plant
A gift certificate to a local ice cream or cupcake shop
Electronic cleaning kit, complete with microfiber cloth and cleaning spray

Gifts under $25

Small meat and cheese tray with fine mustard or dipping sauce
A set of personalized stationery
Amazon gift card
Gourmet cookies
A subscription to a business magazine or website that interests them
iPad case or cover
Engraved and/or personalized pen
Movie tickets
A gift certificate to their favorite restaurant

Gifts under $50

Digital photo frame
Large box of chocolates (suitable for office sharing)
Carry-on bag for business trips
Sporting event ticket(s)
A gourmet food basket
A messenger or laptop bag
Wrist or clip-on fitness tracker/activity monitor

Entertainment Gift Ideas

These gifts can actually be deducted 50% no matter the cost, rather than the $25 per recipient limit.

Sporting event tickets
Theme park tickets
Restaurant gift cards
Movie tickets
Vacations/hotel stays
Ski lift tickets
Golf cart / green fee passes
Play/show tickets
Concert tickets

Keep in mind that not all holiday business gifts are created equal. You don’t have to give your $100 a month client the same gift you give your $1,000 a month client. It’s ok to send some clients cards and others more expensive gifts. Select a price range that feels right to you based on your relationship with each recipient and go from there.

The Do’s and Dont’s of Business 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 you’re grateful 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 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.

-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.

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. This is a quick way to go over budget and is not always necessary. 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 and keep it at that. Don’t try to out-do another employee or company, just give from the heart.

Regardless of what you actually send, clients and employees are sure to appreciate a genuine gesture that shows your gratitude for their business and service throughout the year. When in doubt when it comes to holiday gift giving, keep it simple and track expenses closely.

Top 20 Accounting Tips for Insurance Agents

As an insurance agent, there is no one who understands the importance of protecting your assets better than you. You’ve got your clients covered when it comes to their vehicles, home, business, assets, family members, and every other important aspect of their life. Why not do the same for your insurance agency? Proper accounting and bookkeeping practices help protect your business from potential disaster by ensuring your finances are always in order, no matter what comes your way.

Top 20 Accounting Tips for Insurance Agents to Protect Your Business and Keep It Running Smoothly

1. Find an efficient way to track income and expenses. The first accounting tips for insurance agents is to keep track of money coming in and money going out. It is important to track expenses as they really are and not how you want them to be. Having an efficient system for tracking expenses and income is the only way to know how your business is performing financially.
2. Create a budget and stick to it. Categorize and track all expenses for your insurance agency. Your budget should include monthly expenses for different aspects of your business such as payroll, marketing, utilities, office rent, office supplies, business meals, and vehicle expenses.
3. Separate business and personal expenses. One of the first orders of business for insurance agents should be to set up a business bank account and use it for all business expenses. That way, when tax time comes you will only have to review your business account bank statements for deductions and expenses, rather than reviewing your personal account and trying to remember which expenses were for your insurance agency.
4. Set aside time for business bookkeeping and accounting. If you prefer to do business bookkeeping yourself, try set aside at least one hour each week to pay bills and update your income and expenses.
5. Don’t miss out on deductions, big or small. Noting even the smallest tax deduction can add up over the course of a year and really help out during tax season. Any money spent on improving or maintaining your business is tax deductible, as long as the expense is ordinary and necessary. Visit our previous posts on business deductions here, here, and here.
6. Create a home office. If you use part of your home to conduct insurance business, you may be able to claim a home office deduction. The IRS requires that the space designated as your “home office” must be used regularly and exclusively for your insurance agency business.
7. Track vehicle expenses. While you can’t deduct your drive to and from the office, all the other driving you do for your insurance agency is deductible, like driving to see clients or taking the office staff to lunch. Make sure to keep an accurate log of all miles driven for business.
8. Pay close attention to important tax deadlines. The most important tax deadlines to be aware of for insurance agents are Estimated Quarterly Taxes, which are due four times each year.
9. Outsource payroll. Most insurance agents start out doing their payroll in-house; however, when your insurance agency reaches a certain point of growth, you may find the time and effort put into payroll isn’t worth the cost anymore. Outsourcing payroll frees up your time and provides access to the knowledge and expertise of professional accountants, who are less likely to make mistakes while processing payroll.
10. Choose benefits wisely. The most sought-after benefit for employees is health insurance, followed by retirement, life insurance, and paid leave. Employees also appreciate extra perks like wellness programs, gym memberships, and child care assistance.
11. File taxes early to prevent fraud. Not only does it relieve your stress, to get taxes done early, it reduces the risk of identity theft.
12. File a tax extension when you need to. Here’s how.
13. Employ your children. Whether they’re cleaning your insurance office or answering the phone, their wages are tax deductible and they can be a big help to your business. Teaching them work ethic at a young age is an added bonus, right?
14. Invest money wisely in your business. Don’t spend money carelessly, even if you feel like you can afford it. Make business purchases wisely and invest in the aspects of your business that will provide you with the most profit long-term.
15. Set your salary. Decide on a monthly amount or percentage of profit from your insurance agency for your take-home pay. For tips on setting your own salary as a business owner, visit this post here.
16. Develop an exit strategy for your insurance agency. If you’ve partnered with another insurance agent, an exit strategy helps keep the relationship professional and is an added security for the business. Make the tough decisions about how your partnership could potentially end now, rather than when things may be tough down the road.
17. Develop a succession plan for your business. Additionally, setting a plan of who will eventually take on more business responsibilities within your insurance agency helps keep things on track.
18. Save money where you can, but don’t cut corners.
19. Utilize technology. Stay up to date on the latest accounting software for your industry, in addition to utilizing tools like smart phones and tablets to track expenses.
20. Hire a professional accountant. Mazuma accountants can take care of all the taxes, catch-up bookkeeping, and accounting for your insurance agency for less than $100/month. It only takes ten minutes to upload your information monthly or stuff your Purple Vyde Envelope with receipts and invoices and send it off to Vyde accountants who take your financial records and turn them into neat and tidy profit/loss statements.

Protect your business finances like you protect your insurance clients and you’ll be prepared for any unexpected financial crisis that comes your way.

FAQs for Insurance Agents Regarding Accounting Practices

1. How does efficient tracking of income and expenses benefit my insurance agency?

Efficient tracking offers clear insights into financial performance, aiding informed decisions and ensuring accurate financial assessments.

2. Is it mandatory to set up a separate business bank account for an insurance agency?

Establishing a separate business account simplifies tax processes, enabling easy identification of business-related expenses during tax assessments.

3. Why consider outsourcing payroll for an insurance agency? Outsourcing payroll, especially with business growth, saves time and minimizes errors. Professional accountants handle complexities more efficiently.

4. What’s the significance of filing taxes early and considering tax extensions?

Early tax filing reduces stress and minimizes identity theft risks. Tax extensions offer flexibility, ensuring accurate filings without unnecessary rush.

5. How can utilizing technology benefit insurance agency accounting?

Adopting updated accounting software and tech tools streamlines expense tracking, enhancing accuracy and efficiency in managing financial records.

12 Creative, Tax Deductible Ways to Promote Your Small Business This Holiday Season

The holidays are coming quickly! Is your small business ready? The best way to execute any marketing plan is to start early and plan thoroughly. Use these creative ways to promote your small business and get the most bang for your buck by making sure your festivities are tax deductible.

HALLOWEEN:

1. Have your logo printed on Halloween candy. Check out these websites: shindigz.com and whcandy.com for ordering and ideas.

2. Attach a business card or promotional flyer to your goodies. A quick, easy way to get the word out about your small business to trick-or-treaters and their families. Tax deductible, too!

3. Send a box of candy to clients in October. They’ll get lots of goodies around Christmas time, but they’re sure to remember the company that started early and sent them something for Halloween, too.

4. Donate any leftover candy to the US troops. Read more about that, here. “Charitable organizations with 501(3)c status like Operation Gratitude and Soldiers’ Angels collect leftover Halloween candy to include in care packages for soldiers. They are two of many 501(c)3 organizations on the IRS-approved list to donate tax deductible charitable goods.

THANKSGIVING:

5. Sponsor a food drive or coat drive. This is a great way to get employees and clients excited about giving back to the community and any money you donate to the cause is tax deductible.

6. Send out a “thankful” postcard or greeting to clients. There is no better time of year than Thanksgiving to let clients know how appreciative you are of their continued support. A genuine, thoughtful message from you can go a long way. Bonus: all printing and shipping is tax deductible.

7. Organize a 5k or other charity event. If you start early enough, you can plan a “Turkey Trot 5k” on or before Thanksgiving day and donate the proceeds to a local charity. Promotional materials like t-shirts or wristbands are tax deductible, and you’ll likely get some free media coverage from the event.

8. Find a way to serve Black Friday Shoppers. Nearly all small businesses capitalize on Black Friday sales, (and you can too!) but you can also offer free hot chocolate or some kind of treat to those wary shoppers waiting in line for doors to their favorite stores to open. Don’t forget to hand out business cards or flyers promoting your holiday sales as well.

CHRISTMAS:

9. Send your clients a gift or card. Keep in mind that you can only deduct $25 worth of gifts for each client in a year. Visit Vyde’s holiday gift giving guide, here.

10. Join other businesses to host a gift-giving tree. Find a local charity, put a tree in the business district or shopping area, post Christmas wishes on the tree, and have customers pick a wish and buy the desired gift.

11. Hold a “12 Days of Christmas” sale, event or contest. Give away a different prize every day, offer a different discount every day or spotlight a different product every day. All prizes you buy are tax deductible for your small business.

12. Hold a Christmas party at the office. Invite clients, customers, employees, and their families for a breakfast or luncheon. It doesn’t have to be terribly expensive to be fun. Plan some games, throw together a few refreshments, and show your gratitude for all who help make your business great.

How do you promote your small business during the holidays? Share with us on our Facebook page for a chance to be featured on our blog!

5 Steps to Open a Business Bank Account

As an entrepreneur, one of the first things on your to-do list should be to open a business bank account for your newly formed business. Even if you’re not yet making money, you’re likely investing at least a small amount in getting things up and running. A business bank account isn’t just a place to hold the millions of dollars you’re sure to make, it’s a record of transactions that will become invaluable to you as you carry on your new business venture. A business bank account helps you track expenses, show proof of transactions if you were to be audited by the IRS, and find deductions for your small business you may have otherwise missed. We’ll walk you through the steps of choosing a bank that’s right for you, getting your account set up, and using your bank statements to help with bookkeeping and accounting tasks.

5 Steps to Open a Business Bank Account

1. Choose the bank that’s right for your small business. The decision to go with a large corporate bank, credit union, or regional bank for your small business account can be quite overwhelming. All offer a plethora of loans, credit cards, fees, etc. and all would be happy to house your money for you. Here are a few points to consider when choosing the right bank:

1. - Fees. All banks have them, and there is really no escaping them for a business bank account. Depending on the size and needs of your business, your bank fees should be manageable. Larger corporate banks normally offer lower rates to start up businesses because of their volume of clients. When choosing a bank, be sure to ask about ATM fees, checking and savings account fees, maintenance fees, and any fees that may increase in the future. Make sure if you sign up during a promotional period, your bank fees won’t skyrocket when the promotion ends.
  - Minimum Balances. Some banks require that small business owners keep a minimum balance in their account at all times. Be sure to check what this fee is for each bank–whether it is $25 or $1,000, it’s best to be in the know before making a commitment.
  - Lending Opportunities. If you need a small business loan, this will be especially important. Ask several banks about their small business loans and the availability of them. A loan officer can help determine if you qualify for a small business loan, interest rates, and how much they are able to offer you. Typically, regional banks and credit unions are able to offer more flexibility in small business loans.
  - Online Accessibility. In our increasingly mobile world, online features and ease can be a huge relief to small business owners. If online banking is important to you, be sure to compare and contrast features offered from each bank. Mobile check deposits, withdrawals, transfers, and online bill pay are a few of the most commonly offered features small business owners take advantage of.

2. Gather the necessary documents to open a business bank account. Here’s a quick checklist on what you’ll need to bring with you to the bank when you go to open your account.

1. - EIN. You should have requested an Employer Identification Number from the IRS that identifies your business in the tax world. If you don’t have this number yet, you can request one here and receive it immediately.
  - Identification. Bring your driver’s license or another form of ID to prove that you’re you.
  - Certification of Business Identity. After you’ve filed paperwork to establish your business with the state, you’ll need to bring this proof to the bank. If you set up an LLC, you’ll need Articles of Organization. If you set up a proprietorship, you’ll need your DBA (Doing Business As) papers. If you set up a corporation, you’ll need to bring your Articles of Incorporation. Have questions about how to choose an entity and establish your business with the state? We can help.
  - Business License. Many states require a business license to operate. If it’s required in your state, the state will let you know, instruct you on how to obtain one, and the bank will need to see it before you can open your business bank account.

3. Fill out your business bank account application. Each bank has their own specific application, but all will require paperwork to be filled out with basic information. You can pick up the application beforehand and fill it out at home so you’re sure to do it correctly.

4. Sit down with a banker to open your account. After you’ve chosen a bank, gathered all the necessary paperwork, and filled out your business bank account application, you’re ready to sit down with a banker and open your account. They’ll walk you through the process, check your credit score, advise you on best business banking practices, and provide you with a bank account number and any other information relevant to your account. The banker will be able to help you choose the right account to meet your small business needs.

5. Receive a check card and temporary checks. The bank will likely provide you with a temporary ATM or debit card, in addition to temporary checks that can be used immediately after your account has been opened. They will then mail you an official check card and checkbook shortly thereafter.

A business bank account will not only help you track expenses and income throughout the year, it will act as a second record in addition to your small business bookkeeping tasks. Any transaction you may have forgotten to record will show up on your bank statements. A business bank account will also help you avoid these common business accounting mistakes.

Any experienced small business owner will testify that it’s best to keep your business and personal bank accounts separate to avoid confusion. Read here and here for more accounting tips on tracking and separating business and personal expenses while your business is in its infant stage.

How to Calculate Self-Employment Taxes for Real Estate Professionals & Agents

Any individual engaged in a trade or business as a sole proprietor, partnership, or part of an LLC must pay self-employment taxes on net earnings. If you’re a real estate professional, you most likely belong in one of these categories and are also subject to this tax.

Self-employment taxes, as referred to by the IRS, include Social Security and Medicare. The term is not all-inclusive and does not include any other taxes that self-employed individuals may be required to file.

Here’s what you need to know:

1. The self-employment tax rate for 2015 is 15.3%.

4% going toward Social Security
9% going toward Medicare
The income limit on this rate is $118,500. If your income as a real estate professional exceeds this amount, you will be required to pay an additional 0.9% in Medicare tax.

2. Deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income.

This means you can subtract ½ of your self-employment tax from your total net earning for the year.
Example: if you owe $3,000 for self-employment tax, you can claim an adjustment of $1,500, which reduces your income tax by $375 if you’re in a 25 percent tax bracket.

3. This is the amount you pay quarterly.

While it may seem like you’re getting taxed in every direction for being your own boss, keep in mind that self-employment taxes are actually the same taxes that are being withheld from a standard employee’s paycheck. You can calculate your own self-employment tax by using a Schedule SE.
If you are operating your real estate business as an individual and have not formed a partnership, you will report your net profit on a Schedule C which can be included on a Form 1040.

These payments should be included in your estimated quarterly tax payments, your small business bookkeeping and paid throughout the year. Federal estimated quarterly tax payment dates are due April 15, June 15, September 15, and January 15 each year.

Effective Ways: How To Get Out of a Real Estate Partnership

You just formed a real estate partnership. As hard as it is to imagine an ending to your newly formed venture, an exit strategy belongs in every business plan. Adding an exit strategy to your real estate partnership ensures protection for both partners. It will also reinforce that the business venture is a professional relationship, not a personal one.

There are several possible reasons for needing an exit strategy for your real estate partnership.

Here are a few possibilities to consider when developing an exit strategy with your real estate business partner.

Resignation. Your exit strategy should clearly define what happens if one partner decides to resign from the business. How will the partners be compensated if one walks away? What will happen if the business is sold or acquired by someone else?
Disagreement. Fighting and disagreement are one of the most unpleasant ways to dissolve a partnership, yet surprisingly common. If the only solution is to split, then partners should know ahead of time how they will handle things.
Financial Conflict. Differing ideas on how to spend, distribute, or invest money made in a partnership can be a tricky task. Involving an accountant in the development of your exit strategy for your real estate partnership can ensure that business finances run smoothly, even if the partnership dissolves.
Merging or Selling. The exit strategy for your real estate partnership should address how to handle the business if it grows, either through merging or selling.
Buy-out. A good exit strategy includes the possibility of one partner wanting to buy the other partner out. Planning ahead for a buy-out will create a smooth financial transaction.
Death. Details should include what the financial compensation package should be for the surviving family members. You should also decide who will own the deceased partner’s portion of the business. Will the new stakeholder continue in the business? The new stakeholder and surviving partner can decide this later.
Divorce. Your exit strategy should also include guidelines for what happens if one of the real estate partners gets divorced. If you don’t anticipate the possibility of divorce, then you may find yourself with an ex-spouse as a new partner.
Disability. An exit strategy should include clear guidelines about what path the business will take if one partner becomes disabled. This part of the strategy can be the most difficult to develop because while a partner may be disabled—mentally, physically, or even financially—they still have a stake in the business. Disability points to discuss should include transfer of ownership, short and long-term disability payments, and finally, health insurance coverage for the disabled partner and his or her dependents.

Why you absolutely need an exit strategy for your real estate partnership.

A clearly defined exit strategy in a real estate partnership does more than just determine answers for the “what if” questions. It provides peace of mind for both partners. It ensures a fair outcome when the partnership comes to an end. Have your accountant help you draft and/or review your exit strategy for your real estate partnership.

Along with having a plan for exiting your partnership, you should also create a succession plan. Succession planning identifies and develops internal and external individuals to potentially fill key business leadership positions in the future. This makes sure that individuals are prepared for the future and gives peace of mind to all players that a plan is in place. Read more here about succession planning and how a good accountant and virtual bookkeeper can help with this important part of your real estate business.

Resources

Category: Business Taxes