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Tax Planning for Small Businesses and Entrepreneurs

Starting a business can be greatly rewarding and a lot of fun. But there’s one aspect that most small business owners and entrepreneurs dread – doing taxes. 

One survey asked small business owners what made owning a business great for them. Almost everyone (96%) said they loved the flexibility of owning a business and the feeling of control it gives them. 

When asked what they really don’t like about business, the majority singled out bookkeeping and taxes as being especially draining. In addition, the more time they had to spend on these tasks, the more they loathed doing them. 

But no matter how you may feel about taxes and tax planning, these activities are important for all businesses, and can be the difference between failure and survival. In fact, businesses that take the steps to implement good tax planning not only increase their chances of survival, but also thriving. 

If you’ve not paid much attention to your tax obligations as a small business owner, it may be time to turn a new leaf. In this article, our tax experts explain what tax planning means for small businesses and how it can be the key to achieving a stellar financial year. 

What is tax planning? 

Although there are a lot of technical definitions for what it means, tax planning really only boils down to being savvy about your tax obligations. Since taxes are an obligation no one can really escape from, tax planning means learning the tax rules and making them work for you. 

Businesses that make the effort to understand and plan their taxes are able to manage their tax liability in the most favorable way possible. In addition, with proper tax planning, they are not only able to reduce the taxes they have to pay, they can even make money on their taxes. 

Here’s how it works. Federal, state and local tax codes include a lot of rules that specify what taxes businesses have to pay, the exact rates of these taxes and when the taxes are due. These codes also include specific rules for how these taxes will be paid and on what they will be paid. 

However, while the tax codes take with one hand, they also give with the other by providing credits, deductions and rules that let businesses reduce their tax liability. By utilizing these rules, credits and deductions, businesses can reduce how much they have to pay on taxes, sometimes even into the negative – meaning you get a refund instead.

Unfortunately, too many small business owners and entrepreneurs fail to recognize the value of tax planning or make the effort to implement a plan. While some of this is down to a simple lack of interest, many businesses do not have proper tax planning because the rules are so complex. 

Tax codes typically run for thousands of pages and include a lot of financial and accounting jargon – definitely not suitable for public consumption. But hard-to-read tax codes should not deprive you of the benefits of proper tax planning. Certified Public Accountants (CPA) or other qualified professionals are there to help businesses understand these tax rules and put them to work in the most favorable ways. 

Why tax planning is important for small businesses

Apart from the obvious fact that good tax planning helps you stay on top of your tax obligations and ensure you’re not owing taxes, there are several other benefits. 

Tax planning and cash flow management often go hand-in-hand. Cash flow management paying attention to how money moves in and out of your business, so you always have enough left over for other things. 

If you’re not implementing proper cash flow management, your outgoings can be more than your incoming, leaving you exposed at crucial times – such as when taxes are due. In like manner, inefficient tax planning can leave you with a larger tax liability than you expected, leading to difficulties with paying your taxes and, ultimately, a negative cash flow. 

Due to the fact that tax liability means money is going out of your business, it’s in your best interest to ensure as little as possible is going out. Other benefits of tax planning include: 

  • Being able to reduce the amount you pay on taxes, meaning you have more to grow your business
  • Taking advantage of tax rules that let you grow your business and still save on taxes, the perfect two-for-one
  • Giving you granular control over your tax liabilities so you’ll never be surprised by your taxes again

If achieving financial freedom is one of the reasons you started your business, implementing proper tax planning will be one of the first steps to reaching your goal. 

Now that you understand what tax planning is and why it’s important for your business, let’s quickly look at ways you can make the most of your tax planning this year. 

Tips to make the most of your tax planning in 2020

Good tax planning is about learning exactly what the tax rules are and being smart about how you take advantage of them. To get you started right, here are some tips that underlie smart tax planning. 

  • Understand your tax obligations: It’s impossible to make the most of the tax rules if you don’t know them. Learn what taxes apply to your business, the applicable rates, the periods when they become due and everything else about your tax liability. 
  • Maintain proper financial books and records: Taxes are a levy on your business activities and profits for a year. If you don’t maintain accurate records of your business transactions through the year, it’s the IRS that’ll be telling you what you owe – which is never a good thing. Open and maintain proper accounting books to ensure you’re on top of your transactions and have all the paperwork to back them up. 
  • Implement tax forecasting: Tax forecasting is simply the practice of estimating what you have to pay on taxes either monthly, quarterly or yearly. It’s a good practice because it keeps you aware of what to expect and also gives you a dollar figure you can immediately start working on reducing or reorganizing to suit your business. 
  • Set aside your taxes every month: We can’t stress this enough. Failing to set your taxes apart routinely is critical to ensuring you’ll always be ready to meet your tax obligations, especially as a small business. Plus, you can even make money on those funds by locking them up in a high-yield savings account and earning some tidy interest. 
  • Take advantage of deductions and credits: As mentioned earlier, deductions and credits are expressly provided in the tax codes for your benefit. Failing to take advantage of them would be illogical. Keep a regularly updated list of those deductions and credits that apply to your business so you can use them as they were meant to be. 
  • Let an expert help you: If you’re looking at all of these and wondering where to start, it might be in your best interest to speak to a professional CPA. Even if you think you might be able to go it alone, having a CPA on your side significantly increases your chances of successful tax planning. In addition, leaving things in the hands of an expert frees you up to grow your business and make more money. 

Contact Fola Financial for help 

At Fola Financial, we have worked with small businesses and entrepreneurs from all over the US to implement profitable tax planning strategies. We keenly understand the tax rules and can employ this knowledge to help ethically and legally reduce your tax liability. Get in touch with us today to speak with one of our financial advisors.

barclays

You Need to Open an Online Savings Account: Barclays Review

We go online for everything. From keeping up with old friends to paying our bills. Having an online savings account is not only a convenience for us, they are also a very smart investment.

There are many online savings account to fit everyone’s needs. Most online savings accounts are FDIC-insured like other bank accounts, which means your money is safe. Some require a minimum to open an account, while others don’t.

Did You Know?

The average interest rate offered by a traditional bank is only 0.26%, while online savings accounts can offer you 2.20% APY.

As a customer of Barclays I feel confident referring others to opening an online savings account with them.

Why did I pick Barclays?

Easy.

– They only require a minimum balance of $1 to open an account.

– The APY for their savings account is 2.20%

– $5 insufficient fund fee, while others can charge around $30 or more.

– $0 Monthly fees

– Barclays is a 325 year old London based account, making them trustworthy.

– Great human based customer service support.

You may think that opening an online savings account may be complicated, but it’s actually like everything online, easy and quick.

sheneya

Tax Tips For Travel Nurses

Are you a travel nurse unsure about how traveling will affect your tax situation ? Here’s some advice from a CPA on how to prepare for this upcoming tax season as a traveler.

How the 2018 tax law changes affect travel nurses ?

Employee expense deductions no longer exist. Therefore, Travel Nurses can no longer deduct travel-related expenses, mileage, CEUs, licenses, etc.

Tips For Travel Nurses in Regards To The New Tax Bill

Travel Nurses should ask for higher reimbursements for travel needs and licensing fees from their employer or agency. Since tax rates are lowered under the new tax bill, Travel Nurses should consider a ROTH IRA retirement plan that deducts tax now instead of a tax-deferred traditional 401k or IRS plan in order to avoid paying tax on that money in the future.

What records should I keep so I’m prepared to file my taxes as a travel nurse?

– Contracts – This should show you start date, end date, name of facility, address, taxable hourly rate, amount of tax free stipend

– Pay stubs

– Documents that justify how tax-free stipend was used (i.e proof of lodging, meals mileage, etc.)

How long should I keep the records (in case of audit)?

The IRS has a statute of limitations of 3 years or 5 years in the case of fraud.

For tax free income, the statute of limitations is 7 years.

Are the chances of me getting audited higher because I’m a travel nurse?

Typically everyone has the same chances 1 in 160

If you make 200k or more your chances as 1 in 80

How do I qualify to receive tax free income?

The tax code allows tax-free stipends for all ordinary and necessary expenses incurred while working away from one’s tax home. Therefore, whether or not traveling nurses qualify to receive tax-free stipends depends on where they’re working versus where their tax home is.

What’s the difference between a tax home and a permanent residence?

Your tax home is the location in which you earned your taxable income (main place of business)

Your permanent residence is where your permanently reside. For travel nurses, this will be the address listed on your nurse license.

In which state do I pay my income taxes?

You pay taxes to both the state of which you worked and the state of your permanent residence.

However, Most times, you do get credit for taxes paid in each state to offset the state tax. I recommend consulting with a CPA.

Is it true that you have to be at least 50mil away from you home to qualify for tax free stipends?

No, the IRS doesn’t have that rule, it was used by the hospital as a general rule of thumb to prevent their full-time workers from picking up contracts.

goldman sachs

Online Savings Account Review: MARCUS by Goldman Sachs

Your savings account should be paying YOU !!!

You may have heard of the name Goldman Sachs, it is one of the best known investment banks in the United States. In 2016 Goldman Sachs launched Marcus, an online bank. It’s for customers who want a higher interest rate for their savings account and are tired of paying unnecessary fees.

The Bad (The good will make up for it, I promise)

  • No Physical location, so if you need to withdraw money constantly, this isn’t the account for you.
  • No Checkings account so no ATM cards, a lot of people prefer linking their savings to their checkings account for emergencies but it’s not that kind of party.
  • No Mobile App, I know we’re not used to things like this because we’re spoiled with today’s technology by being able to deposit our checks and check our balance. So this is a downside for many.

The Good (yayyyy)

  • You only need $1 to open a savings account. Sometimes savings accounts with good interest rate deals require an average of $1,000 minimum. This is great, there’s no excuse for why everyone doesn’t have a savings Marcus account.
  • High Interest Rate Yield. The current interest rate for their account is 2.00%. Take a look at others. Regular commercial banks like, Bank of America offers 0.03%-0.06%.
  • No monthly fees! Usually banks that offer such a low minimum will require you to have a minimum in the thousands range.

Marcus by Goldman is a great account overall. I will give it a rating 8 out of 10.

money

New Year, New Money Mindset!

Happy New Year from Fola Financial!

This is the perfect time of the year to assess your current mindset, habits, goals, and plans of action.

If your goal is to budget better, save more, or purchase your first asset, you must remember that change begins in your mind. You have to KNOW that wealth is attainable, and really BELIEVE it.

If you haven’t already, I highly suggest reading this book Think and Grow Rich: The Landmark Bestseller Now Revised and Updated for the 21st Century (Think and Grow Rich Series)

Think and Grow Rich by Napoleon Hill examines the psychological power of thought and the brain in the process of furthering your career for both monetary and personal satisfaction.

In other words, this book teaches you the importances of controlling your mindset surrounding money, wealth, and success in order to attain it.

“Whatever the mind can conceive and believe, it can achieve.” -Napoleon Hill

Make 2020 the best financial year of your life thus far by first changing your mindset about money.

Please feel free to utilize the FREE resources provided by your team at Fola Financial to help you get started on your journey !