Category Archives: Resources

S-Corporation – The Real Risk: Reasonable Compensation

Google it or talk to your friend and you’ll hear all kinds of stories about how I saving $xx,xxx by switching to an S-Corp.  I get inquiries from clients or potential clients regularly asking about this.  But as with anything there are pros and cons to every choice and the face value tax savings aren’t always what they are cracked up to be.  Often, for smaller business the additional paperwork and tax filings eat up any tax savings and just open the door to more potential errors.  So there is a time when this makes sense and this article does a pretty good jobs summarizing the most relevant pros & cons.  The big pro?  Potential tax savings.  The big con?  A lot more paperwork.

The article mentions “reasonable compensation” and this is where things get tricky.  The tax saving so many tout with this structure, even for relatively low business incomes (I just saw an article from a client referencing business income of less than $60,000 per year), are predicated on justifying a reasonable compensation for a corporate officer (let’s say you, the owner) level even lower than that.  The IRS has been chasing down the taxpayers on this issue for quite some time and the real risk business owners need to be educated on is that if you can’t justify your “low” salary with good data, that could mean that your tax return is wrong, your business tax return is wrong, and all your employment tax returns along the way are also wrong.  That means penalties and interest, and while the personal tax side of the equation will typically wash out (trading business income for wage income), the additional employment taxes will wipe out any tax savings you thought you had and the related employment tax error and remittance penalties can quickly exceed 50% of the additional employment taxes assessed.

So when someone says, “S-corp is the way to go!  It saved me so much money!”  Check with your CPA about your specific situation, carefully weigh the pros and cons, determine if you have the time, energy and funds to comply with the additional burdens, and only then can you decide if this choice is right for you.

 

Favorite Tools For Businesses (Currently)

I get asked a lot about products I suggest for businesses so here are some of my top choices.   Selecting a software solution(s) isn’t one size fits all, so I’d suggest chatting with a CPA who can help you determine if these solutions will handle exactly what you need before diving into implementation.

Taking Credit Car Payments:  Square 

It’s easy to setup, works easily and can accommodate appointments, point-of-sale, invoicing, customer installment plans, a simple online storefront, and appointment booking.  Fees are competitive and the deposit schedule is great.

Cloud Accounting Software:  Xero

All the features most people need with pricing comparable to QuickBooks, but it includes payroll if you need it without additional fees (looks like this is changing beginning in 2019, a partnership with Gusto for a full service offering is being implemented).  Integrates well with Square and has bank linking that works the best of anything I’ve tested. Lastly it has reasonably priced add-ons for things like job-costing if you are a custom manufacturer.

Desktop Accounting Software: QuickBooks Pro (Desktop)

Once you know what you are doing inside Intuit’s desktop software it is hard to beat in terms of functionality and the speed of working on a locally installed software.  For price/functionality it is a go-to choice.  Some specialized industries will need add-on’s or a different solution entirely, but for a large percentage of clients this is a good choice if you don’t need the flexibility of a cloud product.

Payroll:  Does it integrate easily?

Here it depends on what accounting solution you pick.  Xero is integrating with Gusto, Intuit/QuickBooks has a variety of options and pricing tiers that integrate with their solutions and even the tried and true companies like ADP have ways to integrate with your software.  My preference is the one that reduces overall end user workload and opportunity for mistakes.

E-Commerce Platform:  Shopify or SquareSpace

There are a lot of great tools for this, these two options will do the trick for a lot of businesses but there are other great choices.  The big issue here is finding something that will help you stay compliant in the multi-state tax world where states are gaining better legal grounds for collecting sales tax from out-of-state sellers.  This can be a compliance nightmare for small businesses so make sure you plan this step carefully!

Honorable Mentions:

Clover (POS/Credit Card)
QuickBooks (Online/Cloud)
FreshBooks (Online/Cloud)
Sage 50 (Desktop)

Data Security: Individuals & Small Business

CPA firms go through a lot of work to try and keep your data safe, obviously no system is perfect, but it is constantly a focus point in our industry:  by the IRS, our professional liability carriers, and in our continuing professional education.   As an industry we are doing better and working hard to continue that improvement.

However, one of the things that I have noticed over the years is how often my clients need to be reminded of how careful they should be with their own information.  Most of my clients aren’t hit with the myriad of reminders that I am and forget that they  hold vendor’s tax ID and account numbers, employee’s Social Security numbers, and customer’s credit card information in addition to their own business records.

So here are a few tips to get you started and a link to some more security resources put out by the National Institute of Standards & Technology.

  1. Have a plan: Know what data you need safe and who is responsible for it and deliberately create practices (and/or policies) to keep the plan healthy.
  2. Educate employees and business owners:  Often times failure in terms of data security is a result of human error, downloading software with malware, stagnate passwords, computers left unlocked, information put in shared folders with the wrong permissions, etc.  Simple reminders and a little bit of education can go a long way to help close those holes.
  3. Keep software updated:   Updated security software is critical, but holes in old or outdated software can be a potential vulnerability.  Think about your website, e-commerce platforms, financial management software, etc.
  4. Backup your data:  This one has hit more than one of my clients.  Make sure you have multiple backups with at least one kept in a separate location.  Not only can hardware or software failure create a problem, but if some ransomware is demanding $10,000 to get back your accounting records or your main computer goes missing, how nice would it be to just restore your data from your latest backup?
  5. WiFi:  Sounds simple enough, but password protect your router and networks, and don’t share your internal WiFi password that allows network access with external users.
  6. Use a VPN:  If you are accessing company data through a public network, or outside location, use a VPN to keep your traffic and activity encrypted.
  7. Don’t forget your paper files:  A lot of data still sits in many of my client’s offices on paper.  Lock up the important stuff!
  8. Think about security systems:  Think about installing security systems or cameras.  Camera’s and security systems that you can install and manage yourself are getting better and more affordable.
  9. Don’t e-mail unencrypted sensitive data:  Use a different, secure method for getting sensitive data to the people who need it!
  10. Change your passwords periodically:  Just endure the frustration and do it.

Photographer’s Accounting Workshop – January 16, 2016 8 AM – 5 PM

Register here!

This workshop is going to be a hands on, bring your computer, bring your bank statements, and bring your shoebox and walk out with reports that mean something for the 2015 year.  Reports you can hand to your tax preparer, reports you can use to plan for 2016, and reports that let you know how your business is working.

For each section, we are going to spend few minutes going over the “how-to” and “why”, and then we are going to dive into getting that information into QuickBooks for Mac on YOUR system.

This first course is going to be focused on QuickBooks for Mac users (or future users).  Contact me if you are using a different accounting solution (QuickBooks, Xero, QuickBooks Online, Bench.co, 17 Hats, etc.) and are looking for advice or assistance.

Workshop Summary:

  • 8 Hour On Location Workshop designed to be workshop environment where you work through getting YOUR information into QuickBooks for Mac.
  • Location:  The Classroom Collective‘s studio space in Tacoma, WA
  • Class Time:  8 AM – 5 PM
  • Registration is limited to 12 attendees.
  • Breakfast pastries, coffee, and beverages will be provided.
Course Outline:

8:00 AM – 8:45 AM: Setting Up Your Company

  • Loading Company information
  • Setting Up Your Chart of Accounts
  • Items

8:45 AM – 9:45 AM: Making Money

  • Deposits
  • Invoicing
  • Sales Receipts
  • Sales Tax

9:45 AM – 10:00 AM: Break

10:00 AM – 11:45 AM Spending Money

  • Writing Checks
  • Accounts Payable (Should You Use It?)
  • Categorizing Expenditures

11:45 AM – 12:45 PM: Lunch

12:45 PM – 1:45 PM: Making Sure You Captured It All

  • Bank Reconciliations
  • Report Review

1:45 PM – 2:30 PM: How am I doing?

  • Basic Business Reports
  • Reports for Taxes
  • Intro to Customization

2:30 PM – 2:45 PM: Break

2:45 PM – 4:00 PM: Planning

  • Building a Budget
  • Tracking my Progress

4:00 PM – 5:00 PM: Cleanup Hour

5:20 PM – 6:20 PM: Taxes Bonus Session

Pre-requisites:

  • Computer you can bring on location
  • QuickBooks for Mac (2013 or later)
  • Minimum one full months of business operation with dedicated business bank account
  • I’ll do my best to get be as discrete as possible while still answering questions, but there is no guarantee of absolute privacy.  It’s a workshop environment so an understanding that other attendees may here/see some details of your business finances during discussion or due to physical proximity is necessary.
  • This course is not directed at inventory based businesses and will not contain inventory related content.
  • Have a business primarily based in Washington State.
  • Some data gathering prior to the course date (course instructor will contact you after registration)

Bonus Sessions (included in registration):

  • An optional individual 15 minute online meeting to get your software installed and running before the class starts.
  • An optional 1 hour “bonus” Q&A session on taxes after the regular class ends on January 16th.

Registration is non-refundable, but can be transferred to a future course if notice is received 14 days prior to class date.

Register here!

What is the Small Business Administration?

Justin Farmer,  over at Private Practice Transitions has been doing a great series of articles on his blog.  I wanted to highlight a couple of those here because they summarize a couple topics my clients frequently ask me about.

The first two I’ll share deal with the SBA and SBA lending:

What is the Small Business Administration (SBA)

5 Steps to Secure SBA Financing

Photography Tax Guide

The Washington State Department of Revenue has published a Photography Tax Guide.  It answers a number of the questions I get on a regular basis and is a good resource for photographers when they have a question.

It can be accessed here.

Contact me if you have questions that go beyond the information covered in the guide or just need some clarification.