Archive for November, 2016

Small Business Taxes – What Is Your Biggest Obstacle To Paying Less Tax?

November 1st, 2016

Before I tell you the biggest obstacle to small business tax reduction, let me tell you a story. One foggy night the captain of a large ship saw what appeared to be another ship’s lights approaching in the distance. The two were on a course that would mean a certain head-on collision.

So quickly the captain signaled to the approaching vessel, “Change your course ten degrees west.” The reply came, blinking back through the thickening fog, “You change your course ten degrees east.”

The captain became insulted, pulled rank, and angrily sent a message back: “I’m a sea captain with 35 years experience. Change your course ten degrees west.”

Without hesitation, the signal flashed back, “I’m a seaman, fourth class. You change your course ten degree east.”

The captain, now becoming enraged, realized that the two ships were rapidly approaching one another, and would certainly crash in a few short minutes. So he sent his final warning: “Now you listen hear. I’m a fifty thousand ton freighter. Change your course ten degree west – now!”

A simple message came blinking back: “I’m a light house.”

End of story.

Now back to the original question: “As a small business owner, what is your biggest obstacle to paying less tax?”

Whenever I’m asked “How can I reduce taxes?”, I’m always glad to offer an answer packed with potential tax-saving strategies: form a corporation, start a medical reimbursement plan, implement a SIMPLE retirement plan, take the home office deduction, keep track of your mileage, etc., etc., etc.

Of course, the easiest way to paying less tax is to keep better records of the expenses you already have, but have failed to report because of poor bookkeeping.

But lately, I’m wondering if I’m giving the best possible answer to this question. I’m wondering this because of a recent conversation I had with a small business client, who came to me for tax reduction advice.

This man was an ideal candidate for converting his sole proprietorship to a corporation. In about 30 minutes I showed him how he could save over $5,000 in taxes per year by implementing that one strategy of incorporating. His response: “I don’t have the time.”

Yes, it would take some time to implement this strategy. And it would take some time to maintain this strategy. Guess how much? About two hours a month, max.

You do the math. Better yet, I’ll do it for you. If he spends 24 hours a year doing what it takes to maintain a corporation, he’s just made $208.33 per hour at this new part-time “job”.

Hmmm. How many self-employed people can go out and make five grand a year for 24 hours of work? Can you think of any? I sure can’t.

I showed him the numbers I just showed you. His response: “But I don’t want to change the way I do business.”

Ahh, now we’re getting somewhere. Now we just got to the heart of the matter. He finally told me the real reason for his unwillingness to save $5,000/year: he was unwilling to change.

Did you get that?

And this is actually a very common reaction to an effective tax reduction strategy. I’ve seen it many times.

If there is change involved, people are often unwilling to implement tax reduction strategies — it’s too new, too different, too time consuming. Too whatever.

So I’d like to challenge you with this simple question: Are you really willing to make the changes required by an effective tax reduction plan?

All the tax knowledge in the world won’t do you any good without the right attitude toward change. Before pursuing tax reduction strategies, make sure you are ready to change.

Small Business Tax Preparation Resources: Do You Want An Accountant?

November 1st, 2016

Your small business is starting to do pretty well after your first year of really hard work, but you find yourself stretched a little thin and you’re concerned about accounting and small business tax preparation. This might have led you to spend less time with your web-based accounting tools and fail to leverage their power, or perhaps to fall behind on your bookkeeping, increasing your future workload with tax forms like the 1099K. As the different responsibilities and tasks necessary to run your business become complex and increase in number, you’re going to have to find ways to maximize your own effectiveness and manage your business, and this will probably involve investing in getting some help.

One of the most difficult decisions that small business owners have to make is when to start outsourcing their bookkeeping and accounting. The added cost of hiring a part-time bookkeeper, for example, can feel like a major deterrent for small businesses that have a limited budget. The choice is further complicated by owners’ desire to maintain a firm hold on the bookkeeping and accounting, motivated by the accurate belief that they will be better at running their business if they have a strong grasp of its financial situation.

This example of “outsourcing” important tasks indicates the types of variables small business owners have to weigh as the business grows. There are several clear costs to hiring a bookkeeper and accountant: the financial expense, the time to communicate with them and oversee their work, and the time you have to spend reviewing the accounting reports they produce are some of the biggest. But there are clear benefits as well. You will have more free time to focus on the core activity of the business and marketing if you were devoting a lot of effort to keep clean books and learn more about accounting. And you’ll probably have more accurate, clearer accounts along with more useful accounting reports when a pro produces them. This could lead to higher deductions when you conduct small business tax preparation, and will help your confidence in your accounting once you get used to the idea.

It may be difficult to quantify some of these costs and benefits to decide if the investment is worth it. In the case of getting a seasonal accountant and a part-time bookkeeper, the odds are high that the change will be very profitable. With other responsibilities, such as marketing, filling online orders, or managing inventory, the question really comes down to the specific costs and value. But the important thing to understand is that you have to actually take the time to “do the math” and make a logical decision instead of one motivated by emotion.

Whether the person you’re considering hiring would just help with small business tax preparation or some more integral part of the business, if you are getting to the point where you have too many responsibilities for the hours in the day, it’s time to consider investing in help.