Tips For Identifiying A Home Based Big Money Business
Il y a 17 ans
jeudi 26 mars 2009
Obama's Small Business Stimulus Loans--Are They Coming Our Way?
As Americans we have experienced the full gamut of emotions after hearing TARP I handed 350 billion to big banks, but no money filtered through to small businesses in the form of loans. In fact, the spicket was turned off completely after receipt of the bailout money. But putting down the front page of our local newspaper for a moment, what is it like in the trenches? Are the banks really denying capital to businesses across the nation? And how are they treating them in this crisis. You'll be saddened to hear it is every bit as foreboding as you have heard, or even worse.
Mrs. Smith is the classic poster child of female entrepreneurial success. Starting as an everyday real estate agent, over the last 24 years, she has built an amazing corporate edifice consisting of several real estate sales branch offices and now employs 170 people. Her thriving business came as the result of untold hours of toil in which she describes herself as a "serial workaholic". As a result, she is considered one of most productive real estate offices in the state. Over the years, she had a strong relationship with a big bank and took out eight loans and lines of credit. All had been payback and were never late a single day. Her credit score is excellent and reports no negatives. Needless to say, as most businesses, she relies upon the line of credit to put her over the hump during times of lower cash flow. What happened next could not have been conjured up in your worst nightmare.
One afternoon on January 30, 2009, she received a call from her bank. In the past, she looked forward to receiving these calls because they were so energized and cooperative. They made her feel special. Her credit rating was so good, that twice she merely called up the bank manager, speaking to him by his first name, and was able to extend the line of credit by a simple verbal request. In those days, the conversations were something like: "Hello Mrs. Smith. I trust everything has been good with your business and family. How is your son John enjoying the college life? Sure--we'll be delighted to extend your credit line again and I will have one of my associates prepare the paperwork and get it over to you as soon as possible. Look to speaking with you soon." Today was different. Her CPA was in the office that afternoon picking up profit and loss sheets when the call came in. It was not the manager. It was someone at the bank she had never met.
"Is this Mrs. Smith? I am Frank Thompson with ABC Bank." He began with a twang that could only be described as consummate arrogance.
"Well hello. How are you today?" Mrs. Smith said cheerfully.
"Fine. Mrs. Smith, I assume you're busy so let me come right to the point. We have reviewed your loan accounts and effective immediately I am notifying you that they are being called and are now due and payable." It came to her in words that were abrupt and stinging. Although her heart skipped a beat, her first reaction was they must be calling the wrong person. She immediately motioned her CPA to get on the line.
"Hi. This is Mr. Evans, Mr. Smith's CPA. Would you be so kind as to repeat what you just told Mrs. Smith?"
Mr. Thompson was clearly agitated in having to repeat himself: "I'm really not accustomed to having to repeat myself, but I will tell you again. Mrs. Smith's $200,000 line of credit is canceled effective immediately and all sums are due and payable. Do I make myself clear?
"I'm sorry, we don't understand. Is there a problem with the account? To my knowledge Mrs. Smith has always paid her monthly installments on time and his current as we speak."
To say Mr. Thompson was rude was an understatement. Now he became even more bothered by the conversation: "It's clear you don't understand. I would suggest that you read the clear language of the loan agreement that gives us the option of doing so at any time with two weeks notice. I am giving you this notice now. Having said this in very simple language, I assume you have the basic intelligence to understand what I just said."
"Sorry, but we're just trying to be able to digest this news. This is very serious. We can't just pull out our checkbooks and a make a full payment on one day's notice . You don't have to be rude to us." Although still in shock, Mrs. Smith tried your best to soften the conversation.
Mr. Thompson was now eager to end the conversation. "Let me make it even clearer. Based on what I just told you, our bank no longer has a business relationship with you. You would be well advised to take steps to pay this account so that legal action is not necessary."
"Please understand that we need some time to think this through . . . I should . . . I mean I need to get a hold of the manager first," she pleaded.
"I'm handling the account now. You are not to talk to anyone else but me." The tone of of his voice was unmistakable and threatening.
At that point the conversation went steadily downhill. She and her CPA spent the rest of the day going over the books and speaking with their attorney.
Sound like something that cannot happen in America to a successful small business? Well, think again. These are exact quotes of the conversation. The big bank is simply stomping out big small businesses to improve their balance sheets. The lifesaver that has thrown to the big banks in the hopes they would pass it to small businesses on Main Street has simply not happened. It is at least understandable if a large bank decides not to make a new loan in this challenge economy. But it's another thing altogether to cancel existing loans with good customers.
Is this an isolated occurrence? Not all. Here is another example. Robert Picou is the President of the California manufacturing company known as California Ribbon and Carbon Co., Inc., with a plant located in Los Angeles. Robert is the epitome of the seasoned business owner, knowledgeable, practical, optimistic, and understandably proud of his company's heritage. After talking to him, you get the uncontrolled urge to get in the car and drive out to his plant. You get the image of a certain industrial vibrancy which is missing in America.
He should be proud. It is a story right out of the movies. In 1939, his father started selling old fashioned manual typewriter ribbons door to door to business owners in the Los Angeles area. But unlike Willy Loman in "Death of a Salesman", he made it into a real success. 70 years later this closely held family corporation has continued to thrive. To manage the ruts along the way, twenty years ago he took out a business credit card with a well known company and secured a large credit line. Needless to say, he has paid it on time ever since. But then he got a sudden and unexpected surprise in the mail. The credit card company unilaterally cut his credit line and froze up this access to working capital.
He wasn't especially daunted by this news because after all, he had a longstanding relationship with his large bank. All we needed to do was call them up and ask for an extension of his line of credit. His bank did get $150,000,000 in TARP money to presumably free up the money. Ten years ago he owed them as much as $1.4 million, but because of the success of his business, was able to pay it down to $88,000. A perfect candidate to receive some of the bailout monies and create an even more positive cash flow for him and the neighboring economy. No problem, right? Wrong again.
With no explanation, his bank turned him down flat. Asking why, he has yet to receive a credible answer. With orders piling in, his company is now on the unenviable position of not being able to fund all the orders received. Not to mention the rippling effect it has on his suppliers and employees, all of which have a tangible stake in our troubled economy. It is apparent that large banks have no intention whatsoever of using bailout monies for the benefit of small businesses.
Now the good news. Smaller community banks are interested in your business through the vehicle know as an SBA guaranteed loan. These institutions are using the incentives given by the SBA guarantee to cut their risk of loss and build up a better portfolio to be sold on the secondary market. You just have to find the right bank. At least someone realizes the foundational strength small businesses give to the overall economy.
----------------------------------------------------
Sue Malone is a small business advocate, consultant, and the nations #1 provider of unsecured SBA Community Express cash flow loans(start-up and existing). Email:smalone165@aol.com http://www.StrategiesForSmallBusiness.com Phone:(925)899-8449.
Mrs. Smith is the classic poster child of female entrepreneurial success. Starting as an everyday real estate agent, over the last 24 years, she has built an amazing corporate edifice consisting of several real estate sales branch offices and now employs 170 people. Her thriving business came as the result of untold hours of toil in which she describes herself as a "serial workaholic". As a result, she is considered one of most productive real estate offices in the state. Over the years, she had a strong relationship with a big bank and took out eight loans and lines of credit. All had been payback and were never late a single day. Her credit score is excellent and reports no negatives. Needless to say, as most businesses, she relies upon the line of credit to put her over the hump during times of lower cash flow. What happened next could not have been conjured up in your worst nightmare.
One afternoon on January 30, 2009, she received a call from her bank. In the past, she looked forward to receiving these calls because they were so energized and cooperative. They made her feel special. Her credit rating was so good, that twice she merely called up the bank manager, speaking to him by his first name, and was able to extend the line of credit by a simple verbal request. In those days, the conversations were something like: "Hello Mrs. Smith. I trust everything has been good with your business and family. How is your son John enjoying the college life? Sure--we'll be delighted to extend your credit line again and I will have one of my associates prepare the paperwork and get it over to you as soon as possible. Look to speaking with you soon." Today was different. Her CPA was in the office that afternoon picking up profit and loss sheets when the call came in. It was not the manager. It was someone at the bank she had never met.
"Is this Mrs. Smith? I am Frank Thompson with ABC Bank." He began with a twang that could only be described as consummate arrogance.
"Well hello. How are you today?" Mrs. Smith said cheerfully.
"Fine. Mrs. Smith, I assume you're busy so let me come right to the point. We have reviewed your loan accounts and effective immediately I am notifying you that they are being called and are now due and payable." It came to her in words that were abrupt and stinging. Although her heart skipped a beat, her first reaction was they must be calling the wrong person. She immediately motioned her CPA to get on the line.
"Hi. This is Mr. Evans, Mr. Smith's CPA. Would you be so kind as to repeat what you just told Mrs. Smith?"
Mr. Thompson was clearly agitated in having to repeat himself: "I'm really not accustomed to having to repeat myself, but I will tell you again. Mrs. Smith's $200,000 line of credit is canceled effective immediately and all sums are due and payable. Do I make myself clear?
"I'm sorry, we don't understand. Is there a problem with the account? To my knowledge Mrs. Smith has always paid her monthly installments on time and his current as we speak."
To say Mr. Thompson was rude was an understatement. Now he became even more bothered by the conversation: "It's clear you don't understand. I would suggest that you read the clear language of the loan agreement that gives us the option of doing so at any time with two weeks notice. I am giving you this notice now. Having said this in very simple language, I assume you have the basic intelligence to understand what I just said."
"Sorry, but we're just trying to be able to digest this news. This is very serious. We can't just pull out our checkbooks and a make a full payment on one day's notice . You don't have to be rude to us." Although still in shock, Mrs. Smith tried your best to soften the conversation.
Mr. Thompson was now eager to end the conversation. "Let me make it even clearer. Based on what I just told you, our bank no longer has a business relationship with you. You would be well advised to take steps to pay this account so that legal action is not necessary."
"Please understand that we need some time to think this through . . . I should . . . I mean I need to get a hold of the manager first," she pleaded.
"I'm handling the account now. You are not to talk to anyone else but me." The tone of of his voice was unmistakable and threatening.
At that point the conversation went steadily downhill. She and her CPA spent the rest of the day going over the books and speaking with their attorney.
Sound like something that cannot happen in America to a successful small business? Well, think again. These are exact quotes of the conversation. The big bank is simply stomping out big small businesses to improve their balance sheets. The lifesaver that has thrown to the big banks in the hopes they would pass it to small businesses on Main Street has simply not happened. It is at least understandable if a large bank decides not to make a new loan in this challenge economy. But it's another thing altogether to cancel existing loans with good customers.
Is this an isolated occurrence? Not all. Here is another example. Robert Picou is the President of the California manufacturing company known as California Ribbon and Carbon Co., Inc., with a plant located in Los Angeles. Robert is the epitome of the seasoned business owner, knowledgeable, practical, optimistic, and understandably proud of his company's heritage. After talking to him, you get the uncontrolled urge to get in the car and drive out to his plant. You get the image of a certain industrial vibrancy which is missing in America.
He should be proud. It is a story right out of the movies. In 1939, his father started selling old fashioned manual typewriter ribbons door to door to business owners in the Los Angeles area. But unlike Willy Loman in "Death of a Salesman", he made it into a real success. 70 years later this closely held family corporation has continued to thrive. To manage the ruts along the way, twenty years ago he took out a business credit card with a well known company and secured a large credit line. Needless to say, he has paid it on time ever since. But then he got a sudden and unexpected surprise in the mail. The credit card company unilaterally cut his credit line and froze up this access to working capital.
He wasn't especially daunted by this news because after all, he had a longstanding relationship with his large bank. All we needed to do was call them up and ask for an extension of his line of credit. His bank did get $150,000,000 in TARP money to presumably free up the money. Ten years ago he owed them as much as $1.4 million, but because of the success of his business, was able to pay it down to $88,000. A perfect candidate to receive some of the bailout monies and create an even more positive cash flow for him and the neighboring economy. No problem, right? Wrong again.
With no explanation, his bank turned him down flat. Asking why, he has yet to receive a credible answer. With orders piling in, his company is now on the unenviable position of not being able to fund all the orders received. Not to mention the rippling effect it has on his suppliers and employees, all of which have a tangible stake in our troubled economy. It is apparent that large banks have no intention whatsoever of using bailout monies for the benefit of small businesses.
Now the good news. Smaller community banks are interested in your business through the vehicle know as an SBA guaranteed loan. These institutions are using the incentives given by the SBA guarantee to cut their risk of loss and build up a better portfolio to be sold on the secondary market. You just have to find the right bank. At least someone realizes the foundational strength small businesses give to the overall economy.
----------------------------------------------------
Sue Malone is a small business advocate, consultant, and the nations #1 provider of unsecured SBA Community Express cash flow loans(start-up and existing). Email:smalone165@aol.com http://www.StrategiesForSmallBusiness.com Phone:(925)899-8449.
Obama's New SBA Small Business Loan Program: 90% Guarantee Provides Welcome Relief
On March 16, 2009 President Obama, in a long awaited address, finally reached out to the 27.2 million small businesses in this country and extended his hand. He may not have gone to the mountain, but he certainly walked down Main Street and acknowledged the perils of struggling small business owners. And it was just a matter of time that he did so. After all, the American Recovery and Reinvestment Act of 2009 ("Recovery Act") nicely laid out beneficial provisions for small businesses and just as promised, regulations have come out by the SBA to start the ball rolling. And I'm not talking about more government promises or red tape, but bottom line capital to be infused into the coffers of deserving business owners. So let's roll up our sleeves and see one of the more important elements that was put into place on Monday.
When the Small Business Act was enacted in 1958, it had a very simple mission. Find a way to get loans to small businesses that couldn't get them through traditional channels. It did this in an ingenious way. They knew banks where reluctant to loan to small businesses, especially startups, because of fear of failure. So the SBA collected a fee on each loan and used this as a fund to pay banks if there was a default. Bingo, there was invented the SBA guarantee fee. It doesn't take a degree in rocket science from MIT and an MBA from Harvard to know this gives incentives to the banks to make more loans.
SBA loan programs historically had guarantees of 85% for loans of $150,000 or less and 75% for loans greater than $150,000 (13 CFR Part 120). On the other hand, there are some programs that only go as high as 50%, including the Express Loan program (for those types of loans the new guarantee will not change).
As we all know, on February 17, 2009 the President signed into law the Recovery Act which, under section 502, authorized the SBA to guarantee loans up to 90%. On Monday, the SBA completed its review of the legislation and announced in a Policy Notice that indeed the guarantee would go up to 90% effective March 16th under the various 7(a) SBA loan programs.
Think about this for a moment. Simple math tells us more guarantee, the greater the likelihood of the bank making the loan. For goodness sakes, 90% is tapping on the door of a 100% guarantee! Also note the guaranteed portion is typically sold on the secondary market (which has recently shut down to almost nothing) so there is more chance for loans to be sold and more money to go back into the coffers of the banks for further lending.
Now let us translate this into popular programs for small businesses. The Community Express Loan Program allows quick and reasonably priced SBA loans up to $250,000 (although most lenders are dispersing monies in the neighborhood of between $5,000 and $50,000 unsecured). They are now guaranteed to 90%. And remember there are lenders now making such a loans even in this economy. The equally popular U.S. Patriot Express Loan Program for veterans and their spouses or windows, goes to $500,000 and is also guaranteed now to 90%. At the same time, the workhorse 7(a) loan program, which is usually for loans in the hundreds of thousands of dollars, was likewise increased to 90%. Not to bore you with the details, but the only exceptions are almost minuscule, namely the guarantees are not used for business ventures involved in gambling, aquariums, zoos, golf courses, or swimming pools. Further, the SBA will not issue a guarantee to a borrower that hires, recruits, or refers for a fee, employees that are unauthorized aliens as defined by the Secretary of Homeland Security.
And it gets even better. Banks that are already SBA lenders don't have to do anything different in the loan process. Namely, there is no change to the submission process to get a SBA guarantee loan number. They simply get their approvals from the same central processing units throughout the nation as they did before. The same streamlined paperwork.
Of course, taxpayers' dollars will be funding these guarantees, especially since the borrower no longer pays for a guarantee fee on closing. In other words, the 90% guarantee will stay in effect as long as there is money appropriated by Congress. The current estimate is that approximately $8.7 billion will be allocated for these guarantees, of course depending upon the loan volume and default rate.
So how will the banks react to this news? Many experts predict in a favorable manner. Obviously, with a 90% guaranty, there is less risk if the loan goes south. This also means the traditional robust secondary market for purchasing government backed loans, once it starts to kick-in, will also find them desirable for purchase in investment pools. There is also another intangible you don't read about in the news: The environment in Washington has never been better for small businesses. You now have an Administration that respects small businesses and wants to do everything it can to engender their success.
Translation: banks are comfortable with the new SBA (as opposed to the more insular and contentious regime under the Bush administrations that spent more time fighting and failing to communicate with lenders than trying to treat them as partners) and so more willing to make loans even though the default rates go higher. They know the Obama Adminstration will probably understand the situation because of current market conditions.
So for the small business owner, this news of 90% guarantees is very favorable. Why did it take them so long?
----------------------------------------------------
Sue Malone is a small business advocate, consultant, and the nations #1 provider of unsecured SBA Community Express cash flow loans(start-up and existing). Email:smalone165@aol.com http://www.StrategiesForSmallBusiness.com Phone:(925)899-8449.
When the Small Business Act was enacted in 1958, it had a very simple mission. Find a way to get loans to small businesses that couldn't get them through traditional channels. It did this in an ingenious way. They knew banks where reluctant to loan to small businesses, especially startups, because of fear of failure. So the SBA collected a fee on each loan and used this as a fund to pay banks if there was a default. Bingo, there was invented the SBA guarantee fee. It doesn't take a degree in rocket science from MIT and an MBA from Harvard to know this gives incentives to the banks to make more loans.
SBA loan programs historically had guarantees of 85% for loans of $150,000 or less and 75% for loans greater than $150,000 (13 CFR Part 120). On the other hand, there are some programs that only go as high as 50%, including the Express Loan program (for those types of loans the new guarantee will not change).
As we all know, on February 17, 2009 the President signed into law the Recovery Act which, under section 502, authorized the SBA to guarantee loans up to 90%. On Monday, the SBA completed its review of the legislation and announced in a Policy Notice that indeed the guarantee would go up to 90% effective March 16th under the various 7(a) SBA loan programs.
Think about this for a moment. Simple math tells us more guarantee, the greater the likelihood of the bank making the loan. For goodness sakes, 90% is tapping on the door of a 100% guarantee! Also note the guaranteed portion is typically sold on the secondary market (which has recently shut down to almost nothing) so there is more chance for loans to be sold and more money to go back into the coffers of the banks for further lending.
Now let us translate this into popular programs for small businesses. The Community Express Loan Program allows quick and reasonably priced SBA loans up to $250,000 (although most lenders are dispersing monies in the neighborhood of between $5,000 and $50,000 unsecured). They are now guaranteed to 90%. And remember there are lenders now making such a loans even in this economy. The equally popular U.S. Patriot Express Loan Program for veterans and their spouses or windows, goes to $500,000 and is also guaranteed now to 90%. At the same time, the workhorse 7(a) loan program, which is usually for loans in the hundreds of thousands of dollars, was likewise increased to 90%. Not to bore you with the details, but the only exceptions are almost minuscule, namely the guarantees are not used for business ventures involved in gambling, aquariums, zoos, golf courses, or swimming pools. Further, the SBA will not issue a guarantee to a borrower that hires, recruits, or refers for a fee, employees that are unauthorized aliens as defined by the Secretary of Homeland Security.
And it gets even better. Banks that are already SBA lenders don't have to do anything different in the loan process. Namely, there is no change to the submission process to get a SBA guarantee loan number. They simply get their approvals from the same central processing units throughout the nation as they did before. The same streamlined paperwork.
Of course, taxpayers' dollars will be funding these guarantees, especially since the borrower no longer pays for a guarantee fee on closing. In other words, the 90% guarantee will stay in effect as long as there is money appropriated by Congress. The current estimate is that approximately $8.7 billion will be allocated for these guarantees, of course depending upon the loan volume and default rate.
So how will the banks react to this news? Many experts predict in a favorable manner. Obviously, with a 90% guaranty, there is less risk if the loan goes south. This also means the traditional robust secondary market for purchasing government backed loans, once it starts to kick-in, will also find them desirable for purchase in investment pools. There is also another intangible you don't read about in the news: The environment in Washington has never been better for small businesses. You now have an Administration that respects small businesses and wants to do everything it can to engender their success.
Translation: banks are comfortable with the new SBA (as opposed to the more insular and contentious regime under the Bush administrations that spent more time fighting and failing to communicate with lenders than trying to treat them as partners) and so more willing to make loans even though the default rates go higher. They know the Obama Adminstration will probably understand the situation because of current market conditions.
So for the small business owner, this news of 90% guarantees is very favorable. Why did it take them so long?
----------------------------------------------------
Sue Malone is a small business advocate, consultant, and the nations #1 provider of unsecured SBA Community Express cash flow loans(start-up and existing). Email:smalone165@aol.com http://www.StrategiesForSmallBusiness.com Phone:(925)899-8449.
dimanche 15 mars 2009
Schedule C Tax Deductions - "C" is For Contributions, Contractors & Commissions
Here are three legitimate tax deductions for the self-employed that begin with the letter "C". Do you have these expenses in your sole proprietorship? If so, be sure to report them on your tax return.
1. Contributions. By contributions, I'm referring to charitable contributions - donations you make to tax-exempt organizations (known in tax lingo as 501c3 organizations) such as churches, synagogues and other humanitarian or educational institutions that have IRS non-profit status.
This is one of those tricky deductions. If you are a sole proprietor and make a donation from your business checking account, you don't actually take the deduction for this contribution on Schedule C. Instead, the deduction is reported on Schedule A, Itemized Deductions. So if you don't file Schedule A, which is fairly common because IRS statistics show that about two-thirds of personal tax returns take the standard deduction, you don't get to write off the donation.
So, a word of caution to all you kind-hearted sole proprietors: do not assume that just because you made the donation from your business account, you automatically get to deduct it.
Corporations ("C" corporations but not "S" corporation) do get to deduct charitable contributions as a business expense on the corporate income tax return (Form 1120), provided certain conditions are met. Is that reason enough to incorporate? Probably not. But hopefully you aren't making donations merely for the tax benefits.
2. Contractors. If you hire independent contractors to perform services for your business, those fees are deductible on Schedule C. Line 11 is the logical place to report it, "Contract labor."
Keep in mind that this is one of the most controversial deductions in business and a potential red flag if the IRS suspects abuse. Why is that? Because many businesses pay their workers as independent contractors rather than employees merely to avoid the payroll taxes. This is a big no-no and if you get caught, you'll regret it. If the IRS can prove that your contractors are actually employees, they can reclassify past compensation as wages and required you to pay the overdue payroll taxes, plus late payment penalties and interest.
Now, if you have a legitimate contractor relationship with a service provider, you need not worry about this. Just be sure you do things right: if you hire an independent contractor, do you have a contract? Does the contractor send you invoices? And at the end of the year, do you send him a Form 1099-MISC? The answer to those questions better be "yes."
For me information on this topic, be sure to talk with your tax professional, or go to the IRS website, search on "independent contractor" and you'll access an excellent article entitled "Independent Contractor or Employee"?
3. Commissions. Another common form of compensation is commissions, reported on Schedule C, Line 10. Again, if you are paying other people a commission for services rendered, be sure that these folks are truly independent contractors and not employees. If they are contractors, you can report the expense on Line 10 and legally avoid payroll taxes. But if they are employees, the compensation should be included on Line 26, Wages, and be subject to payroll taxes, income tax withholdings, and the small mountain of payroll paperwork that accompanies employee compensation.
----------------------------------------------------
Looking for more small business tax tips? For a free copy of the 25-page Special Report "How To Instantly Double Your Deductions", visit http://www.yousaveontaxes.com . Wayne M. Davies is author of 3 ebooks on tax reduction strategies for small business owners and the self-employed.
1. Contributions. By contributions, I'm referring to charitable contributions - donations you make to tax-exempt organizations (known in tax lingo as 501c3 organizations) such as churches, synagogues and other humanitarian or educational institutions that have IRS non-profit status.
This is one of those tricky deductions. If you are a sole proprietor and make a donation from your business checking account, you don't actually take the deduction for this contribution on Schedule C. Instead, the deduction is reported on Schedule A, Itemized Deductions. So if you don't file Schedule A, which is fairly common because IRS statistics show that about two-thirds of personal tax returns take the standard deduction, you don't get to write off the donation.
So, a word of caution to all you kind-hearted sole proprietors: do not assume that just because you made the donation from your business account, you automatically get to deduct it.
Corporations ("C" corporations but not "S" corporation) do get to deduct charitable contributions as a business expense on the corporate income tax return (Form 1120), provided certain conditions are met. Is that reason enough to incorporate? Probably not. But hopefully you aren't making donations merely for the tax benefits.
2. Contractors. If you hire independent contractors to perform services for your business, those fees are deductible on Schedule C. Line 11 is the logical place to report it, "Contract labor."
Keep in mind that this is one of the most controversial deductions in business and a potential red flag if the IRS suspects abuse. Why is that? Because many businesses pay their workers as independent contractors rather than employees merely to avoid the payroll taxes. This is a big no-no and if you get caught, you'll regret it. If the IRS can prove that your contractors are actually employees, they can reclassify past compensation as wages and required you to pay the overdue payroll taxes, plus late payment penalties and interest.
Now, if you have a legitimate contractor relationship with a service provider, you need not worry about this. Just be sure you do things right: if you hire an independent contractor, do you have a contract? Does the contractor send you invoices? And at the end of the year, do you send him a Form 1099-MISC? The answer to those questions better be "yes."
For me information on this topic, be sure to talk with your tax professional, or go to the IRS website, search on "independent contractor" and you'll access an excellent article entitled "Independent Contractor or Employee"?
3. Commissions. Another common form of compensation is commissions, reported on Schedule C, Line 10. Again, if you are paying other people a commission for services rendered, be sure that these folks are truly independent contractors and not employees. If they are contractors, you can report the expense on Line 10 and legally avoid payroll taxes. But if they are employees, the compensation should be included on Line 26, Wages, and be subject to payroll taxes, income tax withholdings, and the small mountain of payroll paperwork that accompanies employee compensation.
----------------------------------------------------
Looking for more small business tax tips? For a free copy of the 25-page Special Report "How To Instantly Double Your Deductions", visit http://www.yousaveontaxes.com . Wayne M. Davies is author of 3 ebooks on tax reduction strategies for small business owners and the self-employed.
Schedule C Tax Deductions: "B" Is for Bad Debts, Bank Charges & Books
Are you wondering whether you are deducting all the expenses the law allows for your sole proprietorship? Here are three commonly overlooked deductions that begin with the letter "B".
1. Bad Debts. If you use the Accrual Method of bookkeeping, you record income from a sale when you invoice the customer, regardless of when or even whether they pay you. So what happens if they don't pay you? Let's say hat several months have passed and you keep sending them statements that continue to be ignored. By the end of the year, if you've done all you can do to collect the payment without success, you can take a deduction for the uncollectible amount. This is known as a "bad debt" and you should write it off.
What happens if you deduct the bad debt on your 2008 return and the customer surprises you by making payment in 2009? You simply record the payment as income on your 2009 return.
If you use the Cash Method of bookkeeping, you record the income only when the customer pays you, so there really is no bad debt to deduct.
2. Bank Charges. All those annoying nickel and dime bank fees that appear on your monthly bank statement are deductible business expenses. The key here is to take the time to carefully examine every monthly bank statement and then record those bank charges in your bookkeeping software program or manual record keeping system. It's easy to overlook these charges because you didn't write a check or use your credit card to incur them.
The same thing applies to merchant credit card fees. If you accept credit card payments from customers, fees are probably assessed to your bank account every month and these fees are automatically deducted from your bank balance. Be sure to record those charges, too, or you'll miss out on bona fide tax deduction.
3. Books, Magazines, Trade Journals. Any book you purchase for business use is a legitimate tax deduction. Be careful here not to limit this deduction to only those books that deal with your particular industry, product or service. Self-help books contain much advice that is applicable to your life as a business owner, as well as books on topics such as time management, people skills, salesmanship and marketing.
And while we're on the topic of reading material, you probably subscribe to newspapers, magazines and trade journals that you read primarily for business purposes, so these are deductible as well.
Since none of these three expenses have a specific Schedule C line in Part II, the best place to put them is in Part V, Other Expenses. The total of all these Other Expenses (line 48) is then transferred to Schedule C, Line 27.
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Looking for more small business tax tips? For a free copy of the 25-page Special Report "How To Instantly Double Your Deductions", visit http://www.yousaveontaxes.com . Wayne M. Davies is author of 3 ebooks on tax reduction strategies for small business owners and the self-employed.
1. Bad Debts. If you use the Accrual Method of bookkeeping, you record income from a sale when you invoice the customer, regardless of when or even whether they pay you. So what happens if they don't pay you? Let's say hat several months have passed and you keep sending them statements that continue to be ignored. By the end of the year, if you've done all you can do to collect the payment without success, you can take a deduction for the uncollectible amount. This is known as a "bad debt" and you should write it off.
What happens if you deduct the bad debt on your 2008 return and the customer surprises you by making payment in 2009? You simply record the payment as income on your 2009 return.
If you use the Cash Method of bookkeeping, you record the income only when the customer pays you, so there really is no bad debt to deduct.
2. Bank Charges. All those annoying nickel and dime bank fees that appear on your monthly bank statement are deductible business expenses. The key here is to take the time to carefully examine every monthly bank statement and then record those bank charges in your bookkeeping software program or manual record keeping system. It's easy to overlook these charges because you didn't write a check or use your credit card to incur them.
The same thing applies to merchant credit card fees. If you accept credit card payments from customers, fees are probably assessed to your bank account every month and these fees are automatically deducted from your bank balance. Be sure to record those charges, too, or you'll miss out on bona fide tax deduction.
3. Books, Magazines, Trade Journals. Any book you purchase for business use is a legitimate tax deduction. Be careful here not to limit this deduction to only those books that deal with your particular industry, product or service. Self-help books contain much advice that is applicable to your life as a business owner, as well as books on topics such as time management, people skills, salesmanship and marketing.
And while we're on the topic of reading material, you probably subscribe to newspapers, magazines and trade journals that you read primarily for business purposes, so these are deductible as well.
Since none of these three expenses have a specific Schedule C line in Part II, the best place to put them is in Part V, Other Expenses. The total of all these Other Expenses (line 48) is then transferred to Schedule C, Line 27.
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Looking for more small business tax tips? For a free copy of the 25-page Special Report "How To Instantly Double Your Deductions", visit http://www.yousaveontaxes.com . Wayne M. Davies is author of 3 ebooks on tax reduction strategies for small business owners and the self-employed.
Schedule C Tax Deductions: "A" Is for Accountants, Attorneys & Advertising
If you're a sole proprietor, here's the lowdown on three small business tax deductions you can report on Schedule C. They all start with the letter "A".
1. Accountants. The fees you pay your accountant are generally tax-deductible on Schedule C, provided the fees are for services rendered on behalf of your business. So, if you pay an accountant to prepare your income tax return, that tax prep fee is deductible to the extent it applies to the forms required for your sole proprietorship, such as Schedule C, Schedule SE, Form 4562 and Form 8829.
But what if your accountant also prepares Form 1040, Schedule A, and any other non-business forms on your personal income tax return? You cannot take a deduction on Schedule C for the fees paid to prepare personal income tax forms, so ask your accountant to itemize his tax prep fees on the invoice, separating personal form fees (like Form 1040) from business form fees (like Schedule C). Only the business form fees are deductible on Schedule C. The personal form fees are deductible on Schedule A.
Does your accountant provide other business-related services? Fees for these other services are also deductible, such as bookkeeping, payroll, payroll tax returns (including all the year-end reporting such as Form W-2's and Form 1099-MISC), business consulting, software training, financial statement preparation and analysis, and so on. Should you ever be audited and pay your accountant to represent you before the IRS, such fees would also be deductible.
Where do your report accountant fees on Schedule C? Line 17 is the most logical place, "Legal and professional services".
2. Attorneys. Legal fees you incur in the course of business are also deductible. And again, it's critical that you only deduct attorney fees related to your business. Personal legal fees are not deductible on Schedule C. Examples of business-related legal fees include the drafting of contracts and any other documents for use in your business. If you pay a monthly fee to a company like Prepaid Legal (for business legal services), that is a deductible business expense. Put your attorney fees deduction on Line 17, right along with any accountant expense.
3. Advertising. Any expense you had to promote your business, either offline or online, is deductible as advertising. Think about all the possible ways to hang out your shingle: in the offline world, this includes print media ads, (be sure to include not only newspaper and magazine ads, but also ads in your local neighborhood association newsletter and your child's school PTA phone directory), television and/or radio commercials, coupon decks, yellow pages, billboards, etc. If you use direct mail, you can deduct the cost of printing as well as the postage.
Do you advertise via the internet? Online ads are just as deductible as offline ads: banner ads, ezine ads and email ads are all deductible. Advertising expense has its own line on Schedule C, line 8.
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Looking for more small business tax tips? For a free copy of the 25-page Special Report "How To Instantly Double Your Deductions", visit http://www.yousaveontaxes.com . Wayne M. Davies is author of 3 ebooks on tax reduction strategies for small business owners and the self-employed.
1. Accountants. The fees you pay your accountant are generally tax-deductible on Schedule C, provided the fees are for services rendered on behalf of your business. So, if you pay an accountant to prepare your income tax return, that tax prep fee is deductible to the extent it applies to the forms required for your sole proprietorship, such as Schedule C, Schedule SE, Form 4562 and Form 8829.
But what if your accountant also prepares Form 1040, Schedule A, and any other non-business forms on your personal income tax return? You cannot take a deduction on Schedule C for the fees paid to prepare personal income tax forms, so ask your accountant to itemize his tax prep fees on the invoice, separating personal form fees (like Form 1040) from business form fees (like Schedule C). Only the business form fees are deductible on Schedule C. The personal form fees are deductible on Schedule A.
Does your accountant provide other business-related services? Fees for these other services are also deductible, such as bookkeeping, payroll, payroll tax returns (including all the year-end reporting such as Form W-2's and Form 1099-MISC), business consulting, software training, financial statement preparation and analysis, and so on. Should you ever be audited and pay your accountant to represent you before the IRS, such fees would also be deductible.
Where do your report accountant fees on Schedule C? Line 17 is the most logical place, "Legal and professional services".
2. Attorneys. Legal fees you incur in the course of business are also deductible. And again, it's critical that you only deduct attorney fees related to your business. Personal legal fees are not deductible on Schedule C. Examples of business-related legal fees include the drafting of contracts and any other documents for use in your business. If you pay a monthly fee to a company like Prepaid Legal (for business legal services), that is a deductible business expense. Put your attorney fees deduction on Line 17, right along with any accountant expense.
3. Advertising. Any expense you had to promote your business, either offline or online, is deductible as advertising. Think about all the possible ways to hang out your shingle: in the offline world, this includes print media ads, (be sure to include not only newspaper and magazine ads, but also ads in your local neighborhood association newsletter and your child's school PTA phone directory), television and/or radio commercials, coupon decks, yellow pages, billboards, etc. If you use direct mail, you can deduct the cost of printing as well as the postage.
Do you advertise via the internet? Online ads are just as deductible as offline ads: banner ads, ezine ads and email ads are all deductible. Advertising expense has its own line on Schedule C, line 8.
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Looking for more small business tax tips? For a free copy of the 25-page Special Report "How To Instantly Double Your Deductions", visit http://www.yousaveontaxes.com . Wayne M. Davies is author of 3 ebooks on tax reduction strategies for small business owners and the self-employed.
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