OK, you’ve started your business. You will have cash receipts, otherwise known as income (someday), and you already have cash disbursements or expenses. You need a system to keep track of all of your transactions- it’s called an accounting system.
Now we all know that it would be much better if you could just hire a bookkeeper to do all this accounting, but you’re just starting out and don’t feel you can afford to hire one. Besides, it’s hard to find a good bookkeeper. They are notorious for saying they can do more than they are capable of, then proceeding to make a mess of the books of the unsuspecting small business owner. So we’re going to have to struggle along without one for now.
Although it would be better if you could spend all of your time doing whatever it is you do best, you’re going to be doing the accounting until you can afford to hire a bookkeeper. Besides, you never want to put yourself or your business in the position that you are so dependent on another person to do your accounting, that you have no idea what they are doing. By taking responsibility from the start for your own accounting you will be in a better position in the future to review the work of others in a short period of time each week (or day) and know whether or not it was done properly.
Things to Buy:
There are a few things that you’ll have to buy to accomplish the setting up of your accounting system. You’ll need the most recent QuickBooks accounting program. Of course, you’ll need a computer to go with that. You must check the QuickBooks specification requirements for the computer system and make sure that your computer will meet the minimum specification requirements, such as, have enough ram memory, for example.
Yes, there are many other accounting programs out there. But QuickBooks is the easiest, most user friendly accounting software in existence today. QuickBooks also generates many different types of reports, which is the whole purpose of doing your bookkeeping- so you can generate accurate reports showing your financial situation and the history of your transactions. QuickBooks does have its problems- for example, it does not provide a good audit trail, that is, after you have recorded transactions, reconciled the bank account and even closed the books, you can always go back and change things. This is not good, because then you may not be able to trace the transaction (hence the lack of audit trail.) However, if you follow the procedures set out in this book and discipline yourself not to stray, you will not get in trouble. And don’t be cheap and try to save money by buying Quicken. Quicken is useless for businesses because it does not generate many of the reports you will need, like a balance sheet.
Friday, July 31, 2009
Tuesday, July 28, 2009
How To Save Money
When Hiring a Lawyer
Alot of people are afraid to even call an attorney because they think it will cost too much money. I'm an attorney and I'm afraid to hire an attorney. But there are some things you can do to make sure you don't get ripped off or over-charged.
1. Get a Referral- Ask someone you trust if they can refer you to the type of attorney you need. Either a friend or someone who works with attorneys on a regular basis, like a financial advisor, certified public accountant or banker.2. Interview at Least Two Attorneys- Find at least two attorneys who will tell you about themselves, their practice and the type of work they do. Make it clear when you call that you are interviewing to choose an attorney, that you are not asking for information about your case or legal issues, and confirm that there will be no charge for the call.
2. Interview at Least Two Attorneys- Find at least two attorneys who will tell you about themselves, their practice and the type of work they do. Make it clear when you call that you are interviewing to choose an attorney, that you are not asking for information about your case or legal issues, and confirm that there will be no charge for the call.
3. Ask If They Give A Free Initial Consultation- Many attorneys give a free half-hour initial consultation. Ask for it. Sometimes the attorney will talk about your legal issue for one half hour or an hour and will credit it towards your job if you hire them. Example: talk for 30 to 45 minutes about your estate planning, then just pay the flat fee for the estate plan if you hire them. If you don't hire them you pay for the 30 to 45 minutes at the attorney's hourly rate.
4. Ask For A Flat Fee- Many kinds of legal jobs can be done for a flat fee, that is, not at an hourly rate. Things like incorporating your business, creating estate planning documents, or writing a buy-sell agreement can be done for a pre-arranged amount. Even jobs that are normally billed based on a percentage of assets, like probate, can be done for an agreed upon amount.
5. Set A Time Limit- Even if the job is the type that is normally charged at an hourly rate you can limit the amount of time to be spent on your job. Just ask!
Friday, July 24, 2009
Self Employment Tax Is A Killer!
Many people who go from being an employee to working as an independent contractor have sticker shock when they file their first tax return- it’s the self employment tax that’s the killer! This is an additional tax that is added on to your regular tax. It is your Social Security tax- FICA and Medicare tax that was withheld from your wages when you were an employee. But when you were an employee you only paid one half (7.65 % of your gross wages) and your employer paid the rest.
When you become an independent contractor you pay the whole thing. The bad part is that it’s based only on your self employment income which is the net income from your business. That means your itemized deductions don’t reduce the self employment tax. Another item is an IRA or 401(k) contribution- those don’t reduce the self employment income either.
So it becomes extremely important to allocate as many expenses as you can to your Schedule C- Profit or Loss from Trade or Business. That’s why we always try to deduct things like office in the home, auto expenses, equipment, etc. to get the self employment income down as much as possible. Oftentimes we see clients with little or no regular income tax due to large home mortgage interest deductions- but they still end up with a large self employment tax. So watch out!
Independent Contractor or Employee?
The IRS and California Franchise Tax Board are very aggressive in maintaining that everyone is an employee- but that doesn’t make it true! There is a lot of case law about this issue and criteria have been established over time that shows independent contractor status. Some of those are: more than one customer, letterhead and business cards, advertising product or services, use of own equipment, unsupervised, expertise in the field enabling person to work on their own, no set hours, can come and go as they please, to name a few.
Employers usually want workers to be independent contractors so they don’t have to pay the payroll taxes and do payroll tax reporting or cover the worker with employee benefits. The taxing authorities want to put the responsibility of paying the payroll taxes on the employer. It can be to your advantage to be independent if you have a lot of business-related expenses to be deducted from income. But have your tax professional do a projection to make sure it’s not going to cost you more money to be self employed than to be an employee.
Sunday, February 22, 2009
Estate Planning
About Estate Planning
Estate Planning is an important responsibility for all of us to protect our families and safeguard our assets. None of us wants to see our assets disappear after spending most of our working lives acquiring them. Some of us have spouses and children for whom we wish to provide after we’re gone. We may have minor children or dependent parents who will need someone to manage their financial affairs upon our death. If you are single there’s even more of a chance that your assets may not transfer according to your wishes.
A Basic Estate Plan
A Basic Estate Plan includes four documents and accomplishes several important things. It includes a revocable or living trust and for each person; a pour over will, a durable power of attorney for asset management and an advance health care directive. These four documents will ensure that you and your family will be protected in case of an illness, accident, disability or death.
A Revocable or “Living” Trust is used to avoid the cost and delay of probate by including provisions regarding disposition of your assets, thereby allowing the trustee to distribute the trust assets without the supervision of a probate court. A Revocable Trust has detailed provisions naming initial and alternate trustees to distribute assets on your death; hold, invest and manage trust assets for an extended period of time for minors or disabled beneficiaries and specific terms to reduce estate taxes to a minimum.
Since these trusts are revocable, can be revoked or amended at any time, they are very flexible documents. Special terms to cover a variety of needs, restrictions, special gifts, distributions and contingencies can be entered in the document and provide protection for you and your beneficiaries.
Community Property and Separate Property retains its character even after it is placed in the trust, that is, community property remains community and separate property remains separate. The terms of the trust ensure that only the owner of the separate property may withdraw that property from the trust or amend the terms of the trust with regards to that separate property.
Grantor Trust is another quality of the revocable trust, that is, even after assets are put in the trust they are still held under your social security number. All income and deductions received from or paid for the trust assets will still be reported by you on your individual income tax returns. Since the trust is a revocable grantor trust it does not need to file its own income tax returns.
Pour Over Wills are required for each person and provide that all assets “pour over” into the Trust, even those that were not formally placed in the Trust during the person’s lifetime. If you don’t have a pour over will with the proper terms any assets that are not formally placed in the trust during your lifetime may go to unwanted beneficiaries. Our will even includes a provision that if the trust is determined to be invalid for any reason that your assets will go to a trust with substantially the same terms as your existing trust, that is, you’re covered in case a judge voids any portion of your trust document for any reason. A major feature of your will may be designation of guardians for your children.
Durable Power of Attorney for Asset Management is a document that protects you and your family in case you become disabled. You could experience a disability at any time due to a car accident, fire or any number of unforeseen events. A durable power of attorney will enable your spouse or designated agent to act on your behalf with regards to many of your affairs.
Primarily it allows your agent or “attorney in fact” to pay bills, sign documents, buy, sell or rent property, transfer funds, borrow money and take other action on your behalf. It can give as many or as few powers as you want. It can be for as long or as little time as you want. Usually it doesn’t take effect until you are disabled. Our power of attorney has detailed descriptions of when you will be considered disabled, who may decide and what proof is needed. It also describes what happens if you regain capacity or overcome your disability.
Advance Health Care Directive is one of your most important documents giving someone the power to make life and death decisions about your medical treatment. This only takes effect if you become unable to make these decisions for yourself. Our advance health care directive has descriptions of when you will be considered unable to make these decisions, who may decide and what proof is needed. It also includes terms about organ donation, burial or cremation, living arrangements, pet care provisions and more that are not included in standard institutional forms.
Any One of These Documents Alone Will Not Provide the Complete Protection You and Your Family Need. The Advance Health Care Directive also allows your health care providers to disclose your confidential medical information to your designated agent. Without this document your health care provider would otherwise be prohibited from disclosing such information.
Call us to discuss your options!
Estate Planning is an important responsibility for all of us to protect our families and safeguard our assets. None of us wants to see our assets disappear after spending most of our working lives acquiring them. Some of us have spouses and children for whom we wish to provide after we’re gone. We may have minor children or dependent parents who will need someone to manage their financial affairs upon our death. If you are single there’s even more of a chance that your assets may not transfer according to your wishes.
A Basic Estate Plan
A Basic Estate Plan includes four documents and accomplishes several important things. It includes a revocable or living trust and for each person; a pour over will, a durable power of attorney for asset management and an advance health care directive. These four documents will ensure that you and your family will be protected in case of an illness, accident, disability or death.
A Revocable or “Living” Trust is used to avoid the cost and delay of probate by including provisions regarding disposition of your assets, thereby allowing the trustee to distribute the trust assets without the supervision of a probate court. A Revocable Trust has detailed provisions naming initial and alternate trustees to distribute assets on your death; hold, invest and manage trust assets for an extended period of time for minors or disabled beneficiaries and specific terms to reduce estate taxes to a minimum.
Since these trusts are revocable, can be revoked or amended at any time, they are very flexible documents. Special terms to cover a variety of needs, restrictions, special gifts, distributions and contingencies can be entered in the document and provide protection for you and your beneficiaries.
Community Property and Separate Property retains its character even after it is placed in the trust, that is, community property remains community and separate property remains separate. The terms of the trust ensure that only the owner of the separate property may withdraw that property from the trust or amend the terms of the trust with regards to that separate property.
Grantor Trust is another quality of the revocable trust, that is, even after assets are put in the trust they are still held under your social security number. All income and deductions received from or paid for the trust assets will still be reported by you on your individual income tax returns. Since the trust is a revocable grantor trust it does not need to file its own income tax returns.
Pour Over Wills are required for each person and provide that all assets “pour over” into the Trust, even those that were not formally placed in the Trust during the person’s lifetime. If you don’t have a pour over will with the proper terms any assets that are not formally placed in the trust during your lifetime may go to unwanted beneficiaries. Our will even includes a provision that if the trust is determined to be invalid for any reason that your assets will go to a trust with substantially the same terms as your existing trust, that is, you’re covered in case a judge voids any portion of your trust document for any reason. A major feature of your will may be designation of guardians for your children.
Durable Power of Attorney for Asset Management is a document that protects you and your family in case you become disabled. You could experience a disability at any time due to a car accident, fire or any number of unforeseen events. A durable power of attorney will enable your spouse or designated agent to act on your behalf with regards to many of your affairs.
Primarily it allows your agent or “attorney in fact” to pay bills, sign documents, buy, sell or rent property, transfer funds, borrow money and take other action on your behalf. It can give as many or as few powers as you want. It can be for as long or as little time as you want. Usually it doesn’t take effect until you are disabled. Our power of attorney has detailed descriptions of when you will be considered disabled, who may decide and what proof is needed. It also describes what happens if you regain capacity or overcome your disability.
Advance Health Care Directive is one of your most important documents giving someone the power to make life and death decisions about your medical treatment. This only takes effect if you become unable to make these decisions for yourself. Our advance health care directive has descriptions of when you will be considered unable to make these decisions, who may decide and what proof is needed. It also includes terms about organ donation, burial or cremation, living arrangements, pet care provisions and more that are not included in standard institutional forms.
Any One of These Documents Alone Will Not Provide the Complete Protection You and Your Family Need. The Advance Health Care Directive also allows your health care providers to disclose your confidential medical information to your designated agent. Without this document your health care provider would otherwise be prohibited from disclosing such information.
Call us to discuss your options!
Friday, January 23, 2009
Estimated Tax Rules Change After Many Years
Do you know that the federal estimated tax rules have been changed for the first time in more than 55 years? For those of us who do not have W-2 jobs where our income taxes are withheld from our wages, we must pay our income taxes through estimated tax payments that are made kind of quarterly- that is, April 15th, June 15th, September 15th and January 15th of the following year.
For many years taxpayers were required to pay 25 % of the tax they expected to owe each quarter, subject to exceptions. Beginning in 2009 our estimated tax is due in the following amounts: April 15th- 30 %, June 15th- 30 %, September 15th- 20 % and January 15th- 20 %.
Don't Forget The Exceptions to Avoid Penalties
Don't forget- you can avoid the penalty for underpayment of estimated tax by paying 100 to 110 % of prior years tax. Use this option when your income tax liability is increasing from one year to the next. If your 2008 income is down and you expect your 2008 tax liability to be les sthan 2009, just make estimated tax payments equal to the 2008 tax on time in the required installments as shown above and you will avoid any underpayment of estimated tax penalty for 2009.
Do you know that the federal estimated tax rules have been changed for the first time in more than 55 years? For those of us who do not have W-2 jobs where our income taxes are withheld from our wages, we must pay our income taxes through estimated tax payments that are made kind of quarterly- that is, April 15th, June 15th, September 15th and January 15th of the following year.
For many years taxpayers were required to pay 25 % of the tax they expected to owe each quarter, subject to exceptions. Beginning in 2009 our estimated tax is due in the following amounts: April 15th- 30 %, June 15th- 30 %, September 15th- 20 % and January 15th- 20 %.
Don't Forget The Exceptions to Avoid Penalties
Don't forget- you can avoid the penalty for underpayment of estimated tax by paying 100 to 110 % of prior years tax. Use this option when your income tax liability is increasing from one year to the next. If your 2008 income is down and you expect your 2008 tax liability to be les sthan 2009, just make estimated tax payments equal to the 2008 tax on time in the required installments as shown above and you will avoid any underpayment of estimated tax penalty for 2009.
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