No more excuses!

We’ve all been there:  Having to hunt down the monthly fees from our clients. Ugh.  Most of the time it’s a doable process but sometimes it’s just not.

The problem is that the clients have their excuses ready:

I thought it was due the end of the month.
I didn’t receive the invoice.
My email program went down.
I was out of town so I’m late paying everything.
Huh, I didn’t pay that yet?  I thought I did.  I’ll put the check in the mail today.
And my personal “favorite”:  The holidays are coming.

When you have a small business, missing or late payments can bring your business to a full stop. We assume that every business has enough put away to bring them through the slow times but the truth is that many small businesses and start-ups do NOT have enough funds to last past a month or two.  If your clients aren’t paying you, you aren’t paying your employees, your employees leave and you are stuck doing everything with still no pay.  Hmmm… not seeing a happy holiday there for you.

Besides bettering cash flow, adding a savings plan and building up a fuller bank account for your business, which is an article for another time, there are automatic and recurring payment processes.  Granted, this is not for every business but it does work for those that offer recurring services.

You can search online but PayPal offers it, your bank may offer it and there are a myriad of other online services available to you to set this up.  Price them out and read the reviews… and make sure that they are legitimate.

Just imagine, every month on the same date your client gets an invoice and it is automatically charged to their credit card! They don’t have to worry about missing that payment and, more importantly, neither do you!

You will never have to hunt down payments again.  Your income will become a steady stream instead of this stop and go ebb and flow.  After all, you deserve to have good holidays too!

 

Exciting News for Xero!

I am personally very glad to see that Xero is doing so well.  While there are a few minor things that still need to be modified for the U.S. market, or for those that are so QuickBooks oriented that they can’t see the good in Xero, the truth is that this company has been nothing less than amazing in its approach, hard work, diligence and fabulous customer service!

“Xero announced today that the rumors are true: It’s planning on filing for a U.S. initial public offering in 2015.

The announcement is a major bid for the U.S. market and a dig at Intuit, a leader in business software who holds sway in this part of the world.”

Read More

Do I still owe franchise tax fees if…

“I’ve sold my business and I no longer have my corporation/LLC?”  The real question is did you sell your corporation or just its assets?  If you sold the assets and never closed out the corporation/LLC with the Secretary of State, the corporation/LLC is still responsible for paying the annual franchise tax fee to the Franchise Tax Board every year.  This can come as a nasty surprise to anyone whom receives a letter sometimes years later saying that they owe for all the preceding years.  If you sold the corporation, make sure that the Secretary of State knows that you are no longer in business and/or the responsible party and file a final tax return with the Franchise Tax Board during the appropriate tax season.  Either way, the broker or escrow office should inform you of what is required at the time of the sale.  If they don’t, you may want to ask them.

“I’ve kept the corporation/LLC name so that I can use it in the future again but I haven’t done any business in years?” I’ve heard this a few times and the same rule applies:  If you have left it open with the Secretary of State, you are still liable for the annual franchise tax fee.  It comes as no surprise that many shareholders/members are shocked to find out that they have this responsibility even if they don’t do anything with the business.  It is actually cheaper to dissolve the business at the time and later re-open it and/or rename it (if needed) than it is to pay a minimum of $800 a year just to keep that name.

So who actually owes the fees?  In reality, the corporation/LLC owes them.  As they are considered separate entities, you should not be the one to personally pay these fees. However, LLC’s may also be regarded as ‘disregarded entities’ so make sure you know which you have as the rules may be different and you may have to pay the fees in that case.

You should always discuss these types of scenarios with your tax professional.  Having the right information can save you thousands of dollars in the long run.

Horse Farming – A Business or a Hobby?

As tax season is upon us, I thought it might be beneficial for horse owners and businesses to see whether you can claim your horse activities as a business and what factors will determine that.

The American Horse Council reports in “Tax Tips for Horse Owners” that the taxpayer cannot deduct expenses of an activity which are greater than income from that activity if the activity is “not engaged in for Profit”. In other words – A hobby- cannot be deducted against income from any sources. On the other hand, if an activity is engaged in for profit ( a business rather than a hobby), losses are fully deductable against other income.

In determining whether an activity is engaged in for profit, all facts and circumstances with respect to the activity are taken into account. These facts and circumstances must indicate that the taxpayer entered into the activity or continued the activity with the objective of making a profit. If a profit is made in two years during a seven year period, it will generally be presumed that the taxpayer has a profit motive.

The IRS regulations list certain factors which are considered in determining whether an activity is engaged for profit. All factors are considered, not only the ones listed in the regulations.

The factors normally considered are:

  • How does the taxpayer carry on the activity – is it in a business-like manner? Do they maintain complete and accurate bookkeeping records, carry on the activity in a similar manner to other activities of the same nature which are profitable and changes operating methods with the intent to improve profitability.
  • The expertise of the taxpayer or his advisors.
  • The time and effort taken by the taxpayer in carrying on the activity. If the taxpayer only devotes a limited amount of time, does he employ others to meet his goals?
  • Will assets such as land and horses appreciate?  Does the taxpayer intend to profit from that?
  • The success if the taxpayer in carrying on other similar of dissimilar activities.
  • The taxpayer’s previous income or losses associated to the activity.
  • The amount of profits in relation to the losses and in relation to the amount of the investment and the value of the assets used in the activity.
  • Substantial income from sources other than the activity, particularly if the losses from the activity generate substantial tax benefits.
  • Elements of personal pleasure or recreation, however pleasure derived from the activity is not considered sufficient cause to classify the activity as not engaged in for profit.

Presuming that an activity is a business:

Horse businesses, unlike most other businesses, have to show a profit in two years out of a seven year period in order to be considered a business.  This applies to the second profit year and all years thereafter within the seven-year period beginning with the first profit year. If it is a new activity, two profit years during any of the first seven years of operation will classify it as a business activity for all those seven years – provided the taxpayer makes a special election by the due date of the tax return for the third tax year in the seven year period.

If there are no profits shown in two years during a seven- year period, it doesn’t necessarily rule it out as a business.  If nothing can be presumed the taxpayer must rely on the factors listed in the regulations or other facts and circumstances.  The taxpayer should be able to demonstrate that the business will be profitable in the future, even if it hasn’t been for a number of years.

Any capital gains or any other sales relating to the activity are taken into consideration when determining a profit or loss year for purposes of the presumption.

If you want more information, email me a message through our contact page.