1099 Requirements for B2B Transactions

I've got a bone to pick with our congressmen and congresswomen! You know how legislators sneak unrelated provisions into major bills? Yeah, well, they did it again. Section 9006 of the massive Patient Protection and Affordable Health Care Act will mean yet another huge paperwork burden for small business. It has to do with issuing 1099 forms; it has nothing to do with health care.

Beginning in 2012, all businesses will be required to prepare 1099s for all services and goods purchased from all vendors in excess of $600. Current law dictates that only services provided in excess of $600 must be reported via form 1099 and that corporations (with the exception of attorneys) are exempt from receiving 1099s.

Beginning in 2012, corporations will no longer be exempt, and purchases of goods must also be included. The passing of this legislation is an attempt by the government to close the $300 billion tax gap, which will help pay for health-care reform. So I guess it indirectly relates to the Patient Protection and Affordable Health Care Act in which it was included.

Depending on the industry, many businesses must collect, report and pay over a variety of excise taxes, as well. How much does all that cost your business in bookkeeping and payroll preparation fees? Now business owners must report all business-to-business transactions. So purchases your business makes from Staples, Office Depot and other vendors are included as reportable transactions. You must obtain every vendor's federal ID, track your purchases and prepare the form. This will involve many additional hours of bookkeeping time. It will be mandatory to get an accounting software upgrade because there will be a new form and new preferences to set within the software to track these numbers. It's great for all of the bean counters who can double, triple and maybe even quadruple their 1099 preparation fees. But at what cost to the small-business owner who is attempting to recover from this recession and keep her business going?

Speaking of 1099 reporting, the situation gets worse. Beginning in 2011, all credit card processing companies must report annual credit card transactions in excess of $20,000 and 200 transactions submitted to them for processing by any business on a new IRS form 1099-K.

I thought there would be overlap, but just as I fretted about this possibility, the IRS came up with a solution. So pay attention! If you pay for purchases with a credit or debit card, you are not required to issue a 1099. The credit card companies will do so. No overlap after all. You are only required to issue 1099s for payments made via check or cash. So I won't have to ask Office Depot for its federal ID after all. Because the format of form 1099 will change, we will all have to purchase the upgraded version of QuickBooks or whatever software is used for accounting and 1099 preparation.
It's still going to be a massive amount of paperwork.

Ref: http://www.entrepreneur.com/article/207404#ixzz2g9m3cAXU

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5 Bookkeeping Tips for Business Owners

Entrepreneurs keep a lot of the financial details of their business in their heads. Doing so has its advantages: No new software to learn, no danger of a system crash that loses all your data, and you can tweak your budget as often as you need without sitting down at a desk.

But when you don't have a system and some processes in place, unpleasant surprises can pop up, goals can be easily missed and important paperwork forgotten. Getting a better handle on your money can help you to make and keep long-term goals, smooth out the seasonal ups and downs of your cash flow and maybe improve your profits. It can also help you to stay out of trouble with the Internal Revenue Service.
Here are five bookkeeping tips for entrepreneurs.

1. Plan for major expenses.
Why it's helpful: You're less likely to miss business opportunities or have to scramble for a loan when the expenses become unavoidable.
What to do: Put events like a major computer upgrade on the calendar a year in advance or, ideally, three to five years ahead. Acknowledge the seasonal ups and downs, something many entrepreneurs are reluctant to do.
"This helps you to be honest about the fact that it's coming and plan for it," says James LeMay, a director with the accounting firm Daigle & Associates in Boston.
You'll avoid taking money out of the company during the flush periods only to find yourself short in the slower months, when costly projects like upgrading computers or replacing factory components usually happen.

2. Track expenses.
Why it's helpful: You otherwise might some miss tax write-offs and may lose out on others.
What to do: A credit card that you use solely for business can be a basic accounting system, says Raffaele Mari, an accountant in Newport Beach, Calif., who teaches a financial course for entrepreneurs at Pepperdine University.
Most card statements categorize expenses, so you can see which outlays relate to which business activities. If you always use your business credit card for business expenses, you're less likely to pay cash at, say, Staples and lose the receipts, forfeiting tax-time write-offs. Pens and printer paper can add up.
Additionally, Mari says, routinely jot down business trips, lunches, coffee dates and other events with cash outlays in your electronic or paper day planner. This habit can go a long way toward substantiating those items for your tax records in the event of an audit.
"Often on tax returns, those numbers are too round. No one drives exactly 5,000 miles for business in a year, so the IRS knows this is an estimate," Mari says. "In an audit, if you can't substantiate those numbers, the whole category [of write-offs] can get thrown out."
One of his clients provides a link to a Google map for each trip instead of trying to remember to note the mileage for every trip he takes on his odometer. That data, along with a day planner recording the trip, are usually enough record keeping to satisfy the IRS, Mari says.

3. Record deposits correctly.
Why it's helpful: You may be less likely to pay taxes on money that isn't income.
What to do: Adopt a system for keeping your financial activities straight, whether it's a notebook you use consistently, an Excel spreadsheet or software such as Quickbooks. Business owners typically make a variety of deposits into their bank account through the year, including loans, revenue from sales and cash infusions from their personal savings. The trouble, Mari says, is that at the end of the year, you or your bookkeeper might erroneously record some deposits as income, and consequently pay taxes on more money than you've actually made.

4. Set aside money for paying taxes.
Why it’s helpful: The IRS can levy penalties and interest for not filing quarterly tax returns on time.
What to do: Systematically put a portion of money aside throughout the year for taxes. Then note tax deadlines on your calendar, along with prep time if you need it, to make sure you actually make payments when they're due.
Payroll taxes that go unpaid can be especially problematic, Mari says. He often sees cash-crunched entrepreneurs get through a down cycle by dipping into employee withholdings that they should have sent to the IRS.
"If you mess with [payroll taxes], you have a two-fold problem," Mari says. "You haven't paid taxes due and you've taken money that the IRS sees as belonging to your employees. They can be very unforgiving about that."

5. Keep a close eye on your invoices.
Why it's helpful: Late and unpaid bills hurt your cash flow.
What to do: Assign someone in your organizations to track your billing. Then put a process in place for issuing a second invoice, making a phone call and perhaps levying penalties such as extra fees at certain deadlines.
"You want to have a plan for what happens if they're 30, 60 or 90 days late," Mari says.
Some entrepreneurs believe that once they've sent out an invoice, they've taken care of billing. Not so, Mari says. "Every late payment is an interest-free loan and hurts your cash flow."

Ref: http://www.entrepreneur.com/article/219517#ixzz2g9hR37bt

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An Audited Financial Statement Can Help

Looking to Borrow? An Audited Financial Statement Can Help :  More than one-half of all small-business loan applications are being rejected by banks, according to the Biz2Credit Small Business Lending Index. In such a tough lending environment, companies in need of capital might find lenders more receptive if they invest in audited financial statements.

"We've had clients who needed these statements to even get the loan, and it can make a difference in the interest rate you get," says David G. Barbeito, a principal in the Miami office of Morrison, Brown, Argiz & Farra, a large independent accounting firm.

A study by Michael Minnis, assistant professor of accounting at the University of Chicago Booth School of Business, published in the Journal of Accounting Research found that companies with audited financial statements have interest rates that are nearly three-quarters of a percent lower than companies that do not. In general, large companies are more likely to require audits in order to receive loans; however, Minnis found that firms with annual revenue of $10 million were not always asked to supply such materials, while firms in the $500,000 range sometimes were.

Audited financial statements are expensive, in the ballpark of $15,000 to $20,000 for the smallest businesses and $50,000 to $75,000 for middle-market businesses, estimates Eric Martinez, CPA, an auditor with Jericho, N.Y.-based accounting firm Grassi & Co. So it's important to do the math before hiring an auditing firm to pore over your books. In some cases, a review by an auditing firm may be all that is necessary, yielding the same lending benefits at about half the cost.

"One of the first things you need to do is to talk to the banker and understand what they're looking for. A lot of times, we're able to achieve the bank's objectives with a reviewed statement," Martinez says. He recommends business owners make sure the bank is comfortable with the auditing firm in advance, as the bank may have standards of expertise that the auditor needs to meet.

Minnis agrees that a cost versus benefit evaluation is important before incurring the expense of audited financial statements, particularly if a loan approval is not at stake. Still, audited statements may have other benefits to business owners, such as helping them establish larger and more favorable lines of credit with suppliers or meeting the management review requirements to attract outside investors.

Ref: http://www.entrepreneur.com/article/222806#ixzz2g9a522Rb

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A Matchmaker For Accountants

When launching a new business, you need a trusted bean counter in your corner. Though finding a good accountant may not be as onerous as doing your own taxes, it's certainly no picnic. Firms spend plenty of time and resources in the search for solid financial advice. But rather than shuffling off to Google, there may be a better way to land some much-needed assistance before you're knee-deep in bills.

Teaspiller, launched in 2009 by former Travelocity vice president Amit Vemuri, is an online database and accounting platform that connects users with qualified professionals. The New York City-based startup can be used to comparison-shop from more than a million listings of accountants and tax-return preparers culled from the internet, public listings from CPA state boards and the IRS' official database of enrolled agents who are licensed to represent taxpayers before the agency.
"For a lot of small businesses and individuals, it's really hard to find a quality accountant," Vemuri says. "When you talk to people, a lot of them have found their accountants through trial and error, the Yellow Pages or a friend. But those search costs are pretty high."

What is it?
The name Teaspiller comes from a colonial-era newspaper editorial referring to the Boston Tea Party. The idea, Vemuri says, is to shake up the way the average small-business client relates to and works with their accountant by breaking the process into a few simple steps. The user searches for an accountant in Teaspiller's database, then books an appointment or requests a quote using an online form. If the accountant has an active Teaspiller account, not only can the meet-and-greet process be handled remotely, but the subsequent working relationship can be managed online through the secure Teaspiller platform, which allows for everything from scheduling phone calls and sharing tax documents to billing.

What does it do?
As an accountant search tool, it's hard to beat Teaspiller. Users search by geographical area as well as by the services they're looking for; a simple drop-down menu reveals a comprehensive list that includes everything from basic tax preparation to forensic accounting. Teaspiller then generates potential matches with a Yelp-like listing for each accountant; in many cases the listing includes a rating, the accountant's résumé, links to websites and social media accounts such as LinkedIn, and a breakdown of services offered.
It's all the more impressive when you realize that gathering the same kind of information for the same number of accountants on your own could take hours of web searching and sifting. It's easy to use Teaspiller to pull together at least a basic list of potential accountants so you can proceed to making phone calls or firing off e-mails asking for quotes.
For quick and dirty financial help, Teaspiller also has an Ask an Account-ant feature, which lets users submit questions to accountants in Teaspiller's database. Submitting a question is free, but to guarantee a response, you'll have to pay up: $10 for an answer within two business days; $15 to hear back within one business day.

What doesn't it do?
Teaspiller pulls a huge chunk of its database from the IRS' list of enrolled agents and sets up basic accountant profiles until individual accountants claim them and start filling in more details. Therefore it's quite possible that your search results will pull in accountants who aren't using Teaspiller's remote accounting functions (Vemuri says that's up to the accountant). That may not be a bad thing, because it's likely not every small-business owner will feel comfortable doing sensitive accounting work over the web, even though Teaspiller assures users that its sharing platform is secure.
There is also the ratings game. At this point in Teaspiller's development, most accountants don't have user ratings, and the ones who do only have a couple. Accountants are assigned a Teaspiller rating, which takes into account years of experience and professional licenses. But because Teaspiller vets the accountants it adds to its database, these ratings almost all range from very good to superb. Unfortunately, it just may be impossible to take trial and error completely out of the equation.

The bottom line
While it's not perfect, Teaspiller is a welcome resource for any startup. It's as good a place as any to seek out a qualified accountant or business tax pro.

Read more: http://www.entrepreneur.com/article/222969#ixzz2g0RX7TNC

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Separate Your Business and Personal Finances

Business owners intertwine business and personal finances all too often. After all, you are your business, but muddling up the two will mean a mess at tax time.
Even if you're just starting out, it's essential to split up these two parts of your money life. Treat your business, big or small, like a viable entity.

"That starts with tracking your business expenses separately from your personal, even though initially it may feel like they are one in the same if you are a one-man shop," says Cynthia Heil, a certified financial planner with Cascade Financial Management in Tampa, Fla.
Here's how you can peel your business away from your personal finances.

1. Maintain separate checking accounts
   Start with your bank. Open a business checking account.
   
   "If there's ever a question as to whether it's a hobby or a business, the IRS looks to see if you have a separate checking account," says Richard Salmen, a certified financial planner with GTRUST Financial Partners in Overland Park, Kan.
   
   If you use Quicken, Quickbooks or Microsoft Money, Salmen advises making sure you have two separate systems: one for personal and one for business.
   
   Not only is having two accounts tax-smart, it will also improve your organization.
   
   At the end of the year, all your income and expenses will be in one place, making record keeping and tax filing easier. If you try to separate all your records in March or April, you won't be able to accurately remember all the money moves from the prior tax year. Keeping good records year-long will give you proof of your business expenses if you do get audited.
2. Use a business credit card
   Lending requirements are quite strict for small businesses. Still, try to get a business credit card. Like the separate checking account, a credit card will help your record keeping and give you something to show the IRS if you're audited.
   
   The business credit card could give you an extra tax deduction too.
   
   "If you need to carry a balance on a business credit card, that's the only credit card interest that's deductible as a business expense," Salmen says.
3. Make it official
   Consider establishing a limited liability company (LLC) or an S Corp for your business.
   
   Sit down with your team of advisors--attorneys, CPAs, financial planners and insurance agents--and determine what entity makes the most sense, how this business will impact your taxes and financial plan and what insurance coverage you should consider, Heil says.
   
   These business entities will also give your personal finances a new level of liability protection, which could come in very handy of your business is ever sued.
4. When it's time to file
   Having a checking account, credit card and record keeping software earmarked exclusively for business use will give you most of what you need to file your taxes and to prove to the IRS that your business really is a business. But there are other considerations, too.
   
   If you use a home office, you're eligible for a deduction, but only if you do it right. Even then, you could be in for an audit.
   
   Salmen shared the story of one of his clients. The wife was a salaried employee and the husband ran money-losing photography business out of a home office. He was eligible for the home office deduction, but because his business lost money, Salmen warned it might be a red flag for an audit.
   It was.
   They took photos of the office, which was used solely for business, and after the audit, they were able to keep the home office deductions.
   
   "People are way too afraid to take the home office deduction because they don't want to be audited, but take it if it's legitimate," Salmen says. "The key is that it has to be used exclusively for business. You can't have a daybed in it for visitors."

Ref: http://www.entrepreneur.com/article/204862#ixzz2far6FfUn

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Read This, Before Hiring a Tax Accountant

When it's time to look for a tax accountant, you want one who not only can help save you money and avoid potential trouble with the IRS, but also can provide useful information for your business. "We tend to think of accountants as numbers people, but a good accountant does more than just figure the numbers," says Ed Lyon, co-founder of the American Institute for Certified Tax Coaches. "A good accountant will communicate what the numbers mean to us."

So shop around, interview accountants and figure out which one is the best fit for you and your business. Here are 10 key questions to help you make the decision before hiring a tax accountant:

1. What kinds of clients do you work with?
You want to make sure your accountant understands your type of business. A restaurant will have certain rules to follow for wages and tips, for instance, just as a construction business must deal with issues related to contract workers and a real estate development firm will have certain criteria about how income is reported. You need an accountant who has worked with other businesses like yours and knows the ins and outs of the industry.

2. Are you available year round?
Some accounting firms shut their doors after April 15 and only reopen for the following tax season. But when you're running a small business, you're going to need help all year, says Melissa Labant, director of taxation at the American Institute of CPAs in New York. "If something comes up, you don't want to wait until tax season in order to get your issue addressed."

3. What's your experience with the IRS?
Often people will tell you it's important to hire a certified public accountant rather than an EA, or enrolled agent, because CPAs have more comprehensive certification requirements. While CPAs are state-certified and have training in such areas as financial planning and bookkeeping, EAs are certified by the federal government specifically to handle taxes and are often former IRS agents with extensive experience dealing with audits. "They've been in the belly of the beast. They may have more inside knowledge of how the IRS really works," Lyon says. On the other hand, a CPA will likely have more experience with broader financial planning issues. Rather than focusing on certification, Lyon says, focus on how your accountant's experience is relevant to your business.

4. Who will be doing the work?
Accountants will often outsource work to a third party. This doesn't mean their services are bad, but you want to be sure they are forthright about who is doing the work, says Kerry Kerstetter, a Harrison, Ark., CPA. If you want to talk with someone familiar with your bookkeeping and that's a third party, it likely will be difficult to speak with him or her directly, Kerstetter says.


5. Are you a conservative or more aggressive accountant?
Some accountants want to write off everything they possibly can, while others take a more conservative approach. It's important to figure out where you fall on the spectrum and find an accountant who agrees with your philosophy, Lyon says. If accountants tell you they specialize in finding red flags that could trigger audits, they may be hesitant to maximize your deductions. For example, some accountants believe taking a home office deduction might be a red flag to the IRS, Lyon says.

6. How do you bill for your services?
Some accountants charge by the hour; others bill a flat rate. If you want to take a more hands-on approach to your bookkeeping, an hourly rate might be better because you won't have as much continuous work for an accountant, Kerstetter advises. Regardless of the billing approach, be sure to get an estimate of an accountant's likely fees. Provide a copy of your previous year's tax returns so the accountant can familiarize himself with your business before giving a quote, Labant says.

7. How do you handle working with multiple entities?
If you have more than one entity under your name, be sure the person you hire can manage them simultaneously--a skill not all accountants possess. If you own rental property as an LLC and a retail store registered as a C-corporation, for example, you'll need an accountant who can coordinate and track money moving between those entities, Kerstetter says.

8. What can you tell me about the medical expense reimbursement plan?
This question may seem technical, but not all accountants will know about this plan, which allows you to deduct your family's medical expenses on your return, Lyon says. If the accountant you're speaking with is unfamiliar with such plans, you should be wary because that might be a red flag that he or she isn't well versed in deductions that could save your business money.

9. What tax program do you use?
You shouldn't choose accountants based on the tax program they use, but it's a good detail to ask about. QuickBooks is commonly used for small businesses, which means your information would likely be easily transferred between different accountants, Kerstetter says. Hiring an accountant who uses more obscure tax software won't affect the quality of the work, but it might make it tricky to switch accountants.

10. How often will we communicate about tax issues?
Every accountant will be different when it comes to frequency of communication for tax planning purposes. Ask about a prospective accountant's approach and be sure you're satisfied with the degree of communication, Labant says. "You want to feel comfortable calling them with issues relating to your taxes."

Ref: http://www.entrepreneur.com/article/225378#ixzz2fLhaHC5K

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Payroll : Elements Of The Accounting System

If you've got employees, you've got to get a handle on payroll, payroll accounting can be quite a challenge for the new business owner. There are many federal and state laws regulating what you have to track related to payroll. Failure to do so could result in heavy fines-or worse.

Many small-business owners use outside payroll services. These companies guarantee compliance with all applicable laws. This keeps the small-business owner out of trouble with the law and saves valuable time that can be devoted to something else in the business.

However, if you choose to do your own payroll, it is highly recommended that you purchase an automated payroll system. Even if the rest of your books are done manually, an automated payroll system will save valuable time and help considerably with compliance. There's not a lot of margin for error when dealing with the federal government!

Excerpted from Start Your Own Business: The Only Start-Up Book You'll Ever Need, by Rieva Lesonsky and the Staff of Entrepreneur Magazine, © 1998 Entrepreneur Press

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