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Small Business Accounting

Small Business Accounting: What is the Difference Between a Contractor and an Employee?

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Many people have chosen to leave their job and become self-employed. They now work remotely from their home.  

This is a popular trend in today’s economy. It’s exciting but there are tax implications, of course, that should be considered. 

If you are planning to start your own small business, you need to know the difference between a contractor and an employee. Let’s start with definitions: 

  1. Employee: On the company payroll and receives wages and benefits in exchange for doing their job correctly.
  2. Contractor: An autonomous, independent worker who does not receive health insurance and paid time off. 

If you are now a “contractor” or self-employed, note the following: 

  1. A contractor is compensated by form1099-NEC. Form 1099-NEC, Nonemployee Compensation, is a form that solely reports nonemployee compensation. Form 1099-NEC is not a replacement for Form 1099-MISC. Form 1099-NEC is only replacing the use of Form 1099-MISC for reporting independent contractor payments.
  2. A self-employed contractor needs to pay the Self-employment (SE) Tax. The SE tax consists of Social Security and Medicare taxes for individuals who work for themselves. This tax is both Social Security and Medicare taxes for individuals who work for themselves. The tax rate is 15.3% and consists of 12.4% for social security and 2.9% for Medicare. 
  3. Retirement: There are five self-employed retirement plans: Traditional or Roth IRA, Solo 401(k), SEP-IRA, SIMPLE IRA, or Defined benefit plan. Working for yourself, you need to set up your retirement plan. Interested in potential tax implications as to which plan suits your needs best?  – contact your tax advisor. 
  4. Health insurance: Self-employed individuals must choose their health insurance plan. It could be Blue Cross, HMO, PPO, Signa, United Health Care, or any one of many options. *** 
  5. Estimated tax payments: This is a method used to pay income tax and is not subject to withholding. This income includes income from self-employment, interest, dividends, rents, and alimony. Self-employed individuals who do not have taxes withheld from other taxable income should make estimated tax payments. Other income may include unemployment compensation and the taxable part of Social Security benefits. 

Individuals who are employed by a business or organization typically have the following:

  1. Compensated by Form W2. As an employee, your wages and your share of Medicare and social security tax are reported on your W2.
  2. Retirement: Businesses may offer a retirement plan such as a 401(K) and/or Roth for employed individuals. Employers may even match the employee contribution up to a certain percentage (depending on the plan set up by the employer). 
  3. Medical insurance: The most common employee benefit is medical or health coverage. It covers medical appointments, checkups, ER visits, basic medical procedures, and surgical procedures.
  4. Prescription benefits: Lower co-pays for medicines and no-cost prescriptions are included. There is a list of the available medications with tiered pricing for prescription drugs.
  5. Life Insurance: Usually it is group-term life insurance. The employer extends life insurance coverage to all staff members and is in effect for a set period. It lasts for the time that the employee works for their employer. It costs less than individual insurance policies. 

In addition, there are many more benefits that can be included in a company employment package such as paid time off, paid sick leave, paid vacation time, extended leave, family leave, disability, and worker’s compensation.    

AK Burton, PC can help define what becoming an independent contractor means to you and the steps needed to set yourself up for successful tax preparation. Our experienced tax preparers can file your business and personal tax returns and represent you to the IRS. Call us at (301) 365-1974 for a consultation. 

We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** For more information, visit the IRS website. 

tax preparation

Extended Business Tax Returns: One Month to Go

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August marks the end of summer and beginning of school. As summer draws to a close don’t forget that the end of summer marks an important tax deadline: Filing 2020 Extended Business Tax Returns.

Business owners that filed a 6 month extension to file their 2020 business tax return Form 1065 or Form 1120S must file by their tax returns by September 15, 2021. ***

If you haven’t filed your 2020 form 1065 or 1120S and don’t know where to start; here are some tips to collect the information to prepare your return:

  • Make sure your books are up to date and reconcile your books
  • Compile your business bank & credit card statements
  • Download your December 2020 loan statement that shows the year-end balance and interest paid
  • Compile your payroll tax returns including:
    • Quarterly Forms 941
    • Form 940
    • Quarterly state unemployment returns
  • Compile your sales tax returns
  • Did you file form(s) 1099? – if so, gather form(s) 1099
  • Did you make estimated payments? – if so, make note of the date and amount of each payment.
  • Did you make an extension payment? – if so, make note of the date and amount of each payment.
  • Vehicle mileage – make note of your:
    • Total mileage
    • Business mileage
  • Do you have a home office which you use exclusively for business? Include:
    • Total sq ft of home
    • Exclusive Business use sq ft of home
    • Expenses (utilities, taxes…etc,)
  • Does your business have a retirement plan? If so – gather your December 2020 retirement plan statement

Once you have collected this information, it’s time to file. The deadline to file extended partnership and S-Corporation returns is less than a month away. Not sure about preparing your own return? At A.K. Burton PC, we specialize in tax services for small business owners. We prepare and file forms 1065 and 1120(S). 

A.K. Burton, PC, can do all your income tax preparation. We have experienced staff who can prepare and file your tax return and represent you before the IRS. Call us at (301) 365-1974 for a consultation. Our office is open. We serve the Bethesda, Rockville, and Montgomery County, MD area.  

*** For more information on filing as a Partnership or an S Corp, consult the IRS website.  

Quickbooks, Small Business Accounting

Five QuickBooks Small Business Hacks You Need to Know

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Small business accounting and bookkeeping is a necessary part of the business. The software has made small business accounting and bookkeeping easier and more convenient. Affordably-priced software ranging from Wave Accounting to Xeno help business owners easily run billing, payroll, invoicing, and inventory.

There is a wide range of small business accounting software. As a small business owner who doesn’t even have time to spare for accounting and bookkeeping, how do you decide which software is best for your company? One potential software is Quickbooks Online. It’s a cloud-based accounting solution where records are kept online, protected by security, easily accessible, and regularly updated. *** 

If you are considering Quickbooks Online for your business or are using it now, here are some highlights of features that you should know:

  1. Connect your bank account(s) to it: Quickbooks Online allows you to connect your bank account once and it will then download all your bank transactions from the last 90 days. Additionally, it lets you connect multiple checking accounts, savings accounts, and credit cards. It will also auto-suggest categories and functions. The algorithms are quite amazing. 
  2. Don’t have to back up your data: As QuickBooks Online is all web-based, you keep all the data in the cloud. All information you store on QuickBooks Online is stored in the cloud. Data can be accessed at any time from your laptops and devices. 
  3. Invoice clients in CBO: Quickbooks Online can do all client invoicing. Gone are paper billing and sealing envelopes. It lets you design invoices with your business brand on it. Invoices can be automated and it will mark invoices that have been paid. Recurring invoices can be sent out, too, thorough the automated invoicing function. 
  4. User Interface Is Intuitive: QuickBooks was created for the non-savvy, non-accountant business owner or employee. So, it is much easier to use based on the easy interface. It has a brief and easily-understood tutorial. This five-minute guide shows users how to import and categorize transactions. A menu shows how to navigate between the Banking, Reports, Sales and Expenses functions. Reviewers consistently complement the design as it is not all pushed into a small space.
  5. Many users can use it at the same time: Quickbooks Online has several packages which allows multiple users to have full access and use of the data. Additionally, if you want to save money, the username and password can be shared with other employees. However, if there is restricted data, such as payroll, it can be protected and accessed only approved individuals. 

These are just a few of the features available with Quickbooks Online. As with any small business accounting software you choose, the software might be designed to be simple and easy to navigate but somehow a wrench gets thrown into the books!

If this happens, the staff at A.K. Burton, PC is here to help. We specialize in small business tax preparation and provide a wide range of services to our clients including getting that wrench out of your books. If you need help straightening out your QuickBooks online, please call us at (301) 365-1974 for a consultation. Our office is open! We serve Bethesda, Rockville, and Montgomery County. MD area.

*** For more information about Quickbooks Online, visit their website.

Small Business Accounting

Small Business Accounting Trends for 2021

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Thinking about improving your small business? How about improving your small business accounting? Here are some accounting trends for small businesses to consider: 

  1. Data Analytics: Small business accountants can track data and perform an analysis. These insights into data help business owners make better financial decisions and improve resource efficiency. 
  2. Cloud-based Accounting: Businesses can access their bookkeeping records anytime and anywhere on the cloud. The cloud system saves business time and effort as they can track all their sales, inventory, and expenses in real-time. 
  3. Outsourcing small business accounting needs: Just because the technology is out there, does not mean you have to use it or feel comfortable with it. Many small businesses are outsourcing to accounting firms, either in their location or even in another state. This option lets the business focus more on its daily operations. A.K. Burton, PC specializes in tax preparation for small businesses and their owners. 
  4. Using Social Media: Social media channels are essential in building brand loyalty, promoting accounting services and products, engaging with the public and clients, and educating followers on accounting procedures and trends. Social media management also sends visitors to the website which increases traffic and recruits new customers. Facebook, LinkedIn, and Instagram have become an invaluable part of marketing for 2021. 
  5. Website Content Management: Blogs, both written and video, are ways to educate and sell to the public. This also increases traffic to the website and is considered quality content by the major search engines. Publishing monthly blogs should be a staple of any marketing strategy.

Hopefully, these trends have inspired you to reconsider your small business accounting. A.K. Burton, PC, has experienced accountants who can assist you with your small business accounting. We specialize in tax preparation for small businesses and their owners. Call us at (301) 365-1974 or email info@cpa-maryland.com. A.K. Burton, PC serves the Bethesda, Rockville, and Montgomery County areas.

 

Quickbooks, Small Business Accounting

How to Use QuickBooks Services for Your Small Business Accounting

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In these days of COVID, (I’ll be so glad when I won’t have to use that term anymore!) it’s good practice for small business owners to do much of their accounting online using software designed specifically for them. It saves money, time, and protects them from exposure to others. 

QuickBooks *** is a popular and economical program for business owners and accountants. Its features, functionality, and ease of use are all strong reasons to use this program. 

If you are considering QuickBooks as a tool to manage your books, here are some ways you can use it:

  1. Invoice customers: QuickBooks lets you invoice your customers to decrease accounts receivable and increase cash flow.
  2. Manage bills and accounts payable: Keep updated on your bills to your vendors and suppliers by using the enter bills and pay bills function. Keeping your vendors and suppliers happy is important as well.  You don’t want to fall behind on your outstanding bills with vendors. You just enter the payment and due date. No longer do you have to write and print checks. QuickBooks online pay function is easy and efficient. Plus, it saves you money from having to buy checks.    
  3. Employee time management: Enter the employee time data on the home screen. It can be a one-time event or a weekly payroll period. QuickBooks measures employee productivity and job costing, if applicable.
  4. Payroll management: QuickBooks lets you process payroll directly or you can integrate a third party for it. You will record your outsourced payroll in QuickBooks. You can also import your payroll data from QuickBooks to the accounting firm. 
  5. Memorized transactions: You should use QuickBooks memorized transactions to automatically enter transactions that occur on a regular and predictable basis.  This can include invoices, bills, journal entries, and payments.  The idea is to boost efficiency and have certain items be entered automatically into QuickBooks.  One example of good use of a memorized transaction is a bill that you have set up to be automatically deducted from your checking account like the monthly internet payment.  By memorizing a check you can have the payment automatically post to your checking account a certain number of days in advance. 
  6. Online banking: Major banks are now integrated into the QuickBooks software. So, you can set up your business to do all its online banking through it. 
  7. Printed checks: If you do need to print checks, you can keep cash flow analysis updated. Then you can print from it. It is extremely efficient!
  8. Journal entries: You may need to correct bookkeeping issues and create year-end entries per with your CPA so it matches your tax return. These detailed entries may be necessary when you file your tax return. 
  9. Online payments: The QuickBooks Intuit Payment Network gives your customer a convenient way to pay your invoices online. 
  10. Financial reporting: QuickBooks allows you to run reports to help get a snapshot of where your small business is at the moment. Your bookkeeping will be enhanced by its financial reporting.

If you are not using QuickBooks services, you may want to consider it. For the reasons listed above it may benefit your business to look into purchasing and using a software such as QuickBooks.

At A.K. Burton, PC, we help our small business clients with their taxes. We are familiar with QuickBooks as it is one of the many software that we use to serve our clients. Call us at (301) 365-1974 for a consultation. Our office is open! We serve the Bethesda, Rockville, and Montgomery County. MD area.

*** For more about QuickBooks Small Business Services, click here.  

Small Business Accounting, Tax Advice

Financial Advisor: Small Business Tax Planning for Fall 2019

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Fall is only weeks away. Summer is basically done

So, what does that mean for you, the small business owner? Well, you can begin making moves that will positively affect your 2019 IRS tax bill. The IRS has made many changes recently that many small business owners may not be aware of or use.  

Here are some ways you can start your small business tax planning that most financial advisors would endorse as we move into the fall season:

  1. Start your 401 (k) now: In 2019, small business owners can deduct up to $51,000 with matching. In other words, you can use $18,000 as a deferral before matching and $5,500 for employees 50 years and older. (Check with your payroll officer or business accountant before taking this measure.)
  2. Buy a business vehicle: Small businesses can purchase a truck or any vehicle weighing 6,000 pounds or more. This year, businesses can deduct up to $25,000 depending on the business use percentage and cost of the vehicle. 
  3. Convert your IRA to a Roth IRA: Your traditional IRA is not giving you all the benefits. Instead, convert your IRA to Roth. You will pay taxes at a lower rate and avoid paying takes on future withdrawals. Check with your accountant or financial advisor before changing over. You must do it by December 31, 2019. 
  4. Add your children and spouse to the payroll: A forgotten-sometimes abused-way of saving money is by bringing your spouse and children onto the payroll for doing real work for the business. Pay them through a sole-proprietorship or single-member LLC. If children are under 18 years old, the business is not required to withhold FICA or payroll taxes. Additionally, the child can use a standard deduction of $6,300 against any income you pay, as its earned income and so no income taxes! However, if it’s an S-/C-corporation, the IRS requires that you withhold FICA from all employees on the payroll. (Again, check with your small business accountant for details and guidelines.) Office cleaning, filing, shredding, driving to errands, etc., are jobs both children and spouse can do for you. 
  5. Set your payroll amount: By December 31, all S-Corporation owners or newly elected LLC S-Corps must complete their payroll. The fourth quarter is coming and it may draw an IRS audit but you may want to lower it or increase it based on the net business income. 
  6. Close on the rental property: Your rental property may be costing you write-offs now as laws have changed. Check with your accountant to see if the real estate professional classification has changed. 
  7. Make your LLC an S-election: Done in December, if you’ve paid a high amount of self-employment tax and had an LLC, you can elect to be taxed as an S-corporation, retroactively, to January 1, 2019. The application is easy and does not cost a lot. Be sure to do the payroll and take some payroll for yourself. 

There are a number of other tax strategy steps you can take. Please consult an experienced small business tax accountant before you do. 

A.K. Burton, PC, has experienced small business financial advisors who can assist you and represent you before the IRS and even do your payroll. Call us at (301) 365-1974 or email info@cpa-maryland.com. A.K. Burton, PC serves the Bethesda, Rockville, and Montgomery County areas.

Accounting, Financial Advice, Small Business Accounting

Ask a Financial Advisor: Should You Do Your Startup Business Now?

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We have all seen the headlines: “Best economy in fifty years!” 

We’ve also seen the story about the person who lost their job and said they weren’t going to work for “the man” anymore. So, they started their own business and now are multi-millionaires! 

Great economy. 

Wealthy entrepreneur. 

There are plenty of success stories. There are also plenty of failures. Starting a business is a risky venture which can make or break an individual and their investors. It should be done carefully and with research. 

Before you hand in your two-week notice, pack your office and take out a loan to start your new business, it is important, from a financial advisor’s view, to consider these factors:

  1. Starting a new business by yourself is almost impossible: You will not be able to do it all on your own. You may need a business coach to help you prepare. You may need the advice of a financial advisor to set up a budget. You may need an accountant to do your bookkeeping. You may need an admin assistant to take phone calls and do your records. You may also need to create a team of subcontractors. In other words: You will need a support system. 
  2. Start-up is a way to not make money for a while (i.e. years): If you had planned to replace your income during your startup time period, you will be disappointed. Many new entrepreneurs go without paying themselves for years, sometimes five years or more until the business begins to pay. Most income goes into paying for rent, utilities, equipment, Wifi, fees, and payroll. You may need to keep your present job just to pay the bills or depend on your spouse, family or investors to pay your personal expenses. It may pay off eventually but, in the meantime, you may live a Spartan lifestyle. 
  3. Take care of your mental and physical health: We’ve heard the horror stories of doing 20-hour workdays and working seven days a week. That cannot last long. The body and mind will shut down. A new startup will require long hours but doing a ridiculous schedule will only burn the new entrepreneur out. Share your difficult times with your spouse, family, church/temple or networking group. Get 6-8 hours of regular sleep, eat three meals a day, exercise fifteen minutes a day, reduce alcohol consumption and dependence on drugs to keep you going. Finally, practice humility. You cannot work all day, every day. You won’t survive. Put your mental and physical health first. 
  4. Be comfortable with change: Life is all about adapting to change and leading a startup can be quite chaotic. Be ready to accept changes, some big (moving the business to a new storefront) and some small (changing copiers). Change may also signify success. Embrace it and roll with it. Most changes are not negative, even if they take a while to adapt. 
  5. No job is too low or too dirty: Running your own business, at first, may mean cleaning your bathroom, emptying your trash, mopping the floor, dusting the desk and doing the inventory. You are part of a team and that means not being afraid to get your hands dirty. 
  6. Keep a tight watch on your finances: As a financial advisor, I have seen startups that have been disciplined in their spending and others that have become debt-ridden as expenses got out of control. Either hire an experienced bookkeeper to watch every expense or have someone on the company keep tabs on expenses. Most business failures come from out of control spending that is not paid for by income. Debt is part of doing a startup but it can send businesses crashing to the ground, too, never to return. Bottom line: watch every penny and be disciplined in spending.   

After reading the above, you may still be asking: Should I start my own business? You have to make that decision on your own after getting seasoned and smart advice. If you can handle all that we talked about, you may be ready to start your own business. 

A.K. Burton, PC, works with small businesses and entrepreneurs every day. Our experienced legal and financial advisors can help you with planning, budgeting, and payroll.  Contact our friendly and experienced staff at (301) 365-1974 or email info@cpa-maryland.com. A.K. Burton, PC serves the Bethesda, Rockville, and Montgomery County areas. 

Small Business Accounting

Planning for the Fall: Small Business Accounting Practices to Keep You Ahead of the Game

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Summer is half over. The days are getting shorter.

Parents are preparing to send their children back to school next month.

This season, as we know it, is coming to a close. Pretty soon, we are all back from vacation, kids have returned to school, Labor Day is over and the next holiday is Thanksgiving, months from now.

The end of summer can be a drag. two men sitting across from one another working on laptops

However, as a business owner, you can do some things now during these low-key summer days, that will benefit you, your employees, your clients and other stakeholders (i.e. The IRS). So, take some time now and do these small business accounting practices that will keep you ahead of the game before the cooler days of fall hit:

  1. Business and Personal bank accounts need to be separated: Much of the confusion and stress business owners have in accounting has to do with bank accounts. If you are using your business account also as your personal bank account, you will run into some serious tax issues that could take many hours and days to untangle when tax time comes around. So, create separate bank accounts for each and save yourself lots of confusion and billable hours with your accountant (or worse, an IRS auditor).

  2. Record bank deposits accurately: Make sure all loans, sales, refunds and other receipts are recorded accurately. You may have to set up a meeting with the small business account specialist at your bank to make sure you are doing it correctly. They can go through each monthly statement with you. Your accountant can also advise you on the best accounting program to use.

  3. Record all business expenses: During a typical business year, your company could be spending thousands (or more) in expenses. From inventory to travel to fuel to rent, there are many business expenses that need to be recorded accurately and backed up with receipts. Make sure you and your administrator(s) are tracking all expenses. Many business expenses are tax-deductible, so failing to record them could be costly.

  4. Bring in an outside accounting expert: Accounting and bookkeeping can be agonizing and time-consuming. So, perhaps, once a month or once a quarter, hire an accountant to take a few hours and review the books. They can make recommendations and corrections, keeping your company on track.

  5. Set aside time for accounting: It all will pile up very quickly and become a monster if you don’t watch out. So, set a day and time each week or month to record and file receipts or visit the bank.

  6. Labor expense tracking: This is the largest expense for most companies. Keep track of hours paid, overtime, bonuses and other expenses to make sure you are paying your employees accurately.

  7. Inventory control: You may have a warehouse full of inventory. If so, take  time to record all of the items in your inventory, including items that are being returned to the manufacturer/supplier.

  8. Meet with your administrator monthly: If your company has a staff member dedicated to accounting, meet with them monthly or regularly to review statements. It may be quite boring to do, but it keeps you and your admin on top of the bottom line: expenses and income. After all, that is why you are in business!

Poor accounting practices have damaged or sunk many businesses. Just doing even a few of these tasks will keep you and your business on track and successful.

A.K. Burton, PC, which serves the Washington,D.C. and Bethesda, Md area, has experienced and licensed individual financial advisers who can help you sort through your bookkeeping. Contact us at (301) 365-1974 for more information or email us at info@cpa-maryland.com.

        

Accounting, Small Business Accounting

Wake up and smell the coffee!: Small business accounting services that your accountant has-and you should be using

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“Shoot, if I had only known!”

How many times have you said that to yourself. If you had only known that your favorite restaurant had a free dessert Wednesday night or that suit you wanted was half price, yesterday, or that the radio station was giving away tickets to your favorite singer’s concert.

Oh, if only…

It’s a familiar lament but, sometimes, there are second chances to great opportunities. Those opportunities missed are aggravating because you realize that you’ve lost out on something beneficial to your life. However, there is a much more important opportunity that exceeds any dessert, suit or concert ticket. We are speaking of small business accounting, of course.

Your business pays the bills and may even be the main source of income for your employees. It is crucial to your life. Don’t take the accounting and bookkeeping services your accountant has to offer for granted.

As any accountant will tell you, you may understand a lot about bookkeeping, but no one knows everything. Leave that to the professionals.   

So, here is a list of small business accounting services your accountant has and you should be using:

  1. Quickbooks Advice: Quickbooks is always updating, changing and upping its game. It is still the premiere business accounting program. Sometimes, keeping up with those changes can be a chore, if not impossible, during your long work weeks. Your accountant must keep up with the updates as they are probably using it themselves! Utilize their knowledge and expertise on this program and all you have to do is call.
  2. Setting up an Accounting System and Structure: Starting a business is a huge challenge and getting the correct accounting system for your business can be agonizing. There are many choices and many different fees. Do you know which accounting system is best? Most business owners and managers are not accountants plus they have too much on their plate, already. So, contact your accountant. They will analyze your business according to volume of business, number of employees and other factors to help you figure out which accounting system is best for your business. Then, your accountant can help you install it and set it up.

  3. Startup/New Business Consultation: You’ve got a great idea for a new business. You’ve done the research and even chosen a storefront. But, how do you get the financing? Hire employees? Set up payroll? Purchase inventory? Those and many important questions need to be answered. Your accountant can help you make all of these crucial, business startup decisions and get the launch of your dream off right.

  4. Record-keeping techniques: It is imperative that your business keep accurate accounting records. You have to deal with suppliers, employees, vendors, landlords, travel agents, garages, the IRS. That’s no small list of people and agencies who depend on your company to pay them. So, use the best accounting record-keeping methods you can find. Your accountant can advise you on what you can use that will be efficient, affordable and can be used by everyone in your company.

  5. Assistance with registering your company with all the appropriate tax authorities: What is an LLC and should your company be one? Which tax authorities do I register with in Washington, D.C., Maryland or Virginia? Or, should I register with all three? Do I need any licenses and permits to run my business? All good questions and they need to be answered. Your accountant can help you register, apply for the correct permits and licenses.

Did you know that these are just some of the services that your local accountant can provide for you and your company, no matter what its size or if it hasn’t even opened its doors, yet?! Like most business owners, you probably didn’t know it.

Running a business is hard work. Don’t make it even harder. Contact your accountant and have them be a partner in your success.      

A.K. Burton, PC, which serves the Washington, D.C. and Bethesda, MD area, provides all these services and more. Contact us at (301) 365-1974 for more information or email us at info@cpa-maryland.com.