Get Started on the “Right Foot” Financial Planning for 2017

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When it comes to your finances, accounting, or tax rules, do you ever feel like a “Duck out of Water?”

If so, this post is designed to help you get started on the right foot, make your 2017 easier, and ideally, more profitable.

Here are 6 tips to help you get started:

1. Employ your money by considering how you can make it work for you:

One way to do this is to work with a tax accountant who can help you learn to use the tax rules to help you improve your financial results by decreasing your income tax expense. A tax software program may help you prepare and file your tax return, but it does not help you plan or make informed financial decisions.

A tax return is based upon the past. The best opportunity to make a difference is in the present.

Tax planning (and acting) may also help you save some money on your 2016 tax return – before you file. You can read the rules, read some of my others blogs, or ask someone for guidance.

 

2.  Self-employment comes with both a lot of perks and responsibilities; this is particularly true for income tax rules and obligations.

The IRS defines Earned Income as all taxable income and wages from working either as an employee or from running or owning a business (net earnings from self-employment).

Last year at tax time, a lot of people were caught by surprise because they had not considered how their UBER or other self-employment income would be taxed. It is important to know the rules to avoid penalties for either not reporting on time and/or for not paying income tax on time.

Use the following information to avoid penalties, price your products/services and to plan your budget:

IRS Business Basics – Compliance – “Must Do”:

  • The U.S. tax system is “Pay as You Go, generally, not at the end of the year
  • If you owe the IRS more than $1K during a year, it is not ok to wait to pay
  • Quarterly Reporting & estimated tax payments are required to avoid late payments, interest & penalties
  • Accounting records must be current to determine – if you need to pay quarterly tax
  • Generally, Calendar Year Due Dates are 4/15, 6/15, 9/15, and 1/15 for the previous year
  • If you don’t pay enough tax by the due date of each of the payment periods, you may be charged a penalty
  • Individuals (Sole Proprietors, Partners, S-Corp Shareholders) need to pay estimated tax if they owe $1,000+
  • Corporations need to pay estimated tax if they owe $500+
  • 2 Possible Penalties: Failure to Fail and Fail to Pay on time – If you can’t pay, at least file; prevents 1 penalty
  • Estimated tax is used for: Income Tax; Self-Employment Tax and Alternative Minimum Tax
  • Reconcile payments on your annual tax return

 

 3. Self-Employment Tax of 15.30% is required on Annual Net Earnings of $400+ – “Must Do”

  • You, need to know “Up front” to budget for cash expense and to consider for product/service profitability
  • Sole Proprietors & Independent Contractors must pay both the employer and the employee side of Social Security and Medicare taxes
  • The 2016 SE tax rate on Net Earnings is 15.3% (12.4% social security tax plus 2.9% Medicare tax)
  • The Self-Employment tax rate is 15.3% of the first $118,500 of income and 2.9% of everything above that amount
  • If you also work as an employee, be careful that you do not overpay your Social Security tax. The $118,500 applies to your combined wages, tips, and net earnings
  • Sole Proprietors can deduct ½ of this cost on Form 1040-Line 27, the deductible part of self-employment tax

 

  1. QuickBooks Self-Employed can help you with your business recordkeeping and to determine your estimated tax:

This product is a little less than 2 years old and was designed to simplify the basics for those who are self-employed, own a small business, and who do not have employees (payroll) or inventory. Good examples include realtors and independent contractors.

The program allows you to track business income and expenses and to make tax time simple by capturing all expense deductions, including tracking business mileage. The program also estimates your required IRS quarterly tax payments, lets you separate personal and business expense and create and send invoices on the go.

The cost of $10 or less per month makes it affordable. If you work with a Certified QuickBooks ProAdvisor Accountant, they may be able to provide you a 50% discount on the program cost for your 1st year of use. Reach out to them and ask. If so, they can send you a link to help you get started at the discounted rate.

 

  1. MileIQ is an easy way to track your mileage for expense purposes.

The app is an automatic mileage tracker, which can improve accuracy and add convenience.

2017 rates are:

  • $0.535 for business
  • $0.170 for medical or moving
  • $0.140 for charity

Alternatively, you can use actual expenses incurred.

Either way, the IRS requires documentation, which includes both the beginning and ending mileage, where you went, and why. If you have not been doing this, step outside and record your odometer reading today. That number can provide a good estimate to end your 2016 tax year and to begin 2017.

Also note that if you used accelerated depreciation for your vehicle and used the Section 179 deduction, you cannot revert and use the standard mileage rates.

 

6. Don’t Believe, “Don’t Worry, it’s a Write-Off:

There are a lot of rules for what is an acceptable deductible business expense that apply for who, for what amount, and when.

Following are some general terms that will help you get started in learning IRS terminology and rules.

Note that what is an acceptable taxable deduction in your business may not be acceptable for my business. The “tool belt” is different for a carpenter than for an accountant.

  • Use IRS rules to decrease income tax expense
  • Business Income can be reduced by “ordinary and necessary” expense:
  1. Ordinary expense = Common or Accepted in your trade or business
  2. Necessary expense= Helpful or Appropriate for your trade or business
  • Operating Expense = expense incurred under normal business operations (rent, utilities, insurance, payroll)
  • Capital Expense= benefits more than 1 year (property, plant & equipment)
  • Capital Assets are generally expensed over a period of time by using depreciation and amortization rules
  • Depreciation and Amortization are both a Non-Cash expense
  • They reduce Net Income on an Income Statement, but do not reduce the Cash account on the Balance Sheet
  • The expense can either be based on standard or accelerated rules.
  • Section 179 is an example of an accelerated expense i.e. take a larger deduction in earlier years. Be careful here because you can also be subject to “recapture rules”.
  • This list is not exhaustive nor does it include all the rules. The information is shared to provide general concepts and to plant seeds for future learning.

 

I hope these tips to help you get started on the “right foot” and help you feel less “like a duck out of water”.

We all have gifts we can use to make a difference for each other.

I hope this blog post might have made a small difference for you.

 

Thanks for reading.

To your success,

Deb

Deborah Ann Fox, CPA helps Small Business Owners & Individuals build and protect their financial wealth. She can help by being your financial compass while you captain your ship.

Deb offers free 30 minute no obligation consultations. We can discuss/resolve via a mix of e-mail, phone, virtual, and in-person communications.

http://www.debfoxfinancial.com

http://www.DeborahFoxCPA.com

Call 619-549-2717

E-Mail me @ debfoxfinancial@gmail.com 

Twitter: @debfoxfinancial

Facebook: Deborah Ann Fox, CPA

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5 Ways a CPA can help Small Business

 

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Small Business Owners, particularly in the early stages, are doing it all.

Sometimes it can feel like an up hill battle. There is so much to do, and learn, and not enough time to do it. Financial resources can be scarce and stretched thin.

Sometimes spending a little can help you a lot. The value is apparent.

What We Do:

CPA’s do much more than crunch numbers and report on facts that have already happened in your financial statements.

CPA’s provide advice. We educate our clients and help them improve their financial business results.

Our value can often be quantified, measured, seen and/or felt by business owners.

CPA’s provide a wide variety of services.

I enjoy helping small business owners with income tax and with all the detail that includes. I understand almost no one likes tax; however, we all like to save money. For me, using IRS rules to help others is fun.

How We Help:

1.  A CPA  can help prevent “Blind Spots”:

What you don’t know can hurt you. I’m not telling you this to scare you. Rather, to educate you and provide an objective example.

Many new Small Business Owners do not know that the IRS expects them to pay tax as the money is earned and that quarterly reporting and payments are required if you expect to owe more than $1,000 annual tax to the IRS.

This means that you need to keep your accounting records current so you can determine if you need to begin quarterly reporting and payments. 

2.  A CPA can help with your Budget:

  • Self-Employment tax of 15.30% is required on all Annual Net Earnings of more than $400
  • The 2015 SE tax rate on Net Earnings is 15.3: (12.4% social security tax and 2.9% Medicare tax)
  • Do you include this expense in your budget so you have cash when it is time to pay the IRS?

 

3.  A CPA can help you make Decisions:

  • Data (information) can be used to help you make cost effective decisions
  • Review Forecasted to Actual Financial results – what happened?
  • Help a business owner interpret the financial statements and offer suggestions to improve profitability, cash flow, and efficiency

 

4.  A CPA can help you Minimize your Income Tax:

  • Do you know what you can legally deduct on your tax return?
  • Do you know how to use strategy to reduce your business tax bill?
  • Tax Planning includes education, evaluation, and action

 

5.  CPA can help you improve Profitability:

  • When I told an architect that they were required to pay Self-Employment tax, they were shocked. They told me, I have to raise my prices immediately. I am not making any money.
  • We can help you determine if your pricing is profitable or if you are working for free or for not as much money as you thought you were making
  • You don’t want to wait until year-end to find out
  • As we all know, time is money and the faster we can earn it and build a financial cushion, the more comfortable we feel

 

You have 3 choices:

  1. Do it yourself – inexpensive, but can be costly
  2. Do it for me – expensive & might be seen as a luxury until the cash starts coming in – consistently
  3. Do Some of it for me: a cost effective bridge to obtain education and help on a “as needed” basis

 

Thanks for reading,

Deb

Call me about an Accounting & Tax Tip Cheatsheet  619-549-2717

 

Deborah Ann Fox, CPA helps Small Business Owners & Individuals build and protect their financial wealth. She can help by being your financial compass while you captain your ship.

Debbie offers free 30 minute no obligation consultations. We can discuss/resolve via a mix of e-mail, phone, virtual, and in-person communications.

http://www.debfoxfinancial.com

Call 619-549-2717

E-Mail me @ debfoxfinancial@gmail.com 

Twitter: @debfoxfinancial

Facebook: Deborah Ann Fox, CPA

 

Financial Health: 8 Ways to Check

8 Ways to Check and/or Protect your Financial Health

Many of us see the doctor for an annual check-up.

Probably, even more of us have our car checked on a routine basis.

Few of us take a holistic view of our financial health, particularly, on a routine basis.

I encourage you to be an early adopter, change this, and become proactive with your financial health.

For our physical health, our doctor might check our weight, blood pressure/pulse, LDL/HDL and then compares the findings to our initial baseline results.

For our financial health, we should also establish a baseline /benchmark and then, periodically compare our results to our previous records,

How are we going to know how we are doing unless we take the time to look?

How are we going to tell if we are getting better if we don’t have an initial baseline to compare to?

The factors that you choose to use are up to you. My list includes possibilities for you to consider. Record your answers & date it. Some responses will result in a number, others will be a yes/no and perhaps initiate a new thought process. Here are my suggestions: 

  1. Determine your Personal Net Worth
  • Create a Balance Sheet: Assets = Liabilities & Equity
  • Assets are the value of what you own; liabilities are what you owe
  • Assets – Liabilities = Equity in a business or your personal Net Worth
  1. Review the Liability limits on your insurance policies (Homeowners, Renters, Auto, Business). Is the limit high enough to protect your Net Worth if something serious happened? You don’t want to leave your “assets” (money) exposed to risk of loss without making the conscious decision to do so.
  1. Cash Flow- Positive or Negative?
  • Money coming in, money going out, and when?
  • Is it steady through out the year or does it fluctuate?
  • Are you spending more than you bring in?
  1. Liquidity – Emergency Fund +
  • Emergency Fund savings for 3-6 months of living expenses?
  • Any other “reserves” you keep – Christmas or vacation fund?
  1. Your Personal Savings rate
  • Do you try to pay yourself first?
  • Are “you” built into your required monthly expenses?
  • Do you fully participate in your company’s matching program?
  1. Determine your Debt/Income Ratio
  • Lenders use this to determine your ability to manage payments
  • Total monthly debt payment/monthly gross income
  • 43% is generally the maximum for a Qualified Mortgage as per Consumer Finance
  1. Review your Retirement Allocations
  • Does it make sense?
  • Is it balanced?
  • Are you earning a return? 
  1. Check your credit score – It is your Financial Reputation
  • Obtain your free annual credit report from each of the 3 major reporting agencies, check it for accuracy, and dispute anything that is not correct
  • Obtain your FICO score

Taking the time to manage our money provides benefits:

  • Feeling in control
  • Knowing our capacity to absorb financial shocks
  • Finding if we are on track to meet our financial goals or
  • Having peace of mind and the flexibility to make choices

The road to financial freedom is full of potholes. If you take the time to discover, find, and fix them, your trip will be less eventful and you will reach your destination faster & safer.

May you have a safe, prosperous, and fulfilling journey.

Thanks for the reading!

Deb

P.S. I welcome and encourage comments and questions. It is one way to see how I am doing. 

Deborah Ann Fox, CPA is working to make a difference in peoples lives by helping them build and protect their financial health. She offers free 30 minute, no obligation consultations and is available for appointments – including remote. More information is available at http://www.DeborahFoxCPA.com. Questions or comments can be sent to debfoxfinancial@gmail.com.

Financial Success: Life Lessons for all Ages & Stages – Part 1

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To celebrate the beginning of April’s Financial Literacy month, I thought I would create a series of blogs about money & financial literacy. I am starting at the beginning, when kids are young & will continue through some of the older ages & stages of life.

Part 1: Kids learn by what they see, hear, & do:

 When my niece, Ali, was 4, she used to think money came out of a machine. It made sense, she saw her Mom do it. If you want something, you just go to the machine, get the money, & go to the store. If we don’t tell them any different, kids believe what they see – money comes from a machine.

Little ones quickly learn that they need money to buy things. They need to be taught:

  • You earn money by working
  • You deposit the money you earn in a bank to keep it safe
  • You have to have money to pay for things you need – a place to sleep, food to eat, clothes to wear, maybe, even a car to go places
  • You use money you saved in the bank to pay for things you need
  • There is a difference between needs & wants – needs come 1st
  • You usually have to save money to buy something you want

Kids learn from what they hear. Do you speak positively or negatively about money?

Most of us know that kids are like little sponges & pick up on things they hear & sometimes they repeat us to our surprise (or shock): “We don’t answer the phone at our house, it might be a bill collector”. As adults, we need to be careful with our words. We also need to pay attention to other places that kids can learn by listening – TV, video games, radio, private & public places.

In today’s digital world there are so many ways to educate our kids about money; we can play fun songs for them to hear and maybe learn. One of my favorites is Sammy Rabbit; hIs dream big campaign teaches great money habits for young children. You can learn more about Sammy at http://www.dreambigday.net or sammyrabbit.com.

Kids also learn by what they do. Teaching kids to be financially successful in life should begin early. The Davidson Institute reports that money behavior habits can be formed by age 7.   When we are young, it is hard to learn that we can’t have everything we want. Parents can help by creating incentives & providing rewards.

  • Have kids write goals & create visual savings charts for something “they want”
  • Tell them that writing goals down increases their chance of success
  • Practice “learning by doing”
  • Money earned or received can be divided into 3 groups – spend, save, give. Let them decide where to give.
  • Teach “delayed gratification” – this will provide a great leap forward to becoming financially capable & successful, later in life
  • The concept of “budget” can be taught with things other than money; i.e. 1 sugary item per day – they choose when. I used to tell my son, Jason, if you want sugar on your cereal in the morning, then please don’t ask for a cookie or something else later on in the day. He frequently decided to wait because he did not know what other choices there might be later. Till this day, he still does not care for sugar much and he learned to wait for what he wants. He also works for it.

If you want to teach your kids a little about saving money, tell them that one of the best things they can do with their money, is to save it. Start early & save often. Even a little bit saved, on a regular basis, can add up to much after time. It is like planting a seed and watching it grow. Money can do the same.

A Chinese Proverb is “Learning is a treasure that will follows its owner everywhere”. Learning to make smart financial decisions when you are young will also benefit you for life.

Have fun teaching & helping others learn to make smart financial decisions. Thanks for reading.

Deborah Ann Fox, CPA is a financial literacy advocate who devotes part of her practice to helping others make smart financial decisions by providing education while building client skill levels.  She is available for one on one, local, or remote appointments. Free 30 minute consultations.

website: http://www.debfoxfinancial.com

Phone: 619-549-2717