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The Importance of Automating Your Accounting System

The Importance of Automating Your Accounting System

If you’re running a business, there’s no doubt that accounting is one of your top priorities. The truth is, however, most small business owners don’t have the time or knowledge to successfully take care of their bookkeeping – and this can lead to some real problems. In this blog post, we’ll talk about why it’s so important for all businesses (especially those with more than two employees) to automate their accounting system and also share some tips on how you can go about doing it. Manual accounting comes with risks – the biggest of which is that you might miss a deadline and incur penalties. This can be true even if bookkeeping is your only task. Automating your accounting system is the best way to ensure that you’ll be able to fulfill your tax and regulatory obligations on time. Furthermore, you’ll be in a better position if ever needing to seek financing for your business. Another risk of manual accounting is that mistakes in your bookkeeping are far more likely. When this happens, it could be months before the error is discovered and corrected, which can have serious impacts on your business. When it comes to running your business the risk of manual accounting is simply not worth it. As a business owner, the time spent on any given task is critical. When accounting is done manually the amount of time wasted is staggering.  This is because it takes much longer to enter data into a system as opposed to entering the same information once with an automated accounting solution. With the latter, you’ll be able to focus your energies on growing and managing your business rather than wasting time on bookkeeping tasks that should only take hours or minutes. Invest in your business by automating your accounting so that you can focus on the core aspects of running your business. So the real question is how does automated accounting work? The software works by simply collecting and organizing your financial information as it’s entered into the system. This allows you to make better decisions about your business because you’ll have all of the data at hand in one place. You can also use automated accounting software for payroll, inventory management, billing, customer relationship management (CRM), project tracking – or any other task that requires consistency. Automated accounting software often comes with easy-to-use apps. These financial tools track spending...

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The Importance of Keeping Your Business and Personal Bank Accounts Separate

The Importance of Keeping Your Business and Personal Bank Accounts Separate

New entrepreneurs and first-time business owners often assume that commingling their personal and business bank accounts will make their lives easier. Unfortunately, while the business of banking tends to be easier for business owners with commingled accounts, important things like tax reporting, account-keeping, and separating business expenses can quickly become a nightmare. If you’re still using the same bank account for both your business and your personal finances, it’s time to make the switch. Here’s why: Less Stress Come Tax Season Separating your business revenue and expenses from your personal income will make life much easier come tax season. Instead of having to go through every personal transaction to determine your tax obligation, you’ll have all the pertinent information about business income and expenses in one place, separated from your personal finances. Business owners who maintain separate accounts have an easier time writing off business expenses and taking advantage of tax deductions. The ability to keep personal finances separate from business dealings can also come in very handy if you are subjected to a Schedule C audit. Instead of having to submit your personal bank statements to the IRS, you’ll be able to send in only your business’s financial statements, making for a cleaner audit. Building Business Credit You need working capital to grow your business, which typically means securing business loans. It will be much harder to provide relevant information such as business income to banks and other lenders if it’s blended with your personal finances. Separating your finances will make securing a business loan and using it to build your company’s credit much simpler. You may not think this is a big deal if your credit score is good. After all, you can leverage your strong credit score to harness more borrowing power for your business, right? Remember: the trade-off for securing personal loans to provide working capital for your business is that you’ll be left on the hook for any debt incurred if the loan defaults. Giving Off a Professional Vibe It doesn’t matter what line of business you’re in. Your customers want to feel like they’re working with a professional. Just like registering your business name makes people take it more seriously, separating your business finances from your personal accounts lends an extra level of legitimacy. Customers will be more likely to take the business seriously and purchase its goods or services if it’s immediately...

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Does My Business Qualify for the Employee Retention Credit?

Does My Business Qualify for the Employee Retention Credit?

The Employee Retention Credit (ERC) was rolled out in 2020 as part of the federal government’s COVID-19 relief effort for small businesses. The credit was intended as an incentive to keep employees on payroll, and the refundable credit is based on wages paid. It originally expired at the end of 2020, but has been extended through 2021. Who is eligible? Eligible employers must have less than 100 employees (raised to 500 for 2021) and have been in operation before 2/16/20. To qualify for the credit employers must show: A 50% decline in gross receipts from the same quarter in 2020 vs 2019 for the 2020 credit A 20% decline in gross receipts from the same quarter in 2021 vs 2019 for 2021 credit OR a full or partial closure due to a government order A business is eligible for the ERC is they were forced to fully or partially suspend operations or reduce business hours because of a government COVID-19 order. In order to determine if this applies to your business, see the IRS FAQs. The CARES Act also allows a business to test eligibility by using the “immediately preceding” calendar quarter. So if your business does not qualify for the 20% decline in Q1 2021, you can look at Q4 for 2020 compared to Q4 2019. How much is the credit? The credit for 2020 is 50% of qualified wages, and 70% for 2021. The maximum credit per year is $5,000 per employee for 2020 and $7,000 per quarter, or $28,000 per year, per employee for 2021. What if I received a PPP Loan? You may still be eligible for the ERC, but you cannot use the same wages as you used with forgiven PPP funds. How Do I Claim the Credit? The credit is claimed by either requesting a refund on form 941, or lowering your tax deposits for the quarter. If you already filed you form 941 for 2021 or 2020, you will need to amend and file a 941-X to claim the credit and refund. You can also request an advance payment of the credit using Form...

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Why It’s Important to Reconcile Your Business Bank Account

Why It’s Important to Reconcile Your Business Bank Account

The process of reconciliation is to match your company’s internal financial records with the information provided to you from the bank. A reconciliation is essentially the same as balancing your checkbook, but for your business transactions. The purpose of reconciling is to help you identify problems and to be able to see how your business is doing on a regular basis. By reconciling regularly, you should be able to catch fraud before it gets out of hand, know how much cash you have, and make sure the transactions entered in your accounting software were done properly. Accounting software has made the reconciliation process very easy. To reconcile you need to grab your bank statements and go to the reconciliation function in your software. Enter in the ending statement balance, and then match all transaction on the bank statements to the transactions in your software. Once reconciliation is done, the balance on your financial reports should match the bank statements. If the bank statements ending balance does not match the internal reports, you should be able to explain why. Reasons the balance do not match could vary from a check has not yet been withdrawn or a deposit that is still being processed at the bank. Reconciliation can be done on any kind of account such as banks, vendors, customers, and equity. However, in small business reconciliation is done on bank accounts, credit cards, loans and lines of credit on a regular basis. For a small business, reconciling is best done at the end of each month. This allows you to view your financial reports on a monthly basis with...

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Using Venmo & Paypal for Business Transactions

Using Venmo & Paypal for Business Transactions

Many small business owners are tempted to turn to money transfer services such as Paypal and Venmo which offer no-fee transaction options for sending money between people. However, these services come with terms and rules regulating their use. Venmo and Paypal Friends and Family options are NOT to be used for business transactions: payments in exchange for goods and/or services. This is in direct violation of their terms of service and may get your account locked. These platforms are also a target for scammers and can trick honest sellers out of their money. Paypal does have a business payment option and this is acceptable to use in your business to accept payments. Using these services also does not trigger the platforms to send out a 1099-K which is required by the IRS for companies accepting electronic card payments over a certain amount each year. Accepting electronic funds for payment does come with extra fees but it also provides the benefit of being able to receive payment faster. Check processing takes too much time for many small clients and you may experience a squeeze in cash flow from only accepting checks. Other options to consider are providing a way for your customers to do an ACH transfer through your merchant account services platform. ACH transfers typically have a smaller transaction fee than credit or debit card payments. Many small businesses also build the cost of credit card processing into their pricing to help offset the transaction fees. Many providers, such as Square, will also allow you to import and sync transactions with your Quickbooks Online account for easy recording of your deposits and...

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New Year-End Tax Planning Issues

New Year-End Tax Planning Issues

As 2020 finally comes to a close, we must start thinking about taxes and how they will be affected by this year full of changes. 2020 has challenged taxpayers and tax professionals alike due to changing regulations, unclear implementation of new programs, and the continuing provisions of the Tax Cuts and Jobs Act. Many of the tax law changes related to the coronavirus pandemic currently expire at the end of 2020. Taxpayers must act fast in order to take advantage of some of these provisions. Charitable Contribution Deduction An above-the-line charitable contribution of up to $300 may be deducted for individuals (even if you don’t itemize). Contributions must be made by December 31, 2020 to qualify. Retirement Plan Withdrawals Qualified taxpayers may withdraw up to $100,000 from their retirement plans, penalty-free, until December 31, 2020. Taxpayers have the option to repay the funds within three years, or pay the associated income tax ratably over a three year period. Taxpayers must have been diagnosed with COVID-19, had a spouse diagnosed with COVID-19, or experienced financial consequences as a result of being laid off, quarantined, or otherwise been unable to work (such as lack of child care) due to COVID-19, Learn more here. The Required Minimum Distribution has been suspended for 2020. Economic Impact Payment If you did not receive a stimulus check which you were eligible for, this will be available as a tax credit on your 2020 individual tax return. PPP Loan If you received a PPP Loan and have a reasonable expectation of forgiveness, the IRS has stated that taxpayer’s will not be eligible to deduct those associated expenses. NOL Carryback If you have a net operating loss from 2018, 2019, or 2020, you can elect to carry it back five years, or carry forward. Business Interest Limitation The business interest deduction for 2020 is limited to 50 percent of adjusted gross taxable income, but will revert back to 30 percent for 2021. Unemployment Benefits Remember, unemployment benefits are taxable. If you did not have taxes withheld from your unemployment in 2020, you will be required to pay income taxes in April. Payroll Tax Deferral The CARES act provided businesses the option to defer the employer portion of FICA taxes for wages paid between March 27, 2020 and December 31, 2020, to be repaid equally by December 31, 2021 and December 31, 2022. If your business chose to defer...

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