It’s almost time to pay those quarterly estimated taxes for your self-employment income. What are your options?
EFTPS: The EFTPS, or Electronic Federal Tax Payment System, is available online for free. Registration takes about a week, so register ahead of the tax payment due date. The best thing about the EFTPS system is that you can look up your payment history at any time. Your tax preparer will be giving you a big hug when you can produce a neat, printed report of your estimated tax payments for the past year!
IRS.GOV: You can always download a PDF of the paper payment coupon (1040-ES) and send it in with a check via snail mail. Instructions and the mailing address are included on the PDF.
If you need to make a payment but will be putting it on your credit card, you can always check out OfficialPayments for payment options. Be forewarned, though, that this option incurs a fee of 2.35% of the payment amount.
Need additional information on estimated taxes? The IRS has a handy, dandy page just for you: Estimated Taxes
Also, don’t forget to send in your state’s estimated tax payment, too!
Twitter Power: How to Dominate Your Market One Tweet at a Time, by Joel Comm
As someone who can be counted on to be clinging to the wallpaper at any in-person networking event, I have been curious about the surge in social networking. While I have dabbled, with some success, at using LinkedIn and maintaining my own blog, Twitter has remained a mystery to me. How can you possibly market your business in 140 characters or less? Who has time to sort through the thousands of tweets out there while running a small business?
I was pleased to find Twitter Power by Joel Comm at my local library. Unlike some previous Twitter books that I’d picked up, this book seemed to be targeted towards me: a one-person professional services provider looking to reach my target market.
The first three chapters are a very basic Twitter 101 review. Starting in Chapter 4, though, Comm begins to provide real advice on how to build a following and connect with customers. I found it refreshing to see an analysis between building a huge following of random followers versus a quality following of targeted followers.
By far, however, the best part was Chapter 13 — Putting It All Together: A 30-Day Plan for Dominating Twitter. For a wannabe tweeter like me, this carefully laid plan was just what I needed to dive into the Twitter world with some confidence.
Oh, and please follow me on Twitter at @dhgreenleaf !!
Just when it looked like the small businesses in this country might begin to bounce back, our elected representatives are working to close the “tax loopholes” used by small professional companies operated as S-Corporations:
H.R. 4213 American Jobs and Closing Tax Loopholes Act
At present, S-Corporation shareholders who are employees working in the business must take a “reasonable wage” via payroll. Any remaining profits may be passed through to the shareholders without being subject to self-employment tax (Social Security & Medicare). The new bill just passed by the House and on its way to the Senate will charge self-employment tax on the distributions that S-corporation shareholders take over and above payroll. It’s only for S-corporations providing “professional services” and only for those with three shareholders or less, but it’s a major hit to the small business recovery, nonetheless. According to the bill, “professional services” include “any trade or business if substantially all of the activities of such trade or business involve providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.”
Let’s just keep our fingers crossed that our Senators see the folly of applying this tax only to small service businesses and not their bigger competitors.
June 15th is almost here — time to send in your second quarterly estimated tax payment!
Do you need help remembering your quarterly tax due dates? Sign up for my quarterly newsletter. It comes out two weeks in advance of each quarterly tax due date and includes a short article about recent tax law changes. Sign up online.
Even with the improving economy, cash is still tight for small business owners. Here are some tips to speed up your accounts receivable collection and bring more cash into your business:
- Use a time log. If you bill by the hour or do any type of service work for your customers, it’s essential for you to keep a good time log and keep it current. Whether it’s paper-&-pencil or a computer-based timelog (I use TimeTracker by Nonlinear Ideas), you won’t be able to capture that billable time if you don’t track it!
- Bill more frequently. The less time that passes between the time you finish your work and the time the customer gets your bill, the more likely you are to be paid quickly. Instead of waiting until the end of the month, bill right away when the job is completed. For businesses that bill by the hour, billing twice a month can dramatically speed up your collections.
- Use statements. Don’t let your clients forget about your bill! If you haven’t received a payment by the invoice due date, immediately follow-up with a statement. A friendly reminder can work wonders! A consistent routine of reviewing receivables and requesting payment on overdue invoices can give your cash flow a nice boost.
- Improve your customer service. A happy customer is more likely to settle their bill promptly. Don’t hesitate to answer questions or concerns about your bill. By resolving any concerns up front, you’ll reduce the chances for disputed bills later.
- Consider accepting credit cards. There’s no doubt that clients will pay faster with a credit card than they will with a check via snail mail. The added convenience to your customers is another benefit that you’re providing to them. The merchant charges you pay may be minimal in comparison to the improved cash flow that you’ll realize.
- Reassess your payment policies. Do you have some customers who routinely give you collection hassles? Consider changing your payment terms so that their final product isn’t delivered until payment is received. It’s a common practice to ask for a downpayment, with the remainder due upon completion of the project.
Finally, if you don’t seem to have the time or expertise to put some of these suggestions into practice, consider working with a virtual bookkeeper. A bookkeeper will keep your invoices up-to-date and stay on top of receivables and collections for you, allowing you to focus on your business. Additionally, you’ll be better prepared for tax time and better informed on the financial health and well-being of your business.
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The job site SnagAJob.com just released a national survey of 511 entrepreneurs to determine their motivations for starting a business, their successes and frustrations.
For small business owners with two to 100 employees, 63% report that starting and owning a business had turned out to be even more personally fulfilling than they expected. These same business owners, it should be noted, are also working in their business an average of 58 hours per week and only 21% of them are earning more than they had hoped to make when they started their companies.
Of greatest interest to me, however, was their list of top frustrations:
- bookkeeping (38%) — sounds like they need to hire a Virtual Accountant!!
- HR issues like benefits (31%)
- recruiting (18%)
On the bright side, owners of the smallest businesses do put in fewer hours than their peers with larger businesses. Small business owners with two to 10 employees spend 58 hours per week on their business while owners with 11 to 100 employees report working an average of 69 hours a week.
UPDATE: New 1099 Reporting Requirements Repealed!
Small business owners, get ready! Starting in 2012, you’ll be facing a whole new world of 1099 paperwork.
The new health care bill included a small section (reference Section 9006) that mandates all companies to issue 1099 forms for all payments — not just services — and for all vendors, including corporations. What does this mean to you?
- If you sell products as opposed to services, you’ll be getting a lot more 1099s from your customers. Previously, 1099-MISC forms were used to report payments for services. Starting in 2012, 1099s will be issued for tangible goods as well. Whether you sell hardware, beauty supplies or widgets, your business customers will have to report their payments to you if they spend $600 or more with you in a calendar year.
- If you operate your small business as an S-Corp or C-Corp, you’ll be getting 1099s for the first time. Previously, 1099-MISC forms were only sent to non-incorporated businesses and service providers. Now, corporations will have to have their payments reported as well.
- More importantly, all small business owners will need to keep much better records on their vendors. Regardless of whether you hire a freelance graphic designer or buy a computer from Dell, you’ll have to report that purchase on a 1099-MISC at year-end if the total purchases from that vendor exceed $600 in a calendar year.
What can you do to prepare? Start requesting that each of your vendors, large and small, complete IRS Form W-9 for your records. This will give you the legal name, address and Tax Identification Number (EIN or SSN) for your vendor. This is the information that you will need in order to complete a 1099-MISC each January. Trust me, it’s easier to request and receive this information before your vendor has been paid than six months after the fact!
According to a recent report by the IRS, auditors are going to be stepping up their audits of sole proprietors, looking for unreported income and unfiled tax returns.
In addition to searching for unreported income, the IRS will be looking for sole proprietors who did not file required employment tax returns or information returns.
How to prepare your business in case the IRS comes knocking? It all comes down to preparation and documentation:
- Improve your recordkeeping. Be prepared to back up every number on your tax return with complete documentation on the details and purpose of each expense. If you do this with every expense at the time of purchase, you won’t be leaving yourself with hours of catch-up work at tax time. Even worse, an audit that occurs in the fall of 2010 could be for expenses incurred in early 2008!
- Consider professional help. Even if you feel confident in preparing your own tax return, it’s worth your time and money to have a professional review your return every couple years. Not only may they catch mistakes, but they may catch missed deductions or new tax-saving opportunities. Two sets of eyes are always better than one!
- Don’t stick your head in the sand. If you hate bookkeeping so much that you just never get around to it, then consider hiring some outside help. What might take you several late nights of agonizing stress might only take a couple of hours for a professional bookkeeper. I help several sole proprietors and small business owners with ALL of their bookkeeping needs with only five to ten hours per month. The bookkeeping gets done (properly!) and the business owner has an extra ten hours to spend on billable hours, business development, or whatever else is at the top of their priority list!
April 15th is almost here — time to send in your first quarterly estimated tax payment!
Do you need help remembering your quarterly tax due dates? Sign up for my quarterly newsletter. It comes out two weeks in advance of each quarterly tax due date and includes a short article about recent tax law changes. Sign up online.
The Wall Street Journal featured a helpful article on the health insurance premium costs that can be deducted by the self-employed: sole proprietors, partnership partners and even LLC members. Read the full article here.
Unlike W-2 wage earners, the self-employed can deduct health insurance premiums and long-term-care premiums right on the front page of their 1040, reducing the all-important “Adjusted Gross Income” figure. A lower Adjusted Gross Income can lead to a lower tax bracket and lower chances of losing the child tax credit and other valuable credits.
As always, just keep very detailed records and discuss your situation with your trusted tax professional.
