Accounting Tips Guides

Whenever a business starts there is always the question of how the people that provide services for the business will be paid. Will those services be performed by employees or will independent contractors be used?

Before the business can determine how to treat payments they need to know and make clear the business relationship. It is important to establish this relationship because an employee has taxes withheld, social security and medicare matched by the employer, unemployment insurance paid, workers compensation insurance paid and often benefits provided. An independent contractor just gets paid. It is a big expense difference.

To determine whether an individual is an employee or and independent contractor, the relationship of the business and worker must be examined. It comes down to does the business have control over what and how a job will be done or do they just control the results of the job. The determination falls into three categories: behavior control, financial control, and type of relationship.

Behavioral Control

Employees are generally subject to instructions about when, where, and how to work. The employer controls when and where the work is performed and what hours the person will be at the job. The person is told what tools and equipment to use, who else can be hired to assist with the work and where to purchase supplies and services. They are told what work is to be performed by a specific individual and what order or sequence to follow. Employees also may be required to receive training by the employer.

Independent Contractors can be hired to do a certain job in a certain place and be completed by a certain time. However, how the job is done is up to the contractor. When the work is performed, what equipment is used, who is hired to assist and where materials and supplies are purchased are up to the Independent Contractor. They also obtain and pay for their own training.

Financial Control

An employee is generally guaranteed a regular wage amount for an hourly, weekly or other period of time, even if the wage or salary is connected with a commission. They may be paid whether work is being performed or not. An employee generally does not have an investment in the company unless there are stock options available. They usually have any expenses they incur for things such as travel, phone, or equipment reimbursed.

An Independent Contractor is not reimbursed for any expenses. They generally have a business of their own or a significant investment in the facilities and equipment used to perform the work. An Independent Contractor is free to offer services to the general public and can take on jobs for other companies or individuals. They generally advertise their services and maintain a home office or visible business location. They generally get hired and paid by the job, usually a flat fee. Although some jobs can be billed hourly. An Independent Contractor can make a profit or loss on the job.

Type of Relationship

An Employee generally signs a employee contract. The employee is generally provided benefits such as insurance, pension plan, vacation and sick pay. Employee’s are engaged for an indefinite period of time. They perform activities that are a regular daily part of the business. They fill out an IRS W-4 form that tells the employer how much taxes to withhold. They are not free to do business for other companies and in fact some companies have penalties if they do.

Independent Contractors have job by job contracts or for specific project or periods of time that state they are responsible for their own taxes. They are not provided with any benefits. They fill out an IRS W-9 form telling the IRS that no taxes are required to be withheld.

It is important to determine what kind of relationship from the beginning of your business. If you treat an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that person. Also, if you pay an individual as an Independent Contractor, they do not qualify for unemployment of workers compensation so if they try to collect it, you will want to be ready to verify they are not an employee.

More information about Employees and Independent Contractor is found in the IRS publication 15A.

Christopher Anderson is part owner of Lone Peak Business Solutions, Inc. He wants to share his success as a business owner with others who desire to own their own business. He also believes that the economy is stronger with more business owners, and as a result, he is focused on helping business owners succeed.

There is nothing worse than preparing Income Taxes and finding that there were many deductions we didn’t keep track of. Not keeping track of deductions can be very costly come tax time. It is very important to keep good records all year round.

For every dollar you don’t deduct, you could be paying up to 35% back to Uncle Sam. If the dollar has been spent, taxes shouldn’t have to be paid on it. Think of the productivity of your business if you could put 35% of your income back into your business rather than in the hands of politicians. What kind of advertising campaign could you do with 35% extra cash flow every month. With a little organization and planning this can be possible.

Most business owners remember to take the big obvious deductions such as cost of goods sold, materials, tools, supplies, and employee expenses. But often times it is the small seemingly insignificant deductions that can make or break a company. Lone Peak Business Solutions has the 10 most commonly missed business deductions.

1. Advertising - Business cards, newspaper ads, information packets you hand out, free samples, flyers, product testing, videos and CD’s.

2. Children - Money paid to children for helping with such things as delivering flyers, product, stuffing envelopes, cleaning office and car, etc.

3. Dues and Subscriptions - Dues to professional organizations and magazines that have to do with your trade or business.

4. Educational Expense - Classes or seminars that you take to improve your business.

5. Gifts - Gifts to clients and associates.

6. Laundry and Cleaning - This includes uniforms and Protective clothing and also your clothing when you are out of town.

7. Travel - Hotels, airfare, cab fare, parking, cleaning while away from home, trip log.

8. Home Office - A home office must be a separate room in your home to do business and accounting. Part of your living room or bedroom will not count. A percentage of utility Bills, home owners insurance, property tax, mortgage interest, refinance fees, repairs and maintenance, cleaning supplies, office decor, etc. are deductible. You find out the percentage by dividing the square footage of the office by the square footage of the entire house.

9. Mileage or Vehicle - There are two ways to take a vehicle expense. One is to take the mileage you use when picking up product, supplies, office supplies, meetings, handing out advertising or business cards, meals and entertaining clients, etc. The other way is to take the expense of using the vehicle: fuel, parts, mechanics, oil changes, etc. Along with taking expenses, you can also depreciate the vehicle.

10. Telephone - Cell phone, long distance calls on home phone, extra phone lines into home for business, fax or Internet.

Items such as paper clips, bank charges, credit card charges and home office expense seem small and unimportant at the time, but multiply those little things over a year or two and then multiply it times 35% and it can add up to quite a bit of money that should be in your pocket rather than in the government’s pocket.

Along with keeping track of expenses it is important to evaluate your income and expenses on at least a quarterly basis. This allows you to determine if too much is being spent any one place. It allows you to determine if all the deductions that can be are being claimed. It allows you to determine how to better increase sales and decrease costs.

Christopher Anderson is part owner of Lone Peak Business Solutions, Inc. He wants to share his success as a business owner with others who desire to own their own business. He also believes that the economy is stronger with more business owners, and as a result, he is focused on helping business owners succeed.

If you are the owner of the small business company you always have heaps of work, regarding your company finances. The fact is there and still do you need to go to the professional to take the stress off your shoulders?

Visiting with your personal accountant is similar to going to your dentist. Time is money; the longer you delay your visit the more it will cost you.

First you need to know how to set up your business and to consider advantages and disadvantages of every business entity (LLC, Partnership or C Corporation, etc).

You can spend many hours away from your business learning about entities on your own or you can hire a specialist who saves you time and gives you qualified advice on how to protect your hard-earned money.

But any way you are the specialist in your business, and to be competitive in your field you need to invest a lot of time. At the start, most of the entrepreneurs work in average of 12 hours a day.

In addition to your business can you learn everything about accounting and then handle it? Most likely the answer is no.

Your business’ finances are vital for your success, and your needs are unique. At the Me My Money and I, we take your individuality seriously, focusing on your business’ special situation and needs.

To make the right financial decisions for your company, you need Financial Statements; Balance Sheets, Income Statements and Statement of Cash Flow for every month of the business activity.

All of them are concerning to the company financial reports. What do you know from these financial reports are briefly described below.

From the Balance Sheet reports know what your company owns and what does it owe. Other words, you know your company resources and obligations of your company.

From the Income Statement reports you know the economic performance of a company for the given period. Other words, you know your gross and net income.

From the Statement of Cash Flows reports you know the amount of cash generated and consumed by a company through the following three types of activities: operating, investing and financing.

The statement of Cash Flows is the most objective of the financial statements because it is somewhat insulated from the accounting estimates and judgments needed to prepare a balance sheet and an income statement.

Real world and real understanding of your company finance goes beyond numbers on a page to show to a small business owner how accounting and bookkeeping come into play in your company.

Without good bookkeeping service you can not plan ahead (business planning), get organized, stay informed on the financial matters of your company, avoid costly mistakes, reduce costs and save time.

Why do small business firms fail? Not always because of competition but because of lack of financial information. You are making money, but where do they go to? What is the main outsourcing of your finance? The right answer gives you a huge benefit for your company.

Other benefits you are getting if you go to a professional accountant are the ability to focus on your core business, getting organized, staying informed, avoiding costly mistakes, reducing costs and saving time and improving your cash flow.

And one more great benefit is the good timing because all these benefits work only if performed in the right time. Timing is the key to your business’s success. With the help of a qualified bookkeeper and accountant you will have it under control and making the most profit.

Running a successful business takes more than just hard work but also making sure your hard work is profitable. Good record keeping provides you the solid foundation needed for excellent business growth.

Your company’s reliable financial information eliminates the frustration from your small business company and your financial reports become the powerful tools for surviving in today’s business world.

Luda Yazykova helps new business owners to understand the necessity of hiring a professional bookkeeping service. Get the understanding of importance of company finances reports and use them for your business to expand at my website which is at http://www.memymoneyandi.com

A big advantage of working from home is the tax benefits of operating a home based business. Working from home allows you to deduct portions of bills that you are already paying to live there.

You can deduct home expenses if you actually work in your home. It is easiest to do this if you have a room set aside for your business. Measure out how big that room is in proportion to the house, and you can deduct expenses using that percentage.

For example, if your place of doing business takes up 5% of your house, you can deduct 5% of your heating expenses for the days you work. (In other words, if you don’t work weekends, you can’t deduct for weekends.)

You can deduct items such as mortgage interest (though not your mortgage itself), electricity, telephone, insurance, and expenses for maintenance and repair. In general, you can deduct the portion of expenses that directly relates to your business.

You can deduct costs for your internet service provider in proportion to the amount you use it for your business, too. If it’s used completely for business you can deduct it all, but be certain before you do this that you are not using it for other reasons.

Having a CPA do your taxes for you has major benefits. They have computer software made up by tax pros and former IRS workers that you wouldn’t ever be able to use unless you went through lots of accounting training.

Be 100% honest with your CPA about everything. If you are called in for an audit your CPA will tell you to say nothing but your name and your CPA does all the talking. The IRS has to find mistakes not you. If a CPA does your tax you will get deductions you would never know to take and your CPA will also take away deductions you cannot legitimately take.

A CPA will cost you more but will get you much more back. Tax filings done by CPAs are far less likely to be called in for audits because the IRS knows the CPA’s reputation is at stake with every tax form filled out and so the CPA will be very careful that every little detail is done correctly.

Keep a separate notebook for tax deductions and on each page make a heading for all possible deductions like advertising, supplies, repair parts, phone, computer, etc. and write them down and save ALL your receipts in a separate large envelope. Write your deductions in this notebook, everyday, as they happen. Remember, your tax preparation is a daily, year round effort and is an important part of your business.

Write everything in your notebook that could be a deduction and then at the end of the year let your CPA decide what is and is not a deduction. He or she knows and you don’t. It is their job to know. This way you won’t miss out on any deductions you don’t know for sure on and you won’t take any deductions you don’t have coming. Pretty neat huh?

You will get a lot bigger income tax refund this way and have a clear conscience you did all the right things and you will not have any worries about a scary IRS audit. Talk over with your CPA what he thinks about the way you are keeping records and learn from him or her better ways to do it. They will usually have valuable tips for you to help you run your business better. This chit chat at the end of your tax preparation is invaluable to you.

The tax benefits of operating a home based business enable you to deduct things you would otherwise be paying in full. If you are considering a business from home, it’s a good way to lower your costs. This is just one more advantage of working from home.
Source:
http://www.irs.gov/faqs/faq-kw82.html Plus my own life business tax experience of over 40 years

James M. Lowe writes wholesale priced Original blogs, articles, web sites, press releases and ebooks. Any subject. Free article directory on site.

When you confirm that the balance in your checkbook is in sync with your corresponding bank statement, it is known as account reconciliation.

Any record that you keep regarding your financial transactions with banks, credit card companies, or retail stores is known as an account. It is an arrangement between buyers and sellers in which payments are to be made in the future. The different forms of payment are checks, bills of exchange, and promissory notes. These are transferable, signed documents, which guarantee to pay the bearer a sum of money at a later date.

Purposes of Account Reconciliation
Account reconciliation makes available a suitable method for reconciling the accounts to the monthly financial reports produced by the Financial Records System (FRS). Account reconciliation helps you evaluate departmental account records in regards to the reports, which have been generated by the FRS. This helps you to better verify the accuracy of each account statement. The person in charge of each account should verify the account every month. Account reconciliation helps ensure accurate reports on the account. It helps to identify errors and inconsistencies in your accounting.

In order to perform the reconciliation most efficiently, you should be certain that the person in charge of an account maintains full and accurate records. It is your choice to maintain the records in a manual filing system or on a computer program. You can develop your own filing and record keeping system. It should be capable of providing an effective means of reconciling your accounts on a monthly basis. You can make use of the following files to make the reconciliation process easier.

Open Transaction Files: These files hold all source documents that you may have started for the account, but have not yet processed. Some common types of source documents are Distribution of Deposit forms (for cash receipts), Check Requests, Purchase Orders, Prepaid Purchase Orders, Interdepartmental Billing Forms, Merchandise Orders, and Travel Authorizations.

Pending Files: These files hold source documents that had some activities posted on the FRS report, but await further activities before they can be completed. These include Purchase Orders, Inter-departmental Billing Forms, Travel Authorizations and Travel Expense Reports.

Closed Transaction Files: These files hold the source documents that are fully processed in the FRS. You can always refer to the Records Retention Policy to establish how long documents must be maintained on file.

Monthly Reports: You receive these after the end of each month. The accounts must be reconciled to the monthly reports. The FBM090, Account Statement, and the FBM091 and Report of Transactions can be handed over to the person handling each account. You then compare the open transaction and pending files to the FBM091 and the Report of Transactions, which has a detailed list of transactions posted in a particular month. Make a comparison of the source documents with the report to find out if the encumbrance was properly established, adjusted, or canceled in the correct account and the correct object code.

Additional Help
Software is available to help you in reconciling your accounts in an automated fashion. Apart from providing you with all the help, they are reasonably priced as well.

David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com

Bookkeeping is fundamental in running your business in an informed way. It is important that you have an organized, transparent and updated bookkeeping system in place. One of the ways to keep track of your company’s books is bank reconciliation.

What is bank reconciliation?
The procedure of comparing the account balance given by the bank with that of the company’s book of accounts and explaining any discrepancy is bank reconciliation. The discrepancy in the balances may be due to the different timing of registering the data in the bank’s books and in your company’s books. This discrepancy is normal and is rectified automatically within small time. However, sometimes the discrepancy is due to an error, which has to be rectified manually and to catch this error you need bank reconciliation. Companies generally do bank reconciliation at the end of each month.

Reasons for maintaining bank reconciliation
Regular monthly bank reconciliation keeps your company’s financial records clear and updated. You never build up an erroneous backlog. Also, you can understand your accounting status all the time. It is important that you have a prompt and reliable communication system with the bank so that you keep your records accurate.

Bank Reconciliation Statement
It is better to prepare a bank reconciliation statement by yourself so that you are able to figure out the causes of discrepancy.

Structure: The statement is divided into two sections. The right section reflects your bookkeeping for bank transactions and the left side reflects the bank’s records for your account with them.

Heading: The heading of the statement will have the bank’s complete name with the date of reconciliation.

Items: The first item of the statement is your opening balance just before the reconciliation. Check each item of the statement further for the following. If the transaction is missing from you our company’s account and it is on the bank’s record then you need to enter it in your books. If the bank section has missed it then enter it under their section. If the missing transaction belongs to the bank such as any fees deductions or interest credits, then it is an error at the bank’s end and it will rectify the error.

Adjustments: Once the reasons for the discrepancy have been figured out then you should include the missing information in journal entries.

Items of Bank’s Statement
Credit: Banks may credit some interest periodically into your account as applicable on the account balance.

Debit: These will be any of the bank charges on your account as applicable.

Erroneous credit: Any incorrectly placed credit in your account is booked under this head. Sometimes, the bank makes a deposit in the wrong account.

Items on Your Account Books
Unpresented check: Your Company’s books should record any checks issue immediately at the time of issue. The bank will, however, record it when the check is presented to it.

Software for bank reconciliation
There is a lot of bank reconciliation software readily available in the market. This software is compatible with all the latest accounting packages. The data is automatically imported, checked and reported through the software making your job easier.

David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com