When you have an LLC (limited liability company), paying yourself can be complicated. How you take out money will depend on whether you are a multi-member, single-member, or corporation LLC. Here is how you can pay yourself through an LLC and make sure those earnings meet the IRS guidelines.

What Is an LLC?

An LLC is a business structure that combines the features of a sole proprietorship and corporation. Like a corporation, LLCs have limited protection against personal liability and debt. You will report business profits and losses on a personal tax return rather than a business one. There are three types of LLCs: single-member, multi-member, and corporate.

Single-member LLCs will have only one member. The IRS views single-member LLCs in the same way as sole proprietorships for tax purposes. Multi-member LLCs have more than one member. For tax purposes, the IRS treats these LLCs as a partnership.

Finally, there are corporate LLCs. In these situations, the LLCs are taxed as a corporation. If you want to establish your business as a corporate LLC, you must make a formal request to the IRS.

How LLCs Are Taxed

There are different ways that the IRS taxes an LLC. If you have an LLC, you will want to work with a company that specializes in small business accounting services. They can help simplify the process as your tax situation becomes more complex with an LLC.

Sole proprietorships and single-member LLCs are considered “disregarded entities.” That means the company’s losses, profits, deductions, and other financial information are reported on a Schedule C with a personal tax return.

Multi-member LLCs are a bit different. These partnerships do not file separate tax returns. Instead, they file a return with Form 1065 or Schedule K-1. These forms detail each member’s guaranteed payments and distributions for the year.

After that, the members will report their income with a K-1 on Schedule E for the tax return. Plus, they must report all self-employment tax on Schedule SE. Single- or multi-member LLCs do not pay corporate taxes. Keep in mind that single owners and LLC members are responsible for income tax on the company’s income. Along with that, they must pay a self-employment tax on their withdrawals for the year.

If the LLC is a corporation, the business must file Form 1120. All of the standard corporate tax rules apply. If the LLCs have elected to be considered an S corporation, all owners must report their portion of the corporate income, and the company needs to file Form 1120S.

Taxes can be tricky for LLCs. Some of the rules are different depending on your LLC structure. While you can use software to figure out your taxes, consider hiring a professional accountant for the job. With their help, you can make sure you pay the right amount of taxes for your LLC.

How You Pay Yourself as an LLC

The business structure of your LLC will determine how you can pay yourself. Even if you are an employee of your business, you need to find the proper way to pay yourself to avoid tax liabilities.

Single-member LLCs will function as sole proprietorships. According to the IRS, these companies are considered a “pass-through” business, which means the income “passes through” the partnership to be taxed under the owner’s personal income tax. As a result, an owner of a single-member LLC or sole proprietorships can pay themselves using the owner’s draw method. With that, you write a check from your LLC to your personal account.

The pass-through designation also extends to multi-member LLCs. According to each partner’s ownership percentage, all partners are taxed on the LLC’s income. In some cases, the partners will receive an owner’s draw. That income is considered a prepayment for profit distribution, and these draws can happen at the end of the quarter or year.

Other owners prefer a steady salary and will take a guaranteed payment. These payments are paid out even if the business has income loss. Guaranteed payments are considered business expenses, and they will increase the company’s net income. Multi-member LLCs will pay their members with owner’s draw, guaranteed payments, or a combination of these options. Once again, an owner’s draw is simply writing a check. The owner’s draw payments are subject to the self-employment tax.

Some LLCs have elected to be treated as an S corporation or C corporation. In those situations, the payout can be more complicated. With these tax classifications, the owners cannot take an owner’s draw, and they must be treated as an employee of the LLC. The owner-employee must receive reasonable compensation. You must issue all payments through a payroll system that withholds employee taxes. Along with that, the owner-employee can take a dividend or distribution of the company’s yearly profit. Those payments are considered taxable income.

Guidelines for Paying Yourself

While you might want to forgo paying yourself to help the business grow, you will still be taxed on the total amount of business income. Remember to pay yourself. You want to follow some basic guidelines when forming your payment structure.

If you have a partnership, always establish a guarantee payment amount or dividend schedule for the other members. You can set this up using your articles of corporation or partnership agreement.

You will want to work with an accountant to figure out your estimated tax payments. Ensure there is always a paper trail for your payments, whether guaranteed payment or owner’s draw. Record the payments in your company’s books so that you are protected in the event of an audit.

Understand Payouts for Your LLC Situation

As you can tell, LLCs do protect you from debts and liabilities, but they can lead to complications for tax time. At TMD Accounting, we can ensure your small business is covered for tax season. We have over 40 years of experience helping small and large companies with their taxes, payroll, and bookkeeping. When you need an accountant for your business in South Jersey, schedule a consultation by calling 856-228-2205.

Accounting can be intimidating even for the most seasoned attorneys. Law school might teach about torts and statutes, but there are no classes for accounting or bookkeeping. Whether you have a small firm or large corporation, accounting is vital to keep your books compliant with ethical rules and prevent you from leaving money on the table.

What Can an Accountant Do?

Accountants play a vital role in almost every business. Law firms are no exception. Many lawyers don’t want to handle monetary transactions or keep up with their financial records. For that reason, they often hire someone to manage those accounts. While you could hire a part-time bookkeeper, law firms should look for an experienced and trusted accountant to address these financial matters.

Legal accounting includes recording and analyzing the financial transactions of the law firm in an accurate manner. These professional accountants can help in other ways as well. They can act as an advisor and interpreter. An accountant needs to have strong attributes like attention to detail, an understanding of business ethics, and excellent monetary skills. These professionals can help finish audits, ready tax returns, and investigate fraud. A legal accountant has many different roles in a law firm.

Legal accounting contributes to the success of the practice. All financial statements need to be accurate, up-to-date, and complete. Your law firm can meet all of those obligations to your clients, partners, and the state bar with a clear financial picture. With all that in mind, here are some of the major roles that accountants can play in your law firm.

Provides Professional Financial Advice

If you are searching for financial advice, a trusted accountant can help with future plans. Accountants track your expenditure and revenue trends. In addition to that, they can help your law firm make important decisions, such as taking out a loan. If there are irregularities or discrepancies in your financial records, an accountant will straighten out those problems.

Helps With Taxes

No one wants to deal with filing taxes, especially busy attorneys. Hiring a professional accountant can help this stressful process become a little easier for your firm. Everyone knows that tax preparation can be a headache, especially if records are not appropriately managed. As a result, your practice might face penalties from the state and federal tax departments. With an accountant, you can ensure that all tax returns are filed and completed accurately and timely. You will not have to worry about missing out on deductions or paying extra penalties.

Deals With Outside Parties

Law firms have to deal with outside parties on a day-to-day basis. An accountant will act as a firm representative while speaking to tax authorities or loan officers. By allowing the accountant to handle these tasks, law firm members can focus on those other duties within the practice. Plus, an accountant can smoothly move these financial issues through the appropriate processes without any snags.

Handles the Law Firm’s Payroll Process

When you have employees, they will expect to be paid promptly. Payroll is a critical process for any business, especially legal practices. With an accountant, you can have a professional manage these processes to pay all your employees correctly and on time. An accountant can also take care of other payroll aspects of your law firm’s business.

Chooses the Right Financial Tools

There are so many choices on the market for accounting tools. It can be challenging to choose the best accounting software option for your law firm. An accountant will help with these decisions. Your accountant understands the needs of your law firm, and they are better equipped with financial knowledge. With that guidance, the accountant can help you find the best software for the practice.

Accounting Practices for Your Law Firm

Need to find a great accountant for your law firm? Before you begin the search, you must understand some basic accounting practices. With this basic knowledge, you can keep an eye on your financial records and understand the processes in your practice. There are plenty of functions that an accountant will handle on a day-to-day basis, including reconciliation and reports, accounts payable, invoice accounting, and financial compliance.

Why You Need a Professional Accountant

You can streamline your books and not worry about those financial inaccuracies when you work with an accountant. Hiring a professional accountant just makes sense for your law firm. As an attorney, there is enough on your plate. You don’t want to add the title of accountant or bookkeeper to your list of responsibilities. Outsourcing these duties helps your law firm focus on growing your practice and assisting the local community.

As you can tell, a professional accountant goes beyond just checking your books. These professionals will ensure that your paperwork and finances are ready for tax season. They can advise you during the process for a bank loan, and accountants are a great option to help with office tasks, such as payroll and revenue tracking. When you need help with those financial records in your law firm, make sure to hire a trusted and experienced accountant for your practice.

Let Us Help With Your Legal Accounting

You want to find the right accountant for your legal practice. Thomas M. Ditullio has nearly 40 years of experience offering small business accounting services. He has built a solid reputation throughout Gloucester County, providing services for businesses and individuals. At TMD Accounting, you can access a wide range of services, including financial management, tax services, and payroll. If you would like to schedule a consultation, please give us a call at 1-856-228-2205.

Construction accounting is very different from those other types of businesses. You must keep track of the accounts receivable, accounts payable, and payroll transactions. Along with that, construction companies need to monitor job costs, change orders, retention, customer deposits, and progress billing. All of these components can make construction accounting a challenging task. Here are a few tips that you need to know about construction accounting.

Record All Financial Transactions

The double-entry methods are the best techniques for recording financial transactions in the construction industry. With this, there must be two entries on the ledger for every single transaction. Some companies track these transactions with the help of accounting software or an outsourced bookkeeper.

Keep a General Ledger and Chart of Accounts

A chart of accounts lists all of your general ledger accounts to categorize those transactions. You have the names and a brief description of every account in the list.

Some of these account types could include:

• Current assets
• Current liabilities
• Equity
• Cost of goods sold
• Indirect expenses
• Administrative expenses

Know the Common Cost Types of Construction Accounting

There are several types of cost types associated with construction accounting.

They include the following:

• Job costing: Construction accounting keeps track of the costs of the job. You need to know the project costs as they relate to specific jobs. All of the expenses must be tracked throughout the project’s life. The actual costs and projected estimates are compared during several points of the project. With that information, you can see whether the project is on or over budget. Job costs affect the income of the construction company. In some situations, companies can receive financial incentives for delivering a job under the projected budget.
• Work in progress: Any active or under contract job is known as a work in progress. Construction companies need to track these jobs since it can help to indicate the income and cash flow. Some companies use this cost type to determine the current project’s progress, recognize any revenue, and list other costs coming from the job.
• Cost of goods sold: These costs refer to the expenses incurred for those projects in progress. These costs include labor, equipment rentals, material, and other costs tied directly to the project.

Recognize Your Revenue

In the construction industry, there are several ways to recognize revenue. Those methods can change depending on the type and duration of a project. For example, some companies recognize their revenue through cash or accrual accounting. Income and costs are recognized when cash changes hands with cash basis accounting. With that, the payables are not recognized until the bill is paid, and there is no record of the payment until the money is in the company’s account. This type of reporting allows the construction company to represent its cash flow. Unfortunately, it does not accurately recognize all costs and revenue.

Accrual accounting is much more accurate. The income and costs are recognized when received from the vendor, and the client is billed. Many companies use accrual accounting over the cash accounting method.

Completed Contract vs. Percent Completed Income Recognition

You can track income in two ways: completed contract or percent completed. With percent completed, the revenue is recognized on the percentage of costs for the project. When revenue comes in from the project, it is tracked. A completed contract only records revenue once the project is considered completed. Many companies track their revenue with the percent completed method for better accuracy.

Construction Accounting Common Reports

If you want to know the financial health of your construction business, you should know these common reports.

Accounts Receivable Aging

Within your accounts receivable (AR), you can track all of those outstanding payments that have been billed but not paid. The accounts receivable aging report shows which companies need to pay their bills by indicating the age of the invoices. With that, you can know which accounts are heading to collections by splitting them into categories for 30, 60, and 90 days past due. You will have healthier accounts receivable reports when there is a shorter time between billing and collection. Keep in mind that the construction industry has some of the longest payment delays out of any sector.

Accounts Payable Aging

On the other side is the accounts payable aging report. This report keeps track of the money you owe to other contractors or vendors. Like the accounts receivable, this report shows when those invoices were created. You can prioritize vendor payments with these accounts payable aging reports.

Profit and Loss/Income Statements

As you may have guessed, a profit and loss report shows the amount of expenses and income accrued during a specific period. You can also view the net loss and profit for any period of time.

Balance Sheet

This report shows your liabilities, assets, and equity holdings in the company. You can use these numbers to determine your financial position to lend or borrow money.

Job Cost Report

During a specific project period, you can get a breakdown of the costs. These reports are helpful to show the progress of the project and inform the customer of billing amounts.

Job Profitability Report

You need a job profitability report to analyze the difference between the actual and estimated costs. These reports show you whether the project is profiting or losing money in the process.

These tips are some of the basics of construction accounting. It can be complicated for anyone to figure out, especially if you don’t have experience with accounting or bookkeeping. These duties should be left in the hands of a professional. For that reason, there are small business accounting services for the task. These accountants understand your company’s needs, and they can help you reduce the headaches associated with managing your finances.

Finding an Accountant for My Small Business

At TMD Accounting, our company has over 40 years of experience. We will help you manage your finances with various services, including payroll help, financial management, and tax assistance. Schedule a consultation by calling 1-856-228-2205.

Under the law, an independent contractor is classified as a business. As a result, you are responsible for paying taxes and maintaining those financial records. You might have become an independent contractor to get away from those mundane tasks, but it is vital to keep up with accounting and bookkeeping for your business. Here are a few ways to track your finances as an independent contractor.

Differences Between an Independent Contractor and an Employee

Those who work for a company are classified as employees. The business will withhold and report a portion of the individual’s wages to the IRS. Unemployment, Social Security, Medicare, and tax liabilities are all deducted from those paychecks. All taxable income is listed on a W-2 form and filed with the IRS.

If you are an independent contractor, you are not an employee of a business. You get paid for projects, file taxes by yourself, and work when you want to work. In this role, you have more freedom than a regular employee. However, with the title comes plenty of responsibilities.

With that freedom, you are responsible for paying your own health insurance, unemployment taxes, and payroll taxes. For that reason, you need to keep accurate bookkeeping records of your finances. Any mistakes can lead to tax penalties and other problems down the road. While being an independent contractor has many benefits, all business responsibilities are in your own hands.

As an independent contractor, you are responsible for tax payments and other financial matters. While it might sound intimidating, there are a few steps that you can take to make it a less challenging process. Don’t think that this is an impossible task. You can use these smart accounting practices to keep accurate records and manage your finances as an independent contractor.

Becoming Financially Savvy With Your Accounting

There are many reasons why an individual chooses to become an independent contractor. Some people don’t like the 9 to 5 grind, while others want more freedom with their days. No matter the reasons, everyone wants to be successful in their careers. While it takes many skills to run your own business, you must pay attention to your finances.

Tax time can be challenging for anyone. If you don’t have the proper records and statements, it can become a headache. Use these smart accounting skills to get a better hold of your financial health. Not only will it help with your tax liabilities, but you can make better-informed decisions for your business.

Become Your Own Business

Make sure to request your own EIN or Employer ID Number from the IRS. With that, you will be classified as your own business rather than a “contractor for hire.” Becoming your own business provides you with the opportunity to receive tax breaks.

Separate Personal and Business Expenses

Along with an EIN, you should think about opening a separate bank account for your business. This process is a smart accounting move because it helps to separate finances. Along with that, if you happen to be audited, it can make the process a bit easier for you. A separate business account gives you the records to show that expenses are tied to your business. With one single account, you might have to justify whether the expenses were personal or business-related.

Track All of Your Expenses

Whether your business is large or small, you must record all of your expenses. With that information, you can take advantage of tax deductions. However, you need to back up your records with invoices and receipts. You always want to be prepared in case of an audit.

Always Pay Your Estimated Taxes

Those accurate financial records are the best ways to track your tax liability. If you fail to file your expenses and profits, you could be audited by the IRS. Unfortunately, all of your wages will be heavily scrutinized as an independent contractor. For that reason, you want to have accurate records of your estimated tax payments so that you are not hit with a large tax liability.

Plan for the Future

As a business owner, make sure to plan for the future. Even if your business is flourishing right now, things can change instantly. You should have a plan in place for times when business is slow. Think about what you would do to cover those financial humps. From getting sick to natural disasters, anything can impact your work and the demand for your services. Enjoy your current success, but always plan for the unexpected. With that, consider a few financial plans that can help during those tough times. If you are worried about your financial health, small business accounting services can provide some guidance to ease the stress of uncertainty with your work.

Learn About Tax Benefits

Take some time to learn about the advantages of business ownership and tax planning. You might be able to use some tax-saving benefits, such as retirement savings, family planning, and medical expenses.

Don’t Be Afraid To Ask for Help

If you are an independent contractor, you already know the benefits of outsourcing some parts of your business. When you focus on your projects, it can become a burden to record your own finances and handle those tasks for tax season.

When you work with a professional bookkeeper and accountant, you can eliminate some of that stress. In addition to that, you can stay on track financially and make better decisions for your business. Well-organized books even place you in a better position if you need to apply for a business loan.

Choose an Accountant Who Understands Independent Contractors

Need an accountant for my small business? Make sure to reach out to TMD Accounting. For over 40 years, small businesses and individuals have trusted Thomas M. Ditullio Accounting. Mr. Ditullio and his staff provide only the highest quality accounting services to the residents and businesses in the Gloucester County area. We understand that an independent contractor has specialized tax and financial needs. For that reason, you can count on us to get the job done for you. Schedule a consultation by calling 1-856-228-2205.

As an attorney, you are already well-versed in the law. However, if you own a law firm, you also need to consider accounting and bookkeeping responsibilities. Proper bookkeeping allows you to monitor the success of your law firm and make the best-informed decisions for the future. You are already juggling plenty of responsibility for your law firm, but you still need to keep up on those books. When you fall behind, it can be a mess to untangle. Let’s look at the best law firm accounting and bookkeeping practices in New Jersey.

The Difference Between Law Firm Accounting and Bookkeeping

You might think that accounting and bookkeeping are the same, but they occur at different stages. Bookkeeping is the first step to help you track your cash. You can record every financial transaction, run payroll for your employees, and create invoices with bookkeeping. It is important to be diligent and accurate when recording this information.

On the other hand, accounting is a bit more subjective. You can use accounting practices to uncover business trends, plan for your taxes, and forecast your financial future. Accounting can also help capture those expenditures that were not recorded initially. Plus, accounting is a way to prepare financial statements and other reports.

Without the proper bookkeeping, you cannot get an accurate accounting outlook. You might want to hire someone to handle this task. Many small business accounting services are ready to help with those bookkeeping and accounting duties.

Now that you know the difference between accounting and bookkeeping, here are some tips for implementing these practices at your New Jersey law firm.

Keep a Chart of Accounts

There is one way to keep accurate records, and that is by maintaining a chart of accounts. This process provides you with the framework to organize your data into categories, such as expenses, revenues, client expenses, and trust accounts. Think of these charts as an index of your firm’s financial accounts.

Typically, the chart of accounts includes five categories: revenue, owner’s equity, assets, liabilities, and expenses. The chart of accounts helps ensure that your financial information is recorded correctly.

Make Sure To Separate Personal and Business Expenses

Always keep those business and personal expenses separate to avoid any financial headaches. Intermingling your finances is not only frowned upon by the IRS, but it can make it impossible for you to claim expenses at tax time. Along with that, you will have a hard time tracking the financial health of your business when you don’t separate those expenses. Always keep separate accounts for business and personal finances. If you spot a mistake, like depositing a personal check in your law firm’s account, make sure to correct it in your books.

Don’t Lose Track of Business Expenses

Unfortunately, many attorneys often lose track of their expenses. It is always a good idea to record those expenses daily. There is less chance to misplace or lose an invoice or receipt with that schedule. Don’t forget to go into detail about the expenses. For example, if you had a meal with a client, write down all of the pertinent information, such as the client’s name and reason for the meeting. If you happen to be audited, you can easily prove that the expenses were related to your business.

Ask for Professional Help

Many people believe that they can handle the tasks of bookkeeping and accounting. However, it can be so easy to fall behind on tracking expenses and other financial information. Running a law firm is challenging, especially if you have a small firm. You can take some of the responsibilities off your shoulders by hiring a professional bookkeeper or accountant for these duties. With a little experienced help, you can ensure that nothing falls through the cracks.

Never Procrastinate

If you wait until tax time to track your finances, you will run into many problems. Track these finances on a weekly schedule. Put it on your calendar and stick to the schedule. It is vital to keep on top of those expenses and other financial matters. When you let these bookkeeping duties slip, you will have to spend hours at tax time trying to reconcile your books. When that happens, there is an increased chance of making a mistake.

Double Check Your Entries

It can be easy to make a simple mistake in your books. However, one small mistake can cause pandemonium for your records. Take your time when making entries. You always want to double-check your information to ensure that everything is accurate.

Always Track Transactions

Get an accurate picture of your law firm’s current financial standing with proper bookkeeping. Any missing transactions can create inaccuracies that lead to financial problems. Losing track of those critical transactions often cause issues with your taxes. You can avoid these problems by hiring an accountant or bookkeeper. If you want to track transactions by yourself, use accounting software to help automate the process.

Don’t Mix Up Owner’s Draws and Pay

When you take money out of your business account for personal use, that is known as a draw. An owner’s pay is paying a salary for yourself from the business. These transactions are often confused with one another, leading to inaccuracies in the books. Whether you are paying or drawing, make a record in your accounts to ensure there are no tax mistakes.

As you can tell, there are plenty of things to consider if you want accurate financial records for your law firm. In most situations, you want to find an experienced accountant who can handle these records for precise bookkeeping.

Find the Right Accountant for My Small Business

Accounting and bookkeeping can be challenging to maintain, especially when operating a busy law firm. If you want professional assistance, make sure to speak to TMD Accounting. With over 40 years of experience, our Thomas M. Ditullio Accounting team provides financial management, tax assistance, and payroll services to businesses and individuals throughout the Gloucester County area. You can schedule a consultation by calling 1-856-228-2205.