The Importance of Financial Planning for Small Businesses

Small Business, Tax Planning

One of the driving factors in ensuring your business is successful is whether you have a strong financial plan. The plan you create should control how you operate your business over a set period that depends on its projections. Financial planning is a process through which you assess the competitive environment, the goals you have for your business, the resources you need, your budget, and the risks that could arise. In other words, your financial plan helps to prepare you for the future. Regardless of the industry in which your business operates, financial planning is essential. The accounting team at TMD Accounting is prepared to assist you with the process no matter your business type.

How a Financial Plan Can Benefit Your Business

There are multiple benefits of financial planning for small businesses. Below are some of the key advantages planning can offer.

1. Helps to Define Your Goals

Having clearly defined goals can help you understand what your business wants to achieve over the next year or more. For example, if you are trying to create a product to fill a market need, you use your plan to create benchmarks to ensure you are on target. No matter what the goals for your business might be, having them clearly defined in your financial plan can help to provide a roadmap to guide your actions.

2. Helps to Manage Cash Flow

In your financial plan, you will include information about your business’s expected cash flow. While you’ll likely initially spend more than you have coming in, you will have to determine the expense level that is acceptable and establish ways to keep your business on track by easily measuring its cash flow.

3. Assist You With Setting Your Budget

During the financial planning process, you will set your business’s budget. Starting with your overall budget for the quarter or year, you will then break it down into specific, smaller budgets for different areas of your business while ensuring that how much you allocate to each is ordered in importance. A budget helps each team to understand its constraints and the resources it has available to meet its goals. Setting individual budgets for different teams can also help you to track the progress of your company and its spending overall.

4. Identifying Areas for Cost Reduction

Financial planning helps you identify areas in which you can save money. If you’ve been in business for a while, you can first review what you’ve spent and how quickly your business is growing. Identify unnecessary expenses and those that are over-inflated, and trim them accordingly in your budget for the upcoming year.

5. Mitigating Risks

A great aspect of financial planning is that it helps you to identify and mitigate risks that your company could face. You should include controls for inefficiencies, losses that can be covered with insurance, and protection against internal theft or fraud. A part of financial planning involves identifying the risks that apply to your particular type of business, ordering them in their order of priority, and determining strategies to implement to mitigate risks to help to reduce your chance of losses.

6. Managing Crises

Having a plan in place can be helpful whenever your company faces a crisis. During a crisis, you should review and rework your financial plan accordingly to include your response and which strategies to employ.

7. Easier Fundraising

If you need capital funding from an investor or bank, one of the first things you will be asked for is a copy of your business plan. Investors want to know what your plan is for growing your business, the risks you face, and how you will use your money wisely.

Your financial plan should provide all of these types of information to prospective investors so that they can get a clear idea of your business goals and the projections you have about the future. Even if you are not currently looking for funds, having a plan can come in handy if and when you are.

8. Serving as a Roadmap for Growth

Your financial plan helps you assess your business’s current situation and project where you see your business going in the future. Your larger business plan will accomplish these goals on a broad level and discuss information about your target markets, how many employees you need, and the services or products you plan to offer.

The financial section of your plan should include data showing how you will work to reach your goals and what you will need to invest to get there. Determine how much you expect your business to grow, the expenses you’ll have, and how much revenue you project to come in.

9. Building Trust Through Transparency

The financial planning process can help your company to build trust with both investors and your staff. When you are transparent with your employees, it helps to build their trust in you and your business. Employees want to know that the company they work for is managed effectively and working to be successful. You can share your financial plan with your employees in meetings so that they can also offer input from their experiences.

Talk to a South Jersey Accountant for My Small Business

If you are searching for small business accounting services and help with your financial planning, speak to the professionals at TMD Accounting. We are a full-service accounting firm that serves companies in many industries. Call us today to schedule an appointment at 1-856-228-2205.

Tax Deductions for Small Business Owners Working From Home

Small Business, Tax Planning

Many small business owners have a space inside their homes where they work. These business owners can make certain deductions on their taxes. Remember, there are a few rules from the IRS concerning these write-offs. If you want to know what tax deductions you can take, here are a few points to consider.

The “Exclusive Test”

While you may work out of your home, not all spaces can be claimed as a home office. According to the IRS, you must be able to show that a portion of your home is a principal place of business. You must exclusively use that space to work. If you don’t have a dedicated space in your home, you cannot take the home office deduction. This is known as the “exclusive test” by the IRS.

For example, a spare room in your home can be claimed as a business office and deducted from your taxes. However, you cannot claim a living room or bedroom because those areas are used for personal purposes. There are a few exceptions, such as individuals using their home as a daycare or businesses storing inventory in the home.

You must also be an independent contractor or registered business owner to take the home office deduction. Anyone working from home as a business employee is not eligible for the deduction. The IRS rules about this deduction can be confusing. If you have questions, our small business accounting services can help to address your concerns.

Will These Deductions Cause an Audit?

Some people worry whether taking the home office deduction will cause the IRS to audit their returns. Yes, the IRS does have strict rules, but you will not get an automatic audit with these deductions. There are ways to reduce your chances of an audit.

First, you will want to ensure you qualify for all those deductions. Maintain accurate records of your purchases and expenses. You will want to keep those personal and business expenses separate. The IRS has a system that can detect any red flags. For example, the system will compare your situation with others in your industry. Making higher claims than the average person in the industry could signal a problem with the IRS. Remember that IRS audits are rare, but you should always be prepared with the proper paperwork and documentation for your deductions.

Tax Deduction for a Home-Based Business

Those home office-related deductions are based on the percentage of space that you use for the business. You will need to divide your office’s square footage by your home’s total square footage. With that number, you can deduct the right percentage of each home expense. Sometimes, you can deduct your office’s homeowner’s insurance and association fees, mortgage insurance, and cleaning service. Utilities can also be deducted from your business taxes, including electricity, water, phone, and internet.

If you make upgrades or repairs to the space, then you can write those expenses off. However, the amount of the write-offs will depend on whether the repairs benefitted your office or the entire home. While you may want to deduct every expense for your home office, you really need to hire a professional to look over your business taxes.

Over the years, the IRS has been cracking down on fraudulent deductions. You want to make sure that these deductions are appropriate for your situation.

Other Business Expenses

What else can you deduct from your taxes? There are plenty of standard deductions for other business expenses. For something to be qualified as deductible, that expense must be considered “ordinary and necessary.” What does that mean? The expense must be common and also helpful for your industry. For example, you cannot take a lavish vacation and deduct the expenses, claiming it was a necessary part of your business.

There are some common business expenses for your taxes.

If your business manufactures products or purchases items for resale, then you can deduct the cost of goods sold. You may write off direct labor costs, factory overhead, storage fees, and the cost of the raw products on your taxes.

Capital expenses are the costs that are required to operate your business. There are three types of capital expenses: business assets, improvements, and startup costs.

You may deduct certain car expenses if you use the vehicle as a part of the business. Like the home office write-off, you can deduct a certain percentage of the car’s usage. For example, business owners can calculate the miles driven for business purposes to receive a deduction.

You might be able to deduct rental expenses if you do not own the business property. In some situations, the interest could be deducted if an owner borrowed money for the business. You can also deduct state, local, federal, and foreign taxes from your taxes.

Travel expenses are also eligible, but you can only claim them if you reimburse those costs under an accountable plan. Once again, travel expenses must be related to the business and not for personal use.

Any supplies or materials are deductible from your taxes. Plus, professional services are also considered a business expense. You can write off those fees from a lawyer, bookkeeper, or an accounting firm.

Finally, all of your business development and marketing expenses are eligible for a write-off. These business expenses are used to find and keep clients. With that, you can deduct them from your yearly taxes.

Many people are hesitant to take some deductions off their taxes. The IRS provides detailed explanations of these expenses on their website, which can help you determine what is eligible for a deduction. Completing your taxes can be challenging, especially for small business owners working from home. You may want to find an experienced accountant for your small business to help make the correct deductions on your taxes.

Need a South Jersey Accountant for Your Small Business?

At TMD Accounting, we have over 40 years of helping small businesses in the Gloucester County area. Our team can assist with your taxes, payroll, and bookkeeping needs. When you need a flexible and affordable option, we are here to help. Schedule a consultation by calling us at 856-228-2205.

Why Does my Small Business Need an Accountant?

Small Business

You just started your own business. Do you need an accountant, or should you handle those responsibilities yourself? Many successful companies work closely with an accountant. These professionals will be able to guide your business through every financial stage. Here are a few reasons why your small business needs an accountant.

When To Work With an Accountant

Working with an accountant saves small businesses from lost time and money. Plus, they can alleviate some of the headaches when tackling financial responsibilities. Business owners should ask for help right from the start. Take a look at these vital points in your business when you need an accountant.

Forming Your Business

You should work with an accountant during those first stages of your business. These professionals can help you write a business plan. A plan can put your goals down on paper rather than taking the wait-and-see approach. Along with that, the accountant can advise you on the best entity structure for your business. You might think that a sole proprietorship is the best option, but an LLC could have additional benefits. Many accountants can even assist with bookkeeping services or help you set up the right software for the job.

Compliance and Tax Issues

After you have your business plan and bookkeeping software, you still need help from an accountant. Many businesses have to worry about compliance issues. These problems can be stumbling blocks for many owners. You might want to ask for assistance from an accountant. Sales tax compliance is a sore spot for many businesses. You must comply with local tax laws if you are shipping any products over a state line. While some bookkeeping apps can help, you need an accountant to get started.

Payroll is another consideration for many businesses. Labor and wage compliance issues have been known to sink profitable companies. Tax programs and apps can ensure you are always compliant with these issues. However, you will want an accountant to check in on a quarterly basis.

There are other reporting requirements to consider. You must send those reports to local licensing agencies or creditors. For those with complex tax issues, you might be liable for other types of taxes or fees. If you need to report on your financial position for credit purposes, make sure to work with a firm offering small business accounting services.

Do You Need an Accountant?

You might think that you can handle these responsibilities by yourself, but accounting is not a DIY task. Small businesses are more successful when they work with an accountant. Yes, you might be able to take on those basics, but you should consider working with an accountant for those complicated matters. These individuals are financial professionals who can help keep your business on track as you plan for the future.

You will want to work with an accountant throughout the year, not just during tax time. Many accountants will meet with you at the end of the year. They will go over your finances and discuss any issues concerning your taxes. Tax planning is not the only reason an accountant needs to meet with you. Specific compliance issues, such as payroll tax underpayments, are easier to fix before filing those year-end reports.

Don’t forget to take advantage of your accountant’s expertise throughout the year. Planning for your business should be a year-long process. It could be too late to prepare your small business for penalties or fees when tax time is nearing.

Accountants are there to help every step of the way. You should meet with your accountant on a quarterly basis. These meetings will ensure that everything is on track and that your business is growing correctly. Sometimes, a company can grow too fast, leading to problems down the road.

You always have to worry about your quarterly tax payments. As the income increases, so do tax liabilities. Your initial estimated tax payments may not be sufficient if you experience a surge in your business. By scheduling regular meetings with an accountant, you can avoid those underpayment surprises at tax time.

Often, business owners are too close to some problems. Yes, business owners know their company better than anyone, but looking past those blind spots can be difficult. With an accountant’s help, you can take a look at the big picture, which can help the business continue to grow.

Find a Small Business Accountant

Now that you know the importance of working with an accountant, you need to find the right one for the task. Even if you want to handle your finances by yourself, you should have an experienced accountant on hand to get solid advice. Think of an accountant as a small investment for your business. With their help, you can make the right decisions for your business. Remember, many successful companies work with an accountant for their financial needs. Now is the time to find a qualified accounting professional to assist with those financial duties for your small business.

Need an Accountant for My Small Business?

At TMD Accounting, we understand the needs of small businesses. Our family-owned and -operated accounting firm has been serving the residents of Gloucester County for over 40 years. We provide you with affordable, reliable, and convenient options for your small business accounting needs. Our team can help with taxes, bookkeeping, and payroll services. Don’t handle those essential responsibilities by yourself. Schedule your consultation by calling 1-856-228-2205.

Where Can I Find Accountants in South Jersey that Specialize in Small Business?

Small Business

Do you need an accountant for your small business in New Jersey? Some owners might think that a software program or an app is the less expensive alternative. However, you need a seasoned professional to help with those expenses. An accountant helps save you money and makes your life so much easier. Now that you know the importance of a small business accountant, where can you find one in South Jersey?

Finding an Accountant That Specializes in Small Businesses

There are a lot of reasons for hiring a business accountant. When it comes to finding one that specializes in the needs of a small business, it can be a challenging task. You want to work with someone who has your best interests at heart. Also, they need the right experience to help manage those finances.

Search for a Small Business Accountant

If you do a quick Google search, you will see plenty of ads for small business accountants. While the internet can help kickstart that search, you don’t want to see the first person and hire them. An experienced accountant needs to provide you with sound advice about how to manage your business and money. You need the right type of small business accountant for those vital duties.

Consider looking for an accountant through referrals. You can ask your lawyer, banker, or business advisor to recommend a great accountant. Remember that not every accountant is a Certified Public Accountant (CPA). For an accountant to be a CPA, they must pass a specific exam. When you work with a CPA, you can be confident that the person is experienced and well-trained. CPAs need to renew their certification regularly. Those re-certifications provide their clients with the best up-to-date knowledge.

Hire Someone With Small Business Experience

Yes, hiring someone with small business experience makes all of the difference. Managing the finances of a small business can be complex. When you work with a business accountant, they can help you handle any complications that come with a small business.

Also, you will want to know if the accountant has experience in your particular industry. Some accountants will specialize in certain types of businesses. If your business is in a specific sector, you want to work with an advisor who can meet those needs. Always ask if the accountant has experience working with structured companies like yours. LLCs, sole proprietorships, and corporations all have different accounting requirements.

Ask About Other Services

Many accounting firms will offer both tax and auditing services. However, others may assist customers with bookkeeping, budget, payroll, risk assessment, and business valuation. Some highly qualified accountants will do more than those basic services.

You should think of your accountant as a valued advisor for your business. Professional small business accounting services become beneficial advisors. They can help you understand your financial capacity. When you work with an accountant that understands your small business, they can create a financial model from the beginning, helping expand your business in the future.

Discuss Billing

Finally, you need to know how much the accountant will bill for their services. Some will charge by the hour, ranging from $100 to $275. On the other hand, a few accountants do work on a monthly retainer. Like a business purchase, you can always shop around for options. Yes, accounting firms do quote their services. Take those quotes to look for the best one for your needs. Keep in mind that an expensive option is not always the best. However, when an accountant charges more, that individual will usually provide you with more services.

Hire Your Business Accountant in South Jersey

After talking to a few South Jersey accountants, you can move on to the next steps. If you have shopped around, you might be able to negotiate the fees. Remember that many accountants have a set pricing structure. Asking for a special rate is fine, but don’t expect it.

Once you have agreed on the price, consider drafting out the terms of an agreement in writing. With this document, you can outline the exact services, fees, and duration of work provided by the accountant. Detailing the terms will define the relationship between the accountant and your business. That document allows both parties to know what to expect from each other.

Finally, you can grow your business with the help of your accountant. If you want to make the most of your business relationship, make sure to communicate on a regular basis. You should try to talk to your accountant at least once a month. Following up with them can prevent any issues or surprises down the road.

Choose the Right Business Accountant for Your Small Business

With these steps, you can find the right small business accountant to help you save money and provide valuable financial advice. You could try to manage your finances by yourself, but that can take away from growing your business. A small business accountant will help with financial management, taxes, and many more business duties. You can invest your free time in improving and growing your business with their assistance.

Do I need an accountant for my small business? The answer is yes. At TMD Accounting, we offer flexible, reliable, and affordable ways to manage your small business finances. We have been in business for over 40 years in the Gloucester County area. Small businesses throughout South Jersey trust us with their financial services. You can schedule a consultation by calling 856-228-2205.

The Ultimate Guide to Independent Contractor Taxes – New Jersey

Accounting, Bookkeeping, Payroll, Small Business, Tax Planning

Independent contractors have to worry about federal income tax, self-employment tax, and local and state taxes when they file their returns. Sole proprietors use Schedule C with Form 1040 to report their business profits and losses to calculate the taxes they will have to pay. To avoid an underpayment penalty, independent contractors must also submit quarterly estimated tax payments each year. When you begin working for one or more companies, they should determine whether you should be treated as an independent contractor or employer based on several factors. If you are classified as an independent contractor, you will be responsible for paying both your portion and the employer’s portion of your taxes and will receive a 1099-NEC at the end of the year instead of a W-2 for your annual earnings. Here is what you need to know as an independent contractor about taxes from TMD Accounting.

Taxes Self-Employed People Must Pay

Independent contractors must pay federal, state, and local taxes and the federal self-employment tax. Here are the taxes self-employed people must pay:

  • Federal income tax at a rate ranging from 10% to 37% based on the total income for the tax year
  • Self-employment tax to pay into Medicare and Social Security with tax rates of 15.3% for net profits of up to $147,000 and 2.9% for net earnings above that amount
  • Additional federal taxes in some situations such as the net investment income tax, alternative minimum tax, and additional Medicare tax
  • State and local taxes, including income tax, registration and licensing fees, and business tax
  • Sales tax if you sell goods
  • Excise tax if you sell items such as guns, cigarettes, alcohol, or telephone services

Understanding the Self-Employment Tax

The self-employment tax includes a 12.4% Social Security tax on your net profits up to $147,000 and a 2.9% Medicare tax on all net earnings. This means you will pay a total self-employment tax of 15.3% on your earnings up to $147,000 and 2.9% on any earnings above that amount. If you have net earnings of more than $200,000 as a single taxpayer or $250,000 as a joint filer, you might also have to pay an additional 0.9% Medicare tax.

Available Deductions for Independent Contractors

There are many different deductions that might be available to independent contractors, including the following:

  • Home office deduction for contractors who work from home and use the office space solely for business purposes on a regular basis
  • Health insurance premiums
  • Retirement plan contributions
  • Depreciation of your equipment, machinery, and furnishings for your office and business use
  • Truck and auto expenses if used for work
  • The qualified business income deduction
  • Expenses for outside services and contract labor
  • Miscellaneous business expenses

Preparing to File Your Taxes as an Independent Contractor

Before you file your taxes, it is important for you to organize everything. You will need to know the gross amount you made as an independent contractor and how much you spent on tax-deductible expenses. Gather your 1099-NECs, profit and loss statements, expense statements and bills, receipts, and other relevant documents together.

Report Income and Deductions on Schedule C

When you fill out your Form 1040, you will use Schedule C to report your business income and deductions. You will report other sources of income, including rental income, dividends, and interest on Form 1040.

Report Net Self-Employment Income on Schedule SE

Once you complete Schedule C, you will then carry over the self-employment income to Schedule SE to calculate your self-employment tax. The self-employment tax will then need to be entered in your Form 1040 tax section.

Complete Form 1040

On your Form 1040, you will include all of your other non-business income. You can also claim non-business deductions on Form 1040, including things like student loan interest, charitable donations, self-employed health insurance, itemized deductions, and others.

Calculate Your Federal Taxes

When you enter everything into your Form 1040 and perform the calculations, you will see your total federal tax obligation. After you subtract your estimated tax payments made during the year, you will either owe taxes or have an expected refund.

Estimate Your Taxes for the Next Tax Year

As a self-employed person, you will need to estimate the taxes you’ll likely owe in the next tax year so that you can divide that amount into quarterly estimated payments to send each quarter throughout the year.

Complete Your State Income Tax Return

Once you have completed your federal tax return, you will then need to complete your state return.

What Happens if You Can’t Pay?

If you can’t pay your taxes in full, you can complete Form 9465 to request an installment arrangement. However, you can’t owe more than $25,000 and must show that you do not have the means to pay your taxes. You will then have three years to pay. The IRS will penalize you for waiting to pay your taxes after the deadline. If you fail to file a tax return by the deadline, you will be assessed a 5% penalty for each month of the outstanding amount you owe but haven’t paid. If you submit your return on time but do not pay what you owe, the late payment penalty will be 0.5% of the tax owed for each month you are overdue.

Find an Accountant for My Small Business

Small business accounting services can help to make filing your taxes simpler. If you are self-employed, working with TMD Accounting might help to ensure your taxes are filed on time and correctly and that you claim the deductions that are available to you. Contact us today to schedule an appointment at 1-856-228-2205.

How to Find the Best Business Accountant for Your Small Business in South Jersey

Accounting, Small Business

Running your business is difficult enough without including managing your business’s finances and books. Financial management of your company can involve potential landmines. If you make a wrong choice, your business could lose money, face penalties, and deal with tax consequences. To make sure that you avoid accounting errors and ensure your books are accurate, you might consider hiring an accountant. Finding the right firm for your small business accounting needs will require you to know the steps to take. Here is some information to get you started from TMD Accounting.

Why Do I Need an Accountant for My Small Business?

If you’ve never worked with an accountant, you might not understand whether you need one for your business. There are multiple reasons why you should work with an accountant to help with your business’s finances. Some of the benefits an accountant can offer include the following:

  • Ensure the accuracy of your books
  • Assist your business with budgeting
  • Simplify tax filing
  • Provide strong device for business decisions
  • Answer your accounting questions
  • Ensure your bases are covered in the event of an audit

An accountant can ensure that your books are current and accurate. While accounting software can help with tracking day-to-day transactions, you should partner with an accountant to review your books on a regular basis.

Why Do I Need an Accountant for My Small Business?

Identify the Accounting Services You Need

Once you’ve decided that you should find an accountant, you will need to determine which accounting services you will need. Some of the types of services accountants offer include the following:

After you have determined which services your business needs from an accountant, you can move forward with searching for the best accounting firm to meet your needs by taking the following steps.

Ask for Referrals From Other Business Owners

A great way to narrow down your list of potential accountants is to ask others you trust for referrals. Ask your family, friends, and fellow business professionals for their recommendations of the accounting firms they trust. You can also ask your attorney or your banker for recommendations and ask members of your business network.

Once you have gathered several referrals, research the options by reading online reviews. Make sure the reviews you read are authentic by checking their consistency over time and the validity of the profiles that the reviews are attached to.

A business owner holding a compass and navigating through a sea of accounting service symbols, symbolizing the journey of finding the right services.

Research on Your Own

Whether or not you receive quality referrals, it is also a good idea to research on your own to find the best accountant. Try searching online, reading reviews, and looking at a business directory. When you read reviews, be sure and read both those that are positive and those that are negative. This can provide you with a picture of the experiences of others. If you identify accountants in a business directory, follow up by searching the firms online to read about others’ experiences. Once you have done your homework, you should have a list of a few prospective firms.

Interview Prospective Accountants

Once you have a list of a few accounting firms, schedule time with each one to interview them. This can help you see which accounting firm will be the right fit for your company. Prepare some questions to bring with you so that you know what to ask. Some of the types of questions you should consider include asking about their services, their fees and fee structures, any additional fees they charge for specific services, their communication methods, and the types of clients they typically do business with.
You should also ask about the accounting programs they use, their credentials, and their experience with businesses in your industry. You should ask more questions than you might think are necessary because doing so can help you identify red flags. For example, if an accountant overpromises, doesn’t have credentials, or seems to embellish their accomplishments, you might want to steer clear. Make sure to interview several accountants so that you can compare the pros and cons of each before you decide.

Choose Your Accounting Firm

Once you have interviewed potential accountants, you will need to make a decision about which one to hire. In addition to weighing the pros and cons of each one, make sure to consider whether you are compatible with the accountant you are considering. You will need to work closely with your accountant, so picking one you trust and believe you can do business with is important. After you decide on a firm, contact the accountant to get started.

Contact TMD Accounting

If you are searching for an accountant for your small business, it is important to take the necessary steps to research and interview several potential firms to ensure you find one that meets your business’s accounting needs. TMD Accounting has provided small business accounting services to many different businesses throughout New Jersey for 40 years and has extensive experience helping companies in a variety of different industries. To learn more about the services we can provide, contact us today to schedule a consultation by calling 1-856-228-2205.

Cash vs. Accrual Basis of Accounting – What’s Best For Small Business?

Accounting, Small Business

Choosing the right accounting type for your small business can be a challenge. Cash and accrual accounting might seem similar, but choosing the wrong one can hurt your financial reports. When you know which one works for your purposes, you can keep all your books in order. Here are the differences between cash and accrual accounting.

What Is Cash Basis Accounting?

Before choosing the right accounting method, you need to know the basics. Let’s start with cash basis accounting. When you use these methods, you will record the income as it is received. All expenses are recorded when paid as well. With cash basis accounting, you only record the money when it enters or leaves the account. For example, if you have a restaurant that purchased supplies on credit for June but will not pay the bill until July, it is recorded as a July expense. With these accounting methods, you will not have any accounts payable or accounts receivable.

Since cash basis accounting is a simple way to track your financial records, many small businesses and sole proprietors use this method. If you make less than $25 million in annual sales with no direct-to-consumer merchandise, then cash basis accounting could be a good option. Cash basis accounting has a shorter learning curve than accrual accounting. There are a few items to record, making tracking your revenue and expenses more manageable.

Unfortunately, cash basis accounting does not provide you with the most accurate financial picture. You might think you have a high cash flow when it is just the result of your previous month’s work. Cash basis accounting does not conform to the GAAP standards. If you think your business will grow in the future, you might not want to choose this method.

What Is the Accrual Method?

With the accrual accounting methods, all expenses and incomes are recorded when earned and billed. This method abides by the generally accepted accounting principles (GAAP). With these methods, you will have a clearer picture of your finances. For example, if your business bills a client for $1,000 in March, you record that income for the month, even if the funds don’t reach your account until April. The same is done for expenses.

Some small businesses use accrual accounting as their primary method. However, if your company produces over $25 million in sales revenue during a three-year period, you must use the accrual method.

Many small business owners avoid accrual basis accounting because it is resource-intensive. There will be plenty of extra steps and paperwork associated with this method. You will need to have an adequate cash flow to ensure all bills are covered from month to month. Unfortunately, this method does not provide an accurate short-term view of your financial health.

Accrual Vs. Cash Basis: Which Is Better for Small Business?

Now that you know the basics of these accounting methods, it is time to choose the right one for your small business. If you have a small business that primarily takes cash transactions and does not have a large inventory of products, then the cash basis method might be the right choice for you. This method is a reliable, convenient, and easy way to track your expenses and revenue without knowing much about bookkeeping.

Accrual accounting is definitely the better option if you want an updated and accurate accounting of your company’s financial health. For the most part, accrual accounting can be a little intimidating. You can always hire small business accounting services to help with your finances. Here are some other factors to consider when choosing your accounting method.

Sales Revenue

You should take a look at your sales revenue. If you have more than $25 million in annual revenue, you must use the accrual methods according to GAAP. Many small businesses might not have hit that amount, but it could be a possibility in the future. Keep that in mind for your business.

Complexity of Your Business

Depending on the complexity of your books and industry, one accounting method might be the better choice. For example, you should avoid the cash-based accounting method if your business has multiple accounts, various LLCs, and hundreds of employees. With those methods, you will not be able to gather information about your financial picture from the balance sheets, cash flow statements, or income statements.

Public Company

According to the GAAP guidelines, if you have a public company or one that will go public in the future, you need to use the accrual basis. These types of businesses have to report an accurate view of their financial health to shareholders.

Final Word

Before choosing the right small business accounting method, you must thoroughly examine your company. While you can always switch the methods later, it can be a hassle and disrupt business. Many accounting tools and professional services help you accurately account for your financials. Whether you choose accrual or cash basis accounting, you always want to select the right option that will work for your business. Plus, you must make sure to stay compliant with those GAAP standards.

Do you need an accountant for my small business? Reach out to TMD Accounting. Whether you choose the cash basis or accrual accounting method, we will make sure you have an accurate record of your financial health. We have helped small businesses throughout Gloucester County for over 40 years. Schedule your consultation by calling 1-856-228-2205.

Small-Business Bookkeeping Basics: Here’s What You Need to Know

Small-Business Bookkeeping Basics: Here’s What You Need to Know

Bookkeeping, Small Business

If you own a small business, accurate bookkeeping is vital for your finances. It can impact the success and growth of your business. Bookkeeping is not just one function, but it encompasses a variety of tasks, from data entry to managing accounts. Make bookkeeping a priority for your business. Here are a few things you need to know about bookkeeping basics for small businesses.

 

What Is Bookkeeping (and Why Is It Important)?

In basic terms, bookkeeping is keeping track of all your financial records and transactions. For small businesses, bookkeeping is part of their accounting system. A well-managed bookkeeping system should include records for operational costs, business transactions, and other expenses. All of these entries must be accurate and up-to-date.

 

Without these records, you will not know whether your business is making a profit or taking on losses. You also need the proper records so that there are no issues when it comes time to pay taxes or payroll. You can quickly fix any discrepancies by catching them early. However, you will not know about those issues unless you have maintained your financial records.

 

Choosing a Bookkeeping Method

When it comes time to choose a bookkeeping method, you have two choices: single-entry or double-entry. Before you can start keeping your financial records, select one of these methods. These bookkeeping systems determine how and where you record every financial transaction.

 

If you want a simple bookkeeping option, consider the single-entry method. You will need to record every financial transaction only one time. These transactions will be listed either as income or an expense. The single-entry process is excellent for smaller businesses that don’t have equipment or inventory included in their finances. However, single-entry recording is often less accurate than double-entry.

 

With the double-entry method, all transactions are entered twice in the record. They are recorded as either debit or credit. When you think of “balancing the books,” this is the method used. While double-entry procedures are more complicated, they prevent costly errors in recording transactions. You will be able to catch any mistakes before they lead to significant financial problems.

 

The entry system method that you choose will impact how your bookkeeping processes will work in the future.

 

Don’t forget about choosing an accounting method. Like bookkeeping, there are two options: accrual-based or cash-based accounting. Accrual-based accounting records, bills, and invoices even when money has not been exchanged. For the most part, accrual-based accounting is the primary method for most businesses. Cash-based accounting records all transactions where the funds have changed hands. With this method, invoices or outstanding bills are not recorded until paid.

 

General Ledgers, Payrolls, and Taxes

Years ago, many small businesses would record all financial transactions in a physical book called a general ledger. Today, these ledgers are digital, allowing business owners to enter and organize all transactions with accounting or bookkeeping software.

 

When you send an invoice, pay a bill, or make a sale, these financial transactions should be recorded in the general ledger. There are several ways to set up a ledger. You can use a spreadsheet or ask for help from a small business accounting services company. In any case, you need to keep track of these transactions, or you could find yourself in financial trouble.

 

After setting up a general ledger, think about your payroll system. If your business has hired anyone as an employee, you need a system for payroll. Your bookkeeper can help to establish a payroll schedule. With that, you can ensure that your business is withholding the right amount of taxes.

 

Don’t forget about those independent contractors. While they might not be an official employee of the company, you still need to track your payments to them. At the end of the year, you could be required to file 1099s for each contractor.

 

A well-managed bookkeeping system is needed to help with taxes at the end of the year. If you neglect to record transactions, you could be scrambling to file taxes on time, causing you to miss deductions or pay penalties. Bookkeeping can help keep all of your financial records up-to-date. Some states require you to track any taxes you may have charged to clients. If you don’t have these records, it can lead to fines and other financial headaches for your small business.

 

Is Bookkeeping the Same as Accounting?

Many people refer to accounting and bookkeeping interchangeably. While they both work hand in hand, they are two different operations. Accounting usually carries more responsibilities than bookkeeping. Accounting professionals are highly trained and will have a CPA license. Bookkeepers focus on record-keeping duties, such as maintaining a general ledger.

 

On the other hand, an accountant focuses on a broader range of activities and can create more complex financial reports. A bookkeeper can help file payroll taxes during tax time, while an accountant will assist with business and personal tax filings.

 

Find High-Quality Professionals

As a business owner, you could tackle record-keeping duties by yourself. However, think about outsourcing these responsibilities to a group of professionals. With a little extra help, you can focus on your business and leave the recording to others. First, you may want to hire a bookkeeper who can help manage all day-to-day records, categorize expenses, track accounts payable, and account records, and reconcile all books.

 

If you want more in-depth help, consider an accountant for those financial duties. These professionals will be able to advise you at different stages of your business, help file taxes, manage payroll, and create financial statements. Bookkeeping is not hard work, but it can get away from many people. When that happens, you could struggle to manage your financial records.

 

Let Us Help With Your Bookkeeping and Accounting

At TMD Accounting, we have over 40 years of experience. We are an affordable, reliable, and flexible option when you need bookkeeping and accounting services in Gloucester County. Many small business owners struggle to manage those financial records. Our team is ready to help you. If you need an accountant for your small business, schedule an appointment by calling 1-856-228-2205.

 

Smart Accounting Practices for Independent Contractors

Smart Accounting Practices for Independent Contractors

Accounting, Small Business

Under current tax law, an independent contractor is classified as a business. Independent contractors need to pay taxes and keep accurate bookkeeping records. While you probably become an independent contractor to get away from the typical workday, it doesn’t mean that there are no responsibilities. Keeping track of your finances can help grow your business. Here are a few smart accounting practices you should use as an independent contractor.

 

How Independent Contractors Differ from Employees

Anyone who works a traditional job for a company is classified as an employee. The company will withhold and report a portion of its employees’ wages. Social Security, Medicare, unemployment, and tax liabilities are withheld from the employees’ checks. At the end of the year, all the taxable income is documented on a W-2 form filed with the IRS.

 

As an independent contractor, you are not classified as an employee. The opposite is true. Yes, there is a lot more freedom with this type of work, but you are responsible for keeping track of expenses, paying quarterly taxes, and maintaining all bookkeeping. Most employers will pay workers’ compensation, unemployment taxes, and payroll taxes. In addition to that, the company contributes to a 401(K) and pays some health insurance premiums. When you are an independent contractor, you must cover all those costs.

 

Why Bookkeeping Is Essential for Independent Contractors

As you can tell, you have a big obligation as an independent contractor. That is why you need to keep up-to-date and accurate records for your business. It can be easy to fall behind on these duties. You could get involved in a project or forget to add an entry.

 

However, you must properly record every expense and payment in your books. Otherwise, you will have difficulty determining your payments during tax season. Proper bookkeeping will allow you to set up financial reports so that you can plan for the future. Organized books ensure that every invoice is sent and all bills are paid.

 

If you need help with bookkeeping, consider hiring a company specializing in small business accounting services. These professionals can help manage your bookkeeping and assist with other accounting responsibilities. With that, you can save time and prevent any problems with incorrect entries in the future.

 

Smart Accounting Practices

Now that you know the importance of good bookkeeping and accounting, here are a few smart accounting practices to incorporate into your business.

 

Choose Your Accounting Method Wisely

As an independent contractor, you have two accounting methods: cash-based or accrual-based accounting. A cash-based method is simple. It tracks your income when you receive it and documents those expenses as they are paid. Accrual-based accounting records your income when earned but not received. With that, you can account for the money when a project is finished, giving you a better look at your future finances. If you want to know which accounting methods will work for your business, reach out to a trusted accountant. They can help you find the process that will work for your independent company.

 

Pay Estimated Taxes

As an independent contractor, you need to pay self-employment taxes to the IRS for Medicare and Social Security. These taxes are paid when you file a Schedule SE. The schedules are included with your Form 1040. Before filling out the SE, you need to calculate the total income/loss with a Schedule C.

 

When you complete more than $600 of work from a client, they need to file and send a copy of Form 1099-MISC. The client should also send all of that information to the IRS. Independent contractors are responsible for saving money to pay taxes on a quarterly basis. Paying those estimated taxes can help you avoid any unexpected tax liabilities. You should save between 30% to 40% of your income for taxes.

 

Track Expenses

If you don’t want to deal with financial surprises, you need to track everything. You must document all the money sent in and out of your account. All that documentation can protect you in the event of an audit. Today, there are many ways to track your expenses and income. You can hire someone or use a software program. Whatever method you choose, select one that you can use on a daily basis. It is vital to record everything, including:

  • Equipment purchases
  • Hours spent working on a project
  • Hours billed to a client
  • Invoices paid to you
  • Phone and internet bills
  • Bank transfers
  • Office supplies
  • Accounting software and other costs
  • Web hosting and design costs

Don’t Mix Personal with Business

Remember to keep those finances separate. You should open a bank account specifically for your business. With that, you can separate your finances from your personal accounts. Along with helping to ease the bookkeeping duties, a business banking account can help prove that your expenses are tied to the business.

Ask for Help

You might want to handle these duties by yourself, but it is okay to ask for a bit of assistance. A professional bookkeeper or accountant can help manage those books and finances. With their help, you will have the most accurate data for your records. All of that goes a long way to help with your taxes and plan for a brighter future.

 

Bookkeeping and accounting can be overwhelming, especially when you have other responsibilities. These services will ensure that all invoices are sent, and you are paid. Most importantly, they can maintain order and accuracy in your books. Yes, you could try to keep up-to-date on these records, but it can be a time-consuming task. With help from a professional service, you can benefit from their expertise whenever you need it.

 

Need an Accountant For Your Small Business?

At TMD Accounting, we understand it can be challenging for small businesses to take care of those accounting and bookkeeping responsibilities. For over 40 years, small and large companies have trusted us for their payroll, taxes, and bookkeeping services. We are a reliable and affordable way to manage your financial health. Schedule a consultation by calling 856-228-2205.

 

How to Pay Yourself From an LLC

How to Pay Yourself From an LLC

Payroll, Small Business

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.

 

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