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What’s the Penalty for Not Filing Taxes

What's the Penalty for Not Filing Taxes

What’s the Penalty for Not Filing Taxes

November 14, 2022

What's the Penalty for Not Filing Taxes

peakreliance

Accounting, Bookkeeping, CPA

Most, if not all, taxpayers don’t intentionally file their taxes late. There are many good reasons why companies often fail to file their taxes on time however, it’s important to file tax return as soon as possible, even if a company can’t pay them yet.

Penalties for not filing taxes by IRS

There are two parts to filing taxes:

  1. The actual tax returns
  2. The payment of the taxes owed

If these are not done by the IRS’s deadlines, there are two penalties that will be charged.

  1. Failure to file taxes

In case of failure to file your tax return with the IRS by the deadline, IRS will charge 5% of the unpaid taxes every month until the income tax return has submitted. The maximum penalty will not surpass 25% of the unpaid taxes.

In case the tax return hasn’t been filed within sixty days of the deadline, the lowest penalty for failure to file is $210. If the amount of owed taxes is less than that amount, the penalty is 100% of the total tax bill.

2. Failure to pay taxes

If federal tax return paperwork is filed but tax bill hasn’t been paid on time, the IRS will charge a penalty of 0.5% of the unpaid taxes every month.

In case where you fail to file your tax return along with not having paid any taxes due by the deadline, the penalty charged per month for both is 5%. In all cases, penalties will be stopped at 25% of the year’s tax bill.

Failure to file and pay your company’s taxes is considered a federal crime. The IRS has an established administrative penalty schedule in place for delayed filing, but the longer you wait to file, the bigger the risk of potential civil or criminal penalties.

What happens if you don’t file taxes at all?

The IRS will alert you about this failure in increasingly direct ways.

1. You’ll get reminder letters.

2. You’ll start acquiring penalties.

3. Your assets may be levied.

4. The IRS will file for you.

5. There might be legal consequences.

What to do?

If deadline is over, the IRS may file a “substitute return” for you. However, as it is very well understood, the IRS will not be looking to save you any money and a substitute return will not contain any of the standard deductions your accountant would naturally include in your tax return. Working example, a substitute return only permits one exclusion: single or married filing taxes separate, so you will end up with higher tax liability than if you would have just filed.

The bottom line is, there are several reasons to file your tax return even if you cannot pay, including:

  • Avoiding or reducing the “failure-to-file” penalty
  • Avoiding a substitute return being filed by the IRS, and availing your adjustments, deductions and exemptions.
  • Starting the act of limitations for a possible audit of your return.
  • Starting the act of limitations for collection of the tax, interest, and penalties on your return.

Whenever IRS finds out that you owe them money, they will send you a bill called a “Notice of Tax Due” and “Demand for Payment”. This document lists the taxes you owe, along with interest and penalties. Because interest and penalties continue to accumulate, you should pay as soon as possible.

Payment Options and Exemptions

It’s smart to always pay as much as one can, to decrease the amount of interest and penalties. Once the payment is made you can write or visit the nearest IRS office and inform them about your situation. Companies can pay their due taxes to the IRS through the following ways:

  1. An electronic funds transfer from your bank account
  2. A debit/credit card
  3. A same-day bank wire or
  4. An electronic funds withdrawal at the time of e-filing your return.

Based on your situation, the IRS may offer one of the following resolutions to paying your bill:

  1. Installment Option

IRS may agree that you make monthly payments under an installment agreement. This lets your full payment to be compensated in smaller, more manageable chunks.

  1. Temporary Delay

The IRS may give you the option of temporarily delaying the collection of your bill. The condition is if they determine you really cannot pay any of your tax debt because of a logical. The IRS will however be on their toes and continue to evaluate your ability to. They may also file a “Notice of Federal Tax Lien” to protect the government’s interest in your assets.

  1. Offer in Compromise

The IRS has the option to settle your unpaid tax accounts for less than the full amount of the due amount if you qualify for an “Offer in Compromise”. This applies to all taxes, interest and penalties. An Offer in Compromise is the last option and is only considered after all other payment alternatives have been checked.

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How to Hire an Appropriate CPA for Your Business

How to Hire an Appropriate CPA for Your Business

How to Hire an Appropriate CPA for Your Business

November 11, 2022

How to Hire an Appropriate CPA for Your Business

peakreliance

Accounting, Bookkeeping, CPA

What does a CPA do?

Usually, when a business is just starting out, the financial tasks fall squarely on the owner’s shoulders. As tempting as it can be to maintain that arrangement once the money starts to flow, not only to avoid paying someone else to do it but also to avoid allowing someone else to have access to the information, it can become a tiring and mundane task in the long run.   

Hiring an accountant at the right time through the journey to establishing a successful business is an integral step towards victory. It is a great idea to hire an online CPA when it comes to this. A CPA is a tax expert with a sound knowledge of tax laws and legal processes. CPAs can take a good legal care of your business’s taxes, answer important financial questions and potentially save your business a lot of money. They, unlike general accountants have passed the challenging Uniform CPA Exam that tests their understanding of tax laws and standard accounting trials. Through this exam they attain a state license. 

 The kind of exposure and skill that a CPA has can improve your overall tax representation.  

Some of the tasks that they can help you with include: 

  • Addressing legal requirements: tax return filing, compliance documents, audits.
  • Preparing yearly financial statements, statements of accounts, and reports.
  • Presenting a breakdown of company’s financial conditions.
  • Evaluating financial decisions about the company progress.

CPAs are equipped with hands on skills to help small businesses and start-ups with a lot of technical financial matters. 

Is your business ready to hire a CPA?

Every owner of a small business should consider hiring a professional accountant before the need even arises. Accounting services are extremely vital for the health of your business, so as soon as you start to feel overwhelmed by managing your finances, that is the best time to hire an accountant or a CPA. However, taking other factors into consideration, hiring one at the wrong time can slow down your processes as well. 

Here are a few appropriate instances to hire a CPA: 

  1. At the beginning of the fiscal year to ensure you start right. 
  2. At the end of a month and going into newly reconciled accounts to maintain a fresh set of financial statements and records. 
  3. When it’s time to file your taxes. 
  4. When you as the owner feel overwhelmed by bookkeeping and financial record maintaining and other areas that need your dedicated time and focus are being over looked. 

Hiring a CPA can help you keep your business agile regardless of the economic or societal changes that may occur around you. 

Tips for finding an appropriate CPA:

1. Do background research by looking for referrals and reviews

It’s a good idea to start by asking around for recommendations from other experienced people and companies in your area who have a CPA onboard. This is a chance to use your connections. Ideally, you should be able to find a valuable referral for a new CPA through your bank, realtor, or employees. 

In case your local referrals aren’t working, you can search online for accountants in your area and use online reviews about their services to help you make a decision. Forums and other online platforms like Yelp, LinkedIn, or Facebook groups can be helpful resources. Making sure you find a skillful and dignified CPA is an integral part of the process because of the responsibilities that they will be looking after for you and your company. 

2. Evaluate your needs and their quality service

CPAs specialize in many different services. Some choose being a tax preparer for numerous companies, while others would rather assist a handful of small business owners steer financial decisions year-round. Some offer bookkeeping services and will prepare the company’s tax returns, and others will prefer intricate compliance cases. 

As part of your preliminary consultation with an accountant, inquire about the services they provide to their clients. Also, discuss how they tend to work with their clients and how much experience they have in your industry.  

It is important to be clear about the kind of services you need to avail from a CPA before you bring them on board. 

3. Examine their qualifications

CPAs specialize in many different services. Some choose being a tax preparer for numerous companies, while others would rather assist a handful of small business owners steer financial decisions year-round. Some offer bookkeeping services and will prepare the company’s tax returns, and others will prefer intricate compliance cases. 

As part of your preliminary consultation with an accountant, inquire about the services they provide to their clients. Also, discuss how they tend to work with their clients and how much experience they have in your industry.  

It is important to be clear about the kind of services you need to avail from a CPA before you bring them on board. 

4. Meet with prospective accountants

Once your background checks are complete, you need to set up meetings and have a more meaningful conversation with each of your shortlisted accountants. You can consider focusing on the following things when interviewing them: 

  • Questions about licenses, certification, relevant qualifications or professional organizations.  
  • Their experience working in your industry.  
  • Their rates for several services like tax preparation fees.  
  • Do they use outsourcing and if yes then for which services?  
  • The kind of accounting software they use.  
  • Their E-file policies for tax return.  
  • Their communication policies (Email, phone etc.)  
5. Determine your level of comfort

The right choice for an accountant will be a professional whose financial and legal advice will direct you through long-term decisions for your business. Their advice will be your direction every year through legal statutes at tax time. 

A talented accountant will not only formulate your tax documents but will also sign them with their credentials. They will represent you if any tax questions or issues arise throughout their tenure. You, as a business owner, want to be confident in your decision with giving access to information this sensitive and essential to an outsider. 

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Accounting, Bookkeeper, Bookkeping, cpa, Home office deductions, Online CPA, Tax Deductions, Taxes

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Reclaiming Home Office Deductions: Tips and Tricks

Reclaiming Home Office Deductions Tips and Tricks

Reclaiming Home Office Deductions: Tips and Tricks

November 10, 2022

Reclaiming Home Office Deductions Tips and Tricks

peakreliance

Accounting, Bookkeeping, Taxes

“The first mistake people make when it comes to home-office deductions is they fail to claim them,” says Bob Meighan of San Diego, a lead CPA for a famous company in USA. 

Many business owners with home offices waive off the tax breaks because they fear that the write-offs will trigger a tax audit and bring accountability on their shoulders. Tax experts say that now home offices no longer set off alarms at the IRS (Internal Revenue Service). Although, there are some parameters one needs to examine, when it comes to checking if you are eligible for the home-office deduction. Millions of Americans have shifted to worked from home this year, due to the COVID-19 pandemic. 

The endorsed tax break is generally only available for the people who are self-employed, gig workers or independent contractors. As a small business owner, whichever industry your business may belong to, you can by all means claim this deduction while filing your taxes. 

Expenses You Can Claim

There are two types of expenses that you can deduct:

The first, direct expenses, lets you deduct 100 percent of costs linked specifically with your home office. It includes everything from hiring someone to paint/ renovate your room to buying equipment like work computer, office supplies or cell phone dedicated for the home-based business.  

Businesses can also write off remodeling, if the home office is being used to meet with clients or customers. This is because, logically, the appearance of the house is important to the success of the business. 

The other deductible home-office expenses are indirect expenses. These are proportioned equally, based on the dimensions of the home office space including your utility bills, property insurance, mortgage and a home security system.  

The write-off amount can be calculated in two ways. First is calculating the portion of the house that is being used for office work. That is then taken as a percentage of the whole house area and the business owner is eligible to write-off that percentage. 

Second method is counting the total number of rooms and taking the number if rooms as a portion of the house used for home office. The business owner can write-off that portion only. Out of these two, the percentage method is more widely used.  

However, the monthly charges/ fees for the primary phone line in your home cannot be deducted, though long-distance calls for work, call waiting and call forwarding can be claimed. Also, if you have only one cell phone being used partly for work and partly for personal things, it’s a gray area that needs to be discussed with a tax advisor. 

Tips and tricks for claiming the deductions: 

Taxpayers and business owners must solely and regularly use the dedicated part of their home as their primary place of business-related work. This means, a place where you greet clients or customers and have meetings, conduct your business, store supplies and inventory etc.  

The good thing is that you don’t have to be the homeowner to claim the deduction — apartments, mobile homes, boats or other property are also eligible according to the IRS. 

Another possibility is to claim only a part of the deduction, which accounts for the time the business spent being operated in a certain location. The business owners must have proper documentation for all home office spaces that were used within a tax year. What better documentation can there be than an actual picture of the work space. This was, once the deduction has been claimed and IRS initiates an audit, owners can have a solid proof. 

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Accounting, Bookkeeper, Bookkeping, cpa, Home office deductions, Online CPA, Tax Deductions, Taxes

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The Top 7 Tax Deductions for Your Small Business

The Top 7 Tax Deductions for Your Small Business

The Top 7 Tax Deductions for Your Small Business

November 5, 2022

peakreliance

Accounting, Bookkeeping, Taxes

What is a tax deduction?

A tax deduction is a compulsory expanse that every business is liable to pay to the state or the government at end of a financial year. Tax is calculated as a small percentage of the total income of a business.  

Paying off taxes can be a botheration for business owners since the total amount can go up to a lot. Also, filing taxes accurately is a huge task that requires focus and precision so to ensure transpiracy and eliminate risk business owners are compelled to hire tax experts, bookkeepers or CPAs.  

There are tons of small and huge tax deductions in play for small and large businesses alike. Below mentioned are the 7 common and major tax deductions. 

Top 7 Tax Deductions:

1. Home Office Expense  

Home office expense is a major expenditure and a primary one. It is one of the most common small business deductions. This expense can be calculated using two state-approved methods: 

    • The standard option; this requires you to calculate the percentage of your home space being used for business versus personal use. You then apply that percentage to your other qualifying expenses like mortgage, utilities, and insurance. To do this, detailed records must be kept on all relevant expenses. 
    • The simplified option; it needs you to take a standardized amount of say $5 per square foot of home office space and multiply that to a specific square foot of area being using for office work. Hence, home office deduction is calculated. The standardized amount varies with time and according to the state rules.  
2. Insurance Premiums 

Insurance deductions can include the following depending on certain attributes of the business: 

    • Property coverage for office equipment like furniture, equipment, and other major items like the building itself 
    • Liability handling   
    • Auto insurance which includes business vehicles 
    • Health insurance for employees; Group health, dental and vision  
    • Owners’ professional liability or malpractice insurance
    • Workers’ compensation coverage 
    • Life insurance that covers employees 
3. Advertising and Promotion 

Reasonable amounts of expenses that are used for marketing and promotion of the business are definitely deductible. These costs include things like: 

    • Hiring a graphics person to design your business logo 
    • The cost print publications like business cards or brochures 
    • Purchasing ad spaces in print or electronic media 
    • Sending printing or digital greeting cards to clients/ other stakeholders 
    • Investing in a new website and its maintenance  
    • Running a promotional social media marketing campaign 
    • Sponsoring branding and other event 
4. Rent Expenses 

This deduction is conditional to if a location is rented by a business for their day-to-day operations or equipment. You can deduct the payments made as rental expense for the business. 

What needs to be taken into consideration is that rent paid on your home should not be deducted as a business expense even if a home office is in place. That rent will be deducted as a portion of the home office expenses. 

5. Utility Expenses 

These include all utilities that the business is using for its operations like telephone, internet, office supplies, refreshment, air conditioning etc. 

These services are deductible if they are integral to your business’s operation. 

 The thing to keep in mind is that if you use a landline at home you cannot deduct that cost, even if you use it solely for work. However, a way out is having a second, dedicated landline devoted to the business’s needs only, the cost of that line is deductible. The same conditions are to be followed for internet and other utilities. 

6. Travel Expenses 

For this expense to be deductible in tax, the trip needs to qualify as business travel. It has to be regular, essential, and away from your tax home; the city or area where your business operates. The trip needs to be a travel away from the tax home and should be longer than a normal day’s work. 

Deductible, approved business travel expenses are listed below: 

    • Travel by plane, train, bus, or car 
    • Parking and toll fees and tips 
    • Use of owner’s personal vehicle 
    • Meals and lodging 
    • Laundry and dry cleaning during the trip 
    • Business calls 
    • Shipping cost of baggage and sample or display materials etc. 

It is essential to keep a record of all costs and amounts incurred during the trip like, fuel along with documents supporting the return/departure etc for these expenses to qualify as deductible taxes.  

7. Bank Fees and Interests 

All business must have separate bank accounts and credit cards as this is always a good idea. Bank fees including annual or monthly service charges, transfer fees, or overdraft fees are all deductible. Merchant or transaction fees paid to a third-party payment processor can also be deducted. These include PayPal and Stripe. 

Fees related to personal bank accounts and credit cards are not deductible.  

The bottom-line is that private businesses and start-ups, both have their own perks as different types of working organizations when it comes to tax deductions. However, claiming them all is tricky and sometimes if one does not seek professional help they may be overpaying their taxes. It is always best to invest in a tax expert such as an online CPA for this purpose. CPAs not only help with accounting and tax related matters, they are also well equipped with good insight about businesses and their financial status and hence can provide with good financial advise. 

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Accounting, Bookkeeper, Bookkeping, cpa, Online CPA, Tax Deductions, Taxes

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Internal Bookkeeping vs Hiring a CPA

Internal Bookkeeping vs Hiring a CPA

Internal Bookkeeping vs Hiring a CPA

November 8, 2022

Internal Bookkeeping vs Hiring a CPA

peakreliance

Accounting, Bookkeeping, CPA

Small business and start-up owners are always under a constant financial pressure as their business is in the growth phase and hence, seeking third party support for financial matter, tax filing, legal matters, business advise and managing accounts can be an ideal choice for them in numerous ways. It is not unusual in today’s changing world that business owners till the very last extent try to manage their finances themselves, but when businesses grow so do their financial operations. Sooner or later all founders are faced with this decision to hire an internal accountant or an accountant online, preferably a Certified Public Accountant (CPA). Both types of services have similar basic responsibilities including but not limited to:  

However, there are many ways in which internal bookkeeping and a CPA online are different and better than each other in their own ways. Ultimately, it is the job of the business owner, in choosing the best possible service, to take the right decision for their firm. 

Benefits of Bookkeepers

For many start-ups, a part-time bookkeeper may be a primary hire. Book keepers can take care of tasks such as maintaining general ledgers, completing financial reports, handling payrolls, and processing invoices.  

Business owners may constantly need to be in communication with their bookkeepers and have monthly meetings to ensure all financial matters have been dealt with properly. A regular and effective communication will very likely ensure good growth volumes, achieving sales and other company goals and more, as bookkeepers can inform you about the accurate growth status of your company. 

Here are some general tasks that a bookkeeper is capable of performing: 

  • Maintaining financial records such as ledgers, invoices, payment slips, tax documents. 
  • Keeping the financial numbers up to date  
  • Keeping all company accounts up to date 
  • Preparing the monthly and yearly financial report 
  • Preparing the regular financial status report of the company 
  • Manage payroll 

Benefits of CPAs

As much of a self-explanatory the term itself is, an online CPA or accountant is one providing accounting and bookkeeping services virtually. An online accountant will combine the best of the traditional accounting practices with effective cloud-based accounting software to manage the accounts and finances of your business. Some things that a CPA can bring to the table are as follows: 

  • Addressing legal requirements and communications: legal/compliance documents, annual audits. 
  • Preparing annual financial statements, statements of accounts, and other financial reports. 
  • Breakdown and analysis of company financial conditions. 
  • Evaluating financial decisions concerning company progress. 
  • Handling more complex tax matters like filing tax returns. 

Hiring a CPA is a great idea because as a business owner you can make sure that all information is being tracked appropriately. Additionally, they can also help you prepare your tax returns and conduct an annual analysis of your business.  

While making a decision about growing and scaling your business, a CPA can help you dive deep into the complexity of numbers to understand your existing opportunities and risks and help you make spot on financial decisions. They may also have recommendations that can help you function more efficiently as a business. 

CPAs are tax experts. They are well equipped with the necessary skill set to predict the right time to make a financial change or to alter the course of the finances. Having an online CPA enables businesses to have a go-to person for all related issues. For instance, if you decide to make a big change such as, moving, merging, business purchases, or closure, a CPA can help you a great deal in minimizing your costs, keeping you on track with your financial goals and targets while simultaneously analyzing all financial records. CPAs can at any point in time estimate and inform you about the fair market value of your business, meaning they can save you a lot of valuable time and effort. 

Making the Perfect Choice for Your Business

A bookkeeper has the basic skill set to help out with traditional accounting needs however, when it comes to more complicated and demanding accounting needs, a CPA is a good and smart choice for all start-ups. This is because of the plethora of additional services and helpful insight they bring to the table other than providing basic accountant services. 

Regardless of the size or complexity of a company, accounting is a core part of your business strategy, not an afterthought. It can be a great idea to start small and later get your books in order. As your business grows, you must be diligent enough to figure out how to make the right additions to your accounting staff, both internally and externally, so that you have the right information to progress, at the right time.  

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CPA vs Tax Preparer  

CPA vs Tax Preparer

CPA vs Tax Preparer  

November 7, 2022

CPA vs Tax Preparer

peakreliance

Accounting, CPA

When you’re filing your taxes at the end of a fiscal year, as a small business you have a few options to help you get through this complex process error-free.  

Option 1, you can file your taxes yourself. 

This may definitely be a sensible option for a start-up in its early days, with extremely simple tax return. It can save you the cost of hiring a professional accountant to file the return for you.  

If your start-up is past the simplicity phase then you may want to consider working with an actual professional. This is option 2.  

There are normally two types of professional accountants to pick from for your tax preparation needs:  

  1. A certified public accountant (CPA)
  2. A non-CPA tax preparer 

Let’s discuss a few key differences between these types of professionals:

Knowledge and Experience

The majority of the non-CPA tax preparers are not required to have any significant background in accounting. They are only required have to do some studying and pass the IRS’s competency exam in order to be eligible to charge a fee for tax preparation services. 

Much of the competency exam is based mostly on rote memorization and doesn’t truthfully test critical thinking skills. Additionally, tax laws and dealing with legal situations is not covered by this exam. 

On the other hand, CPAs have a much more extensive knowledge background and experience in traditional accounting and latest accounting systems. CPAs have a more rigorous and well-established qualifications benchmark which requires them to have at least a Master’s degree in accounting. They then need to pass a series of challenging exams, each of which tests a different area of accounting. 

A CPA who focuses on tax accounting, is highly likely going to have a much more in-depth knowledge of the tax laws, and is better equipped to lever any unusual tax situations that your company may have. 

Stability and Consistency

CPAs work continuously, and so can provide constant accounting services to their clients. When it comes to handling your financial matters, this can offer stability and peace of mind to you as an owner. This continuity enables the accountant to become acquainted with your finances, business situation, and any other matters that may impact your finances and your tax return. 

Most tax preparers, however, work for a grander tax preparation company and are only working seasonally. Hence it is quite unlikely that you will ever work with the same tax preparer twice, even if you go into the same office every year.  

Ongoing Assistance in Financial Matters

As mentioned, CPAs are made to study deeper and are tested on far more than just taxes. They acquire knowledge and experience of numerous areas of accounting, including business audits, budgeting, forecasting, variance analysis etc. Many business owners want to take advantage from the fact that CPAs are capable of helping them with a wide range of financial matter, and so they need more than just tax preparation and accounting services.  

Because they’re managing more than just one aspect of your finances, they will by all means have a better understanding of the company’s financial standing. This can help you get the best outcome on your return. 

Contrary to that, non-CPA tax preparers only focus on taxes, they cannot provide constant services in other accounting areas.   

Audit Representation

Here is another important comparison between CPAs and general tax preparers. Most tax preparers cannot and will not offer you representation if you’re audited. 

CPAs, as compared to them, have been legally authorized to represent their clients during a legal audit.  

Thus, CPAs can bring you a lot of peace of mind as a business owner who is stuck in such a stressful time. An audit can turn out to be less of a hassle and significantly easier, less stressful, and more manageable when you have legal representation from a person who understands the law and all financial legalities. 

Why You Should Use a CPA

Choosing which type of professional for preparing your return is a tricky decision. Most individuals however, are better aided by a CPA. With their greater knowledge and experience in tax accounting and a more diverse set of skills, their ability to assist you with a huge range of financial matters remains unshaken. 

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4 Reasons to Incorporate Your New Business as Early as Possible

Incorporating Early for New Business
Why should you incorporate your business as early as possible

4 Reasons to Incorporate Your New Business as Early as Possible

November 6, 2022

Incorporating Early for New Business

peakreliance

Accounting, CPA, Taxes

Entrepreneurs and small business owners often get caught up in making sure their start-up thrives and get engrossed in planning spot-on strategies to innovate and develop their business idea. Often, the notion of securing the idea and legally owning it gets ignored. 

Incorporating your start-up early is a very beneficial step that should be kept under consideration from the very beginning. In layman words, incorporating a new business means taking the legal ownership and turning the business into a formal company recognized by the related state of incorporation. In technical terms, it is turning your sole proprietorship or general partnership into legally and formally recognized corporation.  

Incorporating your business is simple contrary to popular belief and is not nearly as complex as it may appear to be. While people have these misconceptions that this step should be taken once the business has matured enough or is generating a specific amount of money, there are many reasons why incorporating your business can come in handy and here’s how. 

1. It will help avoid disputes among founders

Running a start-up may seem easy from afar but investing 60 hours a week into a business which doesn’t guarantee immediate rewards can be both tiring and frustrating. A considerable amount of business owners doesn’t even earn a salary while putting in tireless efforts.   

Many times, this may leave owners and founders exhausted and disappointed — possibly with each other as well. Keeping this under consideration, it’s best to create an equity split as early as possible. This will help prevent clashes among all founding parties as co-founder equity negotiations will work better. 

Incorporating early will make possession shares concrete so in case one co-founder decides to leave or sell their shares, incorporated businesses can handle that in an organized manner and with resilience, that would not affect the other parties which can prove an advantage if one co-founder wishes to sell their share within the first year or two.  

2. Provides protection against personal liability

Since an incorporated business is known as a legal entity, and its proprietors are protected from all personal liabilities for corporate debts that the business may ensue. 

So, in case your startup is sued and obliged to make a payment, your personal assets will generally remain secure. Even in worst cases like bankruptcy, the corporation will be held accountable not the founders. 

Incorporating your start-up as soon as possible can relieve you of some of the emotional strains and anxieties that founders may experience. 

3. It will help attract more investors and bank support

With a corporation, it’s generally easier to raise additional capital or secure a loan because of the sense of legitimacy it brings to the business. When you incorporate your start-up, it makes you eligible for opening up a bank account and you can start building a line of credit, which, for a small business owner, is a requirement. 

Any startup without a formal business entity defined is viewed as a mere hobby, and seldom interests investors or potential partners. Also, with changing trends and rapid advancements these days, you need to be ready to move quickly from an idea/hobby to a business. Successful startups are all about being equipped to move to accomplishment before the market and it’s need changes or new competitors appear. 

4. Tax benefits

Another noteworthy benefit of incorporating your business, and one of the most crucial to leverage, are the numerous tax deductions that are accessible to corporations only. When a start-up goes from being a sole proprietor or a general partnership to a corporate business structure such as an LLC, there are plentiful deductions at your disposal that were not available to individuals. Specifically, you may see tax benefits such as: 

  • The capacity to spread out your loss over a longer period of time  
  • The opportunity to deduct start-up and operational expenses  
  • The right to deduct employee benefits like pf and health insurance  

The local and state taxing authorities can offer multiple incentives to you more readily and more often if you are a corporation. Keep in mind, however, that tax laws are complex as they always have been and it’s a great idea to consult a certified accountant or CPA before claiming any deductions from the state. 

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What Are the Pros and Cons of Incorporating Your Business? 

What are the pros and cons of incorporating your business

What Are the Pros and Cons of Incorporating Your Business? 

November 5, 2022

What are the pros and cons of incorporating your business

peakreliance

Accounting, CPA, Taxes

Incorporating a business at some point is integral for its further growth and as the founders, business owners are often skeptical about the whole idea of turning their start-up into a corporation.  

In this blog we are aiming to help you make an informed decisions about incorporating your business by helping you figure out if it’s the right time to do so or not. But first, let’s elaborate a bit more on what it means to ‘incorporate a business’.  

Incorporating means to take the legal ownership and turning the business into a formal company recognized by the related state of incorporation. In technical terms, it is turning your sole proprietorship or general partnership into legally and formally recognized corporation.  

A corporation is an entity in itself and separate from its owners thus having its own assets and liabilities separate from the founders. There are many pros and cons when taking this decision but what you need to consider is that if the move is right for you and your business. 

 

Pros of Incorporation

  1. Independent legal entity 

    Perhaps one of the biggest benefits to becoming an incorporated company is its legal separation from its founders. As long as the business is not a corporation, the business and the owner is the same legal entity, so if anything goes wrong or if the business owes money, the owners will be personally liable for it. With a corporation, the risk stays with the company as an independent entity, and to the maximum extent, the directors aren’t liable. 

    The best example of this is, if a customer or client took the business to court, with a sole proprietorship, it would be the owners’ responsibility, whereas with a limited company it would be the company itself.  

  2. Tax 

    Tax rules are applied differently on start-ups and sole traders and on corporations. For a running sole trader business where the generated income is beginning to reach new highs, your accountant may suggest you to become a registered company to take advantage of your personal tax savings from the existing tax laws for corporations. While as a sole trader your profits are seen as your total income and you are taxed on it’s basis, a limited company is completely independent and the director is taxed as an employee eliminating all miscellaneous liabilities. 

  3. Raising Capital through Shares 

    A corporation has the advantage of selling its shares. If you’re looking to expand or branch out into a new area, or new to raise additional capital, you can sell the company’s shares to friends, family or other interested investors to help your business raise money. 

  4. Reliability 

    A start-up can be set up in no time at all, and there is no solid proof that they are even a legitimate or long-lasting business. Of course, this doesn’t mean that start-ups or sole traders do not qualify as businesses but when comparing a corporation with a business that has yet to be incorporated, the difference will definitely remain. The credibility of a state recognized business will always be more than the one not on this position. On that basis, some people and clients place more trust in limited companies. So incorporating your business will increase its standing and ultimately will ensure profitability in the future by eliminating doubts about the trustworthiness.  

 

Cons of Incorporation

  1. Additional complicated paperwork

    Incorporating your business can be both a time-consuming and a complex process due to all of the technical and elaborated paperwork involved. To maintain a corporation, you need to keep detailed records of your articles of incorporation and bylaws, including information about all meetings held as well as a register of directors, employees, and shareholders. 

    In addition to tracking meetings and other activities, it is essential to keep organized records of transactions. You need up-to-date records of each and every financial transaction so the corporation can file income tax returns correctly. 

    Since, each state also has its own guidelines on recordkeeping requirements for incorporated businesses, you must also adhere to the rules put forward by your state.  

    Hiring an accountant or a CPA can help you a great deal in this case. 

  2. Cost of the process

    One shortcoming of incorporating a business are the expenses that come with it. Because a corporation has a more complex structure than other forms of businesses, they generally tend to be more expensive to set up. 

    In order to form a corporation, you have to pay certain fees and after you establish your corporation these fees continue. They are ongoing and can be costly for small businesses who aren’t generating enough income. For instance, some states impose long term fees on corporations. Here are some other fees that you may have to pay: 

    • Set-up cost 
    • Legal fees 
    • Accountant fees 
    • State fees

     

  3. Double taxation 

    Another drawback of incorporating your business is double taxation. Double taxation is when a corporation has to pay the same amount of income tax twice on the same income. For a corporation, this means being taxed on both personal and business levels. 

    Corporations always pay taxes on their annual/yearly earnings. When a corporation pays dividends to its shareholders, the dividends have tax liabilities as well. Shareholders who receive these dividends must pay taxes on them too. 

    Business structures other than a legal company can dodge double taxation with pass-through taxation. Pass-through taxation refers to when taxes pass through the business and onto the owners or individuals simultaneously. 

    If you want to sidestep double taxation altogether, you may want to establish an S corporation or consider all possible outcomes and be prepared of all before incorporating your business. 

     

 

 

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How Could CPA Professionals Help Small Businesses Save Taxes?

How could CPA professionals help small businesses save taxes

How Could CPA Professionals Help Small Businesses Save Taxes?

November 4, 2022

How could CPA professionals help small businesses save taxes

peakreliance

Accounting, CPA

Certified public accountants or CPAs are seasoned professional accountants who can not only help you out with your accounting needs but also have the ability and knowledge to give you practical business advise. CPAs are tax experts. They cannot only take a good legal care of your finances but will also make sure that your money is saved wherever necessary. 

CPAs pass the Uniform CPA exam that tests their knowledge and understanding of tax laws and standard accounting practices and this is what sets them apart from generic accountants and makes them a better choice for many businesses.  

Small business and start-up owners are always under a constant financial pressure as their business is in the growth phase and hence, hiring a CPA for financial matter, tax filing, legal matters, business advise and managing accounts can be an ideal choice for them in numerous ways including but not limited to:  

  • Addressing legal requirements and communications: legal/compliance documents, annual audits. 
  • Preparing annual financial statements, statements of accounts, and other financial reports. 
  • Breakdown and analysis of company financial conditions. 
  • Evaluating financial decisions concerning company progress. 
  • Handling more complex tax matters like filing tax returns. 

Out of the above-mentioned ways, one of the most integral roles that a CPA can fulfil is helping out a corporation or start-up with their legal tax matters. 

Filing taxes can be a hassle for a lay person and this is an area which demands focus and attention because a small error in numbers could cost you and your company a great deal. Considering the complexity of the matter, it is worth hiring a professional to do these time and attention consuming tasks for you – someone who is cost effective and can not only save you time but money as well.  

Here are some ways in which bringing a CPA on board can help you save up on money through taxes. 

They Help You Minimize Financial Fines and Penalties

It is extremely important that your taxes are filed correctly and error free and you need to do this in a timely manner as well. With legislations and tax laws changing too frequently, this isn’t easy. You may be leaving yourself vulnerable to penalties and charges, simply because you overlooked a tiny error. 

By having a CPA at your disposal, you can always be assured that you’re filing the taxes on time and that your taxes are correct.  

 

They Can Help You Minimize Your Taxable Income

To put it in simple words, taxable income is the total income earned out of which a company is liable to pay the set tax percentage to the state or governing body. For every business, it is a matter of great satisfaction if their earned money is being shown as net income instead of getting deducted in taxes. CPAs have the technical skills to help make sure that no undue income is being taxed and you’re not paying unjustified sums of money in the name of taxes to the state. 

They Are Aware of the Tax Breaks Available for Start-Ups

Tax laws are complex and for a person who doesn’t have an in-depth knowledge of tax laws is not always fully able to understand the technicalities in them. A CPA can come in handy in this situation and can save you from paying your hard-earned money to the state. They can always guide you about the legal tax breaks provided by the law.   

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5 Reasons Why Small Businesses Should Hire A CPA

Why small businesses should hire a CPA
Why small businesses should hire a CPA

 5 reasons why small businesses should hire a CPA

October 3, 2022

Why small businesses should hire a CPA

peakreliance

Accounting, CPA

When you own a start-up or a small business, the financial matters never end. From keeping cash inflow records to audits, managing accounts is a whole process that requires focused attention. To name a few considerations, you have the accounts payable, accounts receivable, sales figures, annual statements, payroll, projections, cash flow and taxes.  

Usually, when a business is just starting out, the financial tasks fall squarely on the owner’s shoulders. As tempting as it can be to maintain that arrangement once the money starts to flow, not only to avoid paying someone else to do it but also to avoid allowing someone else to have access to the information, it can become a tiring and mundane task in the long run.   

Trying to deal with all aspects of the business can and does eventually become a huge burden on a single person alone causing details to get overlooked, especially as the financial structure of the business begins to grow. 

Accounting and financial management errors can cost the business a great deal and can get super expensive. For an expert, accountant, to do the same task it will take a significantly less time and the accuracy will be guaranteed. It may be tempting to save up the cost of hiring a qualified accountant but you’re paying yourself for all those hours you spend recording, sorting, calculating, inputting, researching the latest changes in tax laws, etc. 

Also, accounting isn’t just about taxes. It’s also record-keeping, analyzing, financial planning and forecasting, and complying with state regulations. You must have a strong accounting system set-up, in order to obtain all the possible benefits of good accounting practices and consistently keep updating it with all pertinent data. This data can later be effectively used to understand the financial state of your company as the business changes and cultivates. 

It is true that for some part of this, you don’t necessarily need an accountant however, in some areas, it can be worth your while to get an accountant on board because they have knowledge and areas of expertise you may not have. If your tax situation turns into an audit situation, for example, you’ll want an accountant on that — most likely a certified public accountant (CPA). CPAs are state-certified to have up-to-date knowledge of tax laws and processes. This is the kind of familiarity that can improve your tax representation overall. 

CPAs are tax experts who can take a good legal care of your business’s taxes, answer important financial questions and potentially save your business money. While CPAs have accounting degrees, their certification differs from traditional accountants in many ways. 

CPAs, unlike generic accountants have passed the demanding Uniform CPA Exam that tests their understanding of tax laws and standard accounting procedures. Through this exam they obtain a state license, which includes ethical necessities. They must take professional education courses to maintain their license, and may lose it if they are found guilty of fraud, negligence or ethics violations.  

Some of the tasks that might benefit from accountant input include:

  • Addressing legal requirements and communications: tax return filing, legal/compliance documents, annual audits.
  • Preparing annual financial statements, statements of accounts, and other financial reports.
  • Evaluating financial decisions concerning company progress.
  • Breakdown and analysis of company financial conditions.

CPAs are equipped with hands on skills to help small businesses and start-ups with a lot of technical financial matters.

1. CPAs Can Help with Filing Tax Returns

One of the most beneficial skills that a CPA can provide is tax preparation. The years following the pandemic have been specially complicated due to consequent tax rules stemming. CPAs are very knowledgeable of the most recent tax laws and therefore, can help small business owners gather what they need to prepare and file their tax returns correctly. Also, they are qualified to help with complicated matters like the IRS audit.

2. CPAs Can Help Assess Changes in The Market

Living in the aftermath of the pandemic, there are likely to be so many changes related to small businesses book-keeping that only a professional will be able to understand. As a small business owner, you also don’t want to miss out on opportunities that may benefit your business. CPAs have a very good eye for changes in the current business climate and can support you navigate these rough waters.

3. CPAs Can Help with Payroll Management as Well

As a small business owner, one has to wear many hats. One of these hats includes payroll management. However, if this role is too overwhelming for you to handle yourself, a CPA is fully equipped to assist you. They will ensure that your employees are paid in a timely fashion and ensure the taxes and withholdings are correctly deducted.

4. CPAs Can Assist You in Setting Up Your Business

With so many unusual circumstances currently taking place in this business environment, it may be best for new small business startups to hire a CPA for correct and timely decision making. Sure, the costs related with hiring a CPA for a small business may be steep for a new business owner. However, with things as hectic as they are after the significant downfall of many economies, this would be an expense well worth it. They can help you choose the proper business structure for your business, such as sole proprietorship, LLC, C-Corp, and S-Corp. CPAs can also help with budgeting and cash flow projections during these times of devastating inflation. They can advise you on what accounting systems are best for keeping your small business finances organized.

5. Get Best Tax Experts Advice

Planning and documenting controls for a small business will be entirely different than doing an individual assessment, particularly assuming that you have workforce or clients in different locations. A CPA can set up your business charge archives, document your returns, and even encourage you on adopting ways of lessening your duty of responsibility. A CPA will likewise know about any legal duty changes and can go about as a agent assuming you’re assessed.

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Accounting, cpa, Online CPA, Small Business, tax

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